Most small banks are desperate to find a single suitor.
Mark Crawford's three-branch bank does not have that problem. On Monday the chief executive of American Perspective Bank called off its agreement to sell to Umpqua Holdings (UMPQ) of Portland, Ore., in favor of a better offer from PacWest Bancorp (PACW) of Los Angeles.
Crawford recognizes how fortunate his San Luis Obispo, Calif., bank is to get asked to the prom twice. But the $264 million-asset company is also no wallflower, he says.
"This is a very good market on the central coast [of California]. It is a market that a lot of people want to be in. It's hard to get in," Crawford said in an interview. "We're clean. We don't have anything past due. We're profitable and we're well-capitalized."
PacWest is willing to pay $13.4 million more for those attributes than Umpqua. Umpqua on Friday decided to walk away rather than trump PacWest's $58.1 million bid for American Perspective, Crawford says.
Banks do not typically try to trump a rival's definitive merger agreement. But banks that are being sold almost always take the higher offer. That makes this an unusual situation but straightforward fiduciary matter.
American Perspective could not actively solicit other offers under its agreement with Umpqua, but it could entertain unsolicited ones. PacWest made an unsolicited bid shortly after American Perspective signed its deal with Umpqua on April 10.
This "doesn't happen with any degree of regularity," Crawford says. "The bottom line is we have an obligation to our shareholders."
In some ways, this is a deal in which all three parties win, experts say.
Shareholders of American Perspective, which trades over the counter, are to cash out at a reasonable price five years after the company was founded. It is a profitable bank, but one with limited growth prospects because of its small size and illiquid stock.
Umpqua had agreed to pay a price equal to just over one times the value of its tangible book, or equity excluding goodwill and intangibles. PacWest's deal values American Perspective at more than 1.3 times, which is more in line with the typical market value for healthy banks in desirable markets.
Umpqua is a winner in some ways, too.
It had hoped to do a low-risk deal that would extend its nearly 200-branch footprint south of San Francisco into a lucrative new market. Though that is not happening, it is reaping other financial and strategic rewards. It is to be paid a $1.6 million termination fee by the end of May, having spent just $100,000 on merger-related expenses in the first quarter.
Umpqua's chief executive, Ray Davis, has also proved he will remain disciplined as promised when considering acquisitions.
"American Perspective Bank is a well-run bank in a strong market," Davis said in a press release. "Our offer would have added value to their customers, employees and communities, and was priced well for our shareholders. Umpqua Bank has a highly disciplined method to valuing acquisitions for the benefit of our company and shareholders for the long-term. We will not waver from that approach."
In showing he is willing to walk away before overpaying, Davis "secures some credibility" that "may serve the company well in future M&A dealings," Jeff Rulis, an analyst with D.A. Davidson, wrote in a research note on Tuesday.
PacWest will add density in an important growth market while halting the advance of a rival.
PacWest has 12 branches in central California, having bought the failed Affinity Bank there in 2009.
It can justify paying a bit more for American Perspective because cost savings are higher when banks do in-market deals.
"The addition of American Perspective's San Luis Obispo and Santa Maria offices strengthens our presence in this important market, and its Paso Robles loan production office provides opportunity for expansion and additional organic growth in that region," PacWest CEO Matt Wagner said in a press release.
This transaction is a reminder that deal prices depend on who is buying, says Gary Tenner, an analyst with D.A. Davidson. It also shows anything can happen in M&A.
"It doesn't happen very often. This is just one of those rare occasions."