Will $1 billion California deal jump-start West Coast M&A?

Register now

The West Coast has been relatively quiet when it comes to big-bank M&A.

Only six deals in the region have topped $600 million since 2017 as most large transactions have taken place in the Midwest and Southeast.

That could soon change, particularly in light of Pacific Premier Bancorp's pending purchase of Opus Bank. The $1 billion deal between the Irvine, Calif., companies will create a $20 billion-asset regional with operations in five states. It also takes a bank with scale off the board for other acquisition-minded banks.

"The reality is that we are in a consolidating industry and scale matters," Steven Gardner, Pacific Premier's chairman, president and CEO, said during a Monday conference call to discuss the deal. "We think there are some down-the-road attractive potential targets."

It remains to be seen which banks will still be around when Gardner is ready to buy again.

Many potential sellers would prefer to find buyers now rather than risk having a less friendly regulatory environment after the presidential election, said Jon Winick, CEO of Clark Street Capital.

The Pacific Northwest is starting to experience "real scarcity value," said Tom Thiel, president of JWTT in Portland, Ore. "I’m surprised there is not more of a land grab or a race to get more deals done quickly."

Pricing is always a key element for getting deals done.

Opus, for instance, is being sold for just 138% of its tangible book value. It should take less than two years for Pacific Premier to earn back any dilution to its tangible book value.

Still, Pacific Premier's stock was down 2.3% in midafternoon trading. Some industry observers said the reaction may be tied to concerns about credit quality at Opus, which struggled with loans in health care and technology between 2016 and 2018.

Opus appeared to have turned the corner after bringing in Paul Grieg, the former CEO of FirstMerit, to serve as chairman, then hiring Paul Taylor as CEO. The bank had returned to consistent profitability and reported loan growth last year.

Grieg was the CEO of FirstMerit was it sold to Huntington Bancshares, while Taylor led Guaranty Bancorp when the Denver company agreed to be sold to Independent Bank in McKinney, Texas.

While Opus seemed a logical sale candidate, Tyler Stafford, an analyst at Stephens, said in a Monday note to clients that the Pacific Premier deal materialized faster than he had expected.

"While Opus had previously suffered outsized credit losses in recent years under its prior leadership, we believe the credit quality of the franchise had drastically improved under new leadership ... and the company had an underappreciated deposit base," Stafford said.

Opus is a "valuable franchise and while fundamentals were steadily improving [they] were still below peers," said Kevin Swanson, an analyst at Hovde Group.

Pacific Premier is excited about inheriting Pensco Trust, which Opus bought in 2016.

Pensco generated about $28 million in fee income last year. Pacific Premier, in comparison, reported $52 million in fee income in 2019.

Opus also gives Pacific Premier its first operations in Seattle, industry observers said. That could eventually encourage Gardner to pursue a deal in Washington, though the Seattle area has very few local banks with scale.

"Not only [can Pacific Premier] buy banks in its legacy footprint of Southern California, but now they've got the ability to acquire banks in the Pacific Northwest, because they've already got scale there," said Timothy Coffey, an analyst at Janney Montgomery Scott.

It could a while before Pacific Premier pursues that deal.

"We have plenty on our plate," Gardner said.

For reprint and licensing requests for this article, click here.