Shares of Yadkin Valley Financial (YAVY) jumped nearly 10% Friday after an analyst identified the company as a possible "takeover target."
Carter Bundy, an analyst at Stifel Nicolaus, raised his rating for the Elkin, N.C., company to "buy" from "hold." Bundy based his new rating on the announcement earlier this week that Southern Community Financial in nearby Winston-Salem would sell to private equity-backed Capital Bank Financial.
"We believe that the market will likely begin to assign a similar takeout valuation methodology to" Yadkin's shares, Bundy wrote in a note to clients.
Yadkin Valley is still a participant in the Treasury Department's Troubled Asset Relief Program, with $49 million in capital from Tarp. The company has a tangible common equity ratio of 4.5%, while most industry observers want at least 6%.
Bundy wrote that the $2 billion-asset company's "new" management team has aggressively right-sized operations in the past year by cutting costs and addressing credit problems. This will likely cause a private-equity group to pay more of a premium for the bank than a common investor would through Yadkin's "go-it-alone scenario," wrote Bundy, though he has no knowledge of a current deal for Yadkin.
It "is an ideal potential takeout candidate for PE-backed platform banks such as Capital Bank," he wrote. Capital Banks is paying $2.88 a share for Southern Community, which holds $43 million in TARP.
Bundy estimated that Yadkin Valley would need to raise $65 million in common stock. He also concluded that the company could fetch a private-equity takeover price of $3.73 a share, based on its condition and terms of the Southern Community deal. Overall, Stifel placed a target price of $3.40 a share.