Banc of California and Pacific Mercantile Bancorp, the holding company of Pacific Mercantile Bank, entered into a definitive agreement and plan of merger under which Pacific Mercantile will merge into Banc of California in an all-stock transaction valued at approximately $235 million, or $9.77 per share, based on the closing price for Banc of California’s common stock of $19.54 as of March 22.
Banc of California expects the transaction to be 12.9% accretive to EPS in 2022 with a 2.3 year earn-back period to tangible book value per share based on a conservative and achievable cost savings estimate of approximately 35%.
Pacific Mercantile Bancorp is a commercial bank headquartered in Costa Mesa, CA, with $1.6 billion in total assets, $1.2 billion in gross loans and $1.4 billion in total deposits as of Dec. 31, 2020. Pacific Mercantile had $229.7 million in Paycheck Protection Program loans outstanding at Dec. 31, 2020.
“We are excited to welcome Pacific Mercantile’s clients and colleagues into our banking family,” Jared Wolff, president and CEO of Banc of California, said. “Pacific Mercantile’s talented team has built an attractive roster of operating company clients and we look forward to serving them with high-touch relationship banking.
“Pacific Mercantile is a strong strategic fit for Banc of California. Their size, business focus and deposit profile perfectly align with our existing operations and will accelerate our growth and operating scale in key markets. Our similar market footprint, corporate cultures and commitment to helping our clients succeed should lead to a smooth and successful transaction and integration. We believe the compelling economics of the transaction will deliver value for both Banc of California and Pacific Mercantile shareholders.”
“Banc of California is a great merger partner for Pacific Mercantile given our shared focus on business and relationship banking,” Brad R. Dinsmore, president and CEO of Pacific Mercantile, said. “Like Pacific Mercantile, Banc of California has become an attractive choice for small- and middle-market operating companies with a strong emphasis on service and solutions. Our customers will benefit from the greater range of services, capital and resources the combined company will be able to offer while they receive the same high quality, personalized service they have always enjoyed.”
Under the terms of the definitive agreement, which was approved by the boards of directors of both companies, holders of Pacific Mercantile common stock will receive 0.5 shares of Banc of California common stock for each share of Pacific Mercantile common stock they own.
Existing Banc of California stockholders will own approximately 81% of the outstanding shares of the combined company and Pacific Mercantile shareholders are expected to own approximately 19%.
The transaction is expected to close in Q3/21, subject to satisfaction of customary closing conditions, including regulatory approvals and shareholder approvals from Banc of California and Pacific Mercantile shareholders. Pacific Mercantile directors who own shares of Pacific Mercantile common stock and certain shareholders have entered into agreements with Banc of California pursuant to which they have committed to vote their shares of Pacific Mercantile common stock in favor of the transaction. Banc of California directors who own shares of Banc of California common stock and certain stockholders have entered into agreements with Pacific Mercantile pursuant to which they have committed to vote their shares of Banc of California common stock in favor of the transaction.
Piper Sandler acted as financial advisor to Banc of California in the transaction and delivered a fairness opinion to the bank’s board of directors. Sullivan & Cromwell served as legal counsel to Banc of California. Keefe, Bruyette & Woods, a Stifel company, acted as financial advisor to Pacific Mercantile and delivered a fairness opinion to the company’s board of directors. Sheppard, Mullin, Richter & Hampton served as legal counsel to Pacific Mercantile.