NEW YORK (TheStreet) -- PacWest Bancorp (PACW) - Get Report shares are down 3% to $44.45 in trading on Monday after the bank holding company announced that it purchased Square 1 Financial (SQBK) for $849 million today.
PacWest bought the venture capital-focused lending firm less than a year after the company went public last March 27.
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Square 1 shareholders will receive 0.5997 shares of PacWest common stock for each share of Square 1 common stock they own. The total value of the merger on a per share basis, according to PacWest's Friday closing price of $45.84, is $27.49.
The move increase PacWest's presence in the technology and life-sciences markets.
"We are very excited to align ourselves with the Square 1 team. Thanks to the talented professionals and founders that built this successful institution, we are confident this transaction with Square 1 represents an excellent opportunity to grow core deposits, expand our nationwide lending platform, and increase our presence in the dynamic technology and life-sciences markets," said CEO Matt Wagner.
The transaction is expected to close in the fourth quarter of this year.
TheStreet Ratings team rates PACWEST BANCORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate PACWEST BANCORP (PACW) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- PACW's very impressive revenue growth greatly exceeded the industry average of 4.6%. Since the same quarter one year prior, revenues leaped by 178.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- PACWEST BANCORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PACWEST BANCORP increased its bottom line by earning $1.97 versus $1.08 in the prior year. This year, the market expects an improvement in earnings ($2.85 versus $1.97).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Banks industry. The net income increased by 2183.7% when compared to the same quarter one year prior, rising from $3.11 million to $71.00 million.
- The gross profit margin for PACWEST BANCORP is currently very high, coming in at 92.46%. Regardless of PACW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PACW's net profit margin of 31.92% significantly outperformed against the industry.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: PACW Ratings Report