The Bank Slate

INSIGHTS INTO THE BANKING INDUSTRY

How PacWest juggled deposit outflows and merger talks

PacWest Bancorp in Beverly Hills, Calif., held “more advanced” talks with two potential buyers before it began negotiating its agreement to sell to Banc of California in Santa Ana.

The $9.3 billion-asset Banc of California agreed in July to buy the $38.3 billion-asset PacWest in a roughly $1 billion deal backed by entities tied to Warburg Pincus and Centerbridge Partners.

PacWest briefly considered a capital infusion from Warburg and Centerbridge in March as the bank suffered from deposit outflows after the failures of Silicon Valley Bank and Signature Bank, according to a regulatory filing tied to the pending merger.

Management at PacWest juggled periodic deposit outflows and a strategy of shrinking assets that began before the high-profile bank failures as they evaluated the bank’s long-term options.

PacWest eventually opted to seek a merger and, in May and June, had an investment bank contact 13 potential acquirers and “business combination partners.” Nine, including Banc of California, entered into confidentiality agreements to conduct due diligence.

Following a report that PacWest was exploring strategic options, roughly $1.7 billion of deposits left the bank on May 4 and May 5.

Two potential partners expressed an interest in all-cash transactions, and had conducted the most due diligence, leading PacWest to inform Banc of California that it was talking to other parties.

Discussions with the two parties ended in mid-June when each entity was unable to commit or procure the capital needed for an all-cash acquisition.

Shortly after that, Jared Wolff, Banc of California’s chairman, president and CEO, contacted Paul Taylor, PacWest’s president and CEO, to revive discussions. Talks expanded to include business lines, markets, synergies and efficiencies and the balance sheet. Regulators were kept in the loop as talks progressed.

Banc of California determined that it would need a capital infusion to complete the deal, eventually leading to the involvement of Warburg and Centerbridge.

Banc of California submitted a letter of interest in late June that proposed an all-stock acquisition with a fixed exchange ratio and PacWest Bank would be the surviving bank. Wolff would be the CEO and outside capital would be brought in to help fund the deal. The letter was signed on June 29.

Multiple drafts of the merger agreement were circulated between July 11 and July 25. The investment agreements for Warburg and Centerbridge were distributed between July 17 and July 25.

Banc of California’s board unanimously approved the acquisition at a July 24 meeting. PacWest’s director unanimously backed the sale at a meeting the following day, and the deal was announced.

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