Private Equity is the Fire in PacWest's Belly

When it comes to bank acquisitions, PacWest Bancorp (PACW) is well rested and ready for some action. The $5.4 billion-asset company ended a six-year break from traditional bank acquisitions with two aggressive deals that show its hunger for growth.

Last week it trumped Umpqua Holdings (UMPQ) by placing a higher, unsolicited bid for American Perspective Bank. On Tuesday, PacWest made public an attempt to buy First California Financial Group (FCAL) in what appears to be a hostile transaction.

The reasons for the sleeping beast rising are many, but several industry observers say the newfound voracity likely has the same end game: PacWest could eventually sell itself.

"The intention to sell has always been there and I think they got pretty darn close in 2007," says Rick Levenson, the president of Western Financial, a San Diego investment bank. "Now they are trying to grow their franchise, protect their turf and put themselves in a position to be a very attractive acquisition candidate."

Levenson admits that his theory is purely speculative, but it is plausible because of PacWest's private-equity backers, who are known for building companies and selling them for a premium.

"I think private-equity has gotten comfortable with credit and sees some terrific growth opportunities out there to build sustainable franchises," says Christopher Zinski, a partner at Schiff Hardin in Chicago. "They're ultimately looking for an exit on a five- to seven-year time horizon. I think it is becoming increasingly clear to them that in order to achieve a hefty premium on these franchises you have to build critical mass."

Private-equity firm Castle Creek in Rancho Santa Fe, Calif., has been a long-time investor in the company. Its principal, John M. Eggemeyer 3rd is PacWest's chairman. In the 1990s, Eggemeyer built Western Bancorp in Los Angeles with six acquisitions before selling it in 1999 to U.S. Bancorp for 4.4 times its book value. American Banker honored him in 2006 as a Community Banker of the Year. Ironically, a profile from that honor noted his deal-making style as "anything but pushy."

In 2009, CapGen Financial, a private-equity firm run by former comptroller of the currency Eugene Ludwig, paid $100 million for a 12% stake in PacWest. John W. Rose, a CapGen principal, also sits on PacWest's board.

Matt Wagner, PacWest's chief executive, declined to comment. Castle Creek and CapGen did not return calls.

Analysts said PacWest might be particularly aggressive because of the competition along the West Coast. There are a handful of traditionally solid banks like Umpqua and other private-equity platform banks like Opus Bank or AmericanWest that are looking to build franchises on the Pacific Coast.

"With the American Perspective deal, I think PacWest may have had a defensive motive," says Joe Gladue, an analyst at B. Riley. "Umpqua can be a strong competitor, but it didn't have a presence there. Once they arrived, they likely would have looked for additional acquisitions in that market."

Gladue says PacWest might be motivated to act now to stay ahead of the long-expected wave of mergers and acquisitions. "Over time, we could see some scarcity value in that market," he says. "All of those banks are going to be competing to build the most attractive franchise."

Levenson adds that PacWest might be taking advantage of the current lift in stock valuations at larger community banks. "It would appear that the environment has changed for them. They can now affect stock transactions they would not have been able to do a year back because of their currency."

PacWest's planned purchase of American Perspective is a cash deal, but its bid for First California involves stock.

Whatever the reason for the sudden aggression, Levenson says the push is noteworthy for PacWest, which made 19 acquisitions in California from 2001 to 2006 before taking a long break. The company has struck deals for specialty finance businesses and has bought three failed banks in the last few years.

"It is an eye-opener. I've never seen them operate like this. In the past, they did things private and in those situations where they made offers where the other party wasn't interested, they would part ways," Levenson says. "It appears to be a change in their methodology."