Enterprise Financial Services to acquire First Choice Bancorp in $397.7M deal

Clayton, Mo.-based Enterprise Financial Services Corp. is acquiring Cerritos, Calif.-based First Choice Bancorp in an all-stock transaction valued at approximately $397.7 million, or $33.40 per First Choice share.

Under the terms of the agreement, First Choice will merge with and into Enterprise Financial Services, and First Choice Bank will subsequently merge with and into Enterprise Bank & Trust. Enterprise Financial and Enterprise Bank will be the surviving entities.

First Choice is a community bank with about $2.5 billion in total assets, $2.0 billion in loans and $1.9 billion in deposits as of March 31. Its network in California has eight full-service branches and two loan production offices.

The merger is expected to be approximately 8% accretive to Enterprise Financial's 2022 EPS, after giving effect to estimated fully phased-in transaction synergies and excluding the impact of one-time transaction expenses. The acquisition is expected to generate an internal rate of return of approximately 21% for Enterprise Financial. The deal's estimated tangible book value per share dilution to Enterprise Financial is projected to be earned back in less than three years using the crossover method including the current expected credit loss model's Day 2 accounting.

Each holder of First Choice common stock will receive 0.6603 of an Enterprise Financial common share for each First Choice common share held and cash in lieu of fractional shares. The transaction is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

Existing Enterprise Financial shareholders will own approximately 80% of the outstanding shares of the combined company, and First Choice shareholders are expected to own approximately 20%. On a pro forma consolidated basis, the combined company would have approximately $12.7 billion in consolidated total assets as of March 31.

At announcement, S&P Global Market Intelligence calculates that the deal value is 139.28% of common equity, 193.59% of tangible common equity and 13.52x earnings. It is also 17.60% of assets, 24.59% of deposits, and the tangible book premium-to-core deposits ratio is 12.93%.

S&P Global Market Intelligence valuations for bank and thrift targets in the West region between Apr. 26, 2020, and Apr. 26, 2021, averaged 130.00% of book and 139.36% of tangible book and had a median of 19.04x last-12-months earnings, on an aggregate basis, and averaged 128.17% of book and 142.47% of tangible book and had a median of 20.27x last-12-months earnings, on a per-share basis.

Enterprise Financial will enter Los Angeles County, Calif., with six branches to be ranked No. 33 with a 0.23% share of approximately $535.1 billion in total market deposits, will expand in San Diego County, Calif., by two branches to be ranked No. 14 with a 1.03% share of approximately $110.61 billion in total market deposits, and will expand in Orange County, Calif., by one branch to be ranked No. 43 with a 0.14% share of approximately $153.59 billion in total market deposits.

First Choice founder and Chairman Peter Hui will join Enterprise Financial's board. Members of First Choice's board have agreed to vote their shares, which represent approximately 16% of First Choice's issued and outstanding common stock, in favor of the acquisition.

The transaction has already been approved by the companies' boards and is expected to close in the third quarter.

Boenning & Scattergood Inc. was financial adviser to Enterprise Financial, and Holland & Knight LLP was the firm's legal counsel. Keefe Bruyette & Woods, a Stifel company, was financial adviser to First Choice, and Duane Morris LLP served as its legal counsel.

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