Banc of California-PacWest secure unusually swift deal close

Banc of California Inc. closed its $1.04 billion acquisition of PacWest Bancorp in just 128 days, the eighth-fastest closing among US bank deals with a value above $1 billion in the past 20 years.

The deal, completed Nov. 30 after it was announced July 25, is also the second-fastest large deal to close since 2020, when bank deals started facing prolonged closing timelines. The 128-day closing timeframe is also much faster than the 219 day median for bank deals with a value between $1 billion and $5 billion in the past 10 years, according to S&P Global Market Intelligence data.

The deal was granted a fast green light because it involved a distressed company, industry experts said. PacWest found itself caught in the crosshairs of the March bank failures, facing deposit outflows and a deteriorating stock price. Because of the unique situation, this rapid closing time is not indicative of regulators' views on M&A moving forward or a thawing regulatory environment.

"If you're accomplishing a regulatory objective [or] if you're cleaning up an issue for them, you probably will sail through," Donald Musso, president and CEO of FinPro Inc., a bank advisory firm, said in an interview. "If you're not accomplishing anything or helping them in any way, it's just going to sit and sit and sit."

The deal secured Federal Reserve approval in October, about three months after the announcement.

"Three-months for all regulatory approvals (vs. [one year plus] for recent deals) shows just how much regulators care," Wells Fargo Securities LLC analysts Timur Braziler and Mike Mayo wrote in a note Oct. 24. "They have been involved in getting [PacWest] resolved since March."

But other banks should not hold their breath that they too will secure fast approvals as the timeframe "was idiosyncratic in nature, and we need more data points to concretely say that regulators are warming up to larger bank M&A," Braziler and Mayo wrote in a Nov. 30 note. "It's too early to call it a win and expect future deals to completion to revert to the 5-6 month time frame."

However, the deal is an example of how regulators could handle future distressed bank deals.

"This deal proves to be a win for all parties involved, and provides a future roadmap for how regulators could address stressed institutions through private transactions," the Wells Fargo analysts wrote in the Oct. 24 note.

Regulators tend to move quickly in instances where a stronger bank is acquiring a weaker one. Among the seven deals that have closed faster than the Banc of California-PacWest deal in the past 20 years, several also involved distressed targets.

The only other deal that has closed faster than Banc of California-PacWest since 2020 was Pacific Premier Bank's $1.03 billion acquisition of Opus Bank, which faced lawsuits but closed in 121 days in May 2020. In addition, Opus had experienced credit quality issues in prior years.

An older fast-closing deal involved another deteriorating company, Sovereign Bancorp Inc. Banco Santander SA owned a minority stake in Sovereign prior to purchasing the whole bank in a $1.91 billion deal, which closed in January 2009. Other purchases of distressed banks included Wells Fargo & Co.'s $15.13 billion purchase of Wachovia Corp., which closed in December 2008, and PNC Financial Services Group Inc.'s acquisition of National City Corp.

Moreover, the Banc of California-PacWest deal's seldom-used structure, in which private equity promised $400 million in financing that made it possible for the approximately $9 billion-asset-sized Banc of California to ink a deal with the roughly $38 billion-asset-sized PacWest, likely also made regulators more comfortable, Colarion Partners Managing Member Sam Haskell told S&P Global Market Intelligence in August.

Still, the turnaround was "remarkably fast," Seaport Research Partners Senior Analyst Laurie Hunsicker wrote in a note Oct. 23.

"Despite significant market skepticism, management was able to close the deal on the early side of its seemingly aggressive timeline," David Feaster Jr. of Raymond James & Associates Equity Research wrote in a note Nov. 30.