Olympia, Wash.-based Heritage Financial Corp. agreed to buy Hillsboro, Ore.-based Premier Commercial Bancorp in an all-stock transaction valued at about $88.6 million.
Under the deal terms, Premier stockholders will receive 0.4863 share of Heritage common stock for each common share held. Based on the March 8 closing price of Heritage common stock of $31.10, the consideration value per share for Premier was $15.12, or roughly $88.6 million in the aggregate, including the value of restricted stock.
In the event the deal is terminated under certain specified circumstances in connection with a competing transaction, Premier Commercial will be required to pay Heritage a termination fee of $3.5 million in cash, according to a Form 8-K.
SNL calculates that the deal value is 223.2% of book and tangible book and 26.3x earnings, on a per-share basis. It is also 22.27% of assets, 26.98% of deposits and the the tangible book premium-to-core deposits ratio is 17.68%.
For comparison, SNL valuations for bank and thrift targets in the West region between March 8, 2017, and March 8, 2018, averaged 176.40% of book, 183.65% of tangible book and had a median of 24.34x last-12-months earnings, on a per-share basis.
The deal has a one-day premium of 27.79%, based on Premier Commercial's March 7 closing price of $11.93, and a one-month premium of 28.98%, based on its Feb. 8 closing price of $11.82.
Heritage expects core deposit premium of 16.1%, according to an investor presentation. The price-to-last-12-months earnings per share is 20.1x, and the price-to-tangible book value per share is 222%. The company also estimates around $8.3 million in pretax merger-related expenses.
The deal is immediately accretive to Heritage's EPS in 2018 and 3.3% accretive to its EPS in 2019. It is also 0.9% dilutive to tangible book value per share upon deal completion, with an earnback of 1.6 years. The internal rate of return is expected to be greater than 15%.
Heritage will expand in Multnomah County, Ore., by one branch to be ranked No. 21 with a 0.08% share of approximately $26.93 billion in total market deposits. It will enter Washington County, Ore., with four branches to be ranked ninth with a 3.41% share of approximately $8.72 billion in total market deposits, and it will enter Yamhill County, Ore., with one branch to be ranked tenth with a 1.67% share of approximately $1.30 billion in total market deposits.
The deal is subject to regulatory and Premier shareholder approvals. Premier shareholders will own roughly 7.7% of the combined company upon deal completion, which is expected to occur in the third quarter.
Heritage Bank, a unit of Heritage, had assets of $4.11 billion as of Dec. 31, 2017, SNL data shows. Premier Community Bank, a subsidiary of Premier, had $401 million in total assets, $344 million in total loans and $331 million in total deposits as of the same date, according to the merger release. Heritage will have more than $5 billion in total assets on a pro forma basis including the impact of the Premier acquisition, according to the release.
D.A. Davidson & Co. acted as financial adviser and provided a fairness opinion to Heritage's board, and Breyer & Associates PC and Silver Freedman Taff & Tiernan LLP served as the company's legal counsel. Sandler O'Neill & Partners LP served as financial adviser and provided a fairness opinion to Premier, and Miller Nash Graham & Dunn LLP served as the company's legal counsel.
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