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SVB Financial Up 1% on Leerink Buyout Deal & Share Buyback

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SVB Financial Up 1% on Leerink Buyout Deal & Share Buyback

Acquisition of Leerink is expected to support SVB Financial's (SIVB) non-interest income.

SVB Financial Group SIVB will acquire Boston-based Leerink Holdings LLC, an investment bank focused on the healthcare and life science industries, for $280 million in cash.The deal, still subject to regulatory approvals, is expected to close in the first quarter of 2019.

Greg Becker, CEO of SVB Financial Group and Silicon Valley Bank said, “SVB and Leerink share a focus on providing financing and strategic advice at critical stages in a company's growth and development. Together, we will deliver a complete capital markets offering – including debt, convertible debt and equity financing – and advisory services – including mergers & acquisitions – for private and public healthcare and life science companies.”

Transaction Accretive to Earnings

Apart from paying cash to acquire Leerink, SVB Financial will be paying $60 million over five years as a retention pool for employees.

Additionally, the transaction will be accretive to SVB Financial’s 2019 and 2020 earnings by nearly 1.3% and 1.8%, respectively. Further, it will be around 100 basis points accretive to the company’s return on tangible common equity.

The new entity — SVB Leerink — will result in revenue synergies while no cost savings are expected. Notably, Leerink will likely lead to a rise in SVB Financial’s efficiency ratio, given business model cost structure.

Upon closure of the deal, SVB Leerink will become a wholly-owned subsidiary of SVB Financial. The management team at Leerink will become part of the new firm and continue to run the operation in a similar manner.

Share Repurchase Announced

In a separate release, SVB Financial announced share buyback authorization worth $500 million. The authorization will expire on Nov 15, 2019.

Becker said, “We are pleased that our healthy balance sheet and continued strong financial performance put us in a position to invest in our growth and maintain ample liquidity, while simultaneously being able to return capital to stockholders through a repurchase program.”

Our Take

These are the first major capital deployment actions that SVB Financial has announced over the past few years. Notably, the company does not pay dividends, making the stock less attractive to income investors.

Thus, these announcements cheered investors. Shares of the company rose nearly 1% after market close.

The deal is expected to provide SVB Financial with a diverse and growing revenue source. This will result in improving the company’s non-interest income in the quarters ahead. Further, the bank is well positioned to benefit from its organic growth strategy, loan growth and rise in interest rates. Also, its global expansion strategy is commendable.

Shares of SVB Financial have rallied 13.5% over the past year against 1.2% decline recorded by the industry it belongs to.

Currently, SVB Financial has a Zacks Rank #3 (Hold).

Stocks Worth Considering

Some stocks in the banking space worth a look are Zions Bancorporation ZION, Umpqua Holdings Corporation UMPQ and People's Utah Bancorp PUB. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 30 days, Zions stock has witnessed an upward earnings estimate revision of 3.3% for the current year. Its share price has increased 26.2% in the past two years.

Umpqua Holdings’ earnings estimates for the current year have been revised 3.6% upward over the past 30 days. Its shares have rallied 9.3% in the past two years.

Over the past 30 days, People's Utah Bancorp has witnessed marginal upward earnings estimate revision for the current year. Over the past two years, its share price has surged 49.7%.

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