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SVB Financial Closes Leerink Buyout, Expands Into Healthcare

Zacks Equity Research

SVB Financial Group SIVB has completed the acquisition of Boston-based Leerink Holdings LLC — an investment bank focused on the healthcare and life science industries — for $280 million in cash. The deal was announced in November 2018.

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

Leerink will operate under the name — SVB Leerink — as a wholly-owned subsidiary of SVB Financial. Further, SVB Leerink will be led by Jeff Leerink as its CEO. Additionally, the management team at Leerink will become part of the new firm and continue running the operation in a similar manner.

The transaction complements SVB Financial’s commercial banking and lending with a wide range of investment banking products that are focused on the healthcare and life science companies.

Notably, at the time of announcement of deal, SVB Financial had noted that the transaction will be accretive to its 2019 and 2020 earnings by nearly 1.3% and 1.8%, respectively. Further, it will be around 100 basis point accretive to the company’s return on tangible common equity.

Also, SVB Leerink will lead to revenue synergies while no cost savings are expected. It is also expected that SVB Leerink will likely lead to a rise in SVB Financial’s efficiency ratio, given its business model cost structure.

We believe the deal will 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.

However, deteriorating asset quality remains a major concern for SVB Financial. Also, mounting operating costs will hamper bottom-line growth to some extent.

Shares of SVB Financial have lost 37% over the past three months compared with the industry’s decline of 19.2%.

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

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