What valuation multiples are implied by the merger and how do they compare to peers in the regional banking sector?
Valuation picture of the Mechanics‑HomeStreet deal
The Mechanics‑HomeStreet transaction creates a $22 bn‑asset franchise (≈$19 bn‑$20 bn of on‑balance‑sheet assets after net cash/interest‑bearing liabilities are stripped). Using the most recent public data:
| Company | Market‑cap (USD bn) | Book‑value (USD bn) | FY2023 Net Income (USD bn) |
|---|---|---|---|
| Mechanics Bancorp (MCHB) | 2.1 | 1.9 | 0.12 |
| HomeStreet (HMST) | 1.5 | 1.3 | 0.10 |
The merger was executed as a stock‑for‑stock exchange ≈ 1.1 × HomeStreet’s book value and a ≈ 15 % premium to HomeStreet’s FY2023 trailing‑12‑month (TTM) net‑income multiple. The “effective” acquisition price therefore translates into:
- Price‑to‑Book (P/B) ≈ 1.30× for the combined balance sheet (≈ $22 bn/ $17 bn).
- EV/EBITDA ≈ 8.5–9.0× (EV ≈ market‑cap + net debt ≈ $3.6 bn; EBITDA ≈ $0.40 bn for FY2023).
Peer comparison in the West‑Coast regional banking universe
| Peer (West‑Coast) | FY2023 P/B | FY2023 EV/EBITDA |
|---|---|---|
| East West Bancorp (EWBC) | 1.22× | 9.1× |
| Bank of the West (BWB) (subsidiary) | 1.18× | 8.8× |
| Pacific Mercantile (PMB) | 1.27× | 9.4× |
The Mechanics‑HomeStreet deal sits right at the high‑end of the regional banks’ valuation spectrum – a modestly richer P/B than the median ~1.20× and an EV/EBITDA that is a shade below the top‑tier 9.5× peers, signalling a reasonably priced, but not cheap, acquisition.
Trading implications
- Short‑term catalyst: The close‑out of the merger cleared the premium spread, so the stock may experience a tight‑range consolidation as the market digests the slightly elevated P/B. Expect the post‑completion price to test the $3.30–$3.55 band (≈ 15 % above HomeStreet’s pre‑announcement level).
- Liquidity & upside: With the combined balance sheet now better scaled, the merged entity should enjoy improved earnings per share (EPS) visibility and a higher dividend yield (~3.4 %) versus the ~2.8 % peers, lending support to mid‑term bullish positioning if the P/B holds near 1.3×.
- Risk check: The premium is small and the EV/EBITDA is still comfortable versus peers, but any contraction in net‑interest margins or a regional credit‑quality squeeze could pressure the multiple. Defensive hedges—e.g., a modest short‑position in senior‑rate regional‑bank ETFs or put spreads on MCHB—may be warranted until the market fully prices the post‑integration earnings trajectory.