Shares of First Choice Bancorp (NASDAQ:FCBP) traded nearly 27% higher as of 11:10 a.m. EDT today after the bank announced that it will be acquired.
The small $2.5 billion asset bank announced that it will be acquired by Enterprise Financial Services (NASDAQ:EFSC), a $10.2 billion asset bank based in Missouri.
Banks getting acquired tend to see a nice premium, which is exactly what happened here. Enterprise plans to purchase First Choice in an all-stock deal valued at $398 million, or the equivalent of $33.40 per First Choice share.
That values First Choice at 189% of its tangible book value (equity minus intangible assets and goodwill), which is a nice premium. The deal also represents a whopping 37% premium over First Choice's closing stock price yesterday.
First Choice shareholders probably want to hold their stock at least a little longer, seeing as the stock is only up 27% and Enterprise paid a 37% premium over yesterday's close.
While sellers typically get a nice premium, buyers in bank deals often get dinged up. The acquisition of First Choice and the high premium for the bank will dilute Enterprise's tangible equity by 2.65% upon the closing of the deal.
Investors don't like that and sent Enterprise's stock, which First Choice is now tied to, down more than 6% as of 11:10 a.m.
But investors may warm to the deal if the combined bank can prove its value over the long term, so First Choice shareholders should hold their stock right now and wait to realize the whole premium, or think about holding for the long term if they think the combined bank has potential.