Headline: Bay Area community banks continue on their hot streak

Publication: San Francisco Business Times

Dateline: May 21st, 2004

Mark Calvey

The market for shares in startup community banks in the Bay Area is hot, hot, hot.

Some may have attributed Danville-based Diablo Valley Bank's oversubscribed offering last fall to the founders' outstanding track record, or United American Bank's successful offering last year to the Peninsula's affluent demographics.

But now even Community Bank of the Bay's $5 million follow-on offering is likely to be oversubscribed. Community Bank, with a checkered past due to what some insiders describe as former execs confusing the loan department with a grant department, is already turning down offers from investment banks back East to acquire all the shares not being purchased by bank insiders.

Instead, the bank is confident that it will place many of the new shares in the hands of qualified local investors, who are required by regulators to have a net worth of $1 million or meet other criteria.

"The local investors become your cheerleaders," said CEO Brian Garrett. "You just can't compete with all the television advertising Wells Fargo and Bank of America do, so you depend on your shareholders for marketing support."

Ownership among the bank's directors and officers will rise from 0.5 percent of the bank's shares to a combined 20 percent stake after the stock sale, according to the bank's offering circular. Garrett is planning to purchase $500,000 worth of stock while Chairman Richard Kahler will invest $300,000. A. Dean Abercrombie, chief credit officer, is the only officer not participating -- for personal reasons -- in the stock sale.

The bank has been on the mend since Garrett came on board two years ago, and later this month it's kicking off a special marketing initiative dubbed Oakland First.

The bank will allow depositors to designate their accounts as participating in Oakland First, which will target those funds on deposit for Oakland borrowers, with a special emphasis on loans that foster economic development and job creation.

Summit bets on Las Vegas firm

Some of the biggest winning bets in the Gold Rush went to those meeting the needs of the miners, rather than panning for gold themselves. The same approach may work in Las Vegas.

So Summit Partners' Palo Alto office this week led a $316 million recapitalization of Global Cash Access.

The Las Vegas company supplies cash via ATMs, credit card cash advances and other means to the patrons of many of that city's largest casinos, including Harrah's Entertainment, Caesars Entertainment and Mandalay Resort Group. Global Cash, founded in 1996, has more than $400 million in annual revenue.

"It's a very profitable company and growing," said C.J. Fitzgerald, a Summit principal.

Banc of America Securities was the financial adviser to Global Cash's majority shareholder M&C International.

Bank of America definitely understands the casino business. When the bank's then-chief financial officer was once asked whether lending to the gaming industry was a risky proposition, he replied, "I only have one complaint. They have such strong cash flow that they pay off their loans too early."

MergerMarket plans S.F. office

MergerMarket, a London-based information service, plans to open an office in San Francisco by year-end.

The company provides investment bankers, lawyers and private equity investors with market intelligence on corporate strategy and who might be looking to buy and sell companies.

"This information is gold dust to our clients," said CEO Caspar Hobbs, whose background includes several years in British military intelligence.

MergerMarket already has staff based in the Bay Area. But San Francisco's plethora of private equity firms and the emergence of more than a dozen emerging growth investment banks makes the city a natural location for its second U.S. office, Hobbs said.

Apparently there are a lot of similarities between distilling military intelligence and market intelligence.

"Both take a fire-hose flow of information and produce a valuable drop of intelligence," Hobbs said.

So how does California look in the eyes of a European entrepreneur?

Hobbs said that even with his extensive experience with Europe's strict labor laws he was surprised how much red tape and legal hurdles were involved in hiring employees in California.

"When I told our New York lawyers we wanted to expand into California, there was an audible sigh."

Mark Calvey can be reached at (415) 288-4950 or mcalvey@bizjournals.com.

© 2004 American City Business Journals Inc.

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