Western Alliance Bancorp's Somewhat Surprising Acquisition of AmeriHome Looks Pretty Good on Paper

The banking sector saw one of its first big deals of the year when the Phoenix, Arizona-based Western Alliance Bancorp (NYSE: WAL) announced its plans to acquire AmeriHome, a leading national business-to-business mortgage acquirer and servicer. Western Alliance will pay $1 billion in cash for AmeriHome, valuing the company at 140% tangible book value. Western Alliance will finance the acquisition with balance sheet liquidity and a future capital raise of $275 million.

It's a bit of an interesting time to be purchasing a non-bank mortgage servicer. But the deal on paper as well as the rationale behind it seem to make sense.

The $36.5 billion Western Alliance Bancorp is a heavy commercial lender with very few residential loans. The bank also makes the bulk of its revenue from net interest income through loans held on its balance sheet. AmeriHome, which had been planning to go public before the acquisition, will help diversify the bank's revenue and potentially its loan composition as well. 

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Source Fool.com