Seattle-based Umpqua Holdings Corp.’s President and Chief Executive Officer Ray Davis looked out over a crowd of hundreds of bankers and bank directors at the 19th annual Acquire or Be Acquired conference in Scottsdale, Arizona, in late January, and sent out a plea: You cannot stay the same.
The low interest rate environment, new regulations that are cutting into fee income, higher demand for capital and investors reluctant to invest in banks were themes that weighed on the audience.
“If you don’t have a meaningful value proposition that differentiates you from your peers and your competitors, I believe you are going to have a very difficult time,’’ the head of $11.8-billion asset Umpqua told the crowd.
A record breaking 700-plus people attended Bank Director’s 19th annual mergers and acquisitions conference in Scottsdale, Arizona, in late January, a conference that gets bigger every year, despite the continued slow pace of deals in the industry.
Pricing remains the biggest obstacle to getting deals done, said many of the speakers.
“It is hard for some boards to grasp that the world has changed on them,’’ said Mark Kanaly, a partner at Alston & Bird LLP in Atlanta.
Still, many predicted that deal volume would pick up slightly in 2013. Asset quality and earnings have improved significantly for the industry, and many banks are trading above tangible book value, making them more likely buyers.
Sellers, too, have more opportunities now that they have cleaned up their balance sheets. The number of failed banks is slowing, making room for healthy bank deals and better pricing. But the days when banks sold for two times book value on average are probably over, many investment bankers said.
“Math dictates that the good old days are not coming back anytime soon,’’ said the CEO of Chicago-based Hovde Financial, Steve Hovde, who predicted pricing will average around 1.25 times book value this year. “Basic math dictates that higher capital means lower sale prices.”
Investment bankers, bank attorneys, investors and bank CEOs and directors spoke at the conference about acquisition and growth strategies, overcoming a tough operating environment and getting a deal done. An M&A simulation session let audience members play the role of the board for two buyers bidding at the same time for a bank.
Topics of the conferences included strategic planning, change of control agreements, due diligence, the regulatory landscape for deal making and assessing your bank’s value.
A panel of bankers discussed individual growth strategies, including Peter Ho, the chairman, president and CEO of Bank of Hawaii Corp.; Joe Evans, the chairman and CEO of Atlanta-based State Bank Financial Corp.; and William Fenstermaker, the chairman of acquisition-hungry IBERIABank Corp. in New Orleans.
One of the nation’s top banking regulators, Comptroller of the Currency Tom Curry, addressed the conference and afterwards took questions from an audience fatigued and frustrated by regulations. Although many bankers suspect regulators want more consolidation, Curry said: “I do recognize it’s a period of significant change in the industry and for directors as well. My hope is [banks] don’t throw in the towel prematurely.”