About 650 people gathered in Phoenix in January for Bank Director’s Acquire or Be Acquired conference, where they heard updates on the market for M&A deals, how to get a deal done, and success stories from bank executives and directors who shared their experiences raising capital, as well as acquiring or selling a bank.
M&A deals among banks and thrifts have been tough to execute with many banks trading below book value. Non-FDIC-assisted M&A transactions above $50 million in value fell from 20 in 2010 to 13 deals in 2011, according to SNL Financial. Regulatory approval and demands for higher capital, along with accounting rules that call for credit marks on the value of the loan portfolio, have put a damper on M&A deals.
Still, M&A pricing has improved a little. The median price to tangible book value rose from 123 percent in 2010 to 162 percent in 2011, according to SNL Financial.
Some investment bankers said they had noticed a warming in the courtship between buyers and sellers and predicted the next wave of M&A deals will involve healthier banks rather than so many distressed sales.
That doesn’t mean there’s an even playing field.
“There are significantly more sellers than buyers in the marketplace,’’ said Bill Hickey, co-head of investment banking at Sandler O’Neill + Partners L.P. in New York. “Buyers will be more selective.”
Ken Usdin, a managing director and stock analyst at Jefferies & Co., said that banks are split between the haves and the have nots, defined by three categories: capital, credit quality and core earnings power.
“If you have the first two but not the third, you might be a good candidate to attract a premium for your franchise,’’ he said. If you lack the first two, “it’s crucial that you recognize time is running out,” he said.
Distressed sales won’t go away entirely.
John Duffy, vice chairman of Keefe, Bruyette & Woods, said there still is opportunity to buy distressed banks, with 813 banks on the FDIC’s list of “problem” institutions and more than 400 with a Texas ratio of more than 100 percent, an industry metric that often points to future bank failure.
CURTIS CARPENTER - Managing Director, Sheshunoff & Co. Investment Banking
“Buyers and sellers are more willing to talk. We’re even getting situations where buyers are getting multiple bids. Is that ever a refreshing change from the past few years.”
MICHAEL DALY - President and CEO, Berkshire Hills Bancorp
“This need to have an auction is nonsense. The goal is to find partners that believe in the same strategy. Most of the deals we’ve done have been done in an afternoon at a Dunkin Donuts, not in the exchanges.”
JEFFERSON HARRALSON - Managing Director and Stock Analyst, Keefe, Bruyette & Woods Inc.
“If you want to trade at greater than tangible book value, you need to generate a return on equity above 10 percent.”
JOHN WALSH - Former Acting Comptroller of the Currency, Office of the Comptroller of the Currency
“Believe me when I tell you that I feel your pain.”