Bank M&A

Acquirers Cautious and Disciplined in 2017

merger-1-8-18.pngThe bank M&A market was no doubt a disappointment to buyers and sellers alike in 2017, because it failed to rocket skyward on the strengths of a steady economy and the Republican Party’s control of both the White House and Congress, factors that helped boost bank stock valuations for most of the year. However, higher valuations didn’t translate into a surge in deals compared to the recent past. There were 261 healthy bank acquisitions in 2017 compared to 240 deals in 2016 and 278 in 2015. If buyers had more money to spend thanks to their higher stock valuations, then sellers were expecting a higher price for the same reason, and the two factors helped cancel each other out.

Notably absent from the list of deals were the mega-transactions that in decades past both drove and defined the bank M&A market. The largest deal in 2017 was Montebello, New York-based Sterling Bancorp’s $2.3 billion acquisition of Astoria Financial Corp. in Lake Success, New York. The second largest deal last year was Memphis, Tennessee-based First Horizon National Corp.’s $2.2 billion purchase of Capital Bank Financial Corp. in Charlotte, North Carolina. Of the 25 largest deals in 2017, according to S&P Global Market Intelligence, all but the top five were valued at less than $1 billion. One reason for this has been the absence of large banks over $50 billion in assets from the market, which have largely been blocked from doing deals by their regulators since the financial crisis and passage of the Dodd-Frank Act of 2010, which subjected them to a much higher level of government oversight. Deal activity has since been driven by smaller regional banks with more limited buying capacity.

Top 10 Bank M&A Deals in 2017

Buyer State Seller State Deal Value (Millions)
Sterling Bancorp NY Astoria Financial Corp. NY $2,230
First Horizon National Corp. TN Capital Bank Financial Corp. NC $2,189
Pinnacle Financial Partners TN BNC Bancorp NC $1,732
IBERIABANK Corp. LA Sabadel United Bank N.A. FL $1,028
First Financial Bancorp. OH MainSource Financial Group IN $1,006
Valley National Bancorp NJ USAmeriBancorp FL $852
Home BancShares AR Stonegate Bank FL $781
PacWest Bancorp CA CU Bancorp CA $706
Union Bankshares Corp. VA Xenith Bankshares VA $700
South State Corp. SC Park Sterling Corp. NC $694

Source: S&P Global Market Intelligence

But even without the absence of large acquirers, bank M&A has also become a more cautious and disciplined market in recent years, including 2017. “Because there is a limited group of buyers, they can be choosey,” says Gary Bronstein, a partner at the law firm of Kilpatrick Townsend & Stockton. “They tend to be disciplined, and what we’ve experienced from representing sellers is that many times when you contact that group of buyers, they’ll give you any number of reasons why they’re not interested. Could be because they’re working on something else. Could be that they have five other deals that they’re looking at, and this doesn’t fit their criteria.”

Twelve of the 25 largest deals were market extensions where the acquirers crossed state lines in search of growth. “Serial acquirers are continuing to bolt on sensible market extension transactions, with a few in-market deals,” says Steve Kent, a managing director in the financial services group at Piper Jaffray. For example, Nashville-based Pinnacle Financial Partners’ acquisition of BNC Bancorp gives it a significant presence in North Carolina. “The deal provided Pinnacle with a new geography and reasonable market share entry into North Carolina and a platform to support future growth across a larger geographic footprint,” says Bill Hickey, a principal and co-head of investment banking at Sandler O’Neill + Partners. “Pinnacle is a very good lender on the commercial side. Bank of North Carolina is very good on the commercial real estate side, so they fit together quite well. This bank has one of the best platform for growth in the country and the team to execute on that growth strategy.”

First Horizon’s acquisition of Capital makes it the fourth largest bank in the Southeast and was the company’s first acquisition of a commercial bank since the financial crisis, when its performance suffered after the collapse of the residential mortgage market. “This is a clear announcement that they are back and looking to play in the broader Southeast again,” says Robert Klingler, a partner at the law firm Bryan Cave.

The largest acquisition last year—Sterling’s takeover of Astoria—was actually more of an in-market deal, although Sterling’s presence was largely in metropolitan New York and counties to the north, while Astoria operated primarily on Long Island. “You have a pretty nice business combination between an asset generator, which is Sterling, and a pretty good funding base, which is Astoria, with very attractive markets in Long Island and the New York metro market,” says Hickey. The deal also has the marked distinction of being just one of five transactions in the top 25 that were immediately accretive to shareholders.

One interesting footnote to the M&A market in 2017 was the decision by three active acquirers to become sellers. Capital Bank, BNC Bancorp and Park Sterling Corp. in Charlotte, which was acquired by Columbia, South Carolina-based South State Corp. in a $640 million deal, cashed out after building attractive franchises through a series of deals. That all three banks are located in North Carolina might create a dilemma for small banks in the Tar Heel State that were hoping to sell themselves to one of those institutions and now must look elsewhere for a buyer.


Jack Milligan


Jack Milligan is editor-at-large of Bank Director magazine, a position to which he brings over 40 years of experience in financial journalism organizations. Mr. Milligan directs Bank Director’s editorial coverage and leads its director training efforts. He has a master’s degree in Journalism from The Ohio State University.