From the strategies and mechanics behind a transaction to the many lingering questions regarding industry consolidation, regulatory burdens and how to build long-term value, Bank Director’s Acquire or Be Acquired Conference Jan.25-Jan. 27 (affectionately known as AOBA) provides officers and directors with three days to explore acquisition strategies and financial growth options with their peers.
Now, I am not one to ignore the past when preparing for the future. One of the common themes from last year’s conference was that many bankers attending the conference were looking to cure profitability challenges through some kind of merger or acquisition activity. In addition, some of the trends I took note of were, in no particular order:
- Many CEOs were sweating margin compression, efficiency improvements and business model expansion in the context of their current environment;
- Numerous statistics and financial models made clear that larger banks benefit from “economies of scale” in terms of better profitability and higher stock values than smaller banks;
- Most investors want to invest in buyers, not try to pick the sellers;
- The Bank Secrecy Act (BSA) and anti-money laundering issues derailed and/or prevented quite a few deals from ever seeing the light of day; and
- The term “merger of equals” may be a misnomer; however, there were real benefits of a strategic partnership between similar-sized banks looking to stay relevant and achieve scale.
So as the clock ticks closer to this year’s program, allow me to share what I anticipate at AOBA. Many of the regulatory hurdles to deals and enhanced regulatory scrutiny remain in place. With increased scrutiny of deals at the regulatory level, I will be particularly interested to hear how various CEOs prepare their board for dealing with regulators, shareholders and management, all while managing the numerous professionals involved in an M&A deal (e.g. the lawyers, accountants, and investment bankers).
Yes, the benefits of economies of scale will continue to drive consolidation going forward. Nonetheless, I do not think mergers of equals will be as much of a focus of the conference as last year. Instead, I anticipate more conversations about public offerings as stock values increase and investors become friendlier to banks. One bank CEO who is scheduled to speak at the conference, Independent Bank Group’s David Brooks, had a successful IPO that exceeded expectations. To this end, as 2014 was the year of the IPO, 2015 might well follow suit.
Likewise, I know many potential acquirers are keen to limit market risk and are interested in learning how some of the more successful acquirers of late have managed (think ConnectOne Bancorp in Englewood Cliffs, New Jersey, and IBERIABANK Corp.in Lafayette, Louisiana, to name a few banks sending CEOs to AOBA).
Whether it is making the hard decision that now is the time to sell or buy another bank to improve operating leverage, earnings, efficiency and scale, I know that the 510+ bank CEOs, chairmen and board members that have already registered to join us at The Phoenician hotel in Scottsdale, Arizona, will be challenged by their peers to re-think what’s possible in 2015.