HIGHER PRICES ARE BETTER FOR SELLERS THAN FOR BUYERS
Every year in January or February, I attend Bank Director’s Acquire or Be Acquired Conference, which gets bigger every year. More than 1,000 people attended this year, at least giving a clue that many bankers are interested in talking about mergers and acquisitions. Not all of them, of course, are getting deals done.
Despite increases in bank stock prices, which leads to richer currencies that banks can use to go out and buy other banks, and despite improved credit metrics and earnings, this hasn’t led to an overall increase in deals this year-or at least not yet. Deal activity slipped last year and then flattened in the first half of this year. There were 119 deals as of the first half of 2017, about half the number of last year, suggesting that if that trend continues, we will be flat this year in deal volume.
But improved market conditions may be leading to better pricing. The average price to tangible equity, a similar metric to tangible book value, was 164 in January through June of this year, compared to 129 last year, according to S&P Global Market Intelligence.
In this issue, we explore some of the dynamics of the current M&A market impacting banks, as well as providing some ways to avoid the pitfalls of M&A. There is little doubt that regulation is putting a lid on many big bank deals. For one, federal law prohibits megabanks from controlling more than 10 percent of the nation’s deposits, which is preventing them from doing any substantial deals. And as John Engen writes in this issue of Bank Director digital magazine, another series of thresholds that increase a bank’s level of regulation at $10 billion or $50 billion in assets also may be putting a damper on deals. About a dozen historically acquisitive banks are sitting just below the $10 billion asset threshold now. There is talk in Congress about raising these thresholds where regulations kick in, many of them created by the 2010 passage of the Dodd-Frank Act.
Really small banks also are seeing waning activity in deals. Business writer Ryan Derousseau delves into this topic later in this issue. That’s not to say that there aren’t some really experienced banks engaging in multiple successful deals and getting a premium in their stock for it, which John Maxfield writes about in his story, The Sweet Spot. So plenty of banks are doing M&A very well and providing a lesson for the rest of the industry on how to get it done.
As we gather next year in the resort destination that is Phoenix, Arizona, for another packed Acquire or Be Acquired Conference, I can’t help but be encouraged that the market is improving for banks, and that’s reflected in improved deal pricing. On the other hand, I can’t help but wonder why increased crowds of dealmakers don’t seem to be leading to an increase in deals.