What’s Ahead for Bank M&A? Results of the 2014 Bank M&A Survey

2014-MA-Survey.pngIs it harder to get regulatory approval for a deal these days? Fifty-eight percent of respondents to Bank Director’s 2014 Bank M&A Survey, sponsored by Crowe Horwath LLP, believe it is more difficult than five years ago. Specifically, bank executives and directors find that regulators have increased their scrutiny on aspects of the deal such as regulatory compliance and capital adequacy.

So will the regulators impede bank M&A, preventing that long-predicted increase in deals from happening in 2014? Bankers don’t seem to think so. In fact, 76 percent of respondents expect to see more bank M&A deals in 2014. Just 7 percent expect activity to decrease.

Will Basel III have an impact on M&A deals? Forty-one percent of survey participants believe that Basel III will result in an increase in deals, while 32 percent don’t think that Basel III will impact bank M&A at all. When asked about their own bank’s strategy, 54 percent feel that Basel III will have little impact, and 29 percent are unsure what the impact will be.

The survey is based on emailed responses this fall from 231 senior executives and directors of the nation’s banks on issues related to mergers and acquisitions, specifically focusing on what challenges and opportunities face buyers and sellers in the banking industry. Bank leaders were also asked to weigh in on what they expect the environment to yield in 2014, both for the industry and for their own institutions.

So what do potential buyers and sellers have to say about bank M&A for the coming year?

Findings include:

  • More than half, 52 percent, of respondents say that their bank plans to purchase a healthy bank this year. Will their plans come to fruition? Last year, the 2013 Bank M&A Survey found that 46 percent of respondents planned to purchase a healthy bank, while this year’s survey finds that just 24 percent purchased a healthy bank in 2013.
  • What are the barriers to making a deal? Thirty-five percent say that coming to an agreement on price is the single greatest challenge their boards face when considering an acquisition or merger of equals. Potential buyers, at 63 percent, say that pricing expectations are just too high. Forty percent worry about asset quality, and 38 percent say that the boards of targeted banks just aren’t willing to sell.
  • Will more banks consider a sale in 2014? Only 5 percent of respondents indicate that they’re willing to sell a bank. There are a number of reasons that these banks won’t sell out: Forty-eight percent say that the bank’s board and management want to remain independent, and 42 percent say that current pricing is too low.
  • When asked to provide the top three reasons for selling their bank, almost half of respondents say they would entertain a sale if the bank received an attractive offer. The second and third most popular reasons for a possible sale are the high cost of regulation, at 25 percent, and limited organic growth opportunities, at 23 percent.
  • Once the deal is done, what are the most difficult aspects of the acquisition? Assessing credit quality issues at the acquired institution is cited as a challenge for 53 percent of respondents. Post-merger integration, at 45 percent, and cultural compatibility, at 43 percent, continue to be problematic for buyers. However, many respondents report that they are satisfied with some of the stickier points of the deal, like cultural fit, growth in market share and technology integration.

Download the summary results in PDF format.

Bank M&A Expectations in 2013

Bank M&A may face serious challenges in 2013. In this video, Rick Childs of Crowe Horwath LLP highlights findings from the 2013 Bank Director & Crowe Horwath LLP M&A survey, revealing a disconnect between buyers and sellers that may hinder the pace of M&A. Some banks might be willing to look outside of core banking as an avenue for growth – but for smaller banks, branch acquisitions should not be overlooked.

Pros & Cons of Traditional M&A vs. FDIC-Assisted Transactions

handshake.jpgWith the financial industry cautiously anticipating a recovery from the dramatic economic crisis that resulted in increased regulations and scrutiny for banks of all sizes, many are hoping to see increased activity from traditional M&A transactions. Although the number and size of bank failures is slowing down, FDIC-Assisted deals should not be discounted as a viable growth opportunity in 2011.

As part of our Inside the Boardroom interview series, Rick Childs, a director in Crowe Horwath LLP’s financial advisory services group, outlines below the pros and cons of traditional M&A vs. FDIC-Assisted transactions, and what today’s boards should know before considering these two options.

What are the pros & cons of traditional M&A vs. FDIC-Assisted deals?



  • There is more time to perform due diligence and to understand how the organization fits your culture and business plan.
  • Traditional M&A deals are usually negotiated with a single buyer. If a potential acquirer can negotiate and improve its chances of winning the transaction. In an FDIC-assisted transaction, the agency is required by law to select the bid that entails the lowest cost to the FDIC insurance fund. As a result, competition for the bid can decrease the odds of the bidders being successful.
  • In 2010, there were still a number of deals where the target’s earnings were positive. In approximately 42 percent of the traditional M&A deals the target had positive earnings and approximately 26 percent had ROAs in excess of 50 percent. Institutions with positive earnings provide growth opportunities at attractive prices.


  • The level of non-performing assets in some of the deals may still make the transaction prohibitive without FDIC loss protection. While bidders for FDIC-assisted deals are able to bid the assets acquired at a discount, the traditional M&A buyers cannot bid less than $0. Or, to put it another way, the sellers of whole institutions are not in a position to pay the buyer to take over the institution while the FDIC-assisted transaction is able to absorb the negative bids.
  • With prices for healthy institutions still depressed, there are fewer healthy sellers. Likely these institutions are waiting for prices to return to historical—which is to say higher-levels, although it’s unclear whether that will every happen.



  • The protection afforded from loss sharing has been a catalyst for getting bidders to participate in the bidding process and makes the transaction palatable on a prospective basis as the future losses are covered by loss sharing.
  • For many acquirers, it has offered a unique growth opportunity and there have been a number of serial FDIC-assisted transaction acquirers who have been able to raise capital and build long-term franchise value.
  • Buyers have been able to acquire assets and liabilities but leave behind unfavorable contracts and any potential litigation risks that would be associated with a failed institution.
  • The potential for bargain purchase gains can provide capital for the acquiring institution. However, those institutions should expect the regulatory agencies to exclude capital arising from a bargain purchase until the valuations have been finalized and then validated through examination or external audit.


  • The loss sharing contract requirements can be time consuming and expensive to comply with, including reporting, systems and the required loan modification commitments.
  • Limited due diligence and a compressed time frame for the transaction translate into the bidder needing to make a significant number of material estimates to arrive at the bid with limited information. This can lead to unexpected results post transaction.

What is the outlook for both types of deals?

Trends in acquisitions of both types of deals increased in 2010 compared to 2009. On September 30, 2010, the FDIC reported 860 troubled institutions, up from 720 at December 31, 2009. If only 10 percent of those institutions ultimately fail, then 2011 will still see a significant number of transactions.

The total assets of troubled institutions are actually lower than at December 31, 2009, so the transactions likely will be of smaller sized institutions. Traditional M&A transactions also appear to be ready for an increase in activity in 2011, although still tempered compared to more recent history before the current financial crisis.

Are the FDIC-Assisted deals still attractive, or have they lost their allure since the FDIC is providing less loss protection?

The deals are still attractive and what the bidders appear to be doing is considering the level of expected losses including the revised coverage into their bids. In the 4th quarter of 2010 the asset discount on the deals with loss sharing increased over the prior quarters. Further, about 15 percent of transactions in 2010 didn’t include a loss sharing agreement, and in those transactions the asset discount was approximately twice as much as the loss sharing transactions. Our experience with bidders has been that they adjust to the changes in the FDIC structures.

Is this change in loss protection making traditional deals more competitive?

The changes in the loss sharing agreements do not appear to be changing the landscape. Bidders adjust their bids to encompass the expectations of losses. At the same time, buyers in traditional deals are including contingent payments, escrows and other holdbacks tied to credit performance as ways of providing some protection against future losses.

What are the impediments to getting traditional M&A deals done?

Capital is clearly an issue for many acquirers in traditional deals, and because the discounts on traditional deals are limited by the level of capital, some deals actually produce goodwill once the purchase accounting adjustments are all recorded. Regulators are expecting higher levels of capital and as a result the available buyer pool may be limited. Additionally, many potential sellers may be waiting until prices rebound and the returns to shareholders are maximized.

Potential acquirers are also weighing the ongoing costs of acquiring an institution with significant credit problems. The time and expense related to working out a significant number of problem credits can be prohibitive for some institutions. Finally, activity in certain states has been nominal in the last several years, so for buyers in those states, a potential transaction may be well outside their market area and that can be an impediment.