As organic growth cools, could the slowdown in M&A turn around in 2024?
Roughly a third of bank executives and directors responding to Bank Director’s 2024 Bank M&A Survey, sponsored by Crowe, believe their bank is likely to acquire another institution by the end of 2024, down from 39% in 2023 and 48% in 2022.
However, with banks spending the past two years wrestling with deposit pricing and attrition, 85% point to an attractive deposit base as a top attribute of an acquisition target today, compared with 58% who said as much a year ago. That was followed by a complementary culture (58%), efficiency gains (55%) and locations in growing markets (48%).
Looking through 2024, respondents do not expect dramatic swings in their bank’s deposit rates. Forty-five percent expect deposit rates to increase by no more than 50 basis points, and 22% expect them to decline by that amount.
Focused on U.S. banks below $100 billion in assets, 201 independent directors, CEOs, chief financial officers and other senior executives responded to the survey, which examines current growth strategies, economic concerns and plans to optimize the balance sheet. The survey was conducted in September 2023.
Members of the Bank Services program have exclusive access to the full results, including breakouts by asset category and other demographic variables.
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Forty-one percent of respondents say their bank would be open to a merger of equals, while 34% say it would not be. Nearly a quarter are unsure. Two years ago, almost half (48%) said their bank would be open to such a transaction.
Waning Confidence In Valuations
Respondents cite the pricing expectations of potential targets (71%) as a top barrier to M&A, followed by a lack of suitable targets (59%). Among potential acquirers, 35% would be willing to pay up to 1.5 times tangible book value for the right target. However, just over half of respondents would expect a minimum of 1.75 times book value in a sale. For public banks, 40% feel their bank’s stock is attractive enough to buy an institution that meets its acquisition criteria, a sharp drop from 51% who said as much last year.
While a majority (61%) express no preference as to whether a potential acquirer would be a direct competitor, most would rather sell to a regional bank (65%) or community bank (60%) than to a private investor group (18%), multinational bank (12%) or credit union (9%).
Trouble On The Horizon
Forty-three percent anticipate more bank failures over the next 18 months, but among those bank leaders, most do not expect to see more than 10 banks fail. A third of respondents do not anticipate any further bank failures in that time period.
Failed Bank M&A
Three-quarters of bank leaders say they have not discussed the possibility of buying a failed bank, but 17% have discussed it and informed their regulator of their interest.
Sluggish Fintech Investing
A large majority of respondents (79%) say their bank did not invest in or acquire a fintech firm in 2022 or 2023, consistent with last year’s survey results. Of those who did invest in a fintech company, most cite a desire to gain a better understanding of the fintech space.
These topics will be further explored at Bank Director’s Acquire or Be Acquired Conference, Jan. 28-30, 2024, in Phoenix.