Guest Post by Elise Hauser, Product Manager, Sageworks.
In a recent survey by Crowe Horwath 66% of bankers felt that 2014 was a better year for bank M&A than previous years. The main reason bankers gave for this positive outlook was twofold: they felt that more banks are willing to sell, and credit quality has improved greatly since the recession.
In a recent webinar with Sageworks Bank Information on current trends in bank M&A, Rick Childs of Crowe Horwath explained that while the feeling of credit quality improvements are likely correct, he doesn't see as many banks wanting to sell as these statistics predict. Mr. Childs explains that this phenomenon happens when banks think many other banks will want to sell, even though they themselves are not interested in selling.
However there is still good evidence that 2015 will be better than past years for bank M&A. A shift started in the last few weeks of 2014 as many deals that had moved along slowly due to residual effects of the 2007 recession all finally closed at once. Since then the bank M&A market has shown steady growth over past years.
The Midwest has seen the greatest volume of deals this year. This is largely due to the much larger quantity of small charters in that region. Many states in the Midwest were slower to adopt branch banking, resulting in many small banks with just a few branches. Most of this M&A activity is consolidation of these small community banks.
New England is the other notable region this year. The 2007 crisis hit New England earlier than many other regions, so it has recovered sooner. This faster recovery is seen in higher prices, which are also indicative of the more mature nature of the market.
Despite the largely positive outlook for bank M&A this year, a few barriers, both perceived and real remain. The first is the concern about new regulation requiring higher levels of capital, which lead to lower prices. Many sellers are hesitant to sell at a price they feel is too low.
Another concern is that regulators will be less likely to approve mergers, though Mr. Childs mentions that he has not seen any evidence of regulators taking longer to approve mergers.
Ultimately the biggest barrier to M&A transactions is the same barrier that has always existed: price. Sellers want a higher price while buyers want lower. M&A transactions are unique in that they require both a willing buyer and a willing seller. Both buyers and sellers will have to bring similar expectations to the table to make a deal work.
Elise Hauser is a Product Manager at Sageworks where she manages marketing and collaborates on product development for Bank Information.