2017 Bank M&A Survey: What Buyers Value

November 28th, 2016

merger-value-11-28-16.pngDriven by shareholder pressures in a low-growth and highly regulated environment, some community banks could be seeking an exit in the near future. But which banks are positioned to get the best price in today’s market? Fifty-eight percent of executives and board members whose bank has made a past acquisition report that being located in an attractive market is the most important factor in their decision to acquire another institution, according to Bank Director’s 2017 Bank M&A Survey, which is sponsored by Crowe Horwath LLP.

Forty-one percent say the opportunity to pick up lending teams or talented lenders as part of an acquisition is highly important, due to a competitive environment for commercial lenders. Bank Director surveyed online 206 chief executive officers, chief financial officers, chairmen and directors of U.S. banks in August and September.

  • An increasing number of respondents feel that the current environment for bank M&A is stagnant or less active: Forty-five percent indicate that the environment is more favorable for deals, down 17 points from last year’s survey.
  • Forty-six percent indicate that their institution is likely or very likely to purchase another bank by the end of 2017.
  • Twenty-five percent report that they’re open to selling the bank, considering a sale or actively seeking an acquirer. Of these potential sellers, 54 percent cite regulatory costs as the reason they would sell the bank, followed by shareholder demand for liquidity (48 percent) and limited growth opportunities (39 percent).
  • Price, at 38 percent, followed by cultural compatibility, at 26 percent, remain the two greatest challenges faced by boards as they consider potential acquisitions. Price is identified as the top reason that potential buyers and sellers have walked away from a deal in the past three years.
  • Forty-five percent report that they are seeing a deterioration in loan underwriting standards within the industry, leading to possible credit quality issues in the future.
  • Concerns about the quality of loan underwriting standards at the target institution caused 28 percent to walk away from a potential acquisition.
  • Eighty-eight percent believe that interest rates will rise by the end of 2017. Forty-six percent expect a modest increase of less than half a percent.

Just one-quarter of respondents indicate that they’re likely or very likely to purchase a branch or multiple branches by the end of 2017. Given the rise of mobile and online banking, foot traffic in branches is declining. Banks are evaluating the value of branches to their overall strategy, causing many—particularly the largest institutions—to attempt to rationalize their branch networks by selling or shuttering those deemed less desirable. When asked about how attractive the purchase of a branch is compared to five years ago, attitudes are mixed: One-third believe that buying a branch is more attractive, while another third believe that the value has remained the same. Twenty-eight percent believe that branch acquisitions are less valuable than they used to be, a view supported by national trends: S&P Global Market Intelligence reported in September that the industry shed more than 7,000 branches over the past five years.

To view the full results of the survey, click here.

emccormick

Emily McCormick is the Director of Research for Bank Director, an information resource for directors and officers of financial companies.You can follow her on Twitter at twitter.com/ehmccormick or get connected on LinkedIn.