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

Is 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.