Banking M&A 2020: Tim Melvin on Recent Survey Data
Expect more deals in the year ahead and big premiums for banks with low valuations.
Banking M&A 2020 became a major topic of discussion this week. Bank Director Editor in Chief Jack Milligan and Rick Childs, a partner at Crowe, conducted a live survey at the magazine’s Acquire or Be Acquired conference in Phoenix.
The survey questioned more than 100 bank executives in attendance.
They asked about M&A assumptions for 2020 as well as general expectations for the industry and economy in the year ahead.
Banking M&A 2020
About 50% of the executives who responded expect to buy another bank at some point this year.
A little less than half were going to rely on organic growth, which may be difficult to achieve if the economy does not pick up substantially. Roughly 5% of respondents expect to sell their bank this year. The remaining 4% are unsure of what they will do this year.
The primary reasons for purchasing another bank included gaining scale and capturing deposits. The battle for deposits in a low-interest-rate world has heightened competition.
Scale is more critical than ever as rising technology costs and ongoing regulatory studies make it difficult to compete. Banking is an industry where bigger is better. The best way to gain scale quickly is to buy a smaller bank.
Over 80% of bankers surveyed said that there are attractive acquisition candidates in their market or in markets they wish to enter. Rich Childs said the most over-banked markets with the most potential acquisition candidates and highest levels of deal-making in the past year were Florida, Illinois, and Texas.
Focus on Asset Quality
About 84% of bankers said that the asset quality of a potential target bank is essential. At this late stage of the credit cycle, bankers say it’s important to avoid adding someone else’s stupid mistakes to their asset base.
When asked about the banking industry this year, 32% were less optimistic about the industry than they were last year. The rest felt the same or a little more positive about industry trends as they did a year ago. Only 2% of bankers were outright pessimistic about the industry’s future.
When asked about the economy, 90% of bankers felt that conditions would remain the same or improve slightly this year. About 5% expected a sharp increase in growth, and roughly the same number thought we might slip into a recession.
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