M&A Activity Acceleration

February 20, 2015 at 5:38 PM

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The long-predicted consolidation wave among banks is underway. The table above shows that the number of deals has increased every year since 2011.  In 2014, the number of bank and thrift
acquisition transactions reached its highest level since 2006. Greater compliance burdens coupled with challenges to grow revenue have prompted many smaller institutions to find merger partners.  Acquirers view acquisitions as a means to grow earning assets and achieve greater operating efficiency.

As the pace of consolidation has increased, so have valuations. The median ratio of the acquisition price paid to seller’s tangible book values has increased steadily since 2011. While valuations are significantly lower than pre-crisis levels, the large number of potential buyers coupled with improved asset quality have enabled institutions to command higher premiums.

Momentum in M&A activity should continue in 2015. The factors which drove the most recent increase in consolidation will likely remain in place in the new year. A survey by KPMG of banks with less than $20 billion in assets found that 49% of respondents were “somewhat” or “very likely” to be involved in M&A activity during the year.

Eileen Sullivan

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