Banking and securities M&A outlook| Time to get in gearIntroduction
Entering 2017, there seemed to be positive momentum for increased
deal-making in banking, specialty fnance, investment management
and securities, and fnancial technology (fntech). Macro-level
catalysts included an improving economy, sustained stock market
rally, steadily rising interest rates, pro-business election results, and
the expected easing of fnancial services industry (FSI) regulations.
Add organization-level triggers of continuing margin pressure,
ample cash reserves, and the need for digital capabilities, and the
combination of factors warranted an optimistic outlook. Yet, similar
to 2016, the M&A engine essentially remained in neutral: Deal sizes
increased in 2017, but there were fewer transactions overall.
Entering 2018, we continue to be optimistic about banking and
securities M&A. Virtually all of the above drivers remain in place
and are being bolstered by increasing regulatory clarity and US tax
reform legislation—both of which will beneft bottom lines and add
to capital war chests. We do, however, anticipate that organizations
will need time to digest the implications of new legislation and may
delay deal-making to the second half of the year.
Banking
With 250 announced deals as of December 19, banking M&A volume
in 2017 was almost a carbon copy of the prior year’s 249 transactions
(fgure 1).1 2017’s total was a bit disappointing, as the year began with
numerous natural drivers for consolidation—an improving economy,
sustained stock market rally, ample capital levels, and expectations
for a loosening of banking regulations under the new Trump
administration. However, delayed regulatory leadership changes,
prolonged uncertainty around tax and health care reform, and a late-
2016 run-up in stock prices (especially for small banks) let the air out
of M&A’s tires somewhat in 2017.
After several years of false starts, will banking and
securities merger and acquisition (M&A) activity
get in gear in 2018
Banking and securities M&A outlook| Time to get in gearWe also expected stronger consolidation in 2017 at the higher
end of the regional/super-regional banks, but that didn’t happen.
While 2016 saw three deals in which the acquired bank had over
$20 billion in total assets, 2017 saw zero deals of that size. Astoria
Financial Corporation—which was acquired for $2.2 billion by
Sterling Bancorp—was 2017’s biggest deal.2
2017 banking M&A average deal value, at $159.8 million, held steady
with 2016’s average of $161 million3 (fgure 1).
Banking: 2017 top fve deals by deal value
BuyerTargetAgreement dateDeal value ($m)Target generalindustry typeTargetregion
Sterling National BankAstoria Finacial Corporation3/7/2017$2,194.10 BankMid-Atlantic
First Horizon National CorporationCapital Bank Financial Corp.5/4/2017$2,175.06 BankSoutheast
Pinnacle BankBNC Bancorp1/22/2017$1,840.53 Bank Southeast
First Financial BankMainSource Financial Group Inc.7/25/2017$1,005.57 Bank Midwest
IBERIABANKSabadell United Bank N.A.2/28/2017$1,004.96 Bank Southeast
M&A Activity - Banking
240272243308286249Total number
of deals
24
6173
36
39
$176.3
$113.5
$95.8
$106.9
$154.4$161.0
39
28
56114
7962
43
33
31
51
61123
3035
10664
38
30
25
26
60110
192518
Mid-AtlanticMidwestNortheastSoutheastSouthwestWestAverage deal value
250
$159.8
22
40
7385
28
2011
2012
2013
2014
2015
2016
201750
100
150
350
300
250
200
$0
$20
$40
$60
$200
$180
$140
$100
$160
$120
$80N
um
be
r o
f d
ea
ls
Av
era
ge
de
al
va
lue
($
m)
Figure 1. Banking deals (by region) and average deal value
Source: SNL Financial and S&P Global Market Intelligence
Note: Average deal size is based on disclosed deal values; 60%, 49%, 39%, 43%, 41%, 36%, and 39% of reported deals did not disclose deal values for FY11, FY12, FY13,
FY14, FY15, FY16, and FY17, respectively.
From a regional perspective, the Midwest and Southeast led deal
volume in 2017, posting 85 and 73 deals, respectively.4 Both regions’
composition of smaller, targetable banks—along with the shift in
banking assets as a result of population movements—are likely
the reasons for their higher deal volume. In addition to higher deal
volume, the Southeast also had three of 2017’s top fve transactions
in terms of deal value (fgure 1).5
44
Continuing a multiyear trend, the majority of banking M&A deals
in 2017 occurred at the small bank level, with most acquisition
targets holding less than $1 billion in assets (fgure 2). Pressured
by prolonged, relatively low interest rates and burdensome
regulatory compliance and technology upgrades that are driving high
operating costs, many small banks are choosing to consolidate or be
purchased rather than go it alone.
203
256258
218
27232420
320
< $1B assets$1B – $10B assets$10B assets50
100
150
300
250
200
2013
2014
2015
2016
214
342017
Nu
mb
er
of
tar
ge
ts
Figure 2. Bank transactions by asset size
Targets by asset size
Source: SNL Financial and S&P Global Market Intelligence
Banking and securities M&A outlook| Time to get in gear。