MARCH 14, 2017
A Brief Q&A on M&A
By Hilary Collins, Assistant, Publications and Research, Financial Managers Society
Mergers and acquisitions are a very real possibility for almost half of respondents in a new survey conducted by Bank Director.
46% of respondents in the 2017 Bank M&A Survey said their institution is likely or very likely to purchase another bank by the end of 2017, while 45% said the environment is more favorable for deals than it was the year before – down 17 points from the 2016 survey, but still strong. Here are some other takeaways from the survey:
Why do institutions consider mergers?
Banks considering selling are motivated most heavily by rising regulatory costs (with 54% of respondents considering or actively seeking a sale claiming it as a factor) and shareholders actively seeking liquidity (48%). Other major motivating factors include limited growth opportunities (39%) and not being able to find replacements for exiting executives (15%).
What makes an institution attractive to a buyer?
Both buyers and sellers agree that geographic location and a strong lending team are very desirable traits in an acquisition.
Survey respondents who reported a recent acquisition noted the following traits as highly important:
- Talented lenders: 41%
- Geography: 48%
- An attractive market: 58%
From the sellers’ standpoint, meanwhile, 67% of respondents who indicated they’re open to a sale, considering a sale or actively seeking an acquirer say they think talented lenders make them a more desirable acquisition, and 67% agree that geography is an appealing trait.
What makes deals fall through?
The two biggest considerations a buyer faces when considering a merger or acquisition are coming to agreement on the price (38%) and finding the right cultural fit (26%). It was clear – and perhaps not surprising – that price often proves to be the breaking point in many potential deals, with 64% of potential buyers in the survey citing too hefty a price as the main reason for not pursuing a potential target and 72% of potential sellers citing a low-ball offer as the main reason they rebuffed a deal.
However, while price is crucial, it isn’t the whole story – a good cultural match is also very important. Of the respondents from potential buyer banks who say their institution has walked away from a merger in the past three years, 49% said the culture at the target institution was a factor in the deal falling through. On the other side, of potential sellers who walked away from a sale, 32% said the culture at the acquiring institution was a factor.
What does the future look like for mergers and acquisitions?
Survey respondents were fairly evenly divided on the economic forecast, with 31% expecting a recession, 36% confident that the U.S. will avoid a recession or economic downturn this year and 33% unsure of the economic outlook. Regardless of whether they predicted an upcoming downturn, however, 60% said such a downturn, if it came to pass, would result in more consolidation, due to a likely increase in the number of institutions failing or struggling; 26%, meanwhile, said a recession would result in less consolidation as buyers become more cautious and 14% said a recession would not impact M&A activity at all.
You can access the survey in its entirety here