2017 Bank M&A Survey: What Makes a Successful Acquisition

Despite (or perhaps because of) a turbulent political, economic, and regulatory climate, analyst predictions continue to point to 2017 as an active year for bank M&A transactions. On one side of the coin, it’s because large banks are striving to ‘bulk up’ in the face of regulations. On the other, it’s because small community banks are buckling to shareholder pressures and seeking to exit.

The annual 2017 Bank M&A Survey reveals that while chief executive officers, chief financial officers, chairmen and directors of U.S. banks see the environment as slightly less favorable for deals, almost half (46%) say it remains fertile. Looking internally, a similar number (45%) indicate that their institution is likely to purchase another bank by the end of the calendar year. Among small and mid-sized banks surveyed, 25% say they are either open to or actively pursuing avenues to sell their bank.

Success in this climate requires that the banks seeking to sell are aware of and responding to the purchasing priorities of the acquiring institutions. The 2017 Bank M&A Survey digs into some of those significant purchase drivers. Fundamentally, boards of directors of large banks positioned to make acquisitions say their decisions come down to cost, credit, and culture.

M&A pricing is one of the biggest disconnects between sellers and buyers. While more than half (64%) of acquiring banks perceive the selling price as too high, 72% of sellers say the price is too low. Community banks need to bridge this gap by focusing on value factors that resonate with a potential buyer, and that may vary based on the size of the acquiring institution

To better understand what your bank can do to influence a future sale, below is a breakdown of buyer priorities based on the two most common asset size thresholds.

$1B Acquiring Bank Priorities

In these institutions, acquisition is likely a way to grow its footprint, asset base, solutions mix, and community or regional presence. They are going to be focused on the post-transactional value. Of those considerations, cultural factors can have the greatest influence on the purchase decision.

Banks working to position to sell to an institution valued around $1 billion can capitalize on a few particular aspects. The 2017 Bank M&A study lists them as follows – in order of priority:

• The benefits of your location(s) (56%)
• Successes of your lending team (47%)
• The quality of your executive team (29%)
• Your goals align with their corporate objectives (24%)

$10B Acquiring Bank

At the $10 billion mark, banks are re-categorized, they are more likely to be traded publicly, and their stock price and results are more closely followed by investors. Their cost of doing business goes up dramatically, so it’s likely they will be looking at acquisition as a way to build equity ‘bulk.’ They are going to be less focused on cultural, post-transaction integration concerns than they are on the more immediate details of the transaction like assets and equity. At this threshold, banks face increased visibility and activity on the stock market, so a successful transaction can grant them greater reach than the purchasing price.

According to the study, banks positioning for an acquisition by a $10 billion institution should focus on the following value adds:

• The benefits of your location(s) (100%)
• The quality of your executive team (67%)
• Successes of your lending team (50%)
• New business line opportunities (42%)

It’s likely that if your bank is positioning itself for purchase, you are focused on that $1 billion asset size. Still, it’s useful to monitor what acquiring banks at every level see as valuable as you build your strategy. Your HORNE Banking advisor can help you to create a plan to enhance measurable and intangible benefits that will make you an attractive purchase and support a successful integration into a larger bank.

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