Budding momentum in bank M&A maintained in July as nearly $3 billion worth of total transactions were announced in the month. Also continuing through July was the ongoing trend of relatively sizeable community bank M&A transaction announcements: on July 26th, West Virginia-based WesBanco, Inc. ($18.1 billion in assets; NASDAQ: “WSBC”) agreed to acquire Ohio-based Premier Financial Corp. ($8.8 billion in assets) in an all-stock transaction valued at approximately $960 million. Meanwhile, on July 29th, Mississippi-based Renasant Corporation ($17.5 billion in assets; NYSE: “RNST”) agreed to acquire fellow Mississippi-based The First Bancshares ($8.0billion in assets; NASDAQ: “FBMS”) in an all-stock transaction valued at approximately $1.2 billion.
On the valuation front, July’s deal pricing data indicated a firming up of valuations. The median price-to-tangible book value (“P/B”) multiple was 1.42x in July, a leg up from the year-to-date median of 1.31x. Meanwhile, the median price-to-earnings (“P/E”) multiple in July was 15.5x, 33% higher than the 2023 median and, interestingly, largely in-line with the levels seen from 2019 to 2022 (i.e., pre-FOMC tightening).
Looking ahead, the spotlight will be squarely on the FOMC’s rate decisioning. While cut(s) are expected by virtually all observers and have essentially been telegraphed by the FOMC, the question from our vantage point is what impact rate cut(s) will have on banking and bank M&A. While the conventional wisdom is that rate cuts will temper escalating funding costs and, ultimately, appreciably lower such costs, we question whether rate cuts will prove the panacea many hope, at least near term. Liquidity remains tight, loan-to-deposit ratios remain elevated, loan growth continues apace, and funding competition – from both banks and non-banks – remains stout. Moreover, nearly $1 trillion in deposits have left the banking industry since levels peaked in Q1 2022. All told, any looming cut(s) in rates may take some time to salve the pain of elevated funding costs.
With changes afoot in the bank M&A landscape, this is a particularly apt time to re-calibrate your bank’s strategic plans whether as a potential seller, a would-be acquirer, a prospective merger partner, or in remaining independent. Particularly for those considering a sale at some point, an informed update on market conditions, valuation, and deal preparation and best practices would likely be beneficial for maximizing optionality and value.
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