Elevated M&A activity in the banking industry continued in July as 19 whole-bank M&A transactions were announced, the third-highest monthly total seen over the last 18 months.
While a host of factors are driving dealmaking on both sides of the table, one such variable is increasingly prominent – loan growth – especially as many buyers and sellers alike are either struggling to achieve appreciable loan growth; are beset with a glut of deposit liquidity; are feeling the pinch of compressing margins; or all of the above. Indeed, with the exclusion of Paycheck Protection Program (“PPP”) loans, total loans across the industry grew just 0.2% year-over-year as of Q2 2021 though, notably, the 15 largest U.S. banks fared far better, posting year-over-year loan growth of 2.2%.
In terms of deal pricing, valuations held relatively steady in July as the median price-to-tangible book and price-to-earnings (LTM) multiples came in largely in-line with year-to-date medians.
That said, we reiterate an oft mentioned word of caution if and when using multiples to value a bank. While medians and averages are commonly quoted, we note that – by definition – there is a wide range of pricing on either side of the median. Indeed, in July’s deals, the price-to-tangible book paid ranged from as low as 1.15x to as high as 1.95x. While averages and medians can be helpful when reviewing broad trends, actual M&A pricing varies greatly and is dependent on a number of factors including, but not limited to, seller size and location, buyer availability (or scarcity), core post-deal earnings, pro forma cost savings, loan growth, etc.
Finally, on July 26th, Town-Country National Bank was acquired by United Bank while on July 30th Durand Bancorp, Inc. was acquired by High Point Financial Services, Inc. (party advised by Olsen Palmer indicated in bold). Olsen Palmer remains one of the top 3 bank M&A advisors nationwide according to S&P Global, based on the number of transactions advised upon over the last twelve months.
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