Dealmaking in the banking industry accelerated in January, continuing the arc of a recovery that began in the second half of 2020. Recent months have evidenced a deal count that mirrored (or, at times, even exceeded) pre-COVID levels.
Deal pricing has followed a similarly ascendant trajectory with pricing multiples tracking toward pre-COVID valuations, fueled by a substantial recovery in bank stock valuations. Indeed, the SNL U.S. Bank Stock Index increased almost 60% since October 2020.
We also took note of the record level of bank branch closures in a phenomenon indicative, seemingly, of both near-term factors (e.g., expense reduction, a glut of deposits, etc.) as well as long-term shifts in the banking delivery model and competitive landscape.
January also saw acquisition announcements by several historically-active acquirers including BancorpSouth (MS), First Busey (IL), and Investar Bank (LA). We interpret the resumption of these acquirers’ M&A campaigns as a healthy return of broader acquisition demand and, by extension, as a leading indicator of further-elevated deal activity to come.
For potential sellers, timing appears increasingly opportune: many banks posted strong (if not record) earnings in 2020 buttressed by PPP fees and mortgage revenue, while credit quality largely remained intact; meanwhile, acquirer demand is resuming while deal pricing is now approximating pre-COVID levels. However, looking ahead, notable challenges loom including sustained pressure on margins, potentially-swelling regulatory and operating costs, and the prospect of a capital gains tax increase, all while the pool of possible acquirers shrinks commensurate with the pace of industry consolidation. The window of opportunity for would-be sellers has indeed re-opened. But as history has unsympathetically taught us over the past few decades, such windows are fickle and do not remain open forever.
Finally, on January 19th, DeWitt First Bankshares Corp. agreed to be acquired by Southern Bancorp, Inc., while on January 26th, M&F Bancorp, Inc. and First State Capital Corporation agreed to a merger-of-equals (party advised by Olsen Palmer indicated in bold). Olsen Palmer is one of the top 2 bank M&A advisors nationwide based on the number of whole-bank M&A transactions advised on since January 1, 2020, according to S&P Global.
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