Dealmaking picked up in January as eighteen whole-bank M&A transactions, continuing the elevated pace of deal activity the industry has seen for more than a year.
Pricing multiples evidenced a bifurcated trajectory in January relative to the prior month: the median price-to-tangible book multiple decreased somewhat while the median price to earnings (last twelve months) increased. Over a broader, multi-month timeline the glide path of valuations is smoother and largely unchanged relative to full-year 2021 medians. Our near-term outlook for deal pricing is flat: while we do not necessarily see valuations declining we see few catalysts for deal pricing to appreciate, especially not unless and until excess liquidity on most balance sheets is absorbed and downward pressure on margins eases.
On that note, a number of clients are increasingly questioning whether initial fed rate increases will have more blunt of a benefit to margins than initially hoped. The glut of liquidity has exacerbated loan competition such that a market-version of a game of chicken could break out as banks may hesitate to increase loan rates lest quality borrower prospects be lost to those willing to hold the line at pre-increase yields.
On the topic of excess liquidity, the pace of bank branch closures accelerated sharply in 2021. While not a surprising finding in light of both excess liquidity and the industry’s longer-term pivot away from brick-and-mortar, the scope of closures in 2021 is nonetheless a profound reminder of ongoing tectonic changes in the banking industry.
Finally, on January 3rd, BankFirst Capital Corporation acquired The Citizens Bank of Fayette and on January 31st, the parent of Lusk State Bank agreed to be acquired by Banner Capital Corporation (party advised by Olsen Palmer indicated in bold). Olsen Palmer remains one of the top 3 bank M&A advisory firms nationwide according to S&P Global, based on the total number of whole-bank transactions advised upon over the last three years.
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