November proved a groundhog day of sorts within the bank M&A arena: as in recent months, activity remained extant-but-muted. On the valuation front, pricing may have stabilized to some extent, with the median price-to-tangible book and price-to-earnings (LTM) clocking in at 1.28x and 12.0x on the year, approximately ~15-20% below 2022 medians.
Across our practice as a leading M&A advisor to community banks, we are witnessing broad-based momentum gather toward greater deal activity. Behind the scenes, acquirer appetites have been growing as bankers seek greater operating scale. Meanwhile, seller interest has also been building, reflecting a combination of the backlog of deals unpursued over the past two years due to inhibiting market conditions as well as a growing rank of incremental sellers driven by insufficient operating scale and/or the perennial deal drivers of succession and/or shareholder liquidity. This growing pile of kindling, as it were, may have just been met with a double-barreled match with the potential to ignite elevated M&A activity: first, interest rates have declined abruptly with M&A-bolstering consequences, namely 1) greater stability given enhanced clarity on the potential end to the Fed’s tightening cycle and 2) a decline in unrealized bond losses which have hitherto hampered dealmaking. Second, simultaneously (and not coincidentally), bank stocks have rallied sharply, with many up 20% or more over the past month, unlocking a greater ability to offer both market-clearing acquisition prices and further potential stock price appreciation. If 2023 proves, in fact, to mark a cyclical trough in deal count, 2024 will likely see frenetic activity: prior cycles have evidenced an uptick in deal activity as high as 80% in the years immediately following a trough.
Accordingly, with the calendar year about to turn over, now is a particularly poignant window to be re-calibrating your bank’s strategic plans particularly if a sale is under consideration. To wit, a bottleneck of would-be sellers appears to be building, a factor that may be beneficial to get out in front of, if and as feasible.
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