In this expanded Year-in-Review edition of The M&A Monitor, we examine bank M&A activity in 2023 and proffer our outlook for 2024 including deal activity; transaction pricing; key deal drivers; geographic nuances; and best practices.
Bank M&A was sluggish in 2023 as only 98 whole-bank transactions were announced, 40% lower than in 2022 and, in fact, one of the lowest annual tallies on record. While the languid pace of dealmaking can be attributed to a variety of factors – inflation, economic uncertainty, ballooning funding costs, headline-grabbing bank failures, a precipitous decline in bank stocks, etc. – one factor was, by far, the biggest culprit: the sharpest increase in the federal funds rate in more than 40 years and the ripple effects thereof, particularly the advent of bond losses and the resulting bid-ask spread.
Deal pricing also moderated in 2023 as the median price-to-tangible book value (“P/B”) and price-to-earnings (“P/E”) multiples were 1.27x and 11.8x, respectively, approximately 17% lower than in 2022.
All that said, 2023 is likely to prove less of an extinguishment of consolidation activity and more of a deferral of dealmaking into future periods. The annual consolidation rate is typically 3% - 5% indicating that as many as 150 otherwise-intended transactions went missing in 2023. Looking ahead, the stage is set for a period of elevated M&A activity ahead as the tectonic forces driving consolidation in recent years still hold and, in fact, have become appreciably more stout.
Accordingly, a re-calibration of your bank’s strategic plans is recommended whether as a potential seller, a would-be acquirer, a prospective merger partner, or none of the above. Especially for those considering a sale at some point, an informed discussion of market conditions and optimal timing would prove advantageous; a bottleneck of sellers appears to be building, a surge that would be beneficial to get ahead of, if and as feasible.
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