Bank M&A activity remained active in May. The average monthly deal count over the past 3 months suggests the total deal count in 2021 may be double that of 2020.
As discussed in this space frequently, the increasing pace of bank M&A is being driven by a wide variety of factors on both sides of the negotiating table, the most prominent of which is scale. While the quest for (or lack of) scale has been key a driver of dealmaking for at least a decade now, incremental scale is arguably that much more important in light of the current margin environment. As illustrated in this month’s Chart of the Month (lower right), loan yields across all categories have declined precipitously over the last two years, compressing margins for banks of all sizes.
Deal pricing freshened in May, at least nominally. The median price-to-tangible book multiple increased sharply in May, coming in at 1.73x relative to 1.56x in April.
That said, when it comes to using monthly median multiples as a proxy for valuation, the onion – as it were – requires further peeling: May’s transaction list includes one deal in which a seller with $3.5B in assets agreed to be acquired for 2.9x tangible book by a buyer whose stock was trading for above 3.0x tangible book value (i.e., the buyer uniquely had an ‘ability to pay’ such a multiple). But for this outlier transaction, the monthly median price-to-tangible book value in May would have been 1.32x.
On a year-to-date basis, the median price-to-tangible book value and median price-to-earnings multiple in 2021 was 1.46x and 17.6x, respectively, through May.
Finally, on May 4th, Cumberland Bancshares, Inc. agreed to be acquired by First Paragould Bankshares, Inc. while on May 14th DeWitt First Bankshares Corporation was acquired by Southern Bancorp, Inc., and on May 28th First Bank of Linden was acquired by Alabama ONE (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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