Tennessee M&A Update
November 2023

Nationally, bank M&A activity has largely been muted in 2023 with the total count of whole-bank M&A transactions likely to fall somewhere near 100, making 2023 one of the slower years in some time. While the languid pace of dealmaking is a result of a variety of factors, there is one primary culprit: the sharpest increase in the federal funds rate in more than 40 years and the ripple effects thereof. Indeed, rate increases resulted in appreciable unrealized securities losses for many banks (aka, AOCI), opening up a bid/ask spread between buyers and sellers. Separately, accelerating deposit costs have sharply swung the pendulum of acquirer appetites toward sellers with deposit-rich franchises and away from loan generators. Meanwhile, public bank stock prices are depressed, initially in the wake of the failures earlier in the year of SVB et al. but now due to flattening earnings run-rates and compressing margins.

In terms of pricing, M&A multiples are down ~10 to 15% relative to 2022 levels largely due to diminished acquirer stock valuations and to AOCI. Intrinsically, franchise values of virtually all banks have eroded somewhat at least insofar as earnings growth and overall profitability have been tempered by rising funding costs and lower margins.

Closer to home, bank M&A activity in Tennessee has largely echoed that of the broader country. Twenty-four whole-bank M&A transactions have been announced in Tennessee over the past 5 years – with Olsen Palmer being involved as an advisor in almost half of these – but only 4 such transactions have been announced in 2023. In fact, the most notable Tennessee bank M&A transaction of late is arguably the termination of a previously-announced deal: the abandoned sale of First Horizon to TD Bank which otherwise would have significantly re-shaped the landscape.

Looking ahead, the banking industry is on the verge of an era of outsized consolidation as the underlying forces driving bank M&A in recent years – if not decades – all largely still hold and have, in fact, been exacerbated by recent developments and competitive challenges. Deal discussions will especially gain momentum as the endgame for the FOMC’s tightening cycle comes into focus, as clarity on the economic outlook emerges, and if and as bank stocks rebound to more-customary levels.

Accordingly, now is a particularly good time to be updating and re-calibrating your bank’s strategic direction whether as a potential seller, a would-be acquirer, a prospective merger counterparty, or in remaining independent. To facilitate such an assessment, we have a host of resources and information available to help ask and answer key strategic questions including a broader update on the M&A market, a customized review of various M&A alternatives for your bank, and a framework for valuing your own bank or another institution. Please feel free to contact us to discuss what resources may be helpful to you and your Board. I can be reached directly at either 202-627-2043 or colsen@olsenpalmer.com.

Finally, by way of background, Olsen Palmer LLC is an independent investment banking firm that specializes in advising community banks across the U.S. on M&A, valuation, and related strategic options. We are proud to be the #1 M&A advisor to Tennessee banks, by a wide margin, having advised on nearly 30 Tennessee bank M&A transactions over the past 2+ decades. Nationally, Olsen Palmer is the #1 sell-side bank M&A advisor and one of the top 2 overall bank M&A advisors while, individually, Managing Partner Christopher Olsen is the #1 advisor for the 4th straight year, according to S&P Global. Unlike other M&A firms that separately emphasize services that include subordinated debt, equity capital markets, bond trading, asset-liability management, balance sheet strategy, retail brokerage, etc., we are intentionally 100% focused on M&A. The value of this specialization is reflected in our industry leadership and the unmatched quality of our advice.

For additional information or with any questions on bank M&A conditions, valuation, or strategic options please feel free to contact Christopher Olsen at 202-627-2043 or colsen@olsenpalmer.com.