FI Tip Sheet: Acquire or Be Acquired

So we had a little snow in D.C. this week… and a bit of wind too. Fortunately, I’m heading west towards Bank Director’s 20th annual Acquire or Be Acquired conference this morning. As I wrote about on Wednesday, I will be checking in on a daily basis from the historic Arizona Biltmore with insight and observations from our flagship “AOBA” conference. Before I hit the desert, let me share three thoughts that tie into the conference themes of bank mergers and acquisitions as I make my way from D.C. towards Phoenix.

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7,000 is so 2013

Let’s simply start with a number: 6,891. Confused? Don’t be. This is the number of federally-insured institutions nationwide as of last Fall — falling below 7,000 for the first time since federal regulators began keeping track in 1934 (according to the FDIC). Now, let me put this into context; specifically, by asset size. 6,158 banks (90% of all U.S. banks) have assets of less than $1 billion. 562 banks have assets between $1 billion and $10 billion and only 108 institutions have assets greater than $10 billion. The kicker? The “distribution of wealth” heavily favors the biggest of the big. Case-in-point: banks with $10 billion or more in assets controlled 24% of total industry assets in 1984 (according to the American Banker). That share has swelled to over 80% today. When you think about things in these terms, its not surprising to hear the majority of bank M&A will occur in the <$1Bn range.

What’s the deal?

According to SNL Financial, there were 227 M&A transactions in 2013 — up from 218 in 2012. Nonetheless, these numbers pale in comparison to “the halcyon days of late 1990s.” As our editor, Jack Milligan, wrote in a post that ran on this site in December, we may “eventually see the emergence of a new tier of banks in the $10 billion to $50 billion range that will consolidate attractive banking markets… and help drive consolidation into yet another phase.” Still, hurdles to doing a deal remain. For instance:

  1. Higher capital and liquidity requirements;
  2. Today’s regulatory environment presents many significant and ongoing challenges; and
  3. Access to capital markets remains limited to many.

That said, I’m sure we will continue to see the combination of really strong companies — think this week’s union between North Jersey banks ConnectOne and Center Bancorp – and do agree with Jack’s perspective on what the future holds.

Ready to raise your hand?

I’m confident that an advisor (or two, or three or ten) will declare a merger or acquisition to be the principal growth strategy for community banks. I’m also anticipating conversations that entail the need for a bank’s CEO and board to re-examine their branch networks and strategies. Steering clear of anything that relates to the actual structure of deal, here are three questions I think will crop up early (and often) at AOBA:

  1. How do you know your bank has the right team in place to implement, and deliver, sustained results?
  2. If I’m not ready to sell — but am not in a position to buy — how can I grow?
  3. How can I, as a potential acquirer, create a strategic advantage vs. my peers?

If you’re joining us in Arizona this weekend, I’m looking forward to saying hello. If you’re not able to make it but want to follow the conversations from afar, #AOBA14 and @aldominick on Twitter should do the trick.

Aloha Friday!

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