On Recent Bank Mergers and Acquisitions

Earlier this week, American Banker’s Robert Barba wrote that bank M&A could reach an “inflection point” (sorry, paywall). With bank valuations increasing — and asset quality improving — I’m seeing deal premiums make a comeback, along with banks able to pay them.  The title of Robert’s piece caught my attention, as did his look at BB&T’s agreement in early September to buy the $2 billion-asset Bank of Kentucky Financial in Crestview Hills.  While that high-stakes deal has generated headlines, let me share some observations about another transaction that “shows well.”

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As Robert wrote on Tuesday, the $188 billion-asset BB&T is “often viewed as one of the bigger banks most likely to acquire. It managed to make a few deals during the downturn, including buying the operations of BankAtlantic from its holding company and picking up Colonial Bank’s assets and deposits from the Federal Deposit Insurance Corp.”  While this deal alone does not represent a resurgence of big bank M&A, it might foreshadow a pick up in activity.

Of course, no two deals are alike — and as the structure of certain deals becomes more complex, bank executives and boards need to prepare for the unexpected. The sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base.  For this reason, I wrote a piece for BankDirector.com called “Deciding Whether to Sell or Go Public” earlier this week (no registration required).  As you can read, David Brooks, the chairman and CEO at $3.7-billion asset Independent Bank Group based in McKinney, Texas, and Jim Stein, the former CEO of the Bank of Houston and now vice chairman of Independent Bank, talked with me about their experiences and decision to merge their banks.

With merger activity on the rise, more boards of directors are considering whether the time is right for their financial institution to find a strategic partner, especially if they want to maintain the strategic direction of the institution or capture additional returns on their shareholders’ investment.  In the end, no one knows what will happen with bank M&A in the coming months, but looking at deals like the one Robert wrote about and the one I shared… well, one can guess.

Aloha Friday!

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