The #1 Reason That Potential Buyers and Sellers Walk Away From a Bank M&A Deal

According to Bank Director’s 2017 M&A Survey, price is the top reason that potential buyers and sellers have walked away from a deal in the past three years.

With the final days of November upon us, we are a mere 61 days away from hosting Bank Director’s annual Acquire or Be Acquired Conference.  This three-day event explores the various financial growth options available to a bank’s CEO, executives and board members; accordingly, I thought to share some highlights from our just-released Bank M&A Survey that resonate with this audience.

This research project — sponsored by Crowe Horwath LLP and led by our talented Emily McCormick — reflects the opinions of 200+ CEOs, CFOs, Chairmen and directors of U.S. banks.  As Rick Childs, a partner at Crowe, and someone I respect for his opinions and experiences shares, “good markets and good lending teams are the keys for many acquirers, and are the starting point for their analysis of potential bank partners.”  While we cover a lot of ground with this survey, below are five points that stood out to me:

  • An increasing number of respondents feel that the current environment for bank M&A is stagnant or less active: 45% indicate that the environment is more favorable for deals, down 17 points from last year’s survey.
  • 46% indicate that their institution is likely or very likely to purchase another bank by the end of 2017.
  • 25% report that they’re open to selling the bank, considering a sale or actively seeking an acquirer. Of these potential sellers, 54% cite regulatory costs as the reason they would sell the bank, followed by shareholder demand for liquidity (48%) and limited growth opportunities (39%).
  • Price, at 38%, followed by cultural compatibility, at 26%, remain the two greatest challenges faced by boards as they consider potential acquisitions. Price is identified as the top reason that potential buyers and sellers have walked away from a deal in the past three years.
  • 45% report that they are seeing a deterioration in loan underwriting standards within the industry, leading to possible credit quality issues in the future.

Driven by shareholder pressures in a low-growth and highly regulated environment, some community banks could be seeking an exit in the near future. But which banks are positioned to get the best price in today’s market?  This survey provides potential answers to that question — foreshadowing certain conversations I’m sure will occur in January during our 23rd annual Acquire or Be Acquired conference.

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My thanks to Rick and his colleagues at Crowe for their continued support of this research project.  To see past year’s results — and other board-level research reports we’ve shared — I invite you to take a look at the free-to-access research section on BankDirector.com

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