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While executives are eager to put excess capital to work, the sell-off of KeyCorp stock following the announcement of the First Niagara deal shows investors will react swiftly and severely when it appears a buyer has overpaid.
October 30 -
New York Community has long wanted a deal to push it over $50 billion of assets. While Astoria accomplishes that, it does little to diversify New York Community's geography or reduce its reliance on multifamily lending.
October 29 - New York
The New York company took investors on a roller coaster ride over a dozen years, with issues that included a CEO's death, another leader's ambitious M&A strategy, and an ill-timed effort to upgrade outdated technology.
October 30 -
The long-delayed approval of the merger of M&T and Hudson City should have been a bright spot in postcrisis M&A, but a small footnote from the Fed quickly reminded bankers that dealmaking will remain a demanding process.
October 1
Bank consolidation has a realistic shot to post the strongest yearly showing since the financial crisis.
The banking industry agreed to 34 deals in October collectively valued at $8.2 billion, marking the best single month for M&A this year, based on data compiled by Keefe, Bruyette & Woods. Those deals also boasted an average premium of 152% of tangible book value.
Many industry observers predict that the volume and average premiums will continue to steadily rise in coming months. While M&A has
"It feels like we're taking the next step in terms of M&A," said Joseph Fenech, a managing director at Hovde Group. "It seems to be a continuation of a gradual pickup of smaller bank deals, but the new news here is the return of larger deals."
Since January 2014, banks have agreed to 11 deals valued at more than $500 million, though three of those were announced in the last two weeks, based on KBW's data.
While it is "impossible to know" if the pace will continue, Harvard Winters, a former investment banker who provides equity research on banks, said
KeyCorp in Cleveland, which
Each deal has unique traits, particularly from the perspective of the sellers.
First Niagara has been hampered by its own
Investors have also reacted harshly to the deals. Key's shares plunged due to a belief that it overpaid, or at least put too much stock into the deal. New York Community, meanwhile, spooked shareholders by announced plans to restructure its balance sheet, raise capital and cut its dividend.
With that in mind, other acquisitive executives will likely study those deals before trying to structure a deal that will be embraced by investors, industry observers said.
"Everyone is always looking to see how investors react," said Robert Kafafian, president and chief executive of Kafafian Group. "I wouldn't overstate that potential impact. I think more banks are afraid" to sit idle.
Banks are facing a number of headwinds, which generate more M&A.
There should be "increased activity across the board in all sizes and all categories," said Lee Burrows, chief executive of Banks Street Partners. Competition is "brutal and loan portfolios are growing slowly, and the best way to grow a portfolio is through an acquisition."
For one, many bankers are revisiting the notion of building scale, particularly at institutions that are around $50 billion in assets, industry observers said. That threshold triggers more regulatory scrutiny, which would add more challenges to an existing low interest rate environment.
"It's better to have more scale," said Arthur Long, a partner at Gibson Dunn. "I think that's one of the things driving this M&A."
Low rates alone have been pushing a number of banks to merge, said Rick Maples, KBW's co-head of investment banking. Potential sellers are running out of ways to pad earnings, and buyers see a chance to complete an acquisition, cut costs and improve their own bottom line.
In addition,
"Activism is here to stay," Maples said. "Given that we have a steadily improving environment, the activists have places they can push people, as opposed to a down economy where people have nowhere to go."
Many institutions have also moved beyond their crisis-era credit and earnings issues, providing increased confidence that they can successfully complete an acquisition, said Ciaran McMullan, president and chief executive of Suncrest Bank in Visalia, Calif.
The $205 million-asset Suncrest's management team
"I don't think the reasons boards are considering selling right now are really any different than what has always driven boards to sell," McMullan said.
Banks are "struggling to achieve the growth they want on their own, have no succession plan and aging executive leadership [or] ongoing regulatory issues," McMullan said. "Of course, they just have more people calling on them right now. There are just more buyers out there."