Bank merger-and-acquisition volumes slowed to a near standstill in 2023, hindered by high interest rates and related
A spate of
There were only 98 deals inked in 2023, according to updated data from S&P Global Market Intelligence. That was far below the 161 in the prior year and less than half the 202 M&A transactions announced in 2021, when activity rebounded from the temporary lull imposed by the pandemic in 2020. The 112 total in 2020, when COVID-19 temporarily paralyzed vast swaths of the economy, was still higher than last year.
In the same span, the latest S&P data showed, the aggregate disclosed deal value plunged to $4.2 billion last year from nearly $9 billion in 2022 and $77 billion in 2021, when an elevated number of large deals were announced.
Jacob Thompson, managing director of investment banking at Samco Capital Markets, noted that the Federal Reserve's rate-hike campaign, launched in 2022 to curb inflation that spiked in the pandemic's aftermath, swiftly pushed up borrowing costs. When that happened historically, economic activity tended to slow down, and recessions followed.
As such, he said, the rate increases raised fears of a downturn hampering borrowers' collective ability to repay loans and creating fresh threats to banks' credit quality. This made some buyers nervous and contributed to the M&A 2023 slowdown.
Economic vulnerability also put downward pressure on banks' stocks for much of last year, and this hurt buyers' ability to use their shares to pay for acquisitions.
What's more, Thompson said regulatory headwinds that emerged after the Biden administration in 2021
"There were a lot of moving parts in the year, a lot of challenges and concerns that really did result in a meaningful slowdown," Thompson said.
M&A was also sluggish across most industries in 2023, according to KPMG.
U.S. M&A deal value totaled $1.3 trillion in 2023, down nearly 50% from 2022 ($2.5 trillion) and the lowest level since 2010 ($1.2 trillion), the firm said.
It "was a very weak year for M&A in the U.S. as rising rates, the threat of a recession, and mismatched valuation expectations put a brake on dealmaking," said Carole Streicher, head of deal advisory and strategy at KPMG U.S. "However, the data showed a pickup in M&A in the fourth quarter, and this aligns with the uptick in work we have been seeing with our clients."
Thompson said bank M&A would also likely rebound once it is clear rates are done rising and the economy is stable. He said would-be small bank sellers, struggling to keep up with the technology spending of larger banks and intense competition broadly, may look to join larger banks to create more efficient digital offerings.
Elevated deposit costs also are hurting many community banks, he added, and many small lenders also have chief executives nearing retirement without firm succession plans in place. Selling to a bigger bank with more funding resources and deeper benches of talent can address these challenges.
Larger community and regional banks, meanwhile, are eager to broaden their loan portfolios to give them greater options to grow interest income through loan volume and to diversify to help safeguard credit quality should the economy slow in the future. Geographic diversity can prove similarly positive. Acquisitions could hasten these goals, Thompson said.
"There are a lot of looming catalysts" for M&A, he said.
