The results examine M&A expectations for the banking sector amid economic uncertainty and rising interest rates.
NASHVILLE, TENNESSEE., November 15, 2022 /PRNewswire/ — bank directorthe leading source of information for directors and officers of financial institutions across the country, today released the results of its study 2023 Bank M&A Surveysponsored by Crowe LLP. The results show a growing gap between those who want to buy a bank and those who are willing to sell it.
Although acquisitions are still part of the long-term strategy for most institutions, only 39% believe their bank is likely to acquire another financial institution by the end of 2023, down 11 points year-on-year.
“The divide between buyers and sellers isn’t new — there are always far more banks looking to buy than there are potential targets,” he says Emily McCormick, Vice President of Research at Bank Director. “In this year’s survey, we’re really seeing how that’s reflected in price expectations today. Most buyers don’t want to pay more than 1.5 times actual book value for a suitable destination, but 70% of prospective sellers expect more for their institution.”
The gap between buyers and sellers goes beyond price. More than half of survey respondents say their board and management team would not be willing to sell the bank in the next five years, despite the boards’ fiduciary duty to act in the best interests of their bank’s owners. In comments, many respondents state that they believe their shareholders and communities would be better served if their bank continued as an independent entity; others state that their institution is tightly held. Of those open to selling their institution, 42% say an inability to provide shareholders with a competitive return is a factor that could drive a sale in the next five years. Thirty-eight percent name the succession of CEOs and executives.
Looking ahead to 2023, bankers overall have a bearish outlook on the country’s prospects, with 59% expecting a recessionary environment. But while two-thirds believe the US is currently in the midst of a recession, only 30% believe their local markets are experiencing a downturn.
“2022 was a particularly challenging year for bank buyers. Uncertainty in the economy due to high inflation and Federal Reserve policy, combined with a turbulent stock market, has made it difficult to secure deals on acceptable terms,” he says Crowe partner Rick Childs. “This has resulted in lower transaction volume and lower valuations for the announced transactions. These challenges will likely continue into 2023, at least for the first or second quarter.”
Focus on insoles
With interest rates rising, 58% of prospective acquirers cite an attractive deposit base as a top target attribute, up sharply from 36% last year. Acquirers also value a complementary culture (57%), locations in emerging markets (51%), efficiencies (51%), talented lenders and lending teams (46%), and proven lending growth (44%). Appropriate targets seem difficult to find for potential buyers: only a third say there are enough targets to drive their growth strategy.
When asked about integrating an acquisition, respondents point to concerns about employees. 81% worry about effectively integrating two cultures, and 68% express concerns about retaining key employees. Technology integration is also a major concern for potential buyers. Concerns about talent are even more evident when respondents are asked if they plan to hire as a result of market consolidation: 47% say their bank is actively recruiting talent from merged companies, and another 39% are open to following dissatisfied employees to win a consolidation trade.
Interest in investing in or acquiring fintechs remains low compared to previous surveys. Only 15% say their bank invested indirectly in these companies through one or more venture capital funds in 2021-22. Fewer (1%) have acquired a tech company during this time, while 16% believe they could acquire a tech company by the end of 2023; less than half a point on financial returns, specific technological improvements, or the addition of new revenue streams. Only a third of these investors believe their investment has met their overall goals; 47% are unsure.
capital for growth
Most potential buyers (85%) are confident their bank has access to sufficient capital to fuel their growth. However, a third of prospective public buyers believe their stock valuation would not be attractive enough to buy another institution.
That opinion poll includes the views of 250 independent directors, CEOs, CFOs and other senior executives of US banks below 100 billion dollars in wealth. That poll results are now available online at BankDirector.com.
About bank manager
Bank Director reaches the executives of the institutions that make up the American banking industry. Since 1991, Bank Director has provided board-level research, peer insight and in-depth services to executives and board members. Built for banks, Bank Director extends into and beyond the boardroom by providing timely and relevant information bank director Magazine, executive education services and the finance industry’s premier event Acquire or Be Acquired. For more information, please visit BankDirector.com.
About Crowe LLP
Crowe LLP is a public accounting, consulting and technology firm with offices around the world. Crowe leverages its deep industry expertise to provide auditing services to public and private entities. The firm and its subsidiaries also help clients make wise decisions that lead to lasting values through their tax and advisory services. Crowe is recognized by many organizations as one of the top places to work in America. As an independent member of Crowe Global, one of the largest global accounting networks in the world, Crowe serves clients worldwide. The network consists of more than 200 independent accounting and consulting firms in more than 130 countries worldwide. For more information on Crowe’s services to the financial industry, visit https://www.crowe.com/fs.
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