The M&A Market: What to expect in 2018 and into 2019

Ann Jones June 18th, 2018

Overall, mergers and acquisitions in the finance world have been steady in recent years. What should banks be doing to prepare if they want to be acquired? What should they be doing if they want to acquire another bank? Let’s look a little closer at this issue.

Since 2014 we have seen a return to traditional M&A activity following a series of FDIC assisted transactions that were the result of failed institutions in 2009 through 2012. There are a number of banks that managed their way through the Great Recession without catastrophic loan losses but have struggled to reach their earnings goals. We consistently hear three primary reasons for this.

  1. Additional regulatory burdens because of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the most significant changes to financial regulation since the Great Depression.
  2. The historically low-interest rate environment with a flat yield curve.
  3. Slower loan demand than previous periods of economic expansion.

Many of the boards of directors of these banks are experiencing board fatigue and choosing to retire. When there is not a pool of individuals willing to serve on a bank board, the bank often chooses to sell rather than recruit new directors.

On the other side of the transactions are banks that protected precious capital during the recession or have been able to raise capital during the expansion, and now they need to deploy that capital. With the slower loan demand previously mentioned, one way to deploy that capital is to acquire another institution. With the continued economic expansion and the Federal Reserve actively raising rates, we are likely to continue seeing the consolidation of the banking industry that has been underway for the last 30 years.

What should banks be doing to prepare if they want to be acquired?

Banks looking to be acquired should be focused on growing and strengthening their core business by gaining market share in core deposits and commercial loans in their market. Banks with higher non-interest-bearing core deposit balances will receive higher purchase premiums than banks that are funded with higher cost, rate-sensitive time deposits or wholesale funding sources.

The same is true for banks with well-underwritten, performing loan portfolios made up of local market relationships instead of purchased loan portfolios or out-of-market loans. In our opinion, the best way to set a bank up to be acquired is to run it like you don’t want to sell it.

How can Banker’s Dashboard be of use to banks that want to be acquired?

The Banker’s/CU Dashboard, our web and mobile-enabled software solution that provides actionable insights into a bank’s financial performance in a snap, can be a powerful tool to a bank looking to be acquired. The financial reporting features allow the target institution to easily provide a wide range of information including financial ratios, trend data, period-to-period comparisons and forecasts.

The performance management aspects of the Dashboard provide management with tools to monitor the metrics most important to the institution daily and respond quickly as market conditions change. Setting and tracking goals using the Dashboard allows management to visualize the metrics they deem most important and keep the attention of staff focused on those metrics.

How can Dashboard help acquiring banks?

There are many ways the Dashboard can be used by acquiring banks.

The projections and forecasting capabilities help acquiring banks generate pro forma financial statements to estimate the impact an acquisition will have on the institution.

During the acquisition process, acquiring banks that use the Dashboard may get permission for the target institution to interface their core with the Dashboard, allowing the acquiring institution to view financial information from both entities from a single sign-on. This allows the acquirer to run simulated consolidations of the combined entities.

After the merger has taken place, the consolidation capabilities of the Dashboard make it easy to combine the financials well before any core conversion takes place. The perfect scenario is when both the acquirer and target institution are already Dashboard clients, but this is not a requirement.

Whether you’re on the acquiring side or the acquired side, Dashboard can provide fast, accurate information about every aspect of a bank’s fiscal health. To learn more, contact us here or customers can reach out to their client support consultant.

This content is accurate at the time of publication and may not be updated.