Bank Director Releases 2023 Bank M&A Survey Results: Can Buyers and Sellers Come to Terms?

Results explore M&A expectations for the banking sector amid economic uncertainty and rising rates.

NASHVILLE, Tenn., Nov. 15, 2022 /PRNewswire/ -- Bank Director, the leading information resource for directors and officers of financial institutions nationwide, today released the results of its 2023 Bank M&A Survey, sponsored by Crowe LLP. Findings reveal a widening gap between those who want to acquire a bank and those willing to sell.

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, representing an 11-point decline compared to the prior year.

"The divide between buyers and sellers isn't new — there are always many more banks that want to acquire than there are potential targets," says Emily McCormick, vice president of research at Bank Director. "In this year's survey, we truly see how this is reflected in pricing expectations today. Most buyers don't want to pay more than 1.5 times tangible book for a suitable target, 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 open to selling the bank over the next five years, despite boards' fiduciary duty to act in the best interests of their bank's owners. In comments, many respondents explain that their shareholders and communities would be better served, they believe, if their bank continues as an independent entity; others indicate that their institution is closely held. Of those open to selling their institution, 42% point to an inability to provide a competitive return to shareholders as a factor that could drive a sale in the next five years. Thirty-eight percent cite CEO and senior management succession.

Looking ahead to 2023, bankers overall have a pessimistic outlook for the country's prospects, with 59% expecting a recessionary environment. But while two-thirds believe the U.S. is currently in the midst of a recession, just 30% believe their local markets are experiencing a downturn. 

"2022 has been a particularly challenging year for bank acquirers. The uncertainty in the economy from high inflation and Federal Reserve policy, combined with a turbulent stock market, has made deals difficult to get to agreeable terms," says Crowe Partner Rick Childs. "This has led to lower levels of deals and lower valuations for those deals announced. These challenges will likely carry over in 2023, at least for the first quarter or two." 

Key Findings

Focus On Deposits
Reflecting the rising rate environment, 58% of prospective acquirers point to an attractive deposit base as a top target attribute, up significantly from 36% last year. Acquirers also value a complementary culture (57%), locations in growing markets (51%), efficiency gains (51%), talented lenders and lending teams (46%), and demonstrated loan growth (44%). Suitable targets appear tough to find for prospective acquirers: Just one-third indicate that there are a sufficient number of targets to drive their growth strategy.

Retaining Talent
When asked about integrating an acquisition, respondents point to concerns about people. Eighty-one percent worry about effectively integrating two cultures, and 68% express concerns about retaining key staff. Technology integration is also a key concern for prospective buyers. Worries about talent become even more apparent when respondents are asked about acquiring staff as a result of in-market consolidation: 47% say their bank actively recruits talent from merged organizations, and another 39% are open to acquiring dissatisfied employees in the wake of a deal.

Technology Deals
Interest in investing in or acquiring fintechs remains low compared to past surveys. Just 15% say their bank indirectly invested in these companies through one or more venture capital funds in 2021-22. Fewer (1%) acquired a technology company during that time, while 16% believe they could acquire a technology firm by the end of 2023. Eighty-one percent of those banks investing in tech say they want to gain a better understanding of the space; less than half point to financial returns, specific technology improvements or the addition of new revenue streams. Just one-third of these investors believe their investment has achieved its overall goals; 47% are unsure.

Capital To Fuel Growth
Most prospective buyers (85%) feel confident that their bank has adequate access to capital to drive its growth. However, one-third of potential public acquirers believe the valuation of their stock would not be attractive enough to acquire another institution.

The survey includes the views of 250 independent directors, CEOs, CFOs and other senior executives of U.S. banks below $100 billion in assets. The survey results are now available online at BankDirector.com.

Bank Director reaches the leaders of the institutions that comprise America's banking industry. Since 1991, Bank Director has provided board-level research, peer insights and in-depth executive and board services. Built for banks, Bank Director extends into and beyond the boardroom by providing timely and relevant information through Bank Director magazine, board training services and the financial industry's premier event, Acquire or Be Acquired. For more information, please visit BankDirector.com.

Crowe LLP is a public accounting, consulting and technology firm with offices around the world. Crowe uses its deep industry expertise to provide audit services to public and private entities. The firm and its subsidiaries also help clients make smart decisions that lead to lasting value with its tax, advisory and consulting services. Crowe is recognized by many organizations as one of the best places to work in the U.S. 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 advisory services firms in more than 130 countries around the world. For more information about Crowe financial industry services visit https://www.crowe.com/fs.

For more information, please contact Bank Director's Director of Marketing, Deahna Welcher at dwelcher@bankdirector.com.

SOURCE BankDirector.com