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Bank M&A Activity Slips Slightly in Q4, as Yearly Totals Rise

February 14, 2019, 08:28 AM
Filed Under: Mergers & Acquisitions

Integrated Legacy Solutions (ILS), a provider of data and image migrations to the financial industry, released its annual review of industry merger and acquisition data for 2018. Derived from data provided by the Federal Reserve System, the research quantifies all U.S. bank M&A activity closing in 2018.

There were 62 bank M&A deals closed in the 4th quarter of 2018. Which is a slight drop of 11%, over the same period of 2017. However, Q4 of 2018 was on par with Q1 and Q2 each of which had 65 deals close. M&A deals ended the year up with a total of 266 deals closed. Q4 of 2018 marked the third straight year that closed with 60 plus deals in the final quarter and is continuing the year over year trend to climb back towards the historical highs of 2015. The outlook for Q1 of 2019 is also strong with 54 deals having already been announced. One of which is the merger between BB&T and Sun Trust which, at a $28.2 billion transaction, is easily the largest bank merger since the 2008 financial crisis. This merged institution will become the sixth largest bank in the United States with an estimated $442 billion in assets. “This deal alone could change the M&A landscape for 2019 as community banks will benefit from the planned divestiture of $1.4 billion in deposits and testing governmental and regulators tolerance for more large bank mergers across the country and a renewed wave of mid-tier consolidation,” according to Kris Bishop President of Integrated Legacy Solutions.

2018 ended with total M&A activity up 7%, or 18 deals, over the previous year. There was also an 8% increase in the combined value of all deals in 2018 ($28.6 billion). However, one large deal, Fifth Third’s acquisition of MB Financial, accounted for 16% of the entire $28.6 billion. Continued market growth at this rate would lead to M&A activity potentially returning to the numbers seen in 2015 (349 deals closed) in the next 3 to 5 years. 2018 closed only 9% off the 5-year average of 292 deals. 2018 marks the seventh straight year with over 240 transactions announced during the year, and the fifth straight year in which more than 4% of the institutions at the beginning of the year sold. Based on these trends, and without attempting to identify how any market decline in the financial sector will impact M&A activity, this would point to between 250 and 295 bank acquisitions to be announced in 2019. In summation, 2018 was a sporadic year for the M&A market with a surge of deals closed in Q3 (74) and a strong close of the year in Q4 (65).

Considering the market impact of the newly elected congress and the 2020 Presidential election, these numbers are very encouraging. One of the most hindering factors of M&A activity is uncertainty. Investors are hesitant to make significant investments if they are unsure about future changes to policies. Thankfully, low interest rates and the tax cuts have contributed to a healthy M&A market producing high valuations for exiting business owners the last few years. “The now divided Congress reduces the chances of any changes in policies that would significantly impact the market conditions before 2020. Unless we see significant bipartisanship, the most likely outcome is gridlock, which is good for the markets in the short-term,” said Bishop.

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