Illimity Bank acquisition would increase Banca Ifis' total assets by 64%

Banca IFIS SpA's assets will grow by nearly two-thirds if the Italian specialty lender is successful in its €294.7 million bid for domestic peer Illimity Bank SpA.

The deal would increase Banca Ifis' total assets by 63.8% from €13.05 billion to €21.37 billion, making it the seventeenth biggest bank in Italy as of Dec. 31, 2023, according to S&P Global Market Intelligence data. The deal would boost Ifis' net profit by nearly 25% based on data for the first nine months of 2024.

Banca Ifis launched an unsolicited €3.55 per share for Milan-based Illimity Bank on Jan. 8. About 60% of the consideration would be paid in shares, and the remainder would be in cash.

The deal would allow Venice-based Ifis "to broaden its product offering and enter additional market niches within its core NPL and small and medium-sized enterprise (SME) commercial banking businesses," said Paolo Comensoli, director of financial institutions at Fitch Ratings.

The offer represents a premium of 5.8% to Illimity Bank's share price on the last trading day before the bid was launched. "We think ... we are offering a fair price that reflects the actual value ... of the company and takes into account synergies and restructuring costs, integration costs," said Banca Ifis CEO Frederik Geertman during a Jan. 8 conference call.

Illimity, in a Jan. 10 statement, said it would communicate its opinion on the bid within the time period required by law. Rating agency Moody's placed Illimity on review for upgrade as a result of the potential deal.

Ifis has hired CC & Soci and Equita SIM as financial advisers and Bonelli Erede Lombardi Pappalardo as its legal adviser.

Contrasting fortunes

Ifis' stock achieved a total return of 130.4% over the past five years, nearly double that of the S&P Europe BMI Banks Index, while Illimity's total return was negative 58.8% over the same period.

Illimity's price-to-tangible book ratio also fell significantly over the last five years, sitting at 39.2% as of Jan. 10, compared to 71.7% for Ifis.

Illimity Bank's stock price surged more than 10% after the bid announcement Jan. 8.

Banca Ifis' profitability has benefited from higher interest rates and resilient NPL collections, according to Fitch Ratings' most recent report. The credit rating agency expects a moderate deterioration in operating profitability in 2025, due to lower net interest margins, cost inflation, and continued investments.

If a merger with Illimity Bank occurs, Ifis' CET1 ratio is expected to remain above 14%, Comensoli said. This level would provide a sufficient cushion over regulatory minimum requirements and protect against moderate shocks, he said.

– Access earnings estimates data for Banca Ifis.  – View Illimity Bank's detailed M&A history.

 

M&A frenzy

Ifis' bid comes amid a spate of M&A activity in Italy.

In November, UniCredit SpA made an unsolicited all-share offer to acquire domestic peer Banco BPM SpA for €10.1 billion, in a bid to become Italy's biggest bank by assets. Earlier that month, Banco BPM itself had offered to take over asset manager Anima Holding SpA, and both bought into Banca Monte dei Paschi di Siena SpA, as the Italian government reduced its stake.

Comensoli said Italy's banking sector is using M&A to achieve a larger scale, improve operating efficiency, and increase revenue diversification by acquiring specialized players.

In its offer document, Ifis said it expects Italy's banking market to be "characterized by further consolidation in the coming years, favored by increasing competitive pressure and an increasingly complex and constantly changing regulatory framework."

"Even specialized operators will, therefore, have to consider entering external growth transactions in order to increase their solidity and maintain profitability and efficiency in a macroeconomic context that will probably see lower interest rates in the future compared to those recorded in the last few years," Ifis said.

The Ifis-Illimity deal would be the fifth-largest Italian bank merger this decade, according to Market Intelligence data.