trending Market Intelligence /marketintelligence/en/news-insights/trending/pjr_5yxd44hjdz6fnpsl-g2 content esgSubNav
In This List

May showers the US bank landscape with important M&A deals

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


May showers the US bank landscape with important M&A deals

Merger-and-acquisition activity among U.S. banks gathered momentum in May, as did the size and price of deals, fueling expectations for greater consolidation in a period of deregulation.

Buyers announced 22 bank and thrift acquisition plans during May, pushing the total for 2018 to 106 at the end of last month, according to an S&P Global Market Intelligence tally. There were 98 deals announced during the first five months of 2017.

The three largest acquisitions of the year by deal value were announced in May, including the biggest and second most expensive when measuring the target's price-to-tangible common equity: Fifth Third Bancorp's planned buyout of MB Financial Inc. in Chicago for $4.59 billion, or more than 270% of TCE.

The second priciest deal of the year also emerged in May: Independent Bank Group Inc. agreed to pay $1.04 billion, or 319% of TCE, to buy Guaranty Bancorp. It trailed only Meta Financial Group Inc.'s deal to acquire Crestmark Bancorp Inc., announced in January, for $321.2 million, or 404% of TCE.

Independent's pending deal marked the third largest of this year by total value, one spot behind Cadence Bancorp.'s $1.37 billion planned buyout of State Bank Financial Corp., also announced in May.

"We are in a rich period of M&A in terms of both pricing and the number of deals — and now the size of the deals, too," Curtis Carpenter, principal and head of investment banking at Sheshunoff & Co. Investment Banking, said in an interview.

SNL Image

With federal tax cuts in 2017 and economic expansion this year, Carpenter said larger banks are eager to grow lending and gain market share in major metropolitan areas or growth regions such as the Southeast and Southwest. They also are searching for new low-cost funding bases as interest rates rise and competition for deposits needed to fund loan growth heats up, he noted.

Big regional banks with strong stock valuations can afford to pay up for large community-bank or smaller regional-bank targets that have robust core deposit holdings and competitive toeholds in attractive markets. What is more, Carpenter said, large regional banks also now have substantial new freedoms to grow following recently signed deregulation legislation that, among other changes, raises the asset threshold for expensive annual regulatory stress testing from $50 billion to $250 billion.

Against that backdrop, Carpenter and others expect peers of the $141.5 billion-asset Fifth Third to become buyers, and a larger number of smaller but prominent regionals such as the $20.2 billion-asset MB Financial — which had in recent years been a buyer of banks itself — to consider selling. An actual trend on this front would mark a meaningful shift in the era following the financial crisis. Large bank deals have popped up only sporadically throughout this decade.

"The clear sense is that regulatory relief will unleash a lot more consolidation activity involving banks big and small," Bert Ely, an independent industry analyst and president of bank consultancy Ely & Co., said in an interview.

Ely said "it's anyone's guess" which big bank will surface as the next buyer. But he does expect to see more deals involving acquirers in the realm of Fifth Third. He noted that the Cincinnati-based regional stands to beef up not only its deposit market share in Chicago — it would rank only behind JPMorgan Chase & Co. after the MB Financial deal closes — but also gain a big chunk of core deposits and a strong middle-market commercial lending operation in the third most heavily populated metro area in the country.

"It is the kind of deal, while pricey and likely to get some criticism about price at announcement, that could make a lot of sense now that these bigger regionals can pack on assets without having to deal with more stress testing," Ely said. "You ramp up substantially in a very important market and you position yourself to capitalize on business, population and economic growth there."