Snapshot for week beginning 27 June. With dealmakers counting on economic recovery, the banking sector is witnessing a rebound in M&A deals, fuelled by strategic consolidations, cross-border activity, and a rebound in deal-making for Covid-affected sectors.
The market saw a flurry of deal activity in the first half of 2021, signalling an intent by banks to capitalise on potential strategic and growth opportunities.
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Bank stocks are being viewed as an attractive investment opportunity by the market. Strong first quarter earnings on the back of reduced credit losses have helped propel bank indexes to outperform other industry comparisons.
In addition, anticipated inflation could add fuel to an already hot deal market. We expect the consolidation of regional banks will continue as banks look to gain market share and/or footprint.
With banks poised with strong stock prices to use as currency in deals, the outlook is positive for an increased number of deals.
The post-Covid-19 M&A market is a buyer’s market
Conversely, the larger multinational financial institutions will always strive to be leaner and more efficient and may look to spin off business units as their strategy changes.
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By GlobalDataIn this dynamic market, as companies re-evaluate their holdings, there are ample opportunities to find buyers for an asset management unit or group of branches in a particular segment that no longer fit the plan.
Banks will have to continue to navigate their own growth story.
The historic headwinds to profitability of compressed net interest margins from lower rates and lower demand for loans appears to be at a turning point.
Meanwhile banks have developed an appetite for increased fee income in an effort to bolster earnings. The question often comes down to “where” to grow as much as to “who” to partner within that growth.
The outlook for banking deal activity remains optimistic for 2021
The first half of 2021 saw 47 deals announced with an aggregate value of $31.6bn.
This compares to 25 announced deals and $6.8bn during the first half of 2020 (excluding Morgan Stanley’s $13.1bn acquisition of E*TRADE Financial Corp) which was negatively impacted by the emergence of the Covid-19 pandemic during the second quarter of 2020.
During the period, we saw a number of regional bank tie-ups, including a trio of sizable transactions in April.
These, along with the PNC/BBVA and Huntington/TCF deals from late last year, suggest that there is sustained appetite for mid-market consolidation at the right prices.
The deal of the week: First United Bank to acquire First Bank and Trust
First United Bank, a community bank has agreed to acquire First Bank and Trust, a provider of financial services. Both the companies involved in the transaction are based in the US.
Following the acquisition, the operations of First Bank and Trust will continue as a full-service banking centre of First United Bank operated by existing personnel of First Bank and Trust.
The transaction is subject to certain conditions and regulatory approvals and is expected to close in August 2021, according to the release.
First United Bank operates 14 banking centres throughout West and North Texas in Amarillo, Canyon, Dimmitt, Earth, Lamesa, Littlefield, Lubbock, Seagraves, Seminole, Sudan, and Wichita Falls.
As of March 31, First United Bank reported total assets of $1.6bn and total deposits of $1.4bn.
First Bank and Trust of Childress operates three banking centres in Childress and Paducah. As of March 31, First Bank and Trust reported total assets of $149.0m and total deposits of $137.0m.
The combined banking operations will have assets of approximately $1.8 billion, total deposits of $1.6bn, loans of $1.1bn and equity capital of $175m.
