The 'Great Thaw' in Community Bank M&A Is Beginning to Emerge

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Community banks are evaluating merger partners in greater numbers. Increased competition, costly regulations and succession planning challenges are threatening the survival of many institutions in the community banking space, according to Austin Associates, LLC, a community bank consulting and investment banking firm. Year-end 2013 M&A statistics compiled by SNL Securities indicate indicate a three-year trend of increasing deal activity is likely to continue into 2014.

'The Great Thaw' in bank merger and acquisition activity may finally be leading to the much anticipated consolidation...

“’The Great Thaw’ in bank merger and acquisition activity may finally be leading to the much anticipated consolidation among community banks,” according to Craig J. Mancinotti, co-managing director and principal of Austin Associates’ investment banking practice. For all of 2013, 228 deals were announced, marking the third consecutive yearly increase in M&A activity.

Through the first month of January, 2014, 19 deals have been announced, according to statistics released by SNL Securities. Austin Associates, which has been providing M&A advice to community banks for nearly five decades, has announced five deals already in January involving both whole bank and branch transactions.

The pick-up in community bank deals can be traced to several factors. “All banks, but especially community banks, have been severely impacted by an onslaught of new costly regulations imposed in the aftermath of the Great Recession,” says Rick Maroney, who co-manages Austin’s investment banking practice area. “Community banks under $1 billion in assets through the third quarter of 2013 experienced a decline of 2.6 percent in revenue growth,” Maroney noted. “When you combine the dynamic of rising costs and declining revenues, banks will be increasingly challenged to deliver acceptable returns to their shareholders,” Maroney said.

These observations, among others, were delivered at the Acquired or Be Acquired Conference, sponsored by Bank Director Magazine and held recently in Phoenix. Their presentation emphasized the importance of building a scalable business model to better leverage elevated expenses and diminishing sources of new revenues. “For some community banks, acquiring smaller, less efficient institutions or merging with a comparably-sized bank enables them to restructure their organizations in a manner that delivers greater opportunities for enhancing shareholder value,” Mancinotti noted.

“Selling to a larger institution is still a viable option for a community bank when most other opportunities for increasing franchise value are exhausted, or when management and director succession challenges are unresolved,” Maroney said. As many of these trends exert further pressure on community bank management teams, consolidation within the community banking sector is likely to shrink the number of banks by 20-30 percent or more through the next decade, both investment bankers suggested.

For current M&A statistics, or to view information presented at the Acquired or Be Acquired Conference, 2013 M&A Data and Presentation Materials

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Paul Simoff
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