PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.
The market saw a flurry of deal activity in the first half of 2021, signalling an intent by banks to capitalize on potential strategic and growth opportunities.
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.
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. In this dynamic market, as companies reevaluate 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 with in that growth.
The first half of 2021 saw 47 deals announced with an aggregate value of $31.6 billion. This compares to 25 announced deals and $6.8 billion during the first half of 2020 (excluding Morgan Stanley’s $13.1 billion 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. Notable transactions in the period included:
M&T Bank & Peoples United (2/22/21) — $7.6 billion
Webster Financial & Sterling Bancorp (04/19/21) —- $5.1 billion
Bancorp South & Cadence Bank (04/12/21) — $2.8 billion
New York Community Bancorp, Inc. & Flagstar Bancorp, Inc. (04/26/21) — $2.6 billion
Notable BCM Deals Post 05/15/21
Old National Bancorp & First Midwest Bancorp, Inc. (06/01/21) — $6.5 billion
The two banks will combine in an all-stock transaction with a total market value of approximately $6.5 billion. The pro forma combined company will have approximately $45 billion in assets and $34 billion in deposits. The transaction is expected to be 22% accretive to Old National and 35% to First Midwest earnings per share in 2022, assuming $109 million of projected cost savings.
"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."
BCM Deals Leader, PwC US