US banking and capital markets deals insights: Q3 2019

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BCM deal activity has remained relatively flat over the past four quarters

A large regional bank merger in February led to a spike in deal value, prompting speculation that we might see similar events throughout 2019. But that’s not how the narrative has unfolded. If you exclude the lone large merger during the first quarter, the 2019 market has been soft. Trade disputes, slowing economic growth, a shift in the outlook for interest rates, and persistent uncertainty over Brexit have held back dealmaking in banking and capital markets.

Only one deal exceeded $1 billion during the third quarter of 2019. The transaction pushed up M&A value for the first nine months of the year to $49.8 billion. Of that total, more than 70% was recorded during the first quarter. 

BCM M&A deal trends

“Slow economic growth and the new interest rate environment will enable firms with strong balance sheets to generate attractive M&A opportunities.”

Greg Peterson, US Financial Services Deals Leader

Trends and highlights

  • Announced banking and capital markets deal value totaled $7 billion during the third quarter of 2019, down from $12.5 billion during the same period in 2018.

  • CIT Bank, N.A., announced in August that it entered into a definitive agreement and plan of merger to acquire Mutual of Omaha Bank from Mutual of Omaha Insurance Company for $1 billion. The deal will be completed with cash and as much as $150 million in common stock of CIT Group Inc., the parent of CIT Bank. CIT will determine the total value of stock that will change hands in the transaction. 

  • Excluding the deal described above, the average disclosed value for the remaining 51 transactions during the third quarter was just $120 million. As in prior quarters, most of these smaller deals involved commercial and retail banking.

BCM M&A deals by subsector

Highlights of deal activity

The London Stock Exchange in August announced that it agreed to buy financial data provider Refinitiv, creating a rival to Bloomberg LP. Under the terms of the transaction, Refinitiv shareholders will end up owning a 37% stake in the London Stock Exchange. The all-share deal values Refinitiv at $27 billion, after taking into account its $13.5 billion in debt.

The purchase comes less than a year after Thomson Reuters sold a majority stake in Refinitiv to a group of investors led by private equity group Blackstone. The transaction highlighted the continued consolidation in the exchange marketplace. Soon after announcing its purchase of Refinitiv, the LSE rejected a takeover offer from the Hong Kong Exchange. 

Note: The above transaction is not included in the data for this report as exchanges are not typically classified as financial services in most data sources. However, we want to highlight this transaction, given its size and the growing consolidation in exchange markets.

Transaction multiples

The largest transaction during the third quarter—WesBanco, Inc.’s acquisition of Old Line Bancshares, Inc.—registered a P/TBV of 1.73x. That is the second highest disclosed P/TBV multiple for the period. 

The average P/TBV multiple fell by 22% compared with the second quarter of 2019, and 29.2% compared with the third quarter of 2018. The decline was primarily due to the absence of large deals during the quarter, as shown by the decrease in deal value for the period. 

BCM deals outlook

Bank stocks rose during the first quarter on the prospect that higher interest rates would boost the firms’ financial results. Deals activity among banking and capital markets firms also increased. The trend reversed and share prices fell during the third quarter amid growing uncertainty about the outlook for the market cycle and concerns about an economic slowdown. The decision by the Federal Reserve in September to reduce the benchmark interest rate by 25 basis points has left banks at an impasse. They face the possibility of additional rate cuts and a tighter squeeze on profit margins. At the same time, a weakening in economic growth would probably undermine lending volumes.

We expect that the “wait and see” mindset prevalent in banking M&A will persist as investors and executive management teams monitor the impact of recent shifts in valuations and earnings expectations.

Flat trading multiples during the third quarter veiled severe volatility during August fueled by the factors described above. The KBW Bank index from July 30 to Aug. 15 fell 13% but then rebounded 12% by the end of the quarter.

About the data

We define M&A activity as mergers and acquisitions in which targets are US-based banking and capital markets companies acquired by US or foreign buyers. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement date for transactions with a disclosed deal value, as provided by Capital IQ, as of September 30, 2019, and supplemented by additional independent research. 

Information related to previous periods is updated periodically based on new data collected by Capital IQ for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Capital IQ and includes deals for which buyers or targets fall into one of the BCM industry sub-sectors: Commercial and Retail Banks, Consumer Finance, Diversified Financial Services, Non Bank Lenders, Investment Banking & Brokerage. Certain adjustments have been made to the information to adjust for transactions which our data sources classify as financial services but which we assign to technology and other sectors, or vice versa.

Contact us

Scott Carmelitano

Banking and Capital Markets Deals Leader, PwC US

Greg Peterson

Financial Services Deals Leader, PwC US

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