In the banking and capital markets sector, deal activity slumped in early 2020, both in volume and their reported size. Firms had more immediate concerns, starting with operational issues tied to the COVID-19 pandemic. Since then, we’ve seen activity in three main areas:
Some big highlights: the merger of First Citizens Bancshares and CIT Group Inc., PNC Financial Services Group, Inc’s (“PNC”) acquisition of Banco Bilbao Vizcaya Argentaria, S.A’s (“BBVA”) US business, acquisitions by mortgage technology and analytics firms Black Knight, Inc. and Intercontinental Exchange Inc. (“ICE”), and the IPO of the country’s largest home mortgage lender (Rocket Companies). Despite the economy’s clear challenges, there is still a lot of excess capital and liquidity that may be deployed in the coming year. Shifts in the mortgage industry could also lead to an active deal season.
PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.
PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends.
For the twelve month period ending mid-November 2020, the industry saw 71 deals announced with an aggregate value of $28.2bn, excluding the TD Ameritrade and E*TRADE transactions which we’ve classified as asset management deals. The merger of equals (“MoE”) strategy continued to be popular in 2020, most recently with the announced tie-up between First Citizens and CIT. The combined firm will create a top 20 US bank with over $100bn in assets. The deal announced in October and valued at $2.2bn, is expected to deliver more than 50% EPS accretion once cost savings are fully achieved. The banks are forecasting approximately $250m in expected cost synergies to be fully phased in by 2022, representing 10% of combined operating expenses We expect to see the continuation of the MoE trend as banks of a similar size seek to benefit from achievable synergies, including cost cutting opportunities and a reinvestment in technology.
In November, BBVA announced it agreed to sell its US business to PNC for $11.6bn. The deal will create the country’s fifth largest retail bank with more than $550bn in assets. The purchase price is estimated at 1.34x BBVA USA's tangible book value, based on its balance sheet as of Sept. 30, 2020, and reflects a deposit premium of 3.7%. PNC projects the deal to generate roughly 21% EPS accretion and about $900 million in anticipated cost savings to be realized by 2022. This transaction is expected to close mid 2021, pending regulatory approval. We expect to see continued divestment of US assets by global, non-US banks.
We’re also watching with interest a number of significant technology-related transactions focused on the mortgage market. Strictly speaking, these aren’t banking deals — but the lines are blurring more than ever. Along with Intercontinental Exchange’s (ICE) $11bn acquisition of Ellie Mae, we saw Fintech giant Black Knight’s announced acquisition of Optimal Blue, an online provider for the secondary mortgage market. We could still see additional deals as mortgage ecosystem providers look to add additional capabilities.
“We expect 2021 to continue to present challenges and uncertainty, however, we believe excess capital and liquidity and a shift in the mortgage industry could increase M&A activity over the next 12 months.”
Banking and Capital Markets Deals Leader, PwC US