Banking and capital markets: Deals 2022 midyear outlook

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Bank dealmaking: the pause that refreshes

When doubts rise, dealmaking takes a hit.

Concerns that had simmered for months ⁠— the negative economic effects of virus lockdowns and potentially aggressive rate hikes ⁠— boiled over as war in Ukraine forced markets to price in a greater recession risk, dampening merger appetite.

Dealmakers were understandably reluctant to launch a takeover ⁠— the economy’s trajectory and rollicking markets confounded the best forecasters, undercutting confidence.

Still, many banking and capital markets executives took a wait-and-see attitude to deals. That suggests to us that once the doubts are resolved, corporate tie-ups could quickly return to satiate investors’ demand for growth and transformation as digitization expands. Clarity on interest rates or a significant change in deal valuations could revitalize merger activity.

A potential silver lining of the pause is that it may uncover opportunities obscured by today’s uncertainty.

Banking outlook: watching, waiting

There were 241 banking deals announced from November 15, 2021, to May 15, with a total disclosed value of $35 billion, including two big cross-border deals.

Small banks continued to make deals in the second quarter despite the uncertainty with buyers expanding their footprint to nearby markets where the population is growing, drawn by a better work-life balance or a lower cost of living.

Canadian banks use excess capital to expand in US

  • Toronto-Dominion Bank (TD) & First Horizon (February, $13.4 billion)
    In 2022’s biggest deal so far, TD expands in growing southeastern US states, including Florida, Tennessee and North Carolina.
  • BMO Financial Group & Bank of the West (December, $16.3 billion)
    BMO said it would enter the California market at scale and double its US footprint.


  • Intercontinental Exchange (ICE) & Black Knight (April,  $13.1 billion). The transaction builds ICE’s position as a fast-growing, end-to-end electronic workflow solution for the evolving U.S. residential mortgage industry. Adding Black Knight’s technology, real estate and mortgage-related data assets may increase automation and efficiency, lowering loan origination costs. More data may help homeowners reduce their payments and the likelihood of default.

Deal headwinds versus opportunities

  • Deal uncertainty centers on interest rates, inflation and bank liquidity, exacerbated by market volatility and falling stock prices for banks.
    • The benefit of rising rates on net interest income may be more than offset by falling loan demand as the economy slows; softer mortgage demand may be an early warning.
    • Inflation is causing bigger consumer bills and crimping corporate profits; will they fill the void by drawing down deposits built in 2020, harming bank liquidity?
  • The rout in valuations for fintech, neobank, payment, wealth management and other consumer-facing companies may spark takeover offers as convergence of those sectors continues.
  • Cash-rich private equity (PE) firms in the midst of transformation remain viable dealmakers, interested in consumer and commercial financial services.

A look back at key transactions from the second half of 2021:

  • US Bancorp & MUFG Union Bank (September, $8 billion)
  • Umpqua Holdings Corp. & Columbia Banking System (October, $5.2 billion)
  • Citizens Financial Group & Investors Bancorp (July, $3.7 billion)
  • Truist Bank & Service Financial Company (August, $2 billion)
  • First Interstate BancSystem & Great Western Bancorp (September, $2 billion)

“While uncertainty slowed the pace of deals in the past few quarters, the attractive marketplace and strong fundamentals of banking and capital markets companies make it a sought-after industry for growth-oriented companies.”

— Daniel Goerlich, Banking and Capital Markets Deals Leader

Key deal drivers

Fragmentation still drives mergers

Rolling up a fragmented market and creating regional business scale are timeless merger drivers. And we see that type of consolidation continuing in the mid-tier part of the banking market, i.e. $10 billion to $100 billion in assets. This market segment was active in mergers in the second quarter, likely because these deals are somewhat insulated from macroeconomic uncertainty. That deals of this size often have obvious cost synergies and strategic growth benefits only adds to the attraction to undertake a transaction.

Will private equity pounce?

Volatile markets. Plunging valuations. Rising uncertainty. These are the kinds of conditions private equity firms can thrive in as they look for ways to spend their considerable piles of cash. Financial services firms can offer PE sponsors the high free cash flows that make a leveraged deal worthwhile. But the attraction goes beyond cash flows as some PE firms are aiming to become diversified asset managers. Jumping into payments, consumer and asset-backed finance or data platforms can speed up their transformation. The only question is whether the price is right for PE to pounce.

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Dan Goerlich

Partner, PwC US

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