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M&As in Banking Sector Jump in April: Will the Trend Continue?

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Deal activities have come roaring back in the banking sector, with April alone accounting for 19 M&A announcements. Per the S&P Global Market Intelligence report, this is the most number of deals in a single month since January 2020 before the coronavirus mayhem began.

Thus, total number of M&As announced so far through Apr 30, 2021 was 53, up from 43 during the same period last year. Further, total deal value summed $24.8 billion, with $13.6 billion worth of deals announced just in April 2021. During the same period in 2020, total deal value was $6.5 billion.

Moreover, out of the total 19 deals announced in April, six were megadeals (transactions with announced deal values of at least $500 million). This brought the total number of megadeals so far in 2021 to eight compared with only six such transactions in all of 2020 and 12 in 2019.

Recap of Major Deal Announced in April

M&As have become a priority for the U.S. banks as COVID-19 impact on the economy continue to hurt loan demand. This, along with lower interest rates, is likely to hamper banks’ financials in the near term.

In one of the largest merger-of-equals deals since January 2020, on Apr 19, Webster Financial (WBS - Free Report) announced an all-stock deal to acquire Sterling Bancorp for $5.14 billion. The transaction is expected to strengthen its commercial banking, health savings and consumer and digital banking business.

Apart of this megadeal, the month saw BancorpSouth Bank (BXS - Free Report) and Cadence Bancorporation entering into a merger agreement. The all-stock deal, worth $2.82 billion, will create a leading Texas and Southeastern regional bank with a market value of more than $6 billion.

New York Community Bancorp's (NYCB - Free Report) plan to acquire Flagstar Bancorp for $2.56 billion, and the merger agreement between Independent Bank Corp. (INDB - Free Report) and Meridian Bancorp, Inc. worth $1.15 billion are other notable M&As that were announced in April.

These deals are not only expected to be accretive to earnings upon completion but are also projected to results in substantial cost savings.

Will the Trend Continue?

If management commentary during first-quarter 2021 earnings calls is any indication, bank M&As will continue to take precedence for mid and small sized banks. These banks are expected to bulk up their financials to take on large regional banks amid faltering loan demand, rising technology costs and lower rates.

With excess cash available, smaller banks are ready to deploy it meaningfully and enhance shareholder value. A few banks may even announce multiple deals in the coming days. Per the CEOs of Home Bancshares Inc. and Simmons First National Corp., their respective banks are engaged in multiple deal discussions, with some being very attractive offers.

Several smaller banks, having less than $1 billion in total assets, seem ready to be acquired. Guaranty Bancshares (GNTY - Free Report) chairman and CEO Tyson Abston said, “Certainly, banks below $1 billion, we're one of the calls that they make. We're obviously more focused on [M&A] today than we were a year ago, and we think that will continue at least for the foreseeable future.”

Even some of the major regional banks like PNC Financial (PNC - Free Report) , which in November 2020 announced the acquisition of BBVA USA Bancshares Inc. for $11.6 billion, are looking out for more strategic expansion options. The company chairman, president and CEO William Demchak said, “I personally believe that we will see opportunities in smaller institutions, you know, simply because of the massive shift in technology and the costs of technology that we've seen to serve customers. So it's -- I think low rates, not a lot of loan growth, big technology costs are going to give us opportunities to -- to continue to create scale.”

Some banks, though not actively looking for expansion through acquisitions, are ready to take the plunge if something very strategically compelling comes up. BankUnited’s (BKU - Free Report) chairman, president and CEO Rajinder Singh noted, “We just have a very high bar for taking that risk of doing a deal. The operating risk and all the payoffs that comes with it, it needs to be really compelling strategic sort of rationale that would make us take all that operating risk.”

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