November 25, 2014

2015 set to see increase in bank mergers

After a fast and furious year of mergers and acquisitions, industry analysts have turned their attention toward 2015 to size up the potential for continued growth. One area of M&A that's expected to increase its impact in the New Year is banking. According to the Bank Director's 2015 Bank M&A Survey, roughly 50 percent of the participating financial institutions hoped to acquire another organization in 2015. While only 3 percent of banks said they're open to selling in the next year, the gap between supply and demand could turn 2015 into a numbers game of tempting small banks into merging. 

The study pointed to better bank valuations and improved credit quality as signs the M&A climate will continue to intensify, reports Braden Lammers of Louisville Business First. 

Data for the survey was based on September information from 215 senior executives from U.S. Banks. In the results, more banks said they were willing to overlook asset quality as a hurdle to making a deal. In 2013, 41 percent of respondents described that as a barrier whereas only 35 percent said they'd be dissuaded next year. 

By merging with other institutions, banks stand to widen their geographic footprint, grow organically, and increase their earnings per share. By consolidating, financial institutions can increase their clout in an industry built on reputation and visibility. 

"I still think that we're going to see banks that are $200 (million) to $300 million to a few billion dollars in size continue to consolidate," said Bank Director president Al Dominick.. "There's still a lot of banks, for the right price, (that) will gladly figure out how to make things work."

Rather than trying to expand an existing model from the inside, absorbing another institution can bring the framework and reach a growing financial institution needs to reach the next level.