US bank mergers and acquisitions (M&A) had a buoyant April, which saw 16 deals with a combined value of $14.9bn during the month to April 27, according to Refinitiv data. Total deal value for 2021 to April 27 has already reached $26.3bn, compared with $7.1bn during the same four-month period in 2020.
Among the deals announced in April was Connecticut-based Webster Financial’s acquisition of New York lender Sterling Bancorp in a $5.1bn deal and Mississippi-based BancorpSouth’s acquisition of Texan lender Cadence Bancorp for $2.8bn.
“Driving deal activity is the need for scale, combined with cutting expenses, and the need for additional capital to allocate to technology spend,” says James Barresi, global head of financial services at Squire Patton Boggs, who leads the US law firm’s bank M&A team.
“Prior to the pandemic, there was tremendous pressure on financial institutions to invest in technology from competition from fintechs. But many institutions were struggling to invest because of the low-interest-rate environment, which meant smaller banks in particular were generating less fee income.”
The onset of the Covid-19 pandemic last year saw many banks hunker down and focus on trying to manage their operations remotely. April 2020 saw 11 deals worth $190m. As the US exits the worst of the pandemic amid a rapid rollout of vaccines, a number of banks that have been successfully operating remotely now see an opportunity to close branches and eliminate brick-and-mortar expenses through mergers and acquisitions, Mr Barresi says.
Moreover, the pandemic has accelerated the need invest in digital services because of its widespread adoption by consumers and clients over the last year.
M&T Bank leads the way
The M&A activity to April 27 brought the total number of deal announcements in 2021 to 61.
The biggest deal announced so far this year is New York lender M&T Bank’s $7.6bn acquisition of Connecticut-headquartered People’s United Financial. The completed deal will create a combined entity with total assets of $200bn and 1100 branches.
“M&T Bank is picking up an institution that no one thought would be for sale. But People’s United recognises that scale pays in a ‘low for long’ interest rate environment,” Mr Barresi says. “The deal will give the combined enterprise economic power to invest in technology and be able to compete with key rivals.”
The last year has seen customers become very comfortable with digital services and this has taken away some of the small players’ advantage
The merger between Webster Financial and Sterling Bancorp, meanwhile, will create a combined institution with assets of $63bn and just over 200 branches. “The two banks are coming together because they recognise that scale will provide better opportunity to achieve more technological investment,” Mr Barresi, who advised Sterling Bancorp on the transaction, adds.
BancorpSouth’s acquisition of Cadence Bancorp for $2.8bn will create a bank with assets of $44bn. “It’s a merger of equals,” Mr Barresi says. “Both banks acknowledge they need scale to fund investment in technology and support fee income generating businesses.”
A busy year
Other deals announced this year include Delaware-based WSFS Financial’s acquisition of Pennsylvania-based Bryn Mawr Bank and in a deal worth about $1bn. The combined bank will have about $20bn in assets.
“Bryn Mawr is a fee income generating machine because it has a very high-quality wealth management programme. The buyer WSFS Financial also a strong wealth management platform and in Bryn Mawr it sees an opportunity to double down on that,” Mr Barresi says.
Another deal announced this year was New York Community Bancorp’s plan to purchase Michigan-based Flagstar Bank in a $2.5bn deal.
“New York Community Bancorp has a lot of exposure to multi-family housing in the New York City area and there are risks associated with that. So New York Community Bancorp has acquired Flagstar which operates a residential mortgage business. It provides geographic diversity for New York Community Banncorp and de-risks its exposure to the New York multi-family housing asset class,” Mr Barresi explains.
The prospect of ultra-low rates possibly for years to come has encouraged banks to focus on efficiency, Mr Barresi adds. “There is a lot of focus on building businesses that are capital light but generate fee income,” he says.
“There are more than 4000 banks in the US and lots of smaller institutions are becoming a less relevant. Those enterprises historically competed on the basis of providing better customer service which resonated with an older demographic. But the past year has seen many customers become very comfortable with digital services and this has taken away some of the small players’ advantage and encouraged many to look towards mergers.”