latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/us-bank-m-a-pace-plunges-as-sellers-seek-higher-prices-70152169 content esgSubNav
In This List

US bank M&A pace plunges as sellers seek higher prices

Blog

Banking Essentials Newsletter: September 18th Edition

Loan Platforms: Securing settlement instructions and prioritising the user experience

Blog

Navigating the New Canadian Derivatives Landscape: Key Changes and Compliance Steps for 2025

Blog

Getting an Edge with Services: Driving optimization by embracing technological innovation


US bank M&A pace plunges as sellers seek higher prices

Last month's sharp slowdown in U.S. bank M&A announcements is indicative of what to expect for the near future.

Only 10 U.S. bank deals were announced in April, a sharp decline from 24 announcements in April of 2021. The drop-off in announcements is a result of surging price expectations among sellers as interest rates rise and buyers struggle to meet those expectations due to the recent decline in U.S. bank stock prices, industry participants said. As such, sellers are being "very picky and very pricey" as they feel like they have the upper hand in M&A discussions, said Lee Bradley, a Southeast investment banker for Community Capital Advisors, in an interview.

"A lot of them are figuring they can hold out and get a better deal down the road," Bradley said. "Sellers are being pretty pricey. Everything has kind of slowed down on the M&A side, and I don't know exactly when it's going to pick back up."

While banks' M&A appetite is unwavering, the pace of announcements will likely remain down for the near future because buyers "don't want to overpay if they don't have to," Bradley said.

SNL Image

Confidence returns

Would-be sellers are confident about their near-term performance as loan growth returns and interest rates climb, boosting their net interest income. Sellers "have got the leverage at the moment," particularly those with attributes that are viewed as highly attractive in a rising rate environment, such as a large base of noninterest-bearing deposits and diversified streams of income, Bradley said.

One bank deal recently fell apart as a result of increased price expectations from the seller. When regulatory approval took longer than expected and the banks had to renegotiate their merger agreement, First Century Bancorp. requested a higher purchase price from First Internet Bancorp, arguing that the value of its large noninterest-bearing deposit base had gone up, First Century Chairman and CEO William Blanton told S&P Global Market Intelligence in an interview.

The banks originally announced the all-cash transaction in November 2021 with a purchase price of $80 million. First Century requested an updated purchase price of $92.5 million in renegotiations. The deal was canceled on May 1.

Stocks suffer

The recent underperformance of U.S. bank stocks is making it tough for buyers to meet sellers' soaring price expectations and further contributing to the slowdown in bank M&A.

U.S. bank stocks started 2022 off strongly, with the S&P U.S. BMI Banks index outperforming the S&P 500 until around the end of March. But as of April 29, the S&P U.S. BMI Banks index was down 16.6% since Dec. 31, 2021, dropping 10.7% in April alone.

SNL Image

The decline in U.S. bank stock prices impacted the pricing of United Community Banks Inc.'s pending acquisition of Progress Financial Corp., which was announced May 4, Progress Financial President and CEO David Nast said in an interview.

"We absolutely wanted a buyer that had the ability to pay what we thought was a fair premium," Nast said. "The multiples weren't as high as essentially they were when we started the conversation a couple of months ago but we were comfortable with the 160-plus times tangible book value that was announced and continue to think there's good upside with our combined organization."

The transaction valued Progress Financial at 165.2% of tangible common equity, according to Market Intelligence data. United Community Banks was trading at 179.2% price to tangible book value on May 3, the day before announcement, compared to trading above at least 190% of tangible book value throughout all of February and most of March.

"Lower stock prices mean sellers' expectations are not going to be met," Hovde analysts wrote in a May 4 note. During the pause in M&A announcements, banks will use their cash on share buybacks, the analysts said.

Prosperity Bancshares Inc. has found that its recent share price decline has slowed the company's M&A discussions, Senior Chairman and CEO David Zalman said on the company's first-quarter earnings call.

"Before you had the Ukraine-Russian war, our stock was trading about $75, $76 a share," Zalman said. "We had negotiations and talks with several banks. We've continued those talks with the banks. However, the stock price where it's at, it doesn't make a whole lot of sense."

Prosperity Bancshares' stock price closed at $68.92 on May 9. The company could still strike a deal if a seller were to adjust its pricing expectations, the chief executive said.

"I think, just because our stock price is down, there would have to be adjustments on both sides if we did a deal that we couldn't pay the same than we might've been talking before," Zalman said. "They have to accept the fact that our stock is trading at an underappreciated value right now."