US bank M&A was revived with the two biggest deal announcements of the year in one day.
Atlantic Union Bankshares Corp. kicked off the one-day wave July 25 with its announced acquisition of American National Bankshares Inc., and Banc of California Inc. quickly followed with its announced merger with PacWest Bancorp.
The Golden State tie-up marks the largest US bank deal announcement this year with a value of $1.02 billion, and Atlantic Union's acquisition of American National comes in second with a value of $443.7 million at announcement. The two deals combined represent nearly 70% of total announced deal value for the year.
They also mark the first sizable US bank M&A announcements in nearly 10 months, since Provident Financial Holdings Inc. and Lakeland Bancorp Inc. announced their $1.26 billion deal in September 2022. Among US bank deal announcements since 2022, the Banc of California-PacWest deal is the second-largest based on deal value, and the Atlantic Union-American National deal comes in fifth.
US bank M&A grinded to a near halt in 2022 as buyers and sellers grappled with rapidly rising interest rates' impact on deal math. The industry tumult in spring, which included three regional bank failures, slowed activity even more.
US banks announced just 50 transactions through July 26 for an aggregate deal value of $2.11 billion, down from 96 deals for an aggregate deal value of $3.79 billion in the same period of 2022 and 112 deals totaling $34.37 billion in deal value during that time frame in 2021, according to S&P Global Market Intelligence data.
Atlantic Union's deal announcement marked a return to M&A for the Virginia-based company that has not announced a bank deal since 2018.
Conversely, the PacWest deal marks Banc of California's second deal announcement since 2021. However, prior to the company's 2021 acquisition of Pacific Mercantile Bancorp, it had not announced a deal since 2012.
The Street reacts
Despite the uncertain environment and lack of US bank M&A, the Street took the deals in stride. Both deals had the least negative impact to the buyer's stock on day one of the deal announcement among the five largest US bank deals since 2022.
Atlantic Union's stock price closed down 4.0% on the day of announcement but bounced back the day after the announcement, closing up 5.73% on July 26.
"You're getting a bounce back today [July 26] as people digest," Raymond James analyst Steve Moss said in an interview. "It's definitely franchise enhancing from a core deposits standpoint and the other thing that really makes this transaction work is American National kept their loan and securities portfolios with much shorter duration."
Following reports that Banc of California and PacWest were in deal talks, PacWest's stock price plunged over 27%, while Banc of California's shot up 11%. However, the day after the merger was announced, Banc of California's stock saw little movement, up just 0.6%, while PacWest's stock price recovered and closed up 26.92% on July 26.
The structure of the deal in which Banc of California would acquire PacWest, which was four times the size of Banc of California in assets as of June 30, may have contributed to the first reaction, analysts said. Uncertainty about pricing prior to the deal's official announcement likely also played into the initial reaction, D.A. Davidson analyst Gary Tenner said in an interview.
The deal value to tangible common equity was 51.7% at announcement, likely less than the Street thought, according to analysts.
"The combined fair value marks are probably less than somebody would have expected in a traditional acquisition where a bigger bank buys a smaller bank," Wells Fargo analyst Jared Shaw said in an interview.
In a note following the announcement, Wedbush analyst David Chiaverini wrote that the proposed merger is not overwhelmingly compelling for PacWest shareholders, who could dissent to the deal given the significant discount to tangible book value.
"We wonder if [PacWest] shareholders will view this as an attractive enough deal to approve," the analyst wrote. "Given the significant discount to book value, we question whether or not longer-term [PacWest] shareholders will view this as a strong enough deal price for shareholder approval."
Chiaverini wrote that he would not be surprised if there is dissent among PacWest shareholders, which could "possibly open the door to the potential emergence of a rival third-party bid."
