A scarcity of acquisition targets in the Carolinas is driving bank M&A prices higher in the states after the industry saw exceptional levels of consolidation over the last 12 years.
In 2010, South Carolina had 85 banks and North Carolina had 103, for a combined total of 188. Today, South Carolina has just 47 banks and North Carolina has 45 for a combined total of 92, less than half of the total in 2010.
Bank deal valuations, based on median price-to-tangible book value, have consistently been higher in the Carolinas than in the U.S. as a whole over the last five years, according to S&P Global Market Intelligence data. Deals in the Carolinas were priced
There are fewer banks in the Carolinas than there have been in years as a result of bank consolidation and only a few successful de novos, according to Bill Wagner, a managing director at Raymond James. The resulting scarcity value, he said, is driving up prices significantly.
"The ability to get into the higher growth markets of the Carolinas has disappeared because of fewer banks," Wagner said, "and so the ones that remain in the more attractive markets are fetching very strong multiples."
Attractive markets
The Carolinas are home to several attractive and fast-growing markets, including Charlotte, N.C.; Raleigh, N.C.; Greenville, S.C.; Charleston, S.C.; and Durham, N.C. Bank of America Corp. and Truist Financial Corp. are based in Charlotte, and San Francisco-based Wells Fargo & Co. maintains a large operation in the city after acquiring Wachovia Corp. in 2008.
Banks in the South tend to have strong and loyal deposit bases, so it is easier for out-of-state banks to buy market share than to establish a presence through organic growth, Lee Bradley, senior managing director at Community Capital Advisors, said in an interview.
"We've had a massive influx of people moving south and they're bringing their banking business down here, and it's been a good couple of years for all of the community banks," Bradley said.
Out-of-state banks' desire for a presence in the region has led them to pay higher prices for local banks than they would elsewhere, Will Brackett, managing director at Performance Trust Capital Partners, said in an interview.
Premium valuations
Some major deals in the Carolinas over the last few years include Pinnacle Financial Partners Inc.'s $1.87 billion acquisition of BNC Bancorp and F.N.B. Corp.'s $1.80 billion acquisition of Yadkin Financial Corp. in 2017. There was also United Bankshares Inc.'s $847.5 million acquisition of Carolina Financial Corp. in 2020, United Community Banks Inc.'s $127.9 million acquisition of Aquesta Financial Holdings Inc. in 2021, First Bancorp's $336.4 million acquisition of Select Bancorp Inc. in 2021 and its $181.1 million announced acquisition of GrandSouth Bancorp. in June.
All six of those deals valued the target at more than 185% of tangible book value at announcement, and four of the transactions carried price tags in excess of 200% of tangible book value.
Pricing of deals in the Carolinas may vary depending on the markets a target inhabits, Wagner said, comparing the pricing of First Bank's acquisition of GrandSouth in fast-growing South Carolina markets to that of F.N.B.'s acquisition of UB Bancorp, announced in June, in the slower-growing eastern North Carolina markets.
"I think one was 130% and one was 180%, and so you'll just see that even though the Carolinas are getting some very good pricing, there's still a fair distinguishment between banks that are in the growth markets and banks that are outside those growth markets," Wagner said.
Wagner expects consolidation will continue, but at a slower pace. After crises like the Great Recession and the pandemic, older bankers who guided their companies through those shocks are more cautious with regard to M&A as speculation grows about yet another recession. Several mutual banks and family-owned banks in the region are resistant to further consolidation, which further compounds bank scarcity value, he added.
Bradley said many potential sellers are happy to wait for the best offer possible.
"Bankers are pretty greedy; they want the best price they can get," Bradley said. "They're just figuring that at some point somebody's going to come along and make a price they can't refuse."