Sectors across the board are facing declines in M&A, and even a rising interest rate environment doesn’t seem to be enough to buoy banking deals. Merger values in the sector fell to $15.6 billion year to date as of April’s end, compared to $25 billion a year ago. The blip is down to seller expectations, S&P Global Market Intelligence analysts write. Sellers are looking for rich premiums to transact given ongoing selloff in financial services.
That line is consistent with bankers’ predictions toward the tail end of last year. Then, dealmakers suggested that few logical candidates were still in the market for transformative deals, and the few that were, would face regulatory hurdles consummating deals. The latest valuation hurdles facing sellers might well be too high to surmount with equities continuing to shed value.
Few of the deals that have been announced have hit a that theoretical froth threshold, except for Toronto-Dominion Bank’s proposed takeover for First Horizon. The $13.7 billion deal tips the scales at 2.3x book value, giving shareholders the fourth largest such merger premium of banking deals announced since 2021.
There could yet be hope for some future deals in the months ahead, however, as rising rates, credit balances and loan origination makes banks more bullish on forward looking prospects. In the meantime, scale-tipping merger premia may be the way forward for banking M&A.