In the latest sign markets are shrugging off pandemic-induced lags, bank M&A hit its highest level in the Covid era last month. Clocking in at 19 deals, April sector consolidation notched its most robust pace since January 2020, according to S&P Global’s Bank M&A 2021 Deal Tracker. The merger flow has implications for valuations and could break down barriers for acquisition target categories.
The deals don’t just amount to more frequent acquisitions, but larger transaction value as well. Buyers valued bank targets at a median 49 percent premium to book value year to date, compared to a 34 percent premium in 2020. The valuation rebound comes among lumpy historical performance. Median deal values fluctuated between 2018’s 65.5 percent premium to book to 2019’s 57.7 percent premium. Perhaps the rising trend could indicate more support for private equity’s expectations that deal multiples will surge in the next 6 months, discussed in a previous column.
Some of the largest deals in the space are also the most interesting. LendingClub (NYSE:LC) closed its $188 million acquisition of Radius Bancorp in February. The one-time peer-to-peer lending innovator gets a bank charter in the deal, allowing it to net its own origination fees and interest income instead of handing over a fraction to partner banks. The shift from a tech first approach to banking basics seems to confirm a tenet of KKR’s recent global macro report: technology is less of a distinct sector than an aspect of every industry. In financial services, a key question could instead be, who buys whom? Established payments companies like Visa Inc. (NYSE: V) and Mastercard Inc. (NASDAQ: MA) have chased fintech acquisitions, while the LendingClub deal shows that tech platforms can be equally interested in legacy buys.
Other heavy hitters could point to the typical drivers for large bank valuations: desirable deposit bases, cross-selling opportunities, and potential cost synergies. WSFS Financial’s (NASDAQ: WSFS) $989 million acquisition of Bryn Mawr Bank Corp, announced in March, would be the most expensive deal of the year so far with a deal value registering at 2.28x book.
The biggest transaction outright is between two sector heavyweights. PNC Financial Services Group (NASDAQ: PNC) announced plans to acquire BBVA’s USA Bancshares in November for $11.6 billion.
A rise in valuations and a novel interest from technology players — this year’s financial services M&A landscape has it all.