Financial institutions, do you have a buy sell plan?
In Zager and Evans’ 1968 number-one hit “In the Year 2525,” the duo sings about what mankind will look like in the future during years 2525, 3535 and so on. While I don’t feel like I can comment on that far ahead, I do believe that the COVID-19 pandemic will end and that our industry will go back to consolidating at a pace like that after the Great Recession.
In the period 2013 through 2019, an annual average of 250 financial institutions merged into other organizations or were sold. For the first six months of 2020, approximately 50 financial institutions transacted, implying an annual figure of 100. In addition, for the first nine months of 2020, approximately 80 financial institutions transacted, implying an annual figure of slightly less than 110.
Many deals have been terminated, deferred or renegotiated. Cash transactions seem to still be getting done, but many stock deals are not, as a buyer’s stock currency value in many cases is depressed. In addition, loan scrutiny has reached a new high, uncertainty abounds and many potential buyers are on the sideline.
As for the future, we will get back to the frenetic pace. The reasons some financial institutions sell has not changed. Compliance, technology costs, finding talent, and stress for management teams and boards are still there. The Great Recession caused financial institutions to rethink the go-it-alone strategy, and the pandemic may do the same.
While I noted I cannot comment on 2525, things will certainly change well before 2025. If you are a buyer, I encourage you to brush off that strategic plan, update it and prepare for the acquisition cycle on the horizon. Ifyou are a seller, it is time to get your house in order. Click here to learn more about how to tackle your strategic buy/sell plan here.
Related content:
Article: Financial institution mergers and acquisitions: 5 steps to success
Podcast: Mergers and acquisitions – What do boards and management need to know today
Community Banking Forum Webinar #2: What is your M&A strategy (or not)?
