Among the most impactful strategic moves any institution will make are M&A transactions. Fraught with risk and loaded with opportunity, they demand due diligence, foresight, and meeting the expectations of customers, shareholders, and regulators.
And they are on the rise once again.
The reasons can be traced mostly to the 2007-08 financial crisis and the resulting Great Recession. An onslaught of new regulations increased institutions’ compliance costs, while Federal Reserve actions to combat the crisis created a low net interest environment that continues to this day. As a result, bank profitability—which is also challenged by credit quality concerns, significant asset growth in low-yielding assets, weak loan demand, and other factors—has emerged as a significant strategic risk.
In recent years, banks have mitigated this strategic risk through cost cutting, partnering with fintechs, and engaging in M&A—whether as a buyer or seller. M&A activity among banks remained reasonably consistent over the five-year period from 2015-2019, with an average of 242 transactions per year, but dipped significantly during 2020 due, in large part, to the advent of the pandemic.
Now it’s on the rebound.
At the end of August, activity for 2021 was already significantly higher than for all of 2020. According to S&P Global, there had been 132 deal announcements by that point, up 28% from the full-year 2020 number. The percentage increase in the market value of M&A deals was even higher. The $38.95 billion racked up by August 31 was up 44% over all of 2020.
At this time of heightened activity, RMA has developed a Bank M&A Playbook that provides checklists, frameworks, data, and wisdom for financial institutions as they navigate the M&A process—from initial consideration to closing.
The 56-page Playbook is designed to be used at either the enterprise level or exclusively by the risk management organization.
Community banks and smaller mid-tier banks will find the Playbook to be a comprehensive tool for the entire enterprise to use for merger debate and analysis. Used this way, the Playbook offers an effective means to identify, mitigate, monitor, and report all elements of merger risk for specific decision-makers across the enterprise.
Larger banks, alternatively, can use the entire Playbook exclusively for risk management in its capacity of second line effective challenge. When used this way by the risk organization, the Playbook provides a comprehensive toolset for independent verification and validation of critical first line and board decision-making processes and analytics.
The new RMA Bank M&A Playbook is a timely toolset for bank boards and executives contemplating their next move. Information on purchasing the RMA Bank M&A Playbook is here. Industry views on M&A, best practices, and thought leadership will also continue to be featured regularly in The RMA Journal.