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Are We Nearing an End to the M&A Malaise?

230629 Mergers Insider Blog

‘We certainly don’t want overconcentration and we’re pro-competition, but that doesn’t mean no [mergers].’

Last week we reported on new thinking at the Department of Justice that could make large bank mergers more difficult going forward. This week? There are possible signs of an uptick in M&A activity—mostly at the regional and community bank level.

Earlier this month, Treasury Secretary Janet Yellen touted the strength of a “diverse banking system” featuring many banks of varying sizes, adding that she “wouldn’t want to see that threatened.” But late last week she struck a different tone, saying that due to deposit flight, interest rate stress, and looming office-building loan defaults “there will probably be banks that end up wanting to merge.”

Yes from Yellen? And Yellen seemed open to the idea. “We certainly don’t want overconcentration and we’re pro-competition, but that doesn’t mean no [mergers],” she said, noting that the U.S. has by far the most banks in the world.

M&A activity has slowed dramatically in recent years. American Banker reports that there were 32 mergers or acquisitions during the first five months of 2023. During the same period in 2022 there were 66. And 2022 was a down year for dealmaking, with around 25% less activity than 2021.

Failure fallout. Some of the 2023 slowdown can be chalked up to the uncertain climate created by prominent bank failures. But, experts say, it’s that same climate, coupled with heightened regulatory activity caused by the failures, that could have some community banks looking for buyers—and some regional banks looking to expand to compete with larger players.

“I do think that, once we get some clarity here on the economy, deal conversations are going to pick up meaningfully,” Jacob Thompson, an investment banker at Samco Capital Markets, told American Banker.

Explore further: RMA M&A Playbook for Community Banks 

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