Thirteen whole-bank M&A transactions were announced across the U.S. in August putting the total deal count for full-year 2022 on track to fall in the neighborhood of 175. This tally would be lower than the prior year’s, an unsurprising outcome given the economic and geopolitical variables that emerged in early 2022 and tempered dealmaking. That said, deal discussions appear to be freshening, especially as a bit of clarity materializes…or at least a decline in volatility.
Deal pricing, on the other hand, has been anything but volatile. The median price-to-tangible book and median price-to-earnings (LTM) multiples came in at 1.56x and 13.5x, respectively, in August and 1.53x and 15.2x, respectively, on a year-to-date basis, all but identical to the medians in 2021. However, as expressed in this space often, caution is warranted if using median multiples to evaluate about a particular bank’s value. Indeed, price-to-tangible book value multiples in August spanned from as low as 1.3x to as high as 2.3x while price-to-earnings multiples similarly spanned a chasm as low as 8x to as high as 24x.
From here, a question is begged: what is the outlook for bank M&A valuation multiples going forward? Crystal balls are especially opaque, particularly as questions linger as to the depth and breadth of potential Fed actions and the resulting cooperation (or lack thereof) by the economy. That said, we suspect the recent mini-recovery in bank net interest margins may be short-lived. Funding costs appear to have bottomed out in Q1 2022 and started to tick up in Q2. If accurate, there may be little catalyst for M&A valuations to increase in the coming quarters especially given broader unknowns.
Finally, on August 8th, The Farmers Bank of Mt. Pulaski was acquired by Longview Capital Corporation; on August 22nd, Boundary Waters Bank agreed to be acquired by Highland Bank; on August 23rd, Bank of Burlington agreed to be acquired by Farmers & Merchants Bank of Colby; and on August 31st, Mechanics Bank agreed to be acquired by BankFirst Financial Services (party advised by Olsen Palmer indicated in bold).
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