The passage of time continues to bear out the thesis held by many bank industry observers that the recent bank failures are isolated events catalyzed by a host of variables idiosyncratic to each institution and largely absent, at least in lethal combination, in other institutions. However, the corresponding damage to bank valuations caused by the bank failures and related headlines remains afoot, though bank stocks appear to have bounced off their cyclical troughs. Accordingly, and unsurprisingly, activity in the bank M&A marketplace remains tempered though, notably, the number of such transactions announced in April marked an increase – not a decrease – relative to March.
On a longer-term basis, the banking industry is seemingly now positioned at the vanguard of an elevated period of M&A over the coming quarters and years especially as the factors driving banking consolidation over at least the past decade all largely still hold and, likely, have now been amplified.
On the pricing front, deal valuations were soft in April though this onion requires particularly-informed peeling: only 3 of April’s 8 transactions publicly revealed pricing and, in each case, the consideration form was primarily or entirely stock. As the counterparties in each transaction almost certainly had agreed to pricing terms before SVB and the ensuing nosedive in equity valuations, the softness in April’s median deal multiples reflects a limited dataset; the absence of pricing information from cash deals; and the decline in buyer currency valuations post-SVB. Put differently, April’s valuations are deceptively low and not reflective of current, arms-length M&A market pricing, a finding empirically confirmed by in-process transactions.
Despite certain headlines prognosticating a hard landing for the economy and/or storm clouds on the credit front, bank credit remains extremely benign with levels of non-performing assets (“NPAs”) at cyclical lows, if not all-time lows.
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