What Could Drive an Increase in Mergers and Acquisitions
While the full impact from COVID-19 may not yet be fully realized, the overall tone for the economy seems optimistic. National unemployment rates have continued to drop, and business is settling into the “new normal”. Although M&A activity ground to a halt when the pandemic hit, opportunities for a rebound in deal volume exist for several reasons.
Anticipating the possibility of elevated losses resulting from the pandemic, many banks issued debt over the last several months. In total, banks and thrifts raised $21.46 billion in capital during May 2020, the highest level of issuance since 2009 . However, given the improving economy, this excess capital along with rising stock prices and low interest rates may lead to a resurgence in M&A. According to an interview with S&P Global Intelligence, Brett Rabatin of the Travillian Group said that the additional capital can allow banks to pursue growth, whether organically or through a merger. "Once things get back to 'normal,' I think you're going to see a lot of M&A for the simple reason that rates are probably not going to go up much, so the challenging revenue environment is not going to be lifted," he stated . What initially began as defensive capital raises may evolve into opportunities to pursue M&A activity in the future. Additionally, some banks have even cited the pandemic as proof that remote work is a viable path towards enabling cross-country deals, as in the recently announced Broadway Financial Corp. and CFBanc Corp. MOE .
M&A experts Valuant and Piper Sandler share insights into the M&A landscape along with relevant accounting changes resulting from the new expected credit losses standard in the upcoming “M&A in a CECL Environment” webinar. This webinar is intended for all banks operating under an incurred or expected loss method for reserves that have prior acquisitions or anticipate the prospect of future M&A transactions.
Register for the Webinar Here: https://attendee.gotowebinar.com/register/7554167559603022349
 Banks' capital issuances fall sharply in June after record May. S&P Global Intelligence. 14 July 2020. https://platform.marketintelligence.spglobal.com/web/client?auth=inherit#news/article?id=59380240
 Banks' capital raises hit highest level since 2009. S&P Global Intelligence. 8 June 2020. https://platform.marketintelligence.spglobal.com/web/client?auth=inherit#news/article?id=58907334
 Pandemic created 'new reckoning' that bolstered cross-country bank MOE. S&P Global Intelligence. 2 September 2020. https://platform.marketintelligence.spglobal.com/web/client?auth=inherit#news/article?id=60109535&KeyProductLinkType=23