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Top 10 Issues Facing Financial Institution in 2017: #2 Mergers & Acquisitions

Higher valuations, improving multiples, more capital, and the potential for regulatory relief are all contributing to increased consolidation in the financial institutions market in 2017. A number of factors are motivating potential sellers, including the continued burden of regulation, competition, unclear succession plans and the expectation of higher multiples. The time appears ripe for making deals—or at least for potential buyers to try raising capital in preparation for future deals (which we will address as Issue #8 on our Top 10 list).

In general, 2015 and 2016 were two of the three busiest years on record for M&A activity. The current economic climate shows strong M&A fundamentals which, if sustained, can be expected to drive  high levels of M&A activity in 2017. Despite the political unpredictability following November’s elections, equity markets continue to rise, and even after a modest increase to the federal funds rate in December 2016, interest rates remain near historic lows (although the Federal Reserve suggests that further rate increases are likely in the coming months).

Deregulation expectations have caused analysts to be even more bullish on the financial institutions industry as a whole, with many publicly traded institutions seeing share price increases upwards of 30 percent over the past four months. We expect to see acquirers continue to try to use their increased share value as acquisition currency for future acquisitions or mergers. As a rising tide lifts all boats, many private company sellers view their own worth through the lens of multipliers and valuations of publicly traded institutions. With industry valuations near record highs, those looking to exit are setting a high sale price. 

There remains a variety of valid reasons for financial institutions to seek a sale. Although deregulation seems imminent, the timeline and the form (a delay, roll back, or whole sale elimination) are anything but clear. In the interim, financial institutions still face the same significant cost of regulatory compliance which has historically been a key reason for seeking a sale. Other frequently cited justifications – lack of economies of scale, shareholder demand for a liquidity event, unproven succession plans – continue to warrant sale considerations.

With interest rates low and spreads tight, strategic buyers will continue to target acquisitions as a key growth strategy. However, public reports of extended regulatory scrutiny relating to noncompliance issues continue, placing many of those would-be buyers in the regulatory penalty box. As we have seen over the last year, these noncompliance issues not only cause major delays in getting transactions through the approval process, but in some cases have caused deals to fall apart entirely. Financial institutions thinking of growth are well-advised to confirm that their own house is in order before seeking expansion that would require regulatory approval. 

 

Top 10 Issues Facing Financial Institutions in 2017

Top 10 Issues Facing Financial Institutions in 2017: #1 Securities Compliance (for publicly traded and privately held banks)

BSA/AML and OFAC Compliance: Top 10 Issues Facing Financial Institutions in 2017: #3

Top 10 Issues Facing Financial Institutions in 2017: #4 Cybersecurity

Top 10 Issues Facing Financial Institutions in 2017: #5 – FinTech

Top 10 Issues Facing Financial Institutions in 2017: #6 Third-Party (Vendor) Risk Management

Corporate Governance and the Culture of Compliance: Top 10 Issues Facing Financial Institutions in 2017 #7

Top 10 Issues Facing Financial Institutions: #8 – Capital Planning

#9: Customers’ Nonpublic Personal Information Protection - Top 10 Issues Facing Financial Institutions in 2017

Top 10 Issues Facing Financial Institutions in 2017: #10 – Compliance with Consumer Laws

 

© 2017 Schiff Hardin LLP

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About this Author

Joseph Silivia, Schiff Hardin Law Firm, Finance Regulation Attorney
Counsel

Joseph E. Silvia concentrates his practice in the financial institution industry on general corporate matters, mergers, acquisitions, strategic transactions, and banking and consumer finance regulation.

Before joining Schiff Hardin, Joe was senior counsel in the Chicago office of an international law firm. Prior to rejoining private practice, Joe spent four years as counsel to the Federal Reserve Bank of Chicago where he focused on bank, bank holding company, and savings and loan holding company supervision and regulation, as well as consumer...

312-258-5569
Nicholas Tipsord, Schiff Hardin Law Firm, Corporate Law Attorney
Associate

Nicholas M. Tipsord works on a wide array of corporate transactional matters with an emphasis on advising buyers and sellers in mergers and acquisitions. Nick has represented public and private companies in stock and asset acquisitions, mergers, divestitures and other complex transactions across a broad range of industries, including financial institutions, investment management, healthcare and telecommunications. Knowing that each transaction is unique, Nick will structure a deal to best meet his client’s needs.

Nick is experienced in the formation and governance of all types of entities. Whether starting something new or acquiring something old, Nick focuses on a client’s current practices and future goals to recommend the preferred course of action.  

 

312-258-5655
Jason L. Zgliniec, Schiff Hardin, Chicago, Securities Lawyer, Acquisitions Attorney, Mergers,
Partner

Whether the question is about an acquisition, securities law, a governance issue, capital raising or banking regulations, Jason provides answers and advice clients count on. A corporate attorney with extremely broad experience, he has the ability to see the many sides of an issue and think comprehensively about ways to address it.

Jason approaches every issue from the business perspective of his clients.  He partners with his clients to reach their business goals by navigating them through the legal complexities they face on their way to success...

312.258.5795