Insights H&H - Flipbook - Page 3
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Prolonged Closing Times
Average days to close, by buyer’s asset size
CONTENT
there’s no hard-and-fast rule defining a
Source: Janney Montgomery Scott, using S&P Global Market Intelligence data through
transformative deal, he says that a deal
June 27, 2024
involving a target that is roughly 25% or
$50B
likely merit more regulatory scrutiny.
600
Bank regulators are also wary of being
seen as rubber-stamping large bank deals,
500
says Merkley, particularly after Silicon
Valley Bank failed following a period of in-
400
tense growth that included an acquisition.
A deal might also draw more scrutiny if
300
the acquiring bank is moving into a brand
new market, and likewise if either of the
merger partners have possible liquidity
200
concerns. Fintech partnerships, particularly in the banking as a service space,
100
have also drawn more scrutiny of late.
0
2018
2019
2020
2021
2022
2023
2024
Plan Early for Integration
The deal isn’t done when regulators sign
off on the merger, either. Bankers need to
think about integrating the two organiza-
or losses, can impact buyers’ and sellers’
about market concentrations, especially in
tions well ahead of closing the deal, Merk-
general appetite for dealmaking due to
rural areas with fewer banks.
ley says. Planning for integration should
its adverse impact on the bank’s price.
Compliance with the Bank Secrecy
include a review of the target bank’s loan
However, Merkley says AOCI is becoming
Act and Community Reinvestment Act
portfolios and its compliance policies, in-
less of an issue as interest rates remain
are other areas that regulators scrutinize
cluding its Know Your Customer program
persistently high and lower rate bonds
carefully before approving a deal. Bankers
and suspicious activity reports.
mature. Frequently, recent sellers will
ought to raise these questions with their
liquidate their securities portfolios ahead
regulators well in advance of pursuing a
about the core processing system. When
of closing so shareholders can get any tax
deal, Merkley says. He stresses the impor-
does the target’s contract end, and what
benefit resulting from losses, he explains.
tance of bank leaders communicating with
will the acquirer do when that happens?
their regulator “early and often” before
Does it make more sense to switch over
identifying a potential merger partner.
to the surviving bank’s core or even run
Regulatory approvals, on the other
hand, remain a perennial obstacle to a
speedy closing. Myriad flavors of regula-
“You really want to have open lines of
The acquiring bank also needs to think
two separate cores? What’s the marketing
tory setbacks may await banks engaged
communication. Regulators don’t like sur-
plan for introducing the combined entity
in M&A, but those related to antitrust
prises,” Merkley says. “When they come
to customers and communities? Combin-
concerns or regulatory compliance issues
in for an exam, if an acquisition is on your
ing the two workforces, which includes
are among the most common.
mind, have that discussion. It doesn’t have
making a plan to retain key employees, is
to be detailed, but say to the examiner in
also critical to a successful integration.
Banks may be able to anticipate or avoid
many of these problems by doing a little
charge, ‘We’re thinking about growing;
additional homework in advance, Merkley
we’re looking to possibly acquire another
— much trickier than getting through
says. For example, executives contemplat-
bank. Did you see anything that would
negotiating and agreeing on a deal,” Merk-
ing a merger may want to investigate the
give you pause?’”
ley says. “Getting through the regulatory
market concentration of the combined
The size and complexity of a deal may
“Integration is often the trickiest part
process can oftentimes be much easier
entity, using a common tool known as the
also influence the time it takes to gain
than having to then integrate with the
Herfindahl-Hirschman Index, to deter-
regulatory approval, says Chris Marinac,
newly acquired bank.”
mine whether a deal could raise concerns
director of research with Janney. While
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