Dive Brief:
- M&A deals in the banking sector declined 30.5% in volume and 47.6% in value between the fourth quarter of 2021 and first quarter of 2022, according to a report published Friday by accounting mega-firm KPMG.
- During the same time frame, M&A deals in financial services more broadly, including tie-ups in insurance and capital markets, fell 28% by volume and 22% by value.
- The decline in financial services dealmaking is temporary and spurred by various factors, including COVID-19's omicron variant, soaring inflation, expectations that the Federal Reserve will raise interest rates, the war in Ukraine and “deal fatigue” that set in after a frenetic year of M&A in 2021, KPMG said.
Dive Insight:
The report pointed to a decline in the number and size of “megadeals” as the primary driver of falling merger and acquisition activity in the banking sector.
There were 91 banking deals in Q1 2022, compared with 131 in Q4 2021 and 99 in Q1 2021, according to KPMG.
Although banking M&A deal volume fell 30.5% on a quarterly basis, the sector’s M&A dipped 8% by volume year over year.
KPMG, however, said it expects the lull activity to subside later this year.
“In our view, the first-quarter decline in M&A was an understandable reaction to the headwinds pushing against investor sentiment,” according to the report. “Farther out, we expect the pace and volume of deal making to pick up, as the strategic trends driving activity in banking, capital markets and insurance are robust and unlikely to weaken anytime soon."
The report identified several trends developing in banking M&A over the past years, including a growing number of fintechs as both targets and acquirers. Two of the five largest banking deals in the first quarter of 2022 included fintechs: SoFi’s acquisition of Technisys for $1.1 billion, and buy-now-pay-later firm Zip’s purchase of Sezzle for roughly $353 million.
Regional and community banks, in particular, have been looking to expand into neighboring markets through acquisition. The report points to Louisiana-based Origin Bancorp's acquisition of Texas-based BT Holdings for about $313.5 million as a prime example.
Foreign banks, meanwhile, both bought and offloaded U.S. footprints in the fourth quarter, when Bank of Montreal in December said it would acquire Bank of the West — French giant BNP Paribas' U.S retail arm — for $16.3 billion. The following quarter, in another eight-figure deal involving a Canadian purchaser, TD announced its intention in February to buy Memphis, Tennessee-based First Horizon for $13.4 billion.
