德勤-2018年银行业并购展望（英文版）-2018-20页-3mb

Summary of Banking and Securities M&A Outlook for 2018

Core Content

This document provides an analysis of the state of M&A activity in the banking and securities sectors as of early 2018, highlighting trends from 2017 and forecasting potential developments for 2018. It outlines the key drivers, challenges, and opportunities influencing deal-making in these industries.

Main Points and Key Information

Banking M&A in 2017

• Deal Volume: 250 deals were announced by December 19, 2017, almost matching the 249 deals of 2016.
• Deal Value: The average deal value remained steady at $159.8 million, consistent with 2016.
• Largest Deal: The acquisition of Astoria Financial Corporation by Sterling Bancorp for $2.19 billion was the largest deal of the year.
• Regional Trends: The Midwest and Southeast regions led in deal volume, driven by the presence of smaller, targetable banks and population shifts.
• Small Bank Consolidation: A multiyear trend continued, with most deals targeting small banks under $1 billion in assets due to low interest rates and high operational costs.

Banking M&A Outlook for 2018

• Second-Half Momentum: Banks may delay M&A activity in the first half of 2018 due to regulatory and legislative uncertainty, but expect a pickup in the second half.
• Efficiency Ratios: As banks implement post-recession regulatory changes, efficiency ratios are expected to improve, creating a better environment for deal-making.
• Valuation Trends: Rising deal values relative to tangible common equity may lead to either a market correction or a new pricing reality, influencing deal timing and multiples.
• Tax Reform Impact: The US tax reform bill, which reduced the corporate tax rate from 35% to 21%, is expected to increase available capital for M&A, though NOLs will be less attractive for sellers.

Specialty Finance M&A in 2017

• Deal Volume: 66 deals in 2017, slightly up from 63 in 2016.
• Deal Value: The average deal value dropped significantly, from $655 million to $299 million (excluding GE tail-end transactions).
• Key Deals: United Rentals Inc. and FE Holdco LLC were among the largest acquirers in the sector.
• 2018 Outlook: Continued focus on scale and digital capabilities, with potential for PE roll-ups of mortgage originators.

Investment Management and Securities M&A in 2017

• Deal Volume: Increased from 186 in 2016 to 219 in 2017.
• Deal Value: Rose from $191 million to $324.4 million.
• Key Deals: SoftBank's acquisition of Fortress Investment Group for $3.27 billion and the PE consortium's purchase of Focus Financial Partners for $2 billion.
• 2018 Outlook: Continued profitability pressures and a focus on partnerships, bolt-on acquisitions, and filling product gaps. The DOL fiduciary rule compliance date was pushed back to July 2019, allowing more strategic reconfigurations.

Fintech M&A in 2017

• Deal Volume: Declined from 209 in 2016 to 140 in 2017.
• Deal Value: Reduced from $376 million to $255 million.
• Key Deals: Gartner's acquisition of CEB for $2.59 billion and Vista Equity Partners' purchase of ABCO's education business for $1.55 billion.
• 2018 Outlook: Fintech capabilities will remain in demand, though pure-play deals may be smaller. Alliances and JVs may surpass acquisitions as firms avoid outdated technologies. Consolidation in payments and digital lending is expected, with cross-border activity likely to continue.

Regulatory and Legislative Reform

• Regulatory Uncertainty: In 2017, many institutions hesitated to act due to uncertainty about Trump administration policies.
• Tax Reform Impact: Expected to boost capital availability and earnings per share for banks, though may affect mortgage lending and FDIC fee deductions.
• Key Regulatory Changes:
  • Enhanced Prudential Standards (EPS): Thresholds for EPS may be raised, potentially easing regulatory constraints.
  • DFAST: Thresholds for stress tests may increase, affecting capital requirements.
  • Volcker Rule: Exemptions for smaller banks could increase M&A activity in alternative investment management.
  • Community Bank Leverage Ratio: Proposed to be set between 8% and 10% for banks with less than $10 billion in assets.
  • Fiduciary Rule: Delayed compliance date may influence strategic decisions and M&A activity.

Other Influencers on 2018 M&A

• Interest Rates: Expected to rise in 2018, which could both increase competition and provide more stable capital for acquisitions.
• Valuation Trends: Average deal value-to-tangible common equity increased to over 164% in 2017, suggesting higher valuations.
• Fintech Demand: Fintech capabilities, especially in digital lending and back-office automation, will continue to be sought after by financial institutions.
• Cross-Border Opportunities: US banks may become more attractive to foreign-owned institutions due to tax reform benefits, potentially increasing M&A activity with foreign buyers.

Conclusion

The 2018 banking and securities M&A landscape is poised for increased activity, driven by regulatory clarity, tax reform, and rising interest rates. However, challenges such as valuation pressures, profitability constraints, and the need for digital transformation will continue to shape deal dynamics. Fintech and specialty finance sectors will remain important, with a focus on scale, efficiency, and technological integration.