ABA Banking Journal - January 2008 - (Page 34) M&A OUTLOOK Aggregate deal data since 1998 Completed/pending transactions Number of deals Aggregate deal value ($ bil.) Average deal value/ tangible book value (%) Aggregate foreign acquisitions of domestic targets since 1989 Year Number of deals Aggregate deal value ($mil.) 2007 M&A activity and recent de novo bank openings by state Ordered by number of deals in 2007, descending State De Novo openings since 2003 2007* No. of deal 2007* deals value ($mil.) Year 2007* 2006 2005 2004 2003 2002 2001 2000 1999 1998 257 292 269 270 258 211 249 254 334 475 72.3 108.7 29.1 130.8 72.4 17.2 40.4 93.8 68.7 288.5 233.8 246.4 229.2 226.3 216.1 188.1 187.8 201.5 228.8 263.9 * As of December 1, 2007 Source: SNL Financial LC earnings will cause them to seek suitors if they can’t right the ship themselves. Credit woes on the rise Banks that rely on construction lending have been hit especially hard. Delinquencies in construction and land development loans increased more than 300% in the third quarter compared to the same quarter in 2006, according to SNL Financial. And it’s not just construction lending; delinquencies in loans of all types have risen more than 50% since 2006 (please note that OTS thrifts are excluded from the total figures since they do not report delinquencies in all of the categories banks do). Banks of all sizes in certain parts of the country are getting hit, but some smaller community banks that do not have the capital necessary to leverage themselves out of this slump face more draconian options. (See cover story, p. 22, for more input on CRE lending.) Facing stock depreciation and falling capital ratios as well, many buyers cannot afford to do a deal since they lack the currency to fund an offer. Compounding this issue is the current trouble in the trust preferred market, which has made raising additional equity more expensive. If a bank can afford to go after a fledgling target, it might not want to assume the risk. Buyers will be wary of taking on a sketchy loan portfolio on top of the troubles they are already facing themselves. They will also have to look at which companies make sense strategically. Through November of 2007, targets 34 JANUARY 2008/ABA BANKING JOURNAL 2007* 2006^ 2005 2004 2003 2002 2001 2000 1999 1998^ 1997 1996^ 1995 1994 1993^ 1992 1991 1990 1989 10 11 4 8 6 5 7 6 3 7 3 9 4 3 4 0 3 2 5 22,653.4 7,945.7 1,777.1 17,044.5 685.7 1,293.0 7,548.7 2,905.8 9,512.3 9,684.7 1,454.9 3,182.8 1,538.4 449.7 777.1 0.0 239.8 83.0 695.8 * As of December 1, 2007 ^ Deal value for at least one deal is not available Source: SNL Financial LC were offered a healthy 234% of tangible book. This is one of the highest premiums since 1998, second only to the 2006 mark of 246% (see “Aggregate deal” table, above). In the past few months, however, these premiums have been receding, and as the credit environment continues to deteriorate, sellers will begin to accept lower prices. Until an equilibrium is reached, the disparity between what the buyers are offering and what the sellers are willing to take should drive down aggregate deal volume and deal value. Foreign-bank shopping spree In a market like this, foreign firms will have a distinct advantage to swoop in and buy U.S. banks on the cheap. With the ever-declining dollar, foreign currency will have much more purchasing power in the U.S. and continued cuts to the federal funds rate will only prolong this effect. Foreign acquisitions of U.S. banks have been ticking upwards the past two years, with 11 deals in 2006 and ten deals through the fall of 2007 (see “Aggregate Foreign acquisitions” table). These are the IL TX FL CA OH PA NE GA MA NY MN IA WI KS LA VA WA KY AL NJ NC IN TN MI SC CO VT MO WV ME OK AR PR DE OR WY NM AZ SD NH MD GU AK 19 51 75 86 8 22 0 68 2 15 18 3 6 6 4 16 12 6 18 16 22 3 26 8 13 9 0 14 1 1 3 2 0 2 9 2 0 12 0 2 7 0 0 19 19 16 13 12 10 10 9 8 8 8 8 7 7 7 6 6 6 5 5 5 5 5 5 5 5 4 4 4 3 3 3 2 2 2 2 2 2 1 1 1 1 1 23,403.4 515.7 1,668.4 4,579.2 588.2 2,434.7 1,461.7 604.3 4,611.3 1,500.9 233.0 131.2 437.3 106.3 66.6 558.5 534.4 110.4 12,060.1 10,028.3 1,304.7 706.1 532.3 162.9 112.2 84.0 1,876.9 57.7 47.3 192.9 90.2 43.2 610.0 195.3 114.2 28.3 13.7 11.0 251.4 123.8 45.3 24.6 6.3 * As of December 1, 2007 Source: SNL Financial LC www.ababj.com/subscribe.html http://www.snl.com/ http://www.ababj.com/subscribe.html
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