U.S. chief executives are increasingly optimistic about merger-and-acquisition activity as the threat of a severe recession eases and companies sharpen their collective focus on growth strategies through the first half of 2024, a
The EY survey of 320 CEOs in July found 64% are planning for M&A over the next 12 months, a bullish sign for banks with deal advisory operations.
Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, said that "bodes well" for big banks that advise companies across sectors and geographies on M&A. While community lenders are focused on bread-and-butter banking, he said, a shift in sentiment could also drive new activity on the small-bank M&A front.
Nearly all executives polled (97%) said they were braced for an economic downturn. However, EY found greater percentages are now expecting a milder decline compared with
The pursuit of artificial intelligence capabilities is expected to be a leading driver of activity. The EY survey shows 80% of U.S. executives have either integrated AI into their products and services or plan to within the next year.
Aside from the pursuit of technology, however, EY researchers said in a report that CEOs are mostly focused on deals that drive industry consolidation and allow buyers to downsize sellers' staff or operations in redundant areas, creating cost-cutting opportunities that can bolster profits when savings drop to bottom lines.
"Consolidative deals are on the rise more than strategic growth or transformative deals," the researchers said.
They also noted that, while momentum is expected to build, it may do so gradually as buyers are spending more time scrutinizing potential sellers, carefully looking for vulnerabilities that could present problems even in a mild recession. "In all cases more time is spent on the business case," they said.
EY did not break its survey down by sector. But based on recent interviews and commentary during earnings season, bankers also
Matt Deines, president and CEO of the $2 billion-asset First Northwest in Port Angeles, Washington, is among those bankers.
"We see very little weakness, in terms of the economy and sentiment, when we have conversations with our clients," Deines said in an interview. "People are a bit cautious, but we don't see expectations for a dire situation or a major credit event."
He said bank M&A, mostly on hold over the past 12 months in large part because of economic trepidation,
Like their peers in other industries, bank CEOs see a need to cut costs — to offset higher deposit expenses this year — and the need to invest in technology.
Eric Corrigan, head of the financial institutions group at Commerce Street Capital, said in a midyear report that, with better clarity on the economic outlook, an abundance of catalysts could drive bank M&A in coming quarters.
In addition to technology, many community banks with aging management teams view M&A as a succession plan. Others are grappling with elevated funding costs and heavy regulatory burdens and will look to sell as a result, Corrigan said.
Some bank buyers are also looking to diversify their business lines and geographies to drive long-term growth.
"Ultimately what will likely spark deals is that some of the catalysts that are dormant begin to see green shoots of change," Corrigan said. "They do not all have to be working, but deals beget deals and when the wave starts everyone will want to ride it to the shore."
