Insights Into Institutional Growth and Banking M&A

Banking Mergers & Acquisitions at a Glance:

• One-third of all banks plan to actively acquire another bank over the next five years
• There were more than 100 bank M&A deals in 2024 with an aggregate value of $14 billion
• In M&A, banks are buying the teams and the culture of the institution as much as their value
• If you’re not using data to drive your decisions, you’re just aggregating a series of individual opinions

As 30% of all banks plan to actively acquire another bank over the next five years, financial institutions are focused on scale and strength to compete. For most banks or credit unions, M&A pays off for their organizations. “Not only are bank executives interested in merging or acquiring, but the deals are delivering more value than ever before, reaching record levels at the end of 2024,” according to Believe in Banking. At the end of 2024, S&P data showed that bank merger and acquisition value tripled over the year, with four $1 billion-plus deals. For both regional and community banks, growth remains the key motivator for banking M&A, as mergers produce positive results for smaller institutions looking to achieve scale.

To learn more about the ins and outs of mergers and acquisitions in banking, Gina Bleedorn and Juliet D’Ambrosio hosted a special guest episode of the Believe in Banking Podcast, featuring Al Dominick, Partner with Cornerstone Advisors, a consulting services firm delivering customized solutions for banks and credit unions. In the episode “Scaling for Strength Through M&A,” Gina, Juliet and Al had a dynamic discussion about the latest developments in mergers and acquisitions in the bank and credit union sectors. Their conversation covered considerations for scale, the challenges and opportunities for change, and the importance of data-driven decision making and brand development for M&A deal success. An excerpt of Al’s insights from their conversation follows.

What’s the current landscape in banking M&A and what’s on the horizon?

I was pulling some stats for the year, and we’ve seen over a hundred bank deals with an aggregate value of more than $14 billion announced in 2024. And this is all coming from our friends at S&P Global Market Intelligence. But you think about that $14 billion number in comparison to last year where it was just $4 billion worth of transactions announced. And that’s important to think about when you take a step back and consider how the financial and the banking industry has been created over the last 20-25 years. It’s really a product of consolidation, and so people talk about consolidation waves and when they are going to hit or when they’re going to maybe ebb out.

It strikes me that right now you’ve got a number of regional and community banks really thinking about whether it’s time to partner up to address some commercial real estate challenges – the constant drumbeat for tech investment. Again, how do you try to create some type of size and scale that allows you in some way, shape or form to differentiate yourself from the mega banks like a JP Morgan, BofA, or U.S. Bank that have been doing some pretty impressive investment in their own organizations.

So, when I think about what’s taking place in the M&A sector, those are some numbers that come up. I know you all also work with credit unions, as does Cornerstone. It looks like credit union mergers and assets sold have nearly tripled in 2024. And so that growth stands to continue as we look at the credit union market consolidation trends for what we think is over the next few years.

Tell us what banks and credit unions need to be thinking about regarding scale.

While scale continues to drive profitability and valuations for banks, it strikes me that it’s all around execution. That’s going to continue to be the true differentiator on who’s doing really well. Size doesn’t guarantee success in today’s market; it’s your ability to execute on whatever you’ve decided to do. You can start to make this specific to employees as organizations decide it’s time to merge. What are you realistically buying? It’s the teams. It’s the culture. It’s the identities that are there. So, thinking about your productivity improving and figuring out how to enhance that becomes a very meaningful conversation as part of the integration process.

I’ll give you an example. We ran an efficiency ratio report for average performing banks to figure out what their employee productivity should look like. As a decent performer, your employees are probably generating about $249,000 on an annual basis. For higher performing banks, that revenue number increases to about $287,000. One of the things that I start to think about with that crystal ball in front of me is for banks between that $1-$100 billion size – if they’re thinking about growth and about how to be more competitive and more relevant, they should set a target of around $400,000 of revenue per employee by 2030.

That may sound ambitious to some, but I think it’s achievable. And I’ve talked to various CFOs who’ve taken pencil to paper and said, “Yeah, I can see where that math lines up.” I’m not asking you to go through that academic exercise. It’s more to think about whether you can have that big deal announced and you can think about all the different opportunities to do really great things. But, are you also thinking about the potential outcomes 2-3 years down the road that you want to manage to and measure against? And I think productivity and performance has to be embedded into those conversations from day one.

Like Adrenaline, Cornerstone is a proponent of data-driven decision-making. Talk about the role of research and how FIs going through M&A use data to identify opportunities to scale.

Let’s make it kind of near and dear to the two of your hearts. Think about an acquisition where a merger [is] about brand development. How do you have that right identity going forward? I’ve been at various companies. I’ve led three corporate rebrands, and so I’ve learned the hard way that if you’re not using data to drive your decisions, you’re just aggregating a series of individual opinions. When I think about how an organization benchmarks who they are – what they want to be seen as, their values, and their visions – how do they become the magnet for talent that everyone talks about, but few actually deliver upon? Brand becomes really a big part.

On the M&A integration end, a deal gets announced. You have legal day one, and you’ve got to look ahead to legal day 100. There’s a lot of data that underpins what goes on during that period of time, whether it’s around the contracts that you’ve had that need to be negotiated or systems that might be redundant. There’s a lot of hard data that can start to show up, but then you also have to tease out what’s your identity, what’s your brand, what are you known for as a new organization? And not just an amalgamation of two former businesses.

To hear the full conversation on scaling for strength, tune in to the full episode of the Believe in Banking podcast.

Adrenaline is an end-to-end brand experience company serving the financial industry. We move brands and businesses ahead by delivering on every aspect of their experience across digital and physical channels, from strategy through implementation. Our multi-disciplinary team works with leadership to advise on purpose, position, culture, and retail growth strategies. We create brands people love and engage audiences from employees to customers with story-led design and insights-driven marketing; and we design and build transformative brand experiences across branch networks, leading the construction and implementation of physical spaces that drive business advantage and make the brand experience real.