Pandemic slows bank M&A, but experts see activity on horizon - Crain's Detroit Business

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2020 may have seen a relative pause in the yearslong trend of bank consolidation, but don't expect that break to last long.

Mergers and acquisitions in the financial sector had been moving along at a steady clip for several years, but the economic tumult stemming from the COVID-19 pandemic, particularly in the early part of the year, brought much of that activity to a halt.

Opinions differ on the amount of activity and how quickly it may begin to percolate once the economy begins to recover as a vaccine becomes available, but most experts agree that significant dealmaking lies ahead.

"As soon as this ends, I'll tell you, I expect there to be a very large increase and uptick in (M&A) activity," said Michael Bell, co-leader of the financial institutions practice group at the Honigman LLP law firm. "I think there's a lot of pent-up demand that has been paused or not even started because of the pandemic, and it will break loose."

Bell added that even though the pandemic continues raging, bankers are starting to move forward with dealmaking.

"I'm seeing activity (and) we're getting busy. Sellers are coming to the marketplace," he said. "I can't imagine how busy it will be once this finally gets solved."

Tom Shafer, the CEO of Detroit-based TCF National Bank, said his bank — the largest headquartered in Michigan and built through a streak of deal-making that goes back more than a decade — is not necessarily scouting for other institutions to buy, but is ready for the right opportunity. TCF in August completed its integration with Chemical, with the $3.6 billion merger being completed last year.

"You build a plan for organic growth, but be acquisition-ready," Shafer, who's been involved in over two dozen transactions in his career, said of his M&A strategy.

"What that means is you never know when the moment is going to happen. These are fleeting opportunities," Shafer said last month during a virtual event hosted by Walsh College and moderated by a Crain's reporter. "When they appear you better be ready to take advantage of it. That's partially a mindset, that's partially a technical skillset, and you've got to prepare your team for change."
A mid-November report from S&P Global puts in stark terms just how significant the impact of COVID-19 was on M&A activity in the banking sector.

The first 10 months of 2019 saw 219 deal announcements totaling $49 billion. The same time period in 2020 equated to 92 deal announcements totaling under $10 billion.

A recent market report from Grosse Pointe investment bank Donnelly Penman & Partners shows that Michigan has had a total of nine banking M&A transactions over the last two years. The market report finds that the Midwest has been dominating banking deal flow, with 43 percent of all transactions.

Despite the subdued M&A activity this year, not all has been quiet, and Michigan banks are looking at deals.

In late-October United Federal Credit Union announced that it would buy Edgewater Bank — both institutions are headquartered in St. Joseph in southwest Michigan — in an all-cash deal that would create a bank with 41 branches and assets of about $3.5 billion.

ChoiceOne Bank has also had a busy year.

The Sparta-based bank in northern Kent County completed two deals this year, each of which began in 2019, said CEO Kelly Potes.

The deals had ChoiceOne acquiring Lakestone Bank and Trust based out of Lapeer, as well as Community Shores Bank Corp. in Muskegon.

The deals fit in with the ongoing trends in the community banking world of institutions needing to scale up technological capabilities and regulatory compliance, said Potes, adding that the acquisitions give ChoiceOne a statewide presence and create an institution in the "sweet spot" of having about $1 billion in assets.

Like Shafer with TCF, Potes said ChoiceOne is hardly ruling out future deals.

"As something comes along that makes sense for us ... we could continue to talk to our other bank partners out there and if there was an opportunity we would take a look at that," said Potes. "We have the bandwidth and we know how to do it now. We've done a couple of them here."

Such sentiments come as no surprise to John Donnelly, managing director of Donnelly Penman, where he focuses on the community banking sector.

We're currently in "a multitiered market," said Donnelly where banks like TCF are gaining national scale, those in the midlevel range with assets of between $1 billion and $10 billion need to scale up, and those smaller will struggle to compete.

While skeptical that deal flow will come "roaring back" post-pandemic, he believes conditions still lend themselves to bank consolidation.

"For the folks under $1 billion (in assets) that's kind of like too big to be small and too small to be big," said Donnelly. "And so I think you'll see some of those folks sidle up with each other and say, 'We're stronger as one than we are apart.'"

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