Old National and First Midwest are merging. The deal should be finished at the end of this year or the beginning of next year.
Dreamstime
Another bank merger is in the works, more proof that tie-ups between financial institutions are on the rebound after a lackluster 2020.
Old National (ticker: ONB), based in Evansville, Indiana, and First Midwest (FMBI), in Chicago, are joining up in an all-stock merger of equals with a market value of $6.5 billion, the banks announced on Tuesday. The deal is expected to close at the end of this year or the beginning of next year, subject to regulatory and shareholder approvals.
Shares of First Midwest were up 1.1%, to $21.16, in midday trading; Old National stock, though, was down 2.2%, to $18.64.
The combined entity, which will be called Old National, will have $45 billion in total assets and $34 billion in total deposits and will strengthen each bank’s Midwestern footprint. The banks expect to realize the benefits of joining up almost instantaneously—a 22% GAAP increase in per-share earnings for Old National and a 35% gain for First Midwest.
The merger has implications beyond the regional bank space. Financial institutions of all types, including asset and wealth managers, are finding that merging allows them to be more competitive.
“As a combined organization, we will be in an even stronger position to invest, grow and innovate in talent, capabilities and services that will enhance an already superior client experience and further set us apart as a market leader not only in Chicago but across the Midwest,” Michael Scudder, chairman and CEO of First Midwest, said in a statement.
Combining will make it easier for the new Old National to serve all clients because of its larger balance sheet and more diverse geographic footprint. The merged bank new also expects to use its bigger size to enhance its digital offerings.
Bank mergers slowed last year during the pandemic, which forced the industry to focus on simply serving clients. But while activity diminished, the rationale for mergers only intensified as smaller banks realized they needed to boost their digital capabilities to better serve clients and compete with larger rivals. So far this year, there have been 37 bank mergers, according to data compiled by Hovde Group. The year-to-date tally is within spitting distance of the 49 mergers in 2020. In 2019, there were 135 mergers.
Banks are generally looking to merge with close peers, instead of doing so-called “bite-sized acquisitions,” Hovde analyst Brett Rabatin wrote. The relatively larger deals are due to banks wanting to stay relevant in an era of expected low interest rates. Smaller acquisitions don’t transform larger banks as much.
“Given rapid changes in financial services and an outlook for interest rates to remain low it seems likely managements may be willing to do more franchise altering transactions,” Rabatin wrote.
Rabatin’s note was released ahead of the Old National-First Midwest deal, but he had tapped Old National as a potential buyer. His other potential buyers include Sierra Bancorp (BSRR), First Mid Bancshares (FMBH), Independent Bank Group (IBTX), Home Bancshares (HOMB), Prosperity Bancshares (PB), and Reliant Bancorp (RBNC)
Topping the list for banks that could be targets are Sterling Bancorp (SBT), Republic Bancorp (RBCAA), Capital City Bank Group (CCBG), and Macatawa Bank (MCBC). Banks on this list have both chief executives who are 60 or older, and operate in areas with inward migration and higher-than-average income growth expectations.
But it isn’t just regional banks looking to merge. In a note on Tuesday, Credit Suisse analysts explained why they think the wave of mergers among asset and wealth managers will continue. Over the past year, there have been a few big tie-ups, including Franklin and Legg Mason as well as Morgan Stanley’s acquisitions of E*TRADE and Eaton Vance.
Credit Suisse analysts wrote that financial firms will be on the hunt to scale up so they can offer more services across larger geographies. The sector has also seen a rise in activism, such as Trian Partners’ investments in both Invesco and Janus Henderson, which could portend M&A activity.
Write to Carleton English at [email protected]
