Mergers and acquisitions can be a big step for any business. The national banking industry, for example, has seen a wave of mergers due to increased costs and competition. The consolidation activity throughout the banking industry has also had an impact on the banking industry in Louisiana. Nine banks in Louisiana have either agreed to or completed acquisitions over the past two years. The smaller banks in Louisiana that will be acquired will likely be purchased by institutions headquartered in Baton Rouge and other major Louisiana cities.
Many owners of smaller banks faced with increasing regulation have agreed to sell their banks to larger institutions. Experts expect the merger trend in the banking industry, and the Louisiana region, to continue. The combination of lower interests rates and reduced demand from borrowers due to more stringent lending regulations have made expansion, necessary to offset increasing costs, more difficult for some smaller banks.
According to experts, banks need between $500 million and $1 billion in assets to make a profit. In Louisiana, 100 banks based in the state held assets under $500 million as of earlier this year. Nearly 2,000 banking institutions nationally today hold less than $100 million in assets. Over the past few decades, consolidation has led to a reduction by half in the number of commercial banks in the United States. Experts speculate, however, that some mid-size banks between $100 million and $500 million will try to increase their portfolios through acquisition. Experts expect community banks in the Louisiana and elsewhere in the region to be looking at merger options.
The Louisiana banking industry is considered healthy which, experts note, creates a favorable environment for mergers and acquisitions. Although acquisition prices have been lower than those seen earlier in the century, the recent activity has had an impact on deals and experts expect that acquired bank owners will be rewarded. Both owners of banks considering acquisition and institutions and buyers considering acquisition targets should perform due diligence.
To avoid potential business litigation, when acquiring a new business, or selling one, it is important to understand the process and ensure the transaction is in line with business goals and corporate strategy. It is also important when contemplating a significant business transaction, such as a merger or acquisition, that the parties are prepared to respond to business litigation which can sometimes arise even in circumstances of a friendly acquisition. Proper planning may help to avoid it but it is important to have a thorough knowledge of the process in advance to help facilitate a successful transaction.
Source: The Advocate, “Analysts say banking industry ripe for consolidation,” Kathy Finn, Dec. 21, 2014