One common question we get from community bankers is: What are banks selling for these days? Most of the time the person asking the question is looking for some multiple of tangible book value. This “Price/TBV” multiple is a seemingly simple metric that many in the industry use to identify pricing trends on a macro-level. Here are the current trends on this data:
There is a tendency in the industry for some institutions to casually use Price/TBV multiples as a benchmark to gauge whether a particular seller received an attractive premium or whether a particular buyer struck a good deal on an acquisition. The problem is that Price/TBV data can be a misleading metric. This is because reported Price/TBV multiples are often applied in a non-uniform manner based on deal structure and the amount of tangible equity on a particular seller’s balance sheet. Those relying on Price/TBV as an apples-to-apples comparison of deal valuations run the risk of being misled by these nuances. This can lead to unrealistic expectations when exploring M&A opportunities on both the buy-and sell-side.
To illustrate this point, consider the following (overly simplistic) illustrations of three identical banks that each sell for a 1.50x Price/TBV multiple, yet deliver significantly different purchase prices to their shareholders:
Here are a few takeaways that we think are helpful:
Of course, our Financial Institutions team at Godfrey & Kahn, S.C. is always here to assist either directly or by connecting your bank with other helpful resources.
Subscribe today to receive firm newsletters and blogs, client updates, seminar announcements, and more according to your preferences and areas of interest.
Get practical insights on COVID-19 legal issues for your business.
Visit Resource Center
If you have a media request or need an attorney with particular knowledge for comment, please contact Kyle Mondy, Marketing & Communications Manager, at 414.287.9481 or firstname.lastname@example.org.
Disclaimer and Legal Notices
Copyright © 2019 Godfrey & Kahn, S.C.
Attorneys at Law - All rights reserved.