One of our favorite conferences each year is the Bank Director’s Acquire or Be Acquired Conference (AOBA). While the material is a little redundant (there are only so many slides you can see on bank multiple trends), they keep the conference moving so you never get bored. Bank Director also does one of the best jobs in the industry of actually working practicing banks into the panels, so you hear firsthand how they do it and not just some vendor’s theory.
However, the best part of the conference is the sheer energy level. Everyone is in deal mode. Not to say that there are a lot of deals that get done there (there are some), but you only come to that conference if you are serious about acquiring, selling or NOT being acquired. Like that African proverb, it doesn’t matter if you are a lion or a gazelle – when the sun comes up – you better start running. That is the sentiment that is evident at AOBA – bankers were constantly in motion.
The Essence of the Conference
AOBA tends to attract banks that take performance and the creation of franchise value seriously. And, in case you forget, there are enough consultants and high-powered investment bankers running around to tell you often what you are doing right or… wrong. At over 1,100 attendees, the place is packed, and it is not only educational to be able to speak with the nation’s top performing bank CEOs all in one place, but also to have conversations with their board members. Board members will often give you the “behind the scenes” opinion on how the bank really operates. There is no surprise that most every top performing bank CEO we spoke with, we were also equally impressed by the quality of their board members. While some conferences attract bankers and Directors that want a vacation, AOBA attracts bankers and Directors that want to create alpha.
The overarching undercurrent of the conference was optimism. In fact, that is an understatement, as bankers were more giddy about the future than a bunch of 12-year old girls at a 5 Seconds of Summer concert. That audacity of hope (yes, we realize the irony of that phrase) led most to believe that bank’s current equity valuations will lead to more deals getting done, by larger banks and at higher multiples compared to last year (despite the fact that there are fewer banks).
More capital, higher quality credit, greater liquidity and that rough optimism for a stronger economy and higher rates has many banks in a better position to make stronger bids. Aging management teams, the burden of regulation, competition and the expectations of higher multiples motivated the sellers. You have to love when you go to a M&A conference, and both buyers AND sellers feel it is the right time to take action. If that wasn’t enough, it seemed like everyone wanted to raise relatively cheap capital. It was no wonder why the I-bankers were so happy.
Next, to the obvious M&A topics, there was a large emphasis placed on fintech. While not much new ground was broken, it seems like the conversation of partnering with fintech players has evolved where bankers are now starting to figure out (and have figured out) how to successfully pull off partnerships.
Our Top 10 Slides and Wisdom
In addition to the themes above, here is our list of the ten most important things we learned or had reinforced at the conference:
- Change as a Skill: While somewhat evident given President Trump, being able to adapt to change is a success factor that all banks need to think through and practice. The ability to see how the play might change, to be able to pivot and to skate where the puck is going to be, will be the key to success for the next four years. This point was driven home as the travel ban news broke and a handful of CEOs at the conference got asked their position by their board, employees or news media. Having to interpret the news and walk the political line for all stakeholders may be a new skill we all need to develop.
- Board Education: US Bank's Board Education Plan made us want to update the level of technology awareness for our board.
Trump Bump Pump: The value of President Trump was interestingly quantified by KBW (about 6 bps in ROE and 60 bps in TCE).
Growth & Talent: Our fellow bankers don't appreciate talent or the ability to generate growth as much as we do.
TBV Earnback: We need to get more granular in our analysis when a target falls within the dreaded 4 to 5 year breakeven period and make sure we are clear on our strategic intent.
Compensation: We must get more creative in custom designing compensation packages to attract and retain key talent. Talent is everything.
Strategic Value: We partnered with Mercer Capital and presented our “Strategic Value Efficient Growth Differential Equation” which we will highlight in a later post. We also quantified ROI on a potential fintech partnership and its alternatives. In our real-life example, we asked the question, "Should we partner with a rabo-advisor and if so what structure?"
- Activism: Bank shareholder activism works to a much greater extent than we previously believed and the slide below sums up the challenge and the mitigation nicely.
Price Certainty: Due to lofty equity levels, acquiring banks need to be prepared to offer fixed price or collars on their offering equity price as more sellers will be concerned that bank equity valuations can only go down from here.
Credit Unions: One of our favorite mind-bending topics from the Conference - Should banks be buying credit unions?
Submitted by Chris Nichols on February 01, 2017