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    Banking, Finance & Insurance Q1 2023

    Q1-2023-Banking-Finance-Insurance

    Industry Trends

    Fed Raises Rates for Ninth Time, Hints at Possible End Amid Uncertainty

    Meeting in late March, the Federal Reserve raised interest rates by a quarter point for the ninth consecutive time, bringing the benchmark federal funds to range between 4.75% and 5%, the highest level since September 2007. While the rate increase was expected, Fed Chair Jerome Powell hinted that it could be the last one following the recent banking-system turmoil. The latest rate hike and messaging have led to greater uncertainty and increased the possibility of ending the rate-rise campaign sooner than expected.1

    Insurance M&A Market to Recover as Fed Rate Hikes Slow

    The pace of M&A within the insurance industry is expected to pick up in late 2023 or 2024, as the Federal Reserve’s rate hikes are expected to slow, according to a report by Deloitte. Although transaction volume is expected to rise, it will likely come at lower purchase prices compared to the higher valuations seen in 2021. The insurance brokerage sector, usually the leading indicator within this sector, is expected to lead the recovery with its high deal volume and broad appeal to private equity firms.2

    Banks' Collapse Sparks Concerns About Economy and Potential Recession

    Several banks, including Signature Bank, Silicon Valley Bank, and Credit Suisse Group, collapsed quickly, leading to concerns among investors about the health of the banking system and the economy's future. Regulators are working to stop the collapse of a few banks from becoming the downfall of many more. The result of the recent collapses is an increase in uncertainty and investor concerns about an increased risk of recession.3

    Bankruptcies Surge Among Private-Equity Portfolio Companies

    Bankruptcies by private-equity-owned companies are on track to more than double this year, setting the pace for the second-highest rate in over 12 years. In the first 75 days of 2023, 16 firms have already declared bankruptcy, according to S&P Global Market Intelligence. These trends coincide with a rise in bankruptcies overall as companies face rising interest rates and inflation. The trend indicates that private-equity firms may be less willing to invest in struggling companies.4

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Bank of the West
    • BMO Harris Bank National Association
    • $16,300.00
    • Columbia Banking System, Inc.
    • Columbia Banking System, Inc.
    • $5,147.06
    • AmeriTrust Group, Inc.
    • Accident Fund Insurance Company of America
    • $740.00
    • MS Transverse Insurance Group, LLC
    • MSIG Holdings (U.S.A.), Inc.
    • $550.00
    • Professional Holding Corp.
    • Seacoast Banking Corporation of Florida
    • $477.04
    • PCSB Financial Corporation
    • Brookline Bancorp, Inc.
    • $323.87
    • Progress Financial Corporation
    • United Community Banks, Inc.
    • $259.71
    • Heritage Southeast Bancorporation, Inc.
    • The First Bancshares, Inc.
    • $206.65
    • GrandSouth Bancorporation
    • First Bancorp
    • $181.09
    • Centric Financial Corporation
    • First Commonwealth Financial Corporation
    • $137.49

    Other Financial Buyer Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Landmark Life Insurance Company
    • Mutual of America Life Insurance Company
    • n/a

    Other Strategic Buyer Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Silicon Valley Bridge Bank, National Association
    • First-Citizens Bank & Trust Company, Inc.
    • n/a

     

    Source S&P Capital IQ as of 4/14/2023 and PCE Proprietary Data

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    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Timiraos, Nick. “Fed Raises Rates but Nods to Greater Uncertainty After Banking Stress.” The Wall Street Journal, 22 March 2023.
    2. “2023 insurance M&A outlook: Balancing uncertainty with optimism.” Deloitte.
    3. Otani, Akane. “First Republic, SVB, Credit Suisse Show How Higher Interest Rates Caught Up With Banks.” The Wall Street Journal, 18 March 2023.
    4. Wirz, Matt. “Private-Equity Portfolio Company Bankruptcies Surge.” The Wall Street Journal, 27 March 2023.

     

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