Laying the Groundwork for Bank M&A

As we enter the final months of 2026, we consider recent developments in bank M&A and offer a framework for preparing for future opportunities. Several significant regional bank deals have closed this year, including Santander/Webster ($12.3 billion), Fifth Third/Comerica ($10.9 billion), Pinnacle/Synovus ($8.6 billion), Huntington/Cadence ($7.4 billion) and PNC/FirstBank ($4.1 billion). Collectively, these transactions reflect a more favorable regulatory environment and demonstrate that even large bank mergers can obtain approval on substantially shorter timelines than in recent years. These transactions had a median sign to close period of just under 4 months, a significant improvement from the approximately 10 month average timeline for transactions valued over $500 million that closed from 2021 through 2024. More timely and predictable regulatory review can enhance deal certainty, accelerate synergies and reduce transaction related risks. The FDIC’s recent proposal to modernize and reform the deal approval process has the potential to further cement accelerated timelines and transparency in the review of bank mergers.

The largest bank deal announced this year was Santander’s $12.3 billion acquisition of Webster, which reversed a trend of large foreign banks exiting the U.S. and signified the attractiveness of high quality U.S. regional bank franchises. In early September, EverBank and WaFd announced a $3.9 billion reverse merger transaction aimed at creating increased operational scale and providing private equity investors in EverBank an opportunity to gain liquidity through access to the public markets. Perhaps most notable is the recent convergence in banking and fintech evidenced by Capital One’s $5.15 billion acquisition of Brex, Valley National’s acquisition of Bluevine, Chime’s acquisition of Stride Bank to become a bank holding company and a surge in new bank charters.

Even against the favorable regulatory backdrop, the volume of large bank M&A announcements has slowed this year with most activity concentrated in smaller community bank deals. In our view, this was caused by market and economic conditions rather than a lack of strategic rationale. Bank valuations increased meaningfully during the first half of the year and management teams focused on organic growth and returning capital to shareholders. But the market for bank stocks has pulled back dramatically since August as banks face a flattening of the yield curve and a higher for longer rate environment together with elevated deposit pricing competition. Banks also face a number of increasing competitive threats, including agentic AI, stablecoins and fintechs. These factors may dampen earnings growth and make management teams more likely to explore M&A to expand into attractive higher growth markets, to acquire attractive deposit franchises that are difficult to build organically and to build scale to offset the costs needed to invest in AI and technology.

There is a broad consensus that the current favorable regulatory window could narrow or close after the 2028 presidential election, which may drive an increase in activity as that deadline begins to approach. Robust M&A activity is often catalyzed by a single transformational deal that reshapes the chessboard, provides confidence to other executives and boards, and leads to a fear of missing out. Now is the time to begin preparing deliberately for future opportunities, whether as potential sellers or acquirors. As legendary coach John Wooden observed, “When opportunity comes, it’s too late to prepare.”

Review Strategy at the Board

Preparation should begin at the board level through the regular strategic review process rather than as a reactive exercise triggered by an inbound inquiry, an activist or other external event. The review process should produce a clear set of strategic objectives and a disciplined evaluation of alternatives for achieving them, including potential M&A transactions as either a seller or an acquiror. The board should, with the assistance of management and outside advisors, evaluate potential transaction partners, valuation ranges, likely receptivity, ability to pay, execution risk, and expected regulatory considerations. Conducting this analysis during a period of relative calm allows the board to make better decisions on the accelerated timetable that M&A opportunities often require and helps create a stronger record. The objective is not to decide to put the company up for sale, but to preserve strategic flexibility and ensure that the company is well positioned and that the board can act proactively and decisively. The board led strategic review should not be a one time event, but a continuing assessment.

Identify and Evaluate Potential Targets

Potential acquirors can use this period to identify potential targets and begin evaluating those opportunities based on public information. This includes more closely tracking valuation and operating performance, assessing likely regulatory and integration issues, developing a detailed investment thesis, and identifying key questions to address in diligence. Potential acquirors can also start building relationships with senior executives at the target companies. This work will help an acquiror better evaluate and prioritize targets and prepare to move quickly once the timing is right. Acquirors should also align their potential M&A plans with planning in other areas, including capital allocation and technology, to ensure that they are in sync. A credible acquisition thesis, an organized diligence process, a robust record of board evaluation, and a realistic, thorough integration plan can materially improve market reception and reduce execution risk.

Take Steps to Maximize Value

Potential sellers should consider how the franchise would appear to likely acquirors and whether there are actions that could be taken to maximize value. That assessment should include growth and profitability initiatives, earnings quality, improving deposit mix, cleaning up the balance sheet, and identifying businesses or investments that may be better divested before a sale of the whole company. Some of these steps require a significant lead time. For example, growth and profitability initiatives require time to demonstrate effectiveness and divesting a business requires advance transaction planning to cleanly segregate the business and to then market and execute the divestiture. Recently, acquisitions of large regional banks and higher quality community banking franchises have generally been priced at 1.75x tangible book value to above 2x tangible book value, while acquisitions of smaller institutions with less scarcity value have been priced closer to 1.5x tangible book value.

AI Strategy is Critical

AI is already having a consequential impact on the U.S. economy and markets and will have an increasingly significant impact on the financial services industry. Banks that develop an effective AI strategy are positioned to compete more successfully and command higher valuations. The recent introduction of consumer focused agentic AI into the marketplace has raised a number of potential risks for financial institutions if there is broad adoption. These risks include increased deposit competition leading to higher deposit costs, rapid deposit runoff, security risks and the more fundamental risk that the current value chain is disrupted with financial services providers at risk of being commoditized or disintermediated. Banks’ ability to navigate the risks and opportunities presented by AI will increasingly differentiate institutions, influence valuations and serve as a driver of consolidation. AI also has the potential to transform many elements of the M&A process itself, including enhancing and accelerating the diligence process as well as integration and conversion timelines.

Minimize Liabilities and Integration Obstacles

Another key component for potential sellers is understanding and minimizing contingent liabilities and demonstrating operational readiness and reducing integration challenges. Core processing contracts often represent one of the largest change in control costs in bank M&A transactions, and management teams should understand those transaction costs and be mindful in negotiating renewals of those agreements and other long term material vendor arrangements. Potential sellers should review material agreements to identify provisions that may be problematic for acquirors such as change in control provisions, exclusivity provisions, noncompetes and other restrictive covenants and take steps to address any identified issues. Waiting to resolve these issues until after a deal is announced can drive up the associated costs as counterparties may feel that they have greater leverage in the negotiations.

Potential acquirors will scrutinize contingent liabilities, including potential credit issues and sufficiency of reserves, significant litigation and compliance matters, and regulatory issues. Boards and management teams should identify these matters in advance, work to resolve them where possible before transaction discussions commence, and develop a credible diligence record where resolution is not immediately available, including through independent reviews or other third party assessments where appropriate. Integration related diligence will also focus on systems and technology and the maturity of risk and compliance functions. Deficiencies in these areas or significant projects that would impede a timely conversion and integration can create obstacles for both a target and an acquiror and should be thoughtfully considered and addressed.

Review Employee Matters

Among a bank’s most significant assets are its people, both at the executive level and revenue producing and client facing personnel. Boards should prioritize succession planning at the executive level to avoid being forced to engage in a sale from a position of weakness. In conducting diligence on a target, acquirors will be focused on their ability to retain key talent as well as the cost associated with change in control and retention payments. M&A deals in banking that have not lived up to expectations have often been characterized by significant departures of key personnel. Executive compensation arrangements, including the impact of the Section 280G excise tax, become a focal point in M&A transactions. Boards and compensation committees should review now whether they have an appropriate suite of executive compensation arrangements in place that provide the right balance of retention and employee protection without becoming an obstacle to an acquisition. Advance planning can also provide the ability to take actions to mitigate adverse impacts of the 280G excise tax.

Demonstrate Regulatory Readiness

On the acquiror side, one of the most important areas for preparation, even in a favorable regulatory environment, is regulatory compliance. Being in the regulatory penalty box can mean being unable to transact for an extended period of time. Focus and attention on supervisory issues and regulatory relationships are paramount. In particular, planning for a transaction that will cross a regulatory threshold, such as the current $100 billion asset threshold, requires significant investments in time, expense, and personnel to demonstrate readiness to meet enhanced regulatory requirements. Regulatory readiness includes not only legal compliance, but also risk management maturity, credibility with supervisory teams and a demonstrated ability to meet integration challenges associated with a transaction. It’s too late to start that work when a transaction is announced. It must already be substantially progressed and able to be validated. A recent example is the Synovus/Pinnacle transaction that resulted in the combined institution crossing the $100 billion threshold. Synovus had engaged in significant investment and preparation for the enhanced requirements before it ever engaged in discussions with Pinnacle. Synovus’s advance planning and institutional capability were a foundational component of the transaction and facilitated a prompt regulatory approval process.

Start Preparing Now

M&A readiness takes time and should begin now, in advance of a transaction and before the favorable regulatory window potentially narrows or closes. Boards and management teams that define their strategic priorities and prepare the organization will be better positioned to seize opportunities, maximize value, and execute from a position of strength.