Citing “changing market conditions that have pressured bank industry stock prices” and “understandable delays in regulatory processes,” MVB Financial in Fairmont, West Virginia, and Integrated Financial Holdings (IFHI) in North Carolina called off their planned merger.
In a joint press release Tuesday, the two banking companies said they had mutually agreed to terminate the all-stock deal, which was announced last August and originally expected to close in the first quarter of 2023. Neither company will pay termination fees.
“It’s a very tenuous environment,” Larry Mazza, CEO of the $3.6 billion-asset MVB Financial, said in an interview Wednesday. “It just came to a point where we both saw this was not the right time.”
MVB had agreed to buy IFHI in Raleigh for $98 million to accelerate the growth of its government-guaranteed lending business. IFHI is the parent of the $400 million-asset West Town Bank & Trust as well as Windsor Advantage, the company’s Small Business Administration and Department of Agriculture loan origination and servicing operations.
Mazza cited the failures of Silicon Valley Bank and Signature Bank in early March, followed by the collapse of First Republic Bank last week as contributing to difficult market conditions. The failures followed other challenges caused by inflation and spiking interest rates, he added.
The downfalls of SVB and Signature were hastened by runs on the banks’ deposits. Banks across the industry have since faced heated competition for deposits and higher funding costs. Financial stocks have been under pressure since, though Mazza and other bankers say the sell-off is based more on social media-driven panic than a weakness in fundamentals. MVB’s deposits are stable and its loan portfolio is healthy, for example, Mazza said.
Yet MVB’s stock is down more than 30% since the beginning of March. That would have cut the $98 million price tag roughly in half had it closed on the initial timeline, given MVB was using its stock as currency to make the acquisition. Mazza said the seller did not find the lower price palatable, and MVB also did not like the idea of effectively using its stock at a price it believes is at a temporarily depressed level.
“The economics just didn’t work at this point,” Mazza said.
He also noted a regulatory hurdle that the banks worried they might not clear by an August deadline. An activist investor in IFHI had challenged the company’s Community Reinvestment Act rating. With regulators exceptionally busy managing the regional bank failures, MVB and IFHI determined it could prove difficult to resolve that matter efficiently, Mazza said.
While Mazza said there were no other notable regulatory issues, several bank deals have faced heightened scrutiny and delays over the past two years. A few have scrapped transactions, saying review processes had dragged on too long and left merger plans mired in uncertainty.
Most recently, the planned merger of TD Bank Group and First Horizon was called off last week, with both companies citing multiple regulatory delays and no clear finish line in sight.
The deal, valued at $13.4 billion when announced in February 2022, was originally expected to close in the fall of last year. But it was pushed off multiple times as the banks worked to navigate intense scrutiny of the transaction.
First Horizon Chairman and CEO Bryan Jordan said in an interview that the banks were convinced the process had dragged on too long and, given a dubious outlook, the companies needed to part ways.
The Biden administration called for ramped-up M&A examinations in 2021. Deal activity has slowed dramatically since. Banks announced 168 U.S. deals last year, down from 204 in 2021, according to S&P Global Market Intelligence. Only 19 deals were announced in the first quarter of this year, according to S&P’s latest data. That marked the lowest quarterly total since the second quarter of 2020, when only nine deals were announced amid the fallout of the coronavirus pandemic that year.
Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, said industry concerns spawned by the failures on top of already tougher regulatory reviews “was bound to impact M&A further” into 2023.
Meanwhile, Mazza said MVB and IFHI had “amicably” agreed to terminate the merger and that the two companies would continue to work together. MVB currently partners with Windsor Advantage, the IFHI business that focuses on SBA 7(a) and USDA lending services. “We will still have a strong partnership with them,” Mazza said.
Marc McConnell, IFHI’s chairman and CEO, echoed that sentiment in the release.
“As with many things, timing plays a crucial factor in business combinations,” McConnell said. “We have appreciated the relationships that we have developed with the MVB team and expect we will continue to do business together.”
