The continued traditional open market M&A activity unique to Northeastern community banks during the past couple of years will be a guide for investors to the broader theme emerging in the U.S. of a resurgence in M&A in the sector, says Damon DelMonte, a Senior Vice President of Equity Research at Keefe, Bruyette & Woods, Inc.
“Looking ahead with regards to M&A on a broader spectrum outside the Northeast, the view is that given the higher regulatory scrutiny, coupled with a challenging operating environment, whether it be the low interest rate environment or the sluggishness of a full recovery to the economy,” he said, “it’s going to be tough for these smaller banks to remain independent and justify their independence. We think that this will act as a catalyst to spur M&A activity throughout 2012 and beyond.”
DelMonte points to Berkshire Hills Bancorp Inc. (BHLB) as an example of a successful bank able to grow its franchise during the slow economic recovery. He says the bank’s management team has laid the foundation for the company to become a meaningful regional player through its three acquisitions in the past 12 to 18 months, where they’ve been able to execute on these deals without having a dilutive impact on tangible book value, and have positioned themselves to expand earnings.
“In my view, I think that with each step this management team takes going forward, they’re building longer-term shareholder value. So that’s a name that I believe is well positioned in New England and will ultimately be involved in M&A activity in the upcoming years,” DelMonte said. “Given the deals they’ve done recently, I also think investors can have confidence that they’re going to execute smart and sensible acquisitions, which will ultimately lead to longer-term value.”
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