Mergers & Acquisitions

We are entering a Golden Age of M & A in financial services. Regulatory and macro-economic challenges to financial services revenue will cause many financial institutions to seek combinations to replace absent organic revenue growth. Most deals still tend to focus on the productivity or cost benefits derived from an acquisition. While the cost savings generated from merging operations and distribution networks is important, for a typical bank with a 50% efficiency ratio, the leverage is substantially greater from the revenue side of the deal, in fact up to 2-3x.

The reason most deals don’t focus on revenues is that they are less understood and seen as more speculative and as a result acquirers tend to base valuations predominately on cost synergies, thereby underestimating (and potentially underbidding) the total value of the deal.

Novantas has developed proprietary methodologies and models to estimate future revenue streams for Financial Services acquisitions. Our approach takes into account macro-economic, regulatory, product pricing, customer, and distribution factors. We carefully assess the current and future performance of the target company by each of these factors in each of the micro-markets they operate in. In particular, Novantas leverages its industry-leading franchise in deposit analytics to identify opportunities to generate additional NIM and fees from the deposit franchise, which can represent as much as a third of the synergies from a deal.

We have worked alongside Banks and Private Equity firms in both the due diligence and post acquisition phases. We have been involved in many of the largest acquisitions. For example, in 2008-2011, we were involved in in over 25 M & A transactions during initial diligence as well as post-merger integration.