Stats Show 2025 Is M&A’s Year, But What’s Helping Deals Succeed?

We’ve all heard the statistic quoted that half of marriages end in divorce, but is that still true? Recent research shows that the divorce rate is actually down over the past two decades. In 2000, the rate was 4 divorces per 1K people. In 2022, it was 2.4 divorces per 1K people. Unions now have a better chance of success. Some credit the effect of pandemic lockdowns forcing couples to confront their relationship challenges. Other factors are increased use of couples’ therapy and a shift toward marriage that’s more based on companionship than romance, which lends well to a stable, long-term partnership.Of course, the things that make a personal union succeed aren’t the same factors that go into establishing a satisfying business union. Last year was on the quiet side for bank mergers and acquisitions (M&A), but 2025 is picking up so far. Nine bank deals that totaled $2.92B were announced in April, with about 70% of the sum due to Columbia Banking System (Tacoma, WA) deciding to purchase $2.04MM Pacific Premier Bancorp (Irvine, CA). That was the biggest bank M&A deal since 2021, and it made April the biggest month for bank M&A since December 2021.

Source:  S&P Global
What’s behind the upswing?The most recent bump in M&A activity took place in 2021, during the COVID-19 pandemic. Increased regulatory scrutiny, slower processing times, and rising interest rates all worked together to depress M&A rates for institutions of every size. By autumn 2024, that had changed. In 2023, just 12% of the top 50 US banks were actively pursuing or open to M&A. In October 2024, 34% of the same group were actively pursuing or open to M&A.Regulatory easing is one factor behind the change. M&A interest picked up after last fall’s presidential election, anticipating a more deal-friendly environment. Financial institutions expect that a leadership change at regulatory agencies will mean fewer antitrust challenges and expedited compliance reviews.Ironically, stricter regulations during the previous administration may have set up many financial institutions for successful M&A. Heightened capital requirements and strong supervisory conditions can make banks stronger and therefore either more desirable acquisitions or better-placed purchasers. US banking’s market fragmentation is another reason. The US has a comparatively large number of small financial institutions, and some of them have struggled to achieve economies of scale. Lower interest rates and declining unrealized losses are additional reasons for more M&A interest. Over the past few years, higher interest rates meant that many community financial institutions (CFIs) and other banks had large unrealized losses on their investment securities, making them less appetizing targets for M&A. Lower rates and maturing securities will both help resolve that problem.How can CFIs prepare for M&A?M&A can be an important part of a financial institution’s strategy — but they’re not without risk. While some deals have generated strong returns for participating firms, others have fallen short of expectations. For CFIs considering this path, success depends less on the decision to pursue M&A and more on how well that decision is planned and executed. The following tips highlight key areas CFIs should consider when evaluating and preparing for a potential M&A opportunity.

After several years of relatively slack deal numbers, the market for financial institution M&A is warming up. Regulatory easing, lower interest rates, and market fragmentation are all reasons for this. To take advantage of better times for M&A, CFIs will need a clearly articulated growth strategy, plans for technology and cultural integration, a willingness to consider emphasizing local markets over national scale, and a keen eye on service continuity.