Are new bank regulations affecting M&A activity?

by CDW Financial Services|Aug 8, 2016

We know that Dodd-Frank legislation has created many challenges for the financial services industry, but what impact do the regulations have on merger and acquisition (M&A) activity? This week’s FIN News Alert looks at the Bank Director article, “How the New Regulatory Environment Could Change Bank Mergers and Acquisition,” and takes a deeper look at the evolving climate for M&A activity. Here are the highlights:

  • In the post-Dodd-Frank business world, the regulatory environment is creating new challenges that may reshape some of these basic M&A activities.
  • Regulators increasingly see mergers as a time to scrutinize the buyer — its compliance record, systems, capacity to integrate and general good standing.
  • In its September 2015 approval of M&T Corp.’s acquisition of Hudson City Bancorp, the Federal Reserve starkly warned that if an examiner identifies a material weakness in an acquiring bank, it will expect the bank to withdraw its application and resolve the issue before proceeding with the transaction.
  • Already, this regulatory focus has led targets to perform regulatory diligence on buyers, even in cash deals.
  • Targets should and are already trying to protect themselves and avoid buyers that may have regulatory risk and in turn might spoil the transaction.
  • It may be very difficult to determine with certainty the cause of a regulatory obstacle, which could lead targets to seek greater protection for any regulatory failure. The results could be breakup fees or could affect several M&A provisions.
  • A further outcome could be longer delays and greater volatility, creating even more challenges associated with the transaction.

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