Bank M&A: Acquisition of IT Companies Can Generate Higher Value, A.T. Kearney Study Finds

Bank-Tech deals can lead to 10 to 15 percent increase in share price while Bank-on-Bank Mergers show returns in the 4 to 6 percent range

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A.T. Kearney

Sep 22, 2014, 02:45 ET

NEW YORK, Sept. 22, 2014 /PRNewswire/ -- A.T. Kearney today released a study called "Tracking Banking M&A: Why Bank-Tech Mergers Are Winning," an analysis of four years' worth of the 30 largest global retail banks' M&A data. The study approximated the financial impact on the banks' share price 12 months after a given acquisition, comparing Bank-on-Financial Services deals and Bank-on-Tech deals.

Key findings of the study include:

While Bank-on-Financial Services acquisitions achieve above-market returns of 4 to 6 percent after 12 months, Bank-on-Tech acquisitions returned 10 to 15 percent over the same period
Some types of Tech acquisitions yielded higher returns than other types, making them more attractive targets for Bank M&A – the study looks at three
Banks, and their shareholders, seem to be rewarding management teams with an 'eye on the future,' rather than those that focus on conserving current assets

Arjun Sethi, A.T. Kearney partner and study co-author, observed, "While historically banks have been known to stay within their industry in acquisition deals, the market now seems to be bullish on smart investments of a bank's M&A dollars – and it finds technology companies to be smarter investments. Furthermore, the various types of tech company acquisitions we looked at yielded, in a quantifiable way, that the bank that does not have a well-defined growth strategy is going to see the lowest reward to its shareholders."

Examples of banks' partnerships and other interactions with technology companies abound. Wells Fargo has been considering Silicon Valley partnerships; eBay may soon be ready to spin off PayPal, which could in turn get gobbled up by Apple. "The financial stability of banks may prove to make them exceptional partners for fast-moving tech firms," says Sethi. "Banks would do well to understand the changes that technology is causing, and to get on board with these changes."

Notes to editors

About the Study

"Tracking Banking M&A: Why Bank-Tech Mergers Are Winning" researches four years of M&A data on the 30 largest global retail banks. The analysis re-indexed bank performance to the time of the acquisition announcement, and then further rebased the values against the S&P Bank Index. This yielded an approximation of the relative impact of the acquisition announcement on the bank's share price. Two categories of acquisitions were evaluated: Bank-on-Bank (FS-on-FS) acquisitions, such as Banco Santander's acquisition of Poland's commercial bank, Kredyt bank SA; and FS-on-Tech acquisitions, such as Citibank's acquisition of a local provider of money transfer services, PayQuik.com. The study was authored co-authored by Arjun Sethi, a partner at A.T. Kearney, where he leads the Strategic IT practice for the Americas.

About A.T. Kearney

A.T. Kearney is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world's leading organizations across all major industries and service sectors. A.T. Kearney has 58 offices located in major business centers across 40 countries.

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