Wrong? Or Early?

Heading into 2011, there were multiple signs that it would be an active year for bank mergers and acquisitions. Frustration with new Dodd-Frank regulations would hasten some bankers' search for the exits. Other institutions would be overwhelmed by remaining TARP obligations. And the drying up off loss-sharing opportunities with the FDIC would put more suitors in the hunt for traditional deals with distressed partners.

But as we know, industry M&A fell well short of expectations. Activity for whole-bank mergers was the slowest in more than two decades, as buyers put a low priority on market or product expansion and sellers held onto wishful-thinking book values.

"The surprise was that we actually had deals" in 2011, says Christopher Marinac, managing director for FIG Partners, a research and advisory firm in Atlanta.

But as tepid as 2011 was outside of a few headline deals like Capital One-ING Direct or First Niagara-HSBC, a closer look at M&A activity makes the 2011 forecasts perhaps look more early than wrong. Broadening the definition of "M&A" to include deals involving partial stakes or specific assets or operational segments, the transaction count suddenly rises to 234 announced in 2011, for a total value of $22.7 billion, according to Dealogic. The data for 2010, run last year for us by SNL Financial, showed only 176 deals for a total of about $12 billion.

Much of the activity last year occurred in the second half, perhaps boding nicely for 2012. For example, the 42 deals in the Southeast from January to June averaged only $8.5 million apiece, if one excludes the curve-busting $3.5-billion PNC Financial Services deal for Royal Bank of Canada's U.S. network. By year's end, with 85 deals on the books (again, outside of the PNC-RBC pact), the average Southeast deal had grown to $20.8 million.

The Mid-Atlantic remains the source of the most valuable deals, with an average price of $100 million. The Midwest-with 50 deals totaling $12.4 billion, dominated by the Capital One-ING merger agreement-also showed growth, and like the Southeast had a strong second-half, with five of the year's eight largest deals coming together between July and December.

To what degree the momentum will carry on through 2012 is a prediction few experts will make these days, especially with banks still vowing to approach expansion opportunities with conservatism. Still, the late-stage 2011 M&A impetus could prove more concrete than last year's false start thanks to a few new signs.

Back in 2010, acquirers like Comerica and Hancock Holding got pummeled by Wall Street following billion-dollar deals the Street considered overpriced. "I think economic uncertainty was more of a factor, but from an M&A perspective, the buyers' stock prices were depressed, so they didn't necessarily have a currency to acquire something with," says Chris McGratty, vice president of equity research at KBW.

In contrast, lower prices prevailed in several deals done in 2011. SCBT Financial's $28.4 million buyout of Peoples Bank and BNC Bancorp's $12.2 million purchase of KeySource Financial each came in at about 60 percent of book value, suggesting that some sellers are finally throwing in the towel, at least in the Southeast, where these deals were done.

"They recognized there was a chance of getting some type of value," FIG's Marinac says, "versus waiting and hoping to get a higher price that doesn't exist."