Computer-generated: As smaller banks make M&A waves, technology is emerging as key

By Brett Johnson
New Jersey | Jul 12, 2019 at 2:30 am
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The fanfare of a newly announced merger or acquisition in the banking industry usually provides scant insight into what conversations led to the deal. By then, the details are marketing writ large.

But one of the state’s busiest banks for M&A activity — OceanFirst Bank — is willing to lift the boardroom veil.

The bank’s CEO, Christopher Maher, indicated that community bank leaders are doing a lot of talking behind the scenes about how they’re falling behind on technology compared with the digital-savvy big banks.

OceanFirst, which likes to convey its century-old history by pointing out that it got its start the same year Theodore Roosevelt became the country’s first president to ride in a car, made a major fintech investment recently in digital investing platform Nest Egg.

And that’s why a bank such as OceanFirst, which has made five acquisitions in the past two years, gets picked as a partner over the rest.

“The stronger we are in this area, the more attractive a partner it becomes when we get into discussions around M&A,” Maher said. “We are in an industry in which the folks that own banks, being very thoughtful about who they decide to partner with, are looking for partners that have been significant investments in fintech.”

Of course, OceanFirst isn’t the only New Jersey bank jumping at the chance to acquire fintech partners — and better its position going into transactions with other banks in the process. No bank that aspires to grow its footprint significantly is a bystander to that.

Courtesy ConnectOne
Frank Sorrentino, chairman and CEO of ConnectOne.

Another example is Englewood Cliffs-based ConnectOne Bank’s announcement in April that it entered into an agreement to acquire a fintech from New York. The company, BoeFly, has an online lending platform that supports small business loans and other financing transactions.

Frank Sorrentino, chairman and CEO of ConnectOne, said it’s a move to step up the bank’s technology options and thus differentiate itself in a competitive market.

“If you just look around, the world is changing pretty dramatically — not just in the banking space,” he said. “It’s obvious in how we procure everyday items or watch a movie, whatever it may be. Financial service products aren’t immune from people wanting less friction and a better experience.”

Sorrentino expects that institutions holding fast to the old community banking model, which for too long kept a wary distance from tech offerings, are having to reckon with the need for it now.

Banks that have had the most success with mergers and acquisitions have also bolstered back-end technology that automates the sort of compliance measures demanded of banks today.

At the end of the day, bank leaders believe taking a cue from the fintech world just makes a bank a more exciting company to be associated with.

“And whether that makes us more attractive to someone down the road or whether it’s helping us attract the best talent now, I just think it’s all good for us,” Sorrentino said. “We want to learn a lot from these folks. It’ll challenge everyone here to change the way we think about our products and services.”

Relationship business

At one time, branches weren’t just part of the package when it came to purchasing banks — they were the package.

“You’d buy a bank, keep all the branches, and be glad to extend your business into a new geography with those new locations,” said OceanFirst CEO Christopher Maher. “What we see now is quite different. The most value in these partnerships is the relationships that exist between customers and staff.”

That’s why banks take great pains to keep staff happy after bank acquisitions, even if they’re shedding some of the real estate. OceanFirst, which in the past three years has consolidated more than 30 branches, prides itself on how many employees it has retained through its numerous acquisitions.

“And that has made a tremendous difference for us,” Maher said.

M&T survey: Tariffs, uncertainty depressing optimism

Figuring out the value of banks in mergers and acquisitions today sounds about as hard as naming a mayonnaise jar’s cost on “The Price Is Right.”

Bankers say there’s a confluence of issues that keeps a lid on what buyers are willing to pay. But, at the same time, the economy’s strength has kept people guessing at what the right cap on costs should be.

How much do you pay for not-so-recession-proof financial services institutions after a decade-long economic expansion? M&T Bank’s recent poll of its commercial banking customers about their expectations found that sort of anxiety is creeping into all industries.

Thomas Comiskey

Thomas Comiskey, the New Jersey region leader and senior vice president for M&T, said that, while midsized companies generally have remained upbeat about the economic outlook, sentiment in the survey dipped to the lowest levels in several years.

“And we’ve found that tariffs and uncertainty around the trade war is depressing optimism among many of our survey’s respondents,” Comiskey said.

Comiskey added that New Jersey’s commercial real estate firms in particular are expecting slower activity.

“From our perspective, we talk to a lot of real estate developers throughout the state, and I think there is truth to the idea that something like the tariff situation is affecting people,” he said.

But Comiskey, leader at one of New Jersey’s biggest banks after the New York-based institution’s merger with Hudson City Bancorp, doesn’t expect the state is any worse off than its neighbors.

“I think, just like anywhere else, there’s pros and cons,” he said. “And we actually haven’t seen or heard too much from companies that are considering leaving (New Jersey) right now.”

Conversation Starter

Reach OceanFirst Bank at: oceanfirstonline.com or 888-623-2633.