Cleveland-headquartered regional bank KeyCorp has agreed to acquire its peer First Niagara Financial Group for about $4.1bn (£2.7bn,€3.7bn). The combined company would have about $99.8bn in deposits, $83.6bn in loans and 1,366 branches across 15 states. With a combined asset value of $135bn, it will be the 13th largest US-based commercial bank, KeyCorp said.
According to SNL Financial, the deal would increase KeyCorp's branch count overall, especially in Buffalo city where both of them have just over 50 branches each, allowing the combined bank to have a 35% market share of deposits.
The purchase will be financed through a cash and stock combination. KeyCorp will pay 0.68 of its own shares and $2.30 in cash for every share of First Niagara which equates to $11.40 per share. First Niagara saw interest from many companies including Huntington Bancshares, but KeyCorp emerged as the most likely suitor. The acquisition which could be announced as early as 6 November (Friday), marks the biggest deal between two US regional banks so far, this year.
Ken Usdin, analyst at Jefferies, said: "Expansion into similar, contiguous markets makes sense, but the size of the deal is surprising. It will take tight execution with a deal of this size and long time for it to be accretive to earnings."
Years of near-zero interest coupled with higher costs related to stricter regulations imposed after the financial crisis has led to a string of M&A deals among smaller US banks in the past few years. However, deals with valuations greater than $1bn were rare until this year. Consolidation via mergers often allows banks to boost revenue faster than expenses rise.
An example of a recent deal in this space is that of New York Community Bancorp announcing on 29 October (Thursday) its decision to acquire Astoria Financial Corp for about $2bn.