M&T Bank Corp MTB

M&T Bank has announced an all-stock deal to acquire People’s United Bank. The deal is expected to close in fourth-quarter 2021. People’s United is a midsize regional bank with $63 billion in assets compared to $143 billion for M&T Bank. People’s United operates out of the Northeast, primarily out of Connecticut, with some presence in Massachusetts, several other New England states, and New York. This provides some overlap with M&T, mostly in New York, but otherwise the acquisition would be mostly an expansion into newer, relatively adjacent geographies. We estimate that less than 10% of M&T’s deposits and branches overlap within five miles of People’s United, or PBCT, branches. Even so, M&T estimates that it can still cut out 30% of PBCT’s expenses, by which we are pleasantly surprised. We would expect most of this would come from corporate functions and other vendor and systems overlap. Management emphasized that it is not viewing this acquisition as primarily driven by cost savings, but rather one driven by the growth opportunities. Management estimates it can get an 18%-plus internal rate of return, even without factoring in revenue synergies. We also like how the deal was structured, with the modest premium of 13% still allowing the deal to be tangible book value accretive from day one. As such, even with only factoring in the value from the expense savings, our initial estimate is that our fair value estimate for M&T would increase by roughly 5% from our current fair value estimate of $148 (note that this is partially driven by time of value of money, but most of the expected increase is from the merger estimates). We plan to come out with a more full model update in the near term, but wouldn’t expect a material deviation from our initial estimates of the impact of the merger.