Writer: Joey Garrand
2 min read October 2021— In an increasingly competitive and rapidly evolving world, many industries are experiencing an uptick in merger and acquisition (M&A) activity as businesses look to maintain and expand their footholds in their markets. In the banking and professional services sectors, M&A activity is experiencing a boom. Nashville leaders in these industries shared their thoughts with Invest: about what all of this business amalgamation could mean for the future.
Jim Rieniets, President & CEO, INSBANK
The pandemic took the plane of innovation and customer adoption and ramped it up. This is manifesting itself in a number of things. It’s going to force banks to better rationalize their behavior and operations. Banks are trying to figure out the new model. They’re not getting rid of locations altogether but banks need to figure out the proper mix. As well, especially for community banks, we’re seeing greater M&A activity from banks that haven’t invested in technology. The pandemic exposed their digital weaknesses and if they don’t have the resources internally to address those weaknesses, they’re more than likely going to be finding a dance partner to help them accomplish that.
Jeff Agee, Chairman & CEO, First Citizens National Bank
In 1990, there were more than 15,000 banks and at year-end last year there were a little over 5,000. The forecast for 2030 is that this number will fall to around 2,500 banks in this country, which is a wake-up call. There is a risk that community banks will become part of that statistic that is forced into acquisitions. We’re really trying to become more efficient and the way to do that is to achieve scale. Otherwise, it is challenging to achieve an ROI for shareholders, and that is where pressure will come.
Tim Schools, President & CEO, CapStar Bank
For CapStar, our acquisitions helped us to grow and diversify our revenue base, while also allowing us to seek stronger funding. The industry is consolidating, with succession and liquidity being two of the driving factors. Many banks have not prepared for succession, and/or are smaller and not publicly traded. Equity shareholders often have had their money tied up, and to get liquidity the bank has to be both public and larger.
Sammy Stuard, President & CEO, F&M Bank
Our strategy is somewhat different than that of other banks. The number of banks is narrowing every day. There have been several announcements about banks that have merged in the last couple of years and the ownership keeps moving further away from our markets. In our strategy, rather than centralizing the management and operations, we prefer to keep as much of the existing infrastructure in place as possible.
In opening our first office in Kentucky, which has a lot of smaller banks in comparison to Tennessee, we recognize an opportunity for acquisitions going forward. We’ve had the No. 1 market share in Montgomery County for over 16 years. We will be aggressively looking for expansion opportunities throughout middle Tennessee and Southern Kentucky. However, I think that staying in the Middle Tennessee market creates an advantage for us. Our customers know we are here to stay.
Vic Alexander, Chief Manager, KraftCPAs PLLC
The accounting industry has been consolidating for the past six to seven years, mainly due to baby boomers without a succession plan. Because they don’t have a succession plan, they look to sell their business. Although theory suggests that businesses sell for fair market value, I’ve never witnessed a merger or acquisition without at least one party having some sort of compulsion that leads them to seek a merger opportunity. In an increasingly competitive world, there are lots of reasons for firms to merge, from technology to talent to location.
Justin Crosslin, Co-Managing Principal, Crosslin
On the accounting side, it’s a combination of technological advancement and competition. Over the last several years, the movement on the top accounting firms list is not among the Top 100 firms; it’s the Top 100 firms buying numbers 101-500. Along those same lines, accounting firms have historically not gotten very large because the accounting industry has not experienced significant change. The industry still operates on billing time, sending invoices and a lot of compliance work. The value comes from a heavy emphasis on advisory services. The accounting firms of the future will have to place a heavier emphasis on providing value rather than just a compliance service.
There is also a heavy pressure on technology driving M&A. Technology is expensive and complicated. A company that really wants to grow must get into this space. It is very complex but necessary to remain relevant. I think the reason there are very few firms of our size anymore is because making the leap from a $4 million firm to a $10 million firm requires a huge investment.
Larry Mullins, Owner & Partner – Tax Services, Mullins Clemmons & Mayes PLLC
There are many firms moving into Nashville that are acquiring other regional firms. We are a local firm and we intend to stay that way. We provide great service and handle a lot of families, businesses, family situations and pay attention to our clients. We are a basic accounting firm that does not get into investment management and things that other entities already do. We are focused and local. There is a niche for small, local accounting in Nashville. New clients tell us they prefer us because they are dissatisfied with the services from bigger firms that have merged.
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