Multiples, Valuations and the Market

In the movie “Fletch,” the main character, Fletch, played by Chevy Chase, responds, “110, 220 … whatever it takes.” While he was talking about electricity and not banking, this sort of response can’t help but make you think of recent price-to-book multiples. In early 2017, we saw multiples similar to what we had seen in the previous couple of years, but by the end of 2017 (and continuing into 2018), multiples had generally increased.

While facts and circumstances dictate the appropriate multiples, be advised — whether you are a seller or a buyer — that multiples are up.

Value drivers continue to be profitability, loan-to-deposit ratios, core deposit levels, growth in loans, attractive markets and talent. 

Value detractors include large data processing termination fees, poor credit quality, no succession plans and unprofitable locations.

The process of selling using an auction has merit in certain circumstances, whereas contacting one to three buyers may make sense in others. Whether you are buying or selling, using your advisors and bringing them in early in the process will help avoid pitfalls.

If you want more information about multiples, valuations or the market for financial institutions in general, please contact your relationship executive.