Banks in the crosshairs : measuring the likelihood of acquisition -

Abstract

Mergers and acquisitions have become common in most of the areas in the world specifically in the banking sector, whereby many domestic and international banks have been involved in those activities in the past few decades. A dataset consisting of 5999 banks that were announced to be acquired between 2003 and 2015 in the US. 374 entries were the resulting sample to be used in my model. I will use the PROBIT analysis to forecast the likelihood of a bank being an acquisition target (announcement of acquisition being the reference) within a year, with the base year being that preceding the announcement date, subject to the bank’s liquidity, solvency, and profitability in addition to the variation in the cost of debt and the growth in GDP. Results are intuitive and in line with theory, whereby a profitable bank with a good financial standing (liquidity match and solvency stats) was unlikely to be a target and the opposite case was conforming as well. The model can be extended and used as universal preliminary practical forecasting tool to rate a bank’s distance to acquisition.