Inside PNC's $12 billion deal to buy BBVA's US arm: Here's how bankers hammered out one of the biggest bank deals since the financial crisis

  • Earlier this week, Pittsburgh-based PNC Financial Services Group announced its planned purchase of BBVA US, the US-based arm of the Spanish lending giant BBVA, for $11.6 billion.
  • Two bankers familiar with the deal walked Business Insider through the timeline and workflow that helped bring the deal together, even while advisors worked remotely.
  • The PNC and BBVA US tie-up will result in the fifth-largest US consumer bank, which is set to hold more than $550 billion in assets.
  • Visit Business Insider's homepage for more stories.

Hammering out a nearly $12 billion deal over Webex might seem unusual, but welcome to 2020.

Indeed, in a year defined by virtual meetings and remote transactions, that's how Wall Street has gotten plenty of business done. And it's how bankers who recently pulled together Pittsburgh-based PNC Financial Services Group's planned acquisition of the US-based arm of Spanish lender BBVA conducted some of the conversations that led to the tie-up, too. 

Big tie-ups between banks have been rare since the financial crisis. But that's started to change with some regional bank deals — in October, First Citizens BancShares agreed to buy CIT Group in a $2.2 billion deal. And last year, BB&T and SunTrust merged to create Truist in a deal valued at more than $28 billion.

But the way the PNC deal shaped up digitally is a reflection of broader trends in the M&A space during the pandemic, one expert in mergers and acquisitions told Business Insider.

M&A deals are now seeing "a heavier reliance on the metrics and financials of the company" in the absence of being able to meet in person, said Michael Popok, a longtime Wall Street attorney who is a partner at the New York-based firm Zumpano Patricios & Popok.  

"The things that were sort of the human touch around the deal — that's now been replaced" by tools like Zoom, "which of course is not as good," said Popok, who was not involved in the deal.

PNC's $11.6 billion bid for BBVA's US business, which was announced Monday and, when closed, will create America's fifth-largest retail bank, is just the latest example of the new age of dealmaking. 

Two bankers involved in the deal laid out to Business Insider how two months of dealmaking unfolded digitally. And while certain elements of traditional investment banking aren't replicable, that wasn't always a bad thing. 

"You're not having people blabbing in airports or talking on their cell phones in train stations or what have you," the first of the two bankers said. "So, in hindsight, it probably was helpful for the confidentiality of the transaction."

How the deal took shape starting over the summer

The announced deal's timeline stems back to June when Bank of America, an advisor to PNC along with Citigroup, Evercore, and PNC's own Financial Institutions Advisory Group, introduced the Pittsburgh-based bank to BBVA, according to the bankers involved, who requested anonymity to speak freely about the deal. 

And PNC had some money to spend. Just a month before, the bank had sold off a big chunk of shares in asset-management giant BlackRock for $14.4 billion.  

At the time of PNC's initial approach, it had been eyeing BBVA's US business as a scintillating target. One reason is because BBVA's US business stretches throughout the south, a region that PNC has been keen to grow into. BBVA operates 637 retail branches in Texas, California, New Mexico, Arizona, and Florida, among other states.

BBVA's branch network covered parts of the country that have faster-growing economies and faster-growing populations, the first banker said. "And there was nothing else to acquire that would have given you anything like that coverage." 

"PNC could have done it organically over a long period of time. They could have bought a bunch of different banks in sort of a string of pearls, potentially," the banker added. "But this was a way to get that franchise all in one transaction."

Read more: Smaller banks have been forced to evolve in the wake of the pandemic. Insiders explain how fintechs are playing a key role in the future plans of regional and community banks.

BBVA's leadership, meanwhile, was operating from an official position that they weren't soliciting offers to be bought — but privately, were interested in dumping their underperforming US branch business without going down the auction route, the banker said.

"They didn't want to run an auction. They had told us that in separate conversations," the source said, adding that, despite their public stance, once BBVA executives heard out PNC's offer, they were satisfied with the price that PNC was willing to pay. Eventually, BBVA warmed to the deal, this person added. 

When contacted by Business Insider, representatives for PNC Financial Services Group and BBVA pointed to press releases the respective firms announcing the intended deal, but did not comment further.

An analyst note from Morningstar Research regarding the announced deal described BBVA's US business as "generating returns below its cost of capital for a while now and it's no secret BBVA would look favorably on any solid offer for the business."

"However, we didn't believe that BBVA — or any other seller for that matter — would be able to get a decent offer on the table in the current climate," the Morningstar note read. Nevertheless, PNC made the offer, and BBVA accepted, in a move that the analysts called "an excellent deal for BBVA."

Ultimately, the two parties came to an agreement for due diligence to commence in early September after Labor Day, the second banker said, who added that meetings and communications between the parties were frequently conducted over Webex and Microsoft Teams.

On this deal, Bank of America and Citigroup ran point on due diligence and deal analysis efforts on behalf of PNC, the banker added, which included some 350 personnel.

The deal is expected to close by mid-2021, pending approval from federal regulators.

BBVA, it appears, already has its eye on a deal of its own. On Monday, the bank disclosed it is in talks to acquire fellow Spanish bank Sabadell. The two banks would combine to be the second-largest lender in Spain by assets. 

'What's missing is the personal touch'

Popok, the attorney, said that while some of the technical aspects of M&A dealmaking would have remained consistent during the pandemic — for instance, having a so-called data room, which houses confidential documents that lawyers, CFO's, and other executives who work for both the buyer and the seller would have access to — other touchpoints in the dealmaking experience have certainly changed in recent months.

"What's missing is the personal touch of the management meetings in person," and closing dinners or other rites of doing M&A transactions, Popok explained. "You're missing some of the, 'Let's have dinner, let's go skiing, let's meet and get comfortable,'" which is a hallmark of many deals.

While it's unclear what type of due diligence PNC undertook in their research on the deal, Popok said that, in a virtual world, "the hard science of buying the company" — namely, the data and documentation — become all the more critical, without the ability for executives to gauge each other's dispositions in the same conference room.

"There's more risk," he said. "It's harder to get a great feel of who you're buying, because you're not meeting them in person."

Another conventional mile-marker of successful dealmaking is a celebratory dinner to mark the occasion after a deal is announced.

That didn't happen on this deal either, the first banker said. 

"We're all very pleased, but no Wall Street shenanigans" to mark the occasion happened, this person said. "There are no shenanigans anymore."

A bullish outlook for M&A going forward

The tumult of the coronavirus pandemic brought M&A activity to a screeching halt this year, and left top bankers confused how to account for the economic damage.

"No one really had any idea how to even model loan losses for COVID," the first banker said. In the early stages of the pandemic, this person added, "nobody knew where the economy was going. People were hoping for a V-shaped recovery. Some people talked about a K-shaped recovery, W-shaped recovery."

Read more: Execs from 4 asset managers like Franklin Templeton and Invesco give clues on how they're prepping for a wave of M&A

Now, the alphabet soup of recovery forecasts has given way to a spike in M&A activity, leading some in the space to feel bullish about M&A prospects in the months ahead. 

M&A activity came roaring back in the third quarter of the year, according to Refinitiv, amounting to more than $1 trillion in transactions in the third quarter alone.

What's more, the global M&A engine is restarting, too: In the third quarter of the year, Refinitiv recorded a 94% spike in M&A activity as compared to the second quarter of 2020. But, that said, the M&A market has yet to fully regain its strength: Activity in the US was down 43% year-over-year by the third quarter, Refinitiv noted, which marks a seven-year low.

Nevertheless, the bankers involved in the PNC acquisition expressed bullishness for the prospects of M&A in general going forward. 

"I would probably expect there to be more M&A activity," the first banker added, noting that industry insiders have "settled into a view that this economy is, in fact, the new normal. We're not going back to 3.5% unemployment, but we're not going back to 15%, 20% unemployment either."

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