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The landscape for banking mergers and acquisitions (M&A) is undergoing a significant transformation. Over the past five years, the number of large community banks and credit unions facing immense pressure to sell has surged dramatically, growing from a mere 10 to over 30 institutions. Furthermore, nearly 10% of all banks and credit unions nationwide now exhibit financial indicators suggesting they are ripe for acquisition within the next 18 to 36 months.
While these figures might suggest a booming M&A market on the horizon for 2026, a closer look reveals a more complex reality.
A recent study by Engage fi highlights that while the current environment offers a larger pool of potential acquisition targets, including some substantial institutions, their financial distress often means they’ve been unable to invest sufficiently in critical growth and technology initiatives. For buyers, especially when acquiring larger entities, this neglect of technology can introduce significant post-merger challenges. Success in today’s M&A market won’t simply be about identifying targets; it will largely depend on what happens after the deal closes, particularly concerning data – and core data above all else.
A Seemingly Target-Rich Environment
The trend of institutions with assets exceeding $1 billion, including those over $10 billion and even one surpassing $20 billion, demonstrating high pressure to sell has been consistent over the last half-decade. As of the latest regulatory data, this group of 32 banks and credit unions exhibits financials consistent with a likely acquisition within the next 18 to 36 months.
This segment is complemented by an even broader category of institutions with assets under $1 billion also facing substantial pressure to sell, a group that has also expanded significantly over the past five years. Out of 8,837 financial institutions analyzed, 865 were identified as having high pressure to sell. This includes 651 credit unions (14.7% of the 4,417 analyzed) and 214 banks (4.8% of the 4,420 analyzed).
Engage fi’s study, which used five years of trended FDIC or NCUA data (2021 – Q3 2025) and back-tested against 74 mergers announced in 2025, accurately identified stress signals in acquired institutions months before deals were made public.
The study categorized institutions under pressure into two types:
- Watchlist Institutions (764): These may lack the financial capacity to simultaneously invest in growth and technology, making continued independence less attractive to their boards.
- Nearly Out of Oxygen (101): These banks and credit unions face such severe strain that a sale or merger is increasingly unavoidable. Maintaining essential technology is no longer feasible, despite technology housing the invaluable data that defines their franchise worth.
In essence, the core struggles of today’s sellers are deeply rooted in technology, and these issues come with a hefty price tag. Buyers must also contend with a competitive market, potentially driving up acquisition costs.
Intense Buyer Competition Ahead
Despite the challenges, the M&A market remains vibrant on the buyer side. Engage fi’s analysis identifies 1,736 institutions as viable buyer candidates, based on their size and financial strength. These organizations possess the balance sheet capacity and strategic positioning to actively pursue acquisitions.
- Credit Union Buyers: 806 credit unions qualify as buyer candidates, with 81 of them ranking in the top decile for readiness due to strong profitability, efficiency, net worth ratios, and growth momentum.
- Bank Buyers: 930 banks are also potential acquirers, with 93 institutions in the top decile for readiness. These banks boast median assets of $2.23 billion, indicating a greater capacity to target larger institutions.
These dynamics suggest a highly active M&A landscape, with a ratio of roughly two buyer candidates for every institution under seller pressure. This robust competition implies that sellers will likely find multiple eager buyers, potentially leading to increased bidding wars and upward pressure on deal valuations.
The Hidden Risks of Post-Acquisition Integration
With a multitude of potential sellers that have neglected technology investments for years, post-merger data migrations represent a significant risk to successful acquisitions. For an acquirer, failing to preserve the seller’s data during transfer to new systems can render the entire acquisition fruitless. It’s akin to purchasing a car but never receiving the keys.
An organization’s data forms the essential record of all its relationships – with depositors, borrowers, staff, and even its board and ownership. This data critically underpins an acquirer’s ability to leverage the seller’s operations, from payment processing and accounts payable to digital and mobile banking and transaction histories.
Executives are acutely aware of data’s immense value. Institutions under pressure to sell, struggling with technology and data, understand the implications for post-merger projects. Acquirers cannot afford to mismanage data migration. Yet, the question remains: can they truly afford the cost of executing it flawlessly without compromising the economies of scale that initially made the acquisition attractive?
KPMG reports that numerous data migration projects “fail to meet their timelines or are entirely aborted, often exceeding budgets by an average of $0.3 million per data set.” This “per data set” caveat is crucial. Given that a typical M&A transaction can involve dozens of data sets, these costs can accumulate rapidly, transforming data migration into a major financial concern. Alarmingly, over 40% of these projects encounter such issues.
The larger the target institution, the more systems, silos, and data an acquirer must integrate. This complexity can severely impact the financial benefits of a transaction.
Preserving Franchise Value Through Data Acumen
While buyer competition naturally drives up valuations, the sheer volume of technology-troubled institutions could push deal prices to a point where the underlying economics no longer justify the acquisition. Consider the scenario: exceeding budget by $0.3 million per data set, and an acquisition involves “dozens” of data sets. Missing targets on just 10 data sets could lead to a budget overrun of approximately $3 million, assuming average costs. This doesn’t even account for the productivity losses from teams bogged down in data reconciliation, and it assumes a modest count of only 10 data sets.
This challenging financial equation for data migrations forces acquirers into a difficult choice: either absorb these significant costs into their bids, making them less competitive in a crowded market where each seller might attract multiple buyers, or find innovative strategies to minimize data and system migration expenses. The economics and practicalities of banking M&A overwhelmingly point to one conclusion:
Mastering data migration is becoming the paramount strategy for buyers to successfully close deals and realize their full value after accounting for all associated costs, efforts, and disruptions. It is the key for institutions to leverage M&A not just for growth, but to emerge as stronger, more efficient organizations.
Source: Thefinancialbrand.com