In Q1 2025, the outlook for mergers & acquisitions (M&A) in banking and finance was hopeful. By Q2, it had tempered significantly. Now, as we gear up for Q4, it’s just confusing.

The players have shifted, big deals have hit pause or fallen through, and uncertainty around government policies has all caused confidence to drop off. Still, it’s not a graveyard out there. Big deals are happening, they’re just not as frequent.  

In the best of times, leadership makes or breaks the success of a deal; that’s common sense. But now, when the stakes are high and the market is chaotic, it’s mission critical. If your organization is engaging in M&A now or in the near future, it’s critical to plan strategic leadership transitions.

Key Takeaways

• M&A in banking remains unpredictable. Despite encouraging signals like Fed rate cuts, deal activity is slowed by delays, phantom deals, and shifting dynamics, leaving leaders to balance both optimism and caution.
• New competitive pressures are emerging. Credit unions entering the acquisition space and a trend toward larger transactions are reshaping the regional banking landscape, raising the stakes for integration strategy and leadership alignment.
• Leadership transitions are mission-critical. Success in today’s market depends on thoughtful executive planning, from navigating cultural integration and retention risks to ensuring the right leaders guide technology adoption and long-term growth.

M&A Activity in Banking and Finance is a Mixed Bag

Within the banking and finance sector, M&A activity is a mixed bag. To be sure, there are some high-level trends that seem to indicate positive movement:

• Baird reports an uptick in activity for the second half of the year, due to broadening sector momentum and increased asset availability
• Recent Fed rate cuts in September, which could be a serious boon to the market
• Global deal value increased in the first half of the year, even when the market was “slow”; this could carry over into larger deal sizes later in the year
• Private equity is sitting on record levels of dry powder and facing pressure to deploy capital in Q4

That said, we’re seeing extended deal timelines, shifting competitive dynamics, and late changes in M&A processes. As such, executives, investors, and teams are still anxious to move forward on deals, even as they realize that there’s a cost to doing nothing.

What Unique Challenges Define the Current Market?

All of that to say, the market is dealing with some unique challenges, beyond the typical ups and downs. In fact, some of these changes are things I’m seeing for the first time after decades in the banking and finance space. Old playbooks won’t work; it’s critical to adjust M&A strategies to keep up with these trends.

Credit Unions as Acquirers

M&A activity among community and regional banks hit its peak somewhere around 10-15 years ago. The playbook was simple: larger banks and financial institutions were buying up smaller players. Seems pretty intuitive.

Now, the reality has changed. Case in point: credit unions are buying banks, which you never would’ve heard of even a few years ago. Last year, there were 24 such purchases; as 2025 finishes out, it’s likely we’ll see similar numbers for this year.

This phenomenon has fundamentally changed the competitive landscape for banking M&As. Years ago, banks never cared about what credit unions were doing, and vice versa. But now, they’re occupying the same spaces and seeing each other both as potential partners and competitors.

For PMI, the cultural differences among the two types of institutions complicates who stays, who leads, and how decisions are made in the newly formed organization.

Phantom Deals & Delays

When I first started my career in executive search 20+ years ago, it seemed like every other week there was an announcement of a bank buying another bank. Today, there’s still plenty of talk around potential deals. However, a bunch of those deals are just talk. They never end up happening.

I hear rumors about potential M&A activity all the time: banks get close to a deal, but the conversation drags out or just doesn’t happen. This creates all sorts of follow-on effects when it comes to choosing leaders: candidate hesitancy, internal flight risks, and on-off hiring that fosters confusion and limits hiring enthusiasm.

Higher-For-Longer Interest Rates Dampen Bank M&A Activity

It’s no secret that the Fed has been battling inflation since March 2022, and at one point it ratcheted up interest rates to the highest level in 23 years. This has poured cold water on banking and finance M&A transactions (no surprise there).

Since the fall of 2024, the Fed has been implementing a series of interest rate cuts in the face of cooling inflation. Many banks that had been delaying strategic acquisitions sought to take advantage of the shifting current, resulting in a surge in deal activity to close out the year.

As rates declined and macro conditions appeared to stabilize, investors and stakeholders were more inclined to engage in M&A discussions and transactions. This pushed deal activity to its highest level in three years, a trend that is expected to continue in 2025 as businesses take advantage of the reduced cost of acquisition financing associated with the ongoing rate-cutting cycle.

A Shift Towards Larger Bank M&A Deals

Over the past few years, the banking industry has also trended toward larger transactions, especially as demand for economies of scale and increased scope continue to grow. The average deal size is just over $872 million, with the largest acquisition, the merger of California’s Mechanics Bank and Seattle-based Homestreet, at $3.3 billion.

True, more mega-deals (valued at $1 billion or higher) are inflating that average. Still, these transactions represent a shift in the regional banking landscape, notably demand for consolidation and expanded geographic reach.

The Role of Executive Leadership in Finance M&As in Today’s Current Market

All these trends play into decisions concerning leadership of newly formed banking and finance institutions. Here are a few questions I’m hearing from the market, whether they’re relying on internal or external talent to lead these institutions.

Who Leads the Combined Organization?

The question of “who leads?” is an obvious one. Less obvious is how to solve it. Although it naturally follows that the acquiring CEO should lead the combined bank, the acquired-bank’s CEO also has value to bring to the table. A credit union acquisition is a perfect example: the cultures and business models are different, and both leaders will play a role in integrating the two teams into a coherent whole.

Additionally, although executive reshuffling often reveals synergies that can be streamlined, the formation of a newly merged, complex organization may reveal skill gaps that neither institution is prepared to handle. In that case, the organization may need to hire additional leaders to support (or replace) the previous executives.

Where Does Culture Come into Play?

Another major challenge in navigating banking and finance M&A is culture. We all know this is a conservative industry, and the culture at the top doesn’t always align with the realities at the bottom.

The risks of making too many changes too quickly, even if these changes are positive, can result in downstream consequences that expose the newly formed institution to risk:

• Decreased productivity, as internal communication friction causes initiatives to slow
• Team turnover as employees struggle to align with the new culture
• Loss of institutional knowledge when employees leave and there is a lack of documentation for their risks
• Confusion over ownership of key areas of responsibility, including model risk, BSA/AML uplifts, data lineage, vendor consolidation, and policy harmonization

One of the suggestions to address this issue is to name a Chief Integration & Risk Officer (the exact title can vary), who will own the integration process across its entire timeline. This can either be a fractional or temporary executive placement, or the person can transition into another permanent role in the organization once the integration timeline is complete.

How Tech-Forward Should We Be?

The integration of technology, and especially AI, within banking and finance institutions is certainly interesting. From what I’ve seen, interest is high while adoption is low. There are several barriers that stand in the way of full-tilt adoption, not the least of which are a lack of comfort among leaders and challenges around data use, privacy, and quality.

Recently, I came across a story about a Fintech-driven bank that was one of the first financial organizations to embrace what was essentially banking’s version of AI combined with voice technology like Siri. The customer could simply ask the voice assistant for advice, and it would use AI technology to generate recommendations based on their specific account details.

Some people may think that approach is great. But it gives me pause: do people actually trust AI enough to make investment and banking decisions based on its advice? Is there actual demand to accomplish this, or is it just something that sounds nice because AI is all the rage? On top of that, using sensitive data in AI products requires strict privacy and security rules.

Given the nascency of this technology, the risk exposure with these innovative tools is high. And from what I’m hearing from banking and finance leaders, they’re not eager to take on this risk. Both during the purchase process and during PMI, it’s critical for leaders to understand the cultural differences around technology so they can head off friction and leverage new tech capabilities in a smart way that moves the business forward.

Final Thoughts on the Current M&A Environment

It’s no secret that the M&A environment in banking and finance is a tangled web. What’s said publicly doesn’t always perfectly align with what happens internally. What is clear is that M&A requires strong leadership: if true when the market is smooth, it’s especially important when it’s as chaotic as we’re seeing right now.

If you’re committed to staying the course and growing in uncertain times, it’s critical to have skilled leaders who have experience navigating these waters. That can be tough to find on your own, but not with an experienced search firm in your corner.

Learn more about how AJ Consultants can find the right leaders to guide you to post-merger success.