Sell, Buy, or Stay Independent? M&A Considerations

In 1901, small-town American merchants faced a problem that feels surprisingly modern: national retailers were expanding fast, fueled by new technology, better logistics, and economies of scale that local businesses simply couldn’t match.In response, hundreds of independent shopkeepers banded together to form cooperative buying clubs — pooling resources, negotiating power, and sharing infrastructure. One of those groups eventually became Ace Hardware, now the world's largest retailer-owned cooperative.The lesson for community financial institutions (CFIs) today is similar: when the cost of staying competitive rises faster than the size of the institution, scale becomes strategy. CFIs are wrestling with that same economic equation — balancing technology demands, capital pressures, and rising operating costs against independence.CFI M&A: By the NumbersBank Director’s 2026 Bank M&A Survey shows that the landscape is shifting, and acquisition interest in CFIs is rising sharply. Indeed, 37% of surveyed banks say they were approached by a potential acquirer in the past year, nearly doubling from 19% the prior year. While only a fraction of those overtures translates into deals, the trend underscores growing pressure on CFIs: rising tech costs, persistent margin compression, and intensifying competition from fintechs and larger banks.At the same time, the survey finds that nearly 75% of banks plan to stay independent, and more than 90% of executives still see organic growth as their preferred strategy. Yet, many acknowledge that scale advantages are real — particularly in areas like digital transformation, compliance modernization, fraud mitigation, cybersecurity investments, and customer analytics.In short, CFIs are navigating a strategic crossroads: maintain independence and keep investing, or evaluate whether a merger or acquisition could strengthen competitiveness.The Pressures Behind Rising Acquisition Interest1. Technology Costs Are Outpacing GrowthTechnology remains both the most significant investment and the most considerable constraint. The 2026 survey revealed the following:

The problem isn’t just new features — it’s the full lifecycle: core integration, cybersecurity, fraud detection, data analytics, digital onboarding, and AI-driven customer support. As one respondent in the survey put it, “The pace of tech innovation is outstripping our capacity to invest.”2. Profitability Pressure and Margin UncertaintyHigh funding costs, deposit competition, and slower loan demand continue to squeeze margins.According to the survey:

With limited operating leverage, smaller balance sheets feel the strain first. This makes cost synergies from consolidation — particularly around technology, compliance, and overhead — more appealing.3. Regulatory Burden Continues To ClimbBanker commentary continues to highlight the strain compliance places on CFIs. 

These perspectives from bank leaders echo what many CFIs experience: even when regulation is not the top perceived external threat, its operational footprint continues to expand — and smaller banks feel the pressure most.4. Competition from Fintechs and RegionalsMeanwhile, fintechs continue to target high-margin segments such as small business payments, treasury, lending, and savings. Regional banks, with deeper budgets and scalable tech, are moving aggressively into rural and suburban markets that were historically CFI strongholds. The result is that many CFIs must now compete on digital convenience and product breadth, not just local relationships.Deal Interest Is Up — But Boards Are CautiousEven as inbound acquisition interest rises, deal execution has remained muted. Only 6% of banks completed an acquisition in 2025, and just 9% plan to do one in 2026. Boards cite a mix of factors behind the caution, including bid/ask gaps on valuation, integration risk, cultural mismatch, credit cycle uncertainty, and the impact of high interest rates on deal math. The survey also notes that 40% of banks believe sellers still want “pre-rate-hike” multiples, a pricing mismatch that continues to slow deal flow.What CFIs Should Take From the 2026 M&A OutlookWith M&A expected to pick up in 2026, industry experts point to several areas for CFIs to evaluate as they consider whether to sell, buy, or stay independent.

Optionality Matters More Than EverFor many CFIs, the path forward isn’t binary. It’s about maintaining independence while staying open to opportunities, proactively assessing long-term competitiveness, and making strategic decisions rooted in clear-eyed cost structure, growth, and investment analysis.