Welcome to The Business Buying Academy with Sieva Kozinsky.

🔑 How to roll up thousands of banks

In 1903, one of America’s oldest banks quietly changed hands.

The Massachusetts Bank was originally chartered in 1784 by a group of prominent Boston merchants, including Revolutionary War hero John Hancock.

For the first 100 years or so of the Massachusetts Bank's existence, bank mergers were rare.

Thousands of small, independent banks in the US operated within their communities for decades.

The concept of national firms rolling up smaller competitors just didn't exist for most of the 19th century.

But starting around 1895, the US saw a massive rise in acquisitions - both with banks and other companies.

Thanks to new communication technology and an increasingly-national economy, companies began exploring roll-ups.

The Great Merger Movement (1895–1904) was a period of intense horizontal consolidation in the United States, during which over 1,800 manufacturing firms vanished into 157 giant corporations.

The Massachusetts Bank was acquired by fast-growing First National Bank of Boston (which would go on to acquire dozens of banks over the following decades).

This marked the beginning of a long pattern: stronger institutions absorbing older ones to gain scale, customers, and market power.

Fast forward nearly a century later to the 1990s, and that same pattern repeated.

New Regulations

For most of the 20th century, U.S. banking was deliberately fragmented.

The McFadden Act of 1927 and the Bank Holding Company Act of 1956 largely barred banks from branching or acquiring across state lines.

Bank holding companies (BHCs) existed, but they were often limited to owning banks within a single state.

The result: Thousands of small, independent institutions. Great for local relationships, terrible for scale, diversification, or efficiency.

Enter the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Signed by President Clinton, it changed everything:

• Effective September 30, 1995: BHCs could acquire banks in any state.
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• Effective June 1, 1997: Banks could merge across state lines and operate branches interstate.

It triggered a flood of M&A.

Deregulation met a booming economy, rising bank stock prices, and pressure to achieve scale for technology investments and cost-cutting.

The numbers:

• Annual bank mergers averaged ~510 per year from 1990–1998 (up from ~345 in the 1980s).
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• In 1995 alone: 443 transactions involving $488 billion in acquired assets – a record at the time.
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• Overall, the 1990s saw hundreds of billions in assets shift via holding company acquisitions. The number of U.S. banking organizations dropped roughly 30% from 1990 levels, while the top 10 banks’ share of industry assets roughly doubled.

BHCs became the perfect vehicle for this consolidation.

They allowed acquirers to buy target banks as subsidiaries, maintain separate charters where needed, and integrate operations under a single holding company umbrella.

It was classic platform + add-on strategy: Establish a regional foothold, then bolt on smaller players for deposits, branches, and market share.

Multiples soared as competition intensified, foreshadowing the limits of roll-up math when organic growth slowed or interest rates shifted.

Fifth Third’s 1999 Acquisition of CNB Bancshares

While the megamergers grabbed the headlines, some of the most instructive deals happened in the Midwest, where efficient regional BHCs like Fifth Third Bancorp turned deregulation into a growth machine.

In June 1999, Cincinnati-based Fifth Third Bancorp announced its largest acquisition to date: the purchase of CNB Bancshares Inc. of Evansville, Indiana.

Deal value: approximately $2.4 billion in stock.

CNB was the largest independent bank holding company in Indiana, with $7.2 billion in assets and 145 banking offices. The terms were aggressive:

• 3.6× tangible book value
• 32× earnings

CNB shareholders received a ~44% premium to the pre-deal stock price.

The deal instantly made Fifth Third the third-largest bank in Indiana and the 28th-largest bank in the nation.

By the early 2000s, the consolidation trend died down. The Gramm-Leach-Bliley Act of 1999 further blurred lines (allowing BHCs into securities and insurance), but the core geographic consolidation was largely done. The industry emerged more concentrated.

• Mergers per year (1990–1998 avg.): ~510
• Assets acquired in peak year (1995): $488 billion
• Fifth Third / CNB deal (1999): $2.4B | 3.6× TBV | 32× earnings | $7.2B target assets
• Industry shift: Top 10 banks’ asset share roughly doubled by decade’s end

Lessons for Business Buyers

If you're reading this newsletter, you probably aren't going to acquire a bank.

But this pattern of fragmentation and consolidation repeats across every industry at some point.

Most industries move through predictable cycles of fragmentation and consolidation. In the fragmentation phase, barriers to entry are low, innovation is rapid, and hundreds (or thousands) of small, local, or regional players compete fiercely. Think mom-and-pop shops, independent physicians’ practices, or thousands of local banks before the 1990s.

Then a catalyst flips the script and triggers consolidation.

Sometimes that trigger is regulation, and sometimes it's deregulation.

You have to track both.

A while ago, I wrote about how Loews Hotels scooped up movie theaters when a Supreme Court ruling required movie studios to dispose of their theater investments.

Another example is the Telecommunications Act of 1996 that eliminated regulatory barriers between local/long-distance phone service, cable, and broadcasting. It allowed cable companies to acquire phone companies and vice versa, leading to a wave of consolidation.

SBC Communications and Ameritech was a ~$62 billion merger in 1999 that followed the Telecommunications Act of 1996. This created a massive Midwest-to-West Coast local phone powerhouse and was one of the largest deals of the era. It helped form the foundation of today's AT&T Inc.

The take-away: Track regulation and deregulation, and identify when triggers for a consolidation wave.

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.