The Collapse of Silicon Valley Bank: Implications for M&A Deals, Opportunities, and the Importance of Risk Management

The collapse of Silicon Valley Bank (SVB) has caused a significant impact on the financial industry and has triggered a discussion among M&A professionals about the implications of this failure. The closure of SVB has led many borrowers to move their accounts to other banks, with the bigger banks noting an influx of account open requests in the thousands since last Friday. Concerns over financial stability and inflation have also been raised, and market participants are speculating on whether the Fed will increase rates next week.

During the roundtable meeting, participants criticized SVB’s management for their lack of risk management and diversification. Members argued that the bank’s management had failed to unwind its positions earlier, despite knowing the Federal Reserve’s plans to raise interest rates. This failure led to a bad bet that became catastrophic for the bank, on top of the bank’s already concentrated depositor base in one sector.

The collapse of SVB is expected to lead to changes in the outlook on doing deals. The sentiment is that the appetite for doing deals remains, however, it’s predicted that we will see a decrease in investment committees’ appetite across the board for riskier deals. However, the collapse of SVB has also created some opportunities with the group noting, specifically as it relates to the work of independent sponsors, founder/owners are going to be more cognizant that multiples will have to come down and given that folks likely want to keep their money out of the banks, capital raising shouldn’t be heavily impacted.

In conclusion, SVB’s collapse has highlighted the importance of diversification and risk management in banking. Banks must be proactive in unwinding positions and monitoring potential market changes. Additionally, this event has shown that the collapse of a bank can have far-reaching effects on the financial industry, and market participants must be prepared to adapt to such changes.

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By Lou Sokolovskiy, Opus Connect
March 2023