BMO’s Acquisition of Bank of the West

The $16.3 billion acquisition significantly bolsters BMO’s U.S. footprint, particularly in high-growth markets like California, increasing access to 1.8 million new customers and expanding its deposit base. The deal increases BMO’s total assets to $938.8 billion, with a 57% rise in U.S. deposits and an $80 billion boost in loans, enhancing revenue streams and market competitiveness. Expected cost synergies of $670 million and revenue synergies approaching $1 billion through cross-selling opportunities in commercial banking, wealth management, and capital markets. At 1.5x book value and 14x estimated earnings, BMO paid a significant premium, which increases the risk of longer-than-expected breakeven timelines. Historical bank M&A transactions have ranged from 1.2x to 1.4x book value, the premium raises concerns about long-term value creation. Differences in customer base behavior: Bank of the West had a 42% concentration of retail customers in California, whereas BMO has a historically more diversified portfolio. Expected ROIC (Return on Invested Capital) of 10% post-synergies, but any slowdown in loan growth or unexpected credit losses could push this lower.

Merger Analysis -