Why Sellers Don’t Like to Talk About Selling

Kurt Knutson showed up apprehensively in Scottsdale, Arizona, in 2022. He was exploring the possibility of selling the bank he founded in 2006, but he didn’t want anyone to know about it. 

Knutson was the CEO of Freedom Bank in Overland Park, Kansas, and had grown it to over $200 million in assets. But if word got out that it might be for sale, the bank could lose employees and even customers, eroding the value his team had worked so hard to build. The investment bank Olsen Palmer had set up 11 meetings with potential acquirers at Bank Director’s annual Acquire or Be Acquired Conference. They ducked into rooms in the palatial JW Marriott Phoenix Desert Ridge Resort & Spa, talking about their banks and whether there would be a good match. “It was a ‘what happens in Vegas stays in Vegas’ kind of place,” says Knutson, who sold his bank in 2022. For years, Bank Director polled bankers at the conference and asked them if they were buyers or sellers. Almost no one identified as a seller.

When a CEO talks to advisors, it’s hard to get good information about the bank’s best strategic options. “Asking an investment banker if you should sell is like asking your barber if you need a haircut,” says Knutson, who recently published a book, “The Art of Selling Your Bank.” Even talking to the board, which represents the interests of shareholders, can be fraught. “You might go to the board, and they might interpret that you’ve lost interest in running the company.”

2023 had the fewest number of bank deals in over 30 years, under 100. But that may be about to change. The economy has remained strong, the Federal Reserve halted the rapid rise in short-term interest rates, unrealized losses in bank bond portfolios have started to stabilize, and bank stock valuations are rising. That may propel more sellers into the market now that they can get better pricing for their banks. 

In Bank Director’s 2024 Bank M&A Survey, which was conducted in September of 2023, 53% said they were open to selling the bank in the next five years for the right price, up from 48% the year before. But how should they go about such a difficult journey without letting word get out? 

To keep from raising suspicions among staff, Knutson advises pulling the bank’s data shortly after a safety and soundness regulatory exam, when it is most up to date. “There’s a golden window,” he says. “You’re going to ask a lot of people internally for a bunch of information, and that’s going to raise red flags.” 

But it’s not always possible to keep a potential sale secret. Senior executives might help with the sale, but they may be transitioning their way out of a job. 

For example, $30 billion First National of Nebraska bought $542 million Western States Bancorp. in Laramie, Wyoming, in 2022. First National was so much larger than Western States that it was clear no members of the seller’s executive team would have an executive role at the new company, says former Western States CEO Gary Crum. 

And yet, Crum asked his executive team to help with the sale while continuing to run the bank. Part of the bank’s contract with the buyer was to deliver a bank of a certain size, which meant continuing to run the bank during the day, engaging in marketing and generating loans, while working on the deal at night. The acquiring bank was generous with Western States’ staff and kept some employees on after the sale; others received good severance packages, he says.  

Advisors can discretely help a seller identify and connect with buyers who might offer a higher price or be a better fit, said Sarah Billington, an attorney with Howard & Howard who spoke at the conference. Like Freedom, Western States used Olsen Palmer, which ultimately found First National of Nebraska, an unlikely candidate since it hadn’t done a deal in 17 years. Crum declined to divulge the financial terms of the deal.

To get a better price, Knutson says to think about the bank’s potential value to an acquirer. He also suggests waiting until the bank’s core processing contract is about to expire, because termination fees for such contracts are often high. Buyers may discount a selling bank’s price to account for such termination fees. 

Sellers should also fix compliance problems inside the bank before a sale, Billington said. “Make sure you have filed everything that needs to be filed, and your books and records are complete,’’ she said. The bank might not have an updated list of shareholders, causing it to miss a change-of-control when a majority shareholder passed on ownership to an estate or another family member. 

The delicate dance of selling the bank isn’t only about compliance and money matters. Crum said Western States and First National had several initial meetings where they didn’t talk about price. “We had a price in our minds, and they had a price in their minds,” Crum says. But equally important was whether the two could work together, and how a deal would impact Western States’ customers and staff.  

“We wanted someone to take care of our community,” Crum says.