Sellers are entering the bargaining phase of the five stages of grief when it comes to premiums.
The bargain involves selling a bank without really handing over control.
Potential sellers, especially smaller banks, are in a tough spot. They are caught between a yearning for the massive premiums of yore and the reality that they will need to be much bigger to operate effectively in the new regulatory and operating environment.
"In a lot of cases, they don't want to sell but their hand is being forced," says Greyson Tuck, a partner at Gerrish McCreary Smith. "They don't believe they are getting what they ought to get, so they don't feel satisfied with just the deal."
The motivation for potential sellers includes assurances that a buyer will not mess the deal up. After all, part of the rationalization of selling at a lower multiple is hope for upside.
"I think there is an element of 'if I'm being sold the sizzle, I'm going to make sure the sizzle happens,'" Tuck says.
Though some of the attachment is purely emotional, some bankers could be fretting about their own nest egg. If a sale takes place earlier than expected, they might worry about an ability to find a job in a shrinking market. If an executive ties a sale to their own retirement, they might not see their piece of the pie as enough to support them in the future.
"Multiples aren't creating the kind of personal equity they once did," says Rick Levenson, president of Western Financial, a broker-dealer and investment bank in San Diego. "They might just be looking for a job to keep them going financially."
A desire to retain control can complicate negotiations, Tuck says. It is one of the reasons that Tuck's firm advises sellers, depending on their ownership structure, to avoid letting the chief executive lead the process.
Other industry observers say it is fine for managers to lead talks, as long as they remember they are representing shareholders.
"I like my clients to say to me, 'I'm focused on my shareholders,' " says Stephen Nelson, a managing director at D.A. Davidson. "I want them to say, 'I'm open to staying or going whatever it takes to do the best transaction.' "
Nelson says he hasn't dealt with many sellers who specifically want to retain control.
Managers who try to hold the reins post-close could complicate or kill deals, especially in-market transactions. Such deals are usually built around the potential for cutting costs. In those types of deals, a seller's management leaves fairly quickly, or may stay on and consult to ensure a smooth transition.
To be sure, buyers may not have a problem with sellers who want to stay along for the ride, because of their role in the community and inside knowledge of the company.
"Most strategic buyers do not want to come in and clean house," Tuck says. "One of the big factors in how you value a company is 'How can we maintain the earnings?' If we go in and can all the folks immediately, there goes the income."
Still, there is the potential for power struggles.
"It is a delicate dance," Tuck says. "The buyers are going to run the organization the way it determines to be appropriate."
There are also buyers that want top executives to stay. For market expansions or acquisitions by multi-bank holding companies such as Heartland Financial USA in Dubuque, Iowa, a management team that wants to stay, rather than retire, is welcomed.
Not surprisingly, 2013's M&A has been marked with deals like SCBT Financial in Columbia, S.C., buying First Financial in Charleston, S.C., or Heartland entering Kansas City by buying Morrill Bancshares in Merriam, Kan.
"A lot of bankers that are pretty sharp see that scale is incredibly important, but they are not going to get terribly rich in selling," says Lynn Fuller, CEO of the $5 billion-asset Heartland. "We can load them into our Heartland family, like we are doing with Morrill. It is a home run for us and for them."