How the Anchor, Old National deal came to fruition

Dennis Nisler

Editor’s Note: One year ago (Nov. 1, 2017) Old National Bancorp of Evansville, Ind., closed on its acquisition of Anchor Bancorp of St. Paul, Minn. The acquisition of the $2.1 billion holding company and bank, announced August 8, 2017, marked Old National’s entry into the Twin Cities. (Old National is poised to grow its Twin Cities presence when it closes on its recently announced deal to acquire Chaska, Minn.-based Klein Financial, Inc.) Dennis Nisler, Anchor’s chief financial officer at the time of the acquisition, recently shared details of the deal at the Bank Holding Company Association’s Fall Seminar. Nisler spoke on a panel that also featured Anchor’s advisors in the transaction, Joseph T. Ceithaml, an attorney at the Barack Ferrazzano law firm, and Kevin P. O’Keefe, a principal at the investment banking firm of Sandler O’Neill + Partners, L.P. Following is an edited summary of Nisler’s comments.


We always thought we could be an independent bank and continue with the status quo, growing organically. However, as the economy grew, and loan growth accelerated, our lenders made good loans and became frustrated when we ran up against our minimum capital ratios and internal lending limits. We needed more capital. We had already done several private placements with family, friends of the family, and customers. We were tapped out. The Jones family, who owned most of the shares in the bank along with some other larger shareholders, wanted to have some liquidity. So, we formed a task force made up of myself and three other senior leaders and explored the options.

Coming out of the recession, Anchor had excess capital and used some of it to purchase the assets of the former Voyager Bank (Eden Prairie, Minn.). Anchor had always viewed itself as an acquirer. We reviewed the situation across the Twin Cities, but it turned out there weren’t many purchase candidates that interested us. Only two or three banks made sense to us from a cultural and strategic standpoint. We also saw that pricing was becoming a problem, to the point where an acquisition just didn’t make sense for us. Any likely seller to us would not be very interested in a non-liquid equity consideration, so that became a problem as well.

We briefly considered a strategic partner. The one logical fit in the Twin Cities, ironically, is now being merged into the Old National franchise. That’s the Klein organization.

We also considered an IPO but when it came down to it, the timing wasn’t right. There’s a lot of preparation that goes into that and it takes a lot of time. We were concerned about how such a process would consume management attention. Plus, there is considerable uncertainty that comes with becoming public. Do you get your price? In addition, there are significant ongoing regulatory issues that come with going public. So, then, we shifted and began to consider a sale.

Although we had not been positioning ourselves for sale, conditions were very favorable. The economy was going well; potential buyers’ stock, we felt, still had a lot of room to grow; and valuations would continue to grow.

The Twin Cities market is very attractive, with a diversified economic and business base. We knew that would be attractive to a buyer who perhaps wasn’t already in the market. We were in a unique position being near $2.5 billion. We were No. 6 in the market. We had enough scale for a new entrant to consider us, but we weren’t too large for another regional bank to acquire us. We were not looking for an all-cash deal. Our business mix was very attractive. We never really tried to compete or devote a lot of resources to the mass market consumer banking segment. We were a very strong middle-market banking group and we didn’t have the over-reliance on commercial real estate that some others had. As a result, we had a stable, low-cost deposit profile as well.

Like most banks, we had a very strong asset quality profile. We came through the recession strong. We had credit losses like everybody but we had a very strong credit culture through that and maintained it; that was certainly evident in our portfolio.

We covered the Twin Cities with our offices, which was attractive as well. But even more attractive, we had a centralized commercial banking group that really drew the attention of potential acquirers.

The Jones family had very specific criteria about who they wanted to partner with going forward. First and foremost, they wanted to minimize the impact of the sale on the employee base; they were willing to give up some value in the sale to protect that.

A new entrant to the market or someone with a very small presence in the Twin Cities would be most likely to retain the employees. That narrowed our prospect list considerably. We wanted an acquirer with a minimum of $10 billion in assets to provide the liquidity that we wanted in the shares that would be received but we didn’t want the acquirer to have more than $50 billion in assets because we wanted to maintain the community banking style that Anchor had developed. Retaining the Anchor name was not a consideration. Maintaining current senior leaders was not an important factor either. We knew, however, that senior leaders in charge of business units and customer-facing employees would be retained if the acquirer was a new entrant into the market. We wanted a tax-free exchange. And, attractive valuation of a potential acquirer’s stock was a big factor. Obviously, the acquirer had to be publicly traded. We didn’t want an institution where the Jones family pro forma ownership was too large. And, of course, we wanted a highly ethical company and one with a great reputation.

Our investment bankers identified five potential acquirers; four of those companies signed non-disclosure agreements, and three submitted bids. One of the bidders submitted a bid much lower than the other two.

The final bids of the two were similar, but the bid we accepted was just a little bit higher than the other. We did quite a bit of reverse due diligence in the process. Kevin (of Sandler + O’Neill) conducted a pro forma on the dividend level for the stock valuation of Old National. We looked at SEC filings, and reports from public equity analysts. We met with each of their management groups. That way, we could get a feel for how they operated their businesses. I will say ultimately it came down to our comfort level with the cultural fit with Old National as much as anything.

I’ve been involved in a lot of M&A transactions during my career. The Anchor deal affirmed a few lessons for me.

First, consistent, constant communication and documentation of the process is essential to a successful deal.

Second, I can’t emphasize culture enough. What I found with Old National is they are such an experienced acquirer; they have the playbook laid out. Every deal is different, of course, but it was so much easier to have them come in and really lay out how the transition and integration would go. It relieved our people of some of that which allowed them to focus on the customer and the employee aspects of the transition.

Third, I would encourage keeping the deal very quiet. Only a few people in the organization should know.

And fourth, make sure you have the severance and protection plans in place well ahead of the sale. Our lending officers were being contacted regularly, and more so after the deal was announced. We were prepared for that.

Finally, have a communication plan ready so if word does leak out ahead of time, you are able to respond to your customers, your employees and the regulators — communication may be required sooner than you think.