Local experts in mergers and acquisitions shared their thoughts on buying and selling a business in today’s market at the BizTimes M&A Forum from held on Friday, June 8, at the Pfister Hotel in Milwaukee.
Steve Booth, director of investment banking at Milwaukee-based Robert W. Baird & Co. Inc. was the keynote speaker.
A professional advisor panel included Steve Barth, a partner at Milwaukee-based Foley & Lardner LLP, Jim Gettel, managing director for the Milwaukee office of Schenck M&A Solutions, and Greg Larson, senior vice president and director of commercial banking at Brown Deer-based Bank Mutual.
An M&A panel included Jim Lindenberg, owner of the Milwaukee Wave and former owner of Waukesha-based World Class Wire & Cable, Cynthia LaConte, CEO of Milwaukee-based Dohmen, and Tom Smith, senior managing director of Milwaukee-based Mason Wells.
BizTimes submitted questions to the speakers in advance of the program. The following are their responses.
Steve Booth
Director of investment banking at Robert W. Baird
Booth has been with Baird for 18 years, previously leading the industrials group and the global M&A business. He is now the director of investment banking, overseeing global corporate finance and M&A activities, and co-manages the equity capital markets group. He is also a member of the board of directors and executive committee at Baird.
What kind of trends have you seen in the M&A market this year? What’s driving those trends?
“There was a lot of fundraising in 2006, ’07, first half of 2008, and that equity still hasn’t been spent. There’s an expiration date, so to speak, on those funds. The bank market in particular, the overall bank lending market has not had a lot of loan growth across the U.S. Corporations are generating cash and have been reducing debt. There’s been cash piling up on corporate balance sheets, so there hasn’t been a lot of incremental lending.”
How does Milwaukee compare to the national and global M&A markets?
“The U.S. M&A market has held up well, surprisingly well. The European market and emerging markets have slowed in terms of the M&A markets. One of the areas of activity that’s remained fairly robust in the U.S. market has been private equity acquisition activity. In Europe, banks are quite challenged. They’re deleveraging and there’s not a lot of appetite to take risk. I’ve never seen a differential between the U.S. lending market and the European lending market like there is today.”
Steve Barth
Partner, Foley & Lardner LLP
Barth is the co-chair of Foley’s national transactional and securities practice. He has helped complete more than 300 public and private business combination transactions from both the buyer and seller perspectives, in the U.S. and abroad. Barth also serves on the Milwaukee Economic Development Corp. board of directors.
Is it a buyers’ market or a sellers’ market right now? Why?
“It’s a sellers’ market right now…but as there is a flush of sellers at the end of the year, I think it will flip to being a buyers’ market. Capital gains tax credits will be going up January 1st. If people want to wait until after the election in November, it’s too late.”
Has lending loosened up? Are buyers having trouble getting financing?
“It’s absolutely loosened up, no question. The money is there. All the right stuff has to be there, but I think it’s a really active and competitive lending environment. Doors are open, the tiller is open. The cash is there, the lending capacity is clearly there and banks are anxious to lend to good deals, especially mid-market deals. The mid-market deals that can get done by a single bank are much easier and more competitive.”
Jim Gettel
Managing director, Schenck M&A Solutions
Gettel joined Schenck in 2008, where he helps businesses plan growth and value strategies and assists with mergers and acquisitions. He has more 10 years of experience in acquisitions and commercial finance and previously served as executive vice president of The Waterstone Group, a technical staffing company and professional employer organization he founded and led to grow to more than 1,000 employees and $60 million in annual sales.
What trends have you seen in the M&A market this year? What’s driving those trends?
“The biggest trend that I have seen is quite a few transitions through family ownership management buyouts or (Employee Stock Ownership Plans) as opposed to third party sales. The sellers who are willing to transition right now are most comfortable transitioning to the people they know, and so we’ve been working on quite a bit of that on a higher level than we usually do. I think it reflects that sellers are still unsure about the uncertainty in the economy.”
What advice would you give a seller right now? A buyer?
“For somebody thinking of selling, it’s good to evaluate ‘Is this a good time to sell?’ because there are a lot of factors that make it a good time to sell. It’s still a personal decision and a decision of whether the company’s ready for that. It’s a window of opportunity here.
“For a buyer, it’s a challenging market and really that means they might not find something opportunistically or something they just run across. They really need to target, for strategic purposes, who they’re interested in and go after a number of companies that match that profile. It’s rarely just going to fall in your lap at this point because there aren’t a lot of companies out there.”
Greg Larson
Senior vice president and director of commercial banking at Bank Mutual
Larson has been in banking since 1977 and has been providing acquisition financing since 1986. He joined Bank Mutual in 2010, where he oversees middle market banking, business banking, treasury management, international banking, and merchant services. Larson previously managed a segment of commercial banking for Associated Bank.
What kind of activity can we expect in the Milwaukee M&A market for the remainder of 2012?
“There’s no question that activity levels are picking up. We are expecting the fourth quarter to be very busy based on conversations that we’re having with business owners and professionals that serve this market. There is a lot of liquidity out there right now that is seeking to be deployed into good investments or loans and there’s been a shortage of opportunities over the last three years. A seller hasn’t had a place to go with their sale proceeds. Many sellers would question why they would sell. With potential tax changes, that could cause an increase in activity.”
How will the M&A market change in 2013?
“Uncertainty is weighing on the minds of most people we talk to. That being said, the general business environment and trends would indicate that the activity should continue at a strong level in 2013. There’s good liquidity, there’s a lot of money looking for a home, there’s availability of lending through banks, and that should drive a strong market into 2013.”
Jim Lindenberg
Owner of Milwaukee Wave, former owner of World Class Wire & Cable
Lindenberg launched wire, cable and tubing manufacturing company World Class Wire & Cable in 1994 and built it into an award-winning industry leader within five years. He sold the company to Anixter Inc. in 2008 and now owns the Milwaukee Wave and operates JML Holdings and Lindy Enterprises. He was Wisconsin’s 2005 Small Business Person of the Year.
Can you give some insight into selling a business, like you did?
“I would say it’s similar to building a house or starting a business. You need to start it early, you need to have a lot of meetings, you need to really take your time and ask a lot of questions. It wasn’t for sale, but people kept calling and asking to buy for five years. You want to start ahead of the process and you want to always be updating your financials.”
What advice would you give a seller right now? A buyer?
For a seller: “Continue to network, make sure your network is strong and you’re taking to a lot of people. In the old days, people thought that was bad to say you’re for sale, but you want to get the price, so you want to say you’re just looking around.”
For a buyer: “You just always need to ask people that open ended question – get to know them. Many, many businesses are having cash flow problems right now and they’re looking for people to help them. Some people are really tired and they’re beating their head against the wall and they’re looking for someone.”
Cynthia LaConte
CEO at Dohmen
LaConte has been CEO of Dohmen since 2009, where she has expanded the health care services company’s life science business. She also serves as president of Dohmen Investment Group and the Dohmen Company Foundation, which she founded in 2008. LaConte previously served as COO and helped facilitate the sale of Dohmen’s $2 billion wholesale division.
What kind of multiples are you seeing this year? How do they compare to last year?
“Multiples in health care and life sciences are generally very high by comparison to other industries – in certain niche sectors like specialty pharmacy, prescription benefit management and life science support services they run 11 to 12 times EBITDA. The median health care and life science transaction multiples have actually gone up from 11 in 2011 to over 18x in (the first quarter of) 2012.”
How will the M&A market change in 2013?
“For the past couple of years, there’s been a lot of trepidation in our industry driven by uncertainty around the Patient Protection and Affordable Care Act (a.k.a. Obamacare). That, coupled with the recession, has really cooled M&A activity in health care and life sciences. The number of deals went up a little from 2010 to 2011, but until the Supreme Court makes its decision, there will continue to be some angst around investing in this space.
Tom Smith
Senior managing director at Mason Wells
Smith has more than 20 years of private equity experience, focusing on middle market buyouts. He previously worked in the private equity group at Marshall & Ilsley, which spun it off 1998. As senior managing director of the Mason Wells buyout funds, Smith manages all investment activities for the company.
Is it a buyers’ market or a sellers’ market right now? Why?
“We’re seeing it as a sellers’ market. The transactions we’ve been looking at, we’ve been very surprised by some of the multiples we’ve seen, and therefore we’ve chosen to be more of a seller in the current market. It was similar last year, but we were able to get some deals done at what we thought were reasonable prices. Last year, we were getting deals done at below 7 (times EBITDA) and this year, everything we’ve been pursuing we’ve had to pass on because it’s going for above 8.5 times.”
What trends have you seen in the M&A market this year? What’s driving those trends?
“We continue to see deal activity. I have to qualify this – we’re looking at deals of companies that have EBITDA of between $8 and $20 million, so I don’t know what the market is for smaller or larger deals than that. I wouldn’t call it frothy and I wouldn’t call it barren – it’s a consistent, steady pace. If Congress is intent on eliminating the Bush tax cuts at the end of the year…I think we’ll see a lot of activity in the near future as business owners say ‘I’m going to take advantage of the current tax rates before they go up.'”
