M&A market heating up

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As merger and acquisition activity continues its strong comeback from the lows of 2008 and 2009, the pursuit of attractive acquisition targets is being fueled by private equity buyers who have significant cash to deploy, says Kevin Conroy, president and chief executive officer of Exact Sciences in Madison.

From 2010 to the present, middle market transaction valuation multiples have returned to 10 times earnings before interest, taxes, depreciation and amortization, which is up from 7.1 times EBITDA in 2009, said Conroy, whose company, Third Wave Technologies, experienced a turnaround after selling to Hologic, Inc. three years ago.

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“Current market conditions make this a particularly good time to be selling high quality assets,” Conroy said at a recent M&A Forum at the Pfister Hotel presented by BizTimes Media. “There is a lot of private equity capital out there – activity is increasing and $490 billion of capital is waiting to be deployed.”

Following the recovery of 2010, when there were 12,453 M&A transactions compared with 9,286 in 2009, the total number of transactions in the first quarter of 2011 was down 4.5 percent from a year ago, but total deal dollar value was up 42.9 percent, driven by an increase in larger transactions, Conroy said.

With a slumping stock price and facing several lawsuits when Conroy took over in 2006, Third Wave was in dire straits when it decided to focus solely on a high-value cervical cancer diagnostic test as part of a turnaround strategy. The focus led to a 275 percent return for investors over the next two and one-half years, and the sale to Massachussets-based Hologic for $581 million in June 2008. Investor faith in the renamed company, Exact Sciences, rebounded by 450 percent after a restructuring in April 2009.

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The keys to a successful result for Conroy and his team were the constant evaluation of business risks, which included assessing Third Wave’s capital needs, gauging the competition, and execution of business risk. Along the way, the Third Wave management team developed positive relationships with key prospective buyers through the M&A advisors it retained.

Multiples on the rise

In the current market, there are more buyers than sellers and business valuation multiples are rising, said Scott Fiducci, an attorney with Davis & Kuelthau in Milwaukee. In his experience, the number one criteria for a prospective buyer is to take a hard look at the quality of a company’s management team before moving forward, Fiducci said.

On the flip side, it is important for a business to find the right financial partners, because in the long run it becomes like a marriage, said Kent Tabor, the president and founder of EmbedTek, a Hartland firm that designs and manufactures embedded computers and integrated display solutions for original equipment manufacturers

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For business owners who are thinking about selling or merging their business, one of the first things to consider is what the value of the company is today and where you want to be financially after the sale, says Jim Gettel, a managing director with Schenck M& A Solutions in Milwaukee, whose firm focuses on transactions in the $3 million to $40 million range.

“Knowing where you are going to end up – what the net number is – is hugely important,” Gettel said.

Business owners need to ask themselves what is the net after tax, after debt value of the company, and where they need to be in terms of retirement, Gettel said.

“And, if it’s not where it needs to be, then you are looking at a growth strategy to better position the company for sale,” he said. “You need to determine what needs to be fixed.”

Business owners need to take the time to benchmark their company’s value, and develop a business plan to get the maximum value out of the business – something less than 30 percent of business owners do, Gettel said.

In the M&A downturn, people had trouble getting financing, and there was a lot of time spent on performing due diligence, Gettel said. The actual process is moving faster now, taking anywhere from six to 12 months to prepare the company for sale.

Another consideration for business owners is to ask themselves how involved they want to be involved in the company after the sale or merger, Gettel said, adding that it becomes a lifestyle decision as well as an investment decision.


For J.T. Shinners, president and CEO of JTS Direct, recapitalizing his Hartland-based printing company was needed to clear some debt of the books.

Shinners founded JTS Direct in 1998 and sold a majority stake of the company in 2002. In 2008, he bought the company back. Three months later, the Great Recession began in earnest and business fell off almost immediately. In 2009, JTS Direct’s revenue fell 23 percent. The purchase of the company and the consolidation were funded with traditional bank debt. While JTS Direct’s business rebounded last year, that debt load was an anchor on its balance sheet.

A recapitalization by selling an ownership stake in the company to private investors helped JTS get rid of burdensome debt, and freed up cash flow to pursue new, innovative ideas, Shinners said.

For those looking to recapitalize the business, Shinners is a strong proponent of finding local partners.

“From a small business perspective, to recapitalize with a bank or with partners who are local and within driving distance, being local really helps,” Shinners said.

Tom Campion, a managing director for Chicago-based Merit Capital, says his private equity firm has had success investing in Wisconsin-based manufacturing firms. Campion says he finds that deals in Wisconsin are often sourced through local attorneys. In his experience, when a company founder sells a stake in the business, they tend to work even harder.

“If you think there is a lot of potential for growth, why not share the risk and get an outside partner to help write the checks for you?” Campion said.

Another important part of the process is to have a financial advisor on your team, so that once the transaction takes place, you can get your financial assets working for you, said Ken Evason, CEO of Windermere Wealth Advisors in Waukesha.

“It will take a lot of pre-planning to determine what (the sale) will likely generate,” Evason said. “We always ask a lot of questions about family involvement and legacy planning, and work with our clients to make sure that their dreams are aligned to help them get to the next level.”

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