Most of Milwaukee’s merger and acquisitions and investment banking firms had record years in 2006, and they anticipate similar levels of activity for 2007. Relatively low interest rates, the willingness of banks and other lending institutions to fund acquisitions and the appetites of both strategic and private equity buyers have fueled the robust market, industry insiders say.
Barring any unforeseen circumstances, those factors are unlikely to change before the end of 2007 and perhaps beyond.
Cleary Gull Inc., a Milwaukee-based investment banking firm, closed 11 deals in 2006, said Ronald Miller, managing director. Cleary Gull also provides individual and institutional investment advising. Seven of the company’s deals were in Wisconsin, Miller said.
“I think that 2007 will be more of the same,” Miller said. “We have a very strong backlog, and that’s consistent with (this point) last year. We have an equivalent amount of business signed up.”
Emory & Co., another Milwaukee investment banking firm, also had a record year in 2006. Although its six transactions were average in number, those deals had significantly higher dollar amounts, said Victoria Fox, managing director at Emory & Co.
“Several of the companies we worked with last year, before they hired us were talking to a specific buyer,” Fox said. “We were able to get the purchase price far higher than they originally anticipated, between 30 percent and 350 percent (higher).”
Mertz Associates Inc., a Waukesha-based mergers and acquisitions firm, had a record year in 2006, according to Linda Mertz, managing director. The firm closed nine deals last year, up from its previous average of five deals per year, she said.
Mertz’s outlook for 2007 calls for continued activity, although 2008 might not be as rosy.
“Sellers are getting serious – they’re thinking about what might happen with capital gains,” she said. “The dollar is weak, and international buyers are strong.”
The competitive demand to grow companies is driving strategic buyers, Mertz said.
“If they’re going to (grow) organically, it takes more time,” she said. “Strategic buyers are saying they need to make a change in their business to be competitive, and they’re asking how they can do that quickly. That’s when they’re looking for acquisitions.”
Private equity firms are driving the M&A market in Wisconsin and across the nation, often aggressively competing with each another, said Joe Sweeney, managing director of investment banking with Corporate Financial Advisors LLC, a financial consulting firm that provides investment banking, commercial litigation, valuation, corporate recovery and private equity services. Corporate Financial Advisors has offices in Milwaukee and Waukesha.
Private equity firms’ appetites for companies show no signs of being satisfied, Sweeney said.
“I think 2007 will be very strong,” Sweeney said. “Nothing lasts forever, but I think (2007) will be pretty strong. I still talk to dozens of firms every week, and I get a lot of e-mails.”
W. Kent Velde, president of Lakeview Equity Partners LLC, a Milwaukee private equity fund, agreed. Although 2007 may not top the dollars paid for and the volume of M&A activity of 2006, it will be a solid year, he said.
“As long as the economy remains strong and rates (remain) stable, the M&A environment will continue to be strong,” Velde said. “I’d be surprised if it topped 2006, but not if it’s still strong.”
While some national media have speculated that a M&A slowdown is looming because of high prices paid for large national companies, there is no likely slowdown in local M&A activity, according to Karen Monfre, partner with Wipfli LLP, a an accounting and business consulting service headquartered in Wausau with offices in Wisconsin and Minnesota.
“Some parties feel that it could slow down, but I haven’t seen it,” she said. “And with what’s in the pipeline in the businesses of our clients, I don’t believe it. I think there will continue to be a good couple more years, barring anything drastic like a 9-11. Things take time to heat up and slow down.”
The appetite for middle-market companies isn’t likely to fall off, local M&A experts say.
“With the large deals, we’re seeing some wild rides that are not sustainable,” Miller said. “The middle market is more sustainable. It has a much more favorable market.”
In 2007 and beyond, Wisconsin will remain attractive to private equity firms because there are many family and privately held companies here, said Tom Smith, managing director of Mason Wells, a Milwaukee-based private equity fund. Mason Wells has more than $500 million capital in its two fund groups – Mason Wells Buyout Funds and Mason Wells Venture Funds. Smith works with the company’s buyout funds.
“I think family-owned businesses are of particular interest to private equity, and particularly to Mason Wells,” he said. “Most of what we do is the buyout of family-owned businesses that are going through generational change or a transition of ownership to a management team.”
Wisconsin’s manufacturing firms, many of which have a focus on engineering, will continue to be attractive acquisition targets, said Bill Penkwitz, partner with Promontory Point Capital, a Milwaukee investment banking firm. Within that sector, several niches may have a higher level of activity, he said.
“We’ve done a lot in the last year that have had technical expertise like software and engineering,” Penkwitz said. “We’re also seeing a lot of companies calling us that are focusing on energy, like ethanol, biodiesel or alternative power sources. It’s hard to be in Wisconsin and not get calls on ethanol.”
Aside from manufacturing, both the health care and technology M&A markets will be active in 2007, said Miller and Sweeney.
“I think that in the next three to five years, health care is going to be one of the best businesses to be in,” Sweeney said. “It’s so large and so screwed up that if you can find simple solutions to complex problems in the health care industry, that’s the best way to go.”
