After the mergers and acquisition market effectively shut down in Q2 and Q3 of 2020, it rebounded in 2021, evolving into one of the most robust markets the market has ever experienced.
Now, uncertainty has once again crept into the picture as factors including inflation, the ongoing invasion of Ukraine by Russia, and a labor shortage have come into play.
During the 2022 BizTimes M&A Forum, held Thursday at the Brookfield Conference Center, M&A industry experts agreed on one thing – it is still currently a hot market for both buyers and sellers. However, how long this hot market will continue to last is a point of debate. Moderators Ann Hanna of Taureau Group and Inge Plautz of Old National Bank helped guide the discussion with this year's panelists.
For both buyers and sellers, BizTimes M&A Forum panelists had the following tips:
Sellers bewareTim Reardon of Milwaukee-based law firm Reinhart Boerner Van Deuren said the old adage “buyer beware” has now shifted to “seller beware.” Reardon explained that in the current M&A market, buyers have become extremely sophisticated. Buyers often surround themselves with consultants and aren’t afraid “to spend a bunch of money and walk away from a transaction if they find things (they don’t like).”
Reardon said that buyers often hire accountants who might do a quality of earnings analysis, do market research, conduct customer interviews, and do background checks on employees. With so many things that can go wrong, it is important that a seller be prepared to sell.
How to prepare for a saleJohn Topetzes, former owner and president of Pewaukee-based Sanborn Tube and Fab, said when he knew he wanted to sell his business, he created an advisory board within the company to help him with the process. The board was created several years before the sale was closed. At the same time, he started to look at reducing his inventory and debt related to capital equipment.
Topetzes also created an incentive program for his management team to keep them excited and engaged throughout the selling process.
Steve Flynn, CEO and owner of S. Flynn & Company, said his main goal prior to selling his business was to secure his manufacturing relationships. That way, when a buyer came in, they already knew they had a strong foundation of three years of contracted sales.
“That future growth and future revenue stream really secured the deal,” Flynn said. “It’s a three-legged stool really. It’s having finances locked up, having your organization tied up and your sales.”
Know who you’re selling toShane Vaughn, president and CEO of Waukesha-based KDV Labels, is still a part of his family’s business which was sold in 2021. He said when his family began considering a sale, finding the right fit for their company was of the utmost importance. How employees would be treated after a transaction was front of mind.
“If you’re going to sell, talk to other companies that have been bought by that private equity firm in the past, talk to bankers and attorneys and accountants, to make sure they’re a good fit with your company’s culture,” Vaughn said.
Topetzes said how employees and customers would be treated was a major factor in his decision to sell.
“My situation was unique because we thought for sure we would sell to private equity,” Topetzes said. “As it turns out, we ended up selling to a multi-billion-dollar Canadian company that was actually somewhat of a competitor of ours. At the end of the day, I felt very comfortable for the majority of the employees.”
Reasons to buyKristin Dufek,president of Milwaukee-based Eppstein Uhen Architects(EAU), said the firm in continually looking for acquisition opportunities because continued growth is one of the six tenants behind their strategic planning.
“Our talent and employee base is only as good as the projects we can bring in the door and allow them all to work on and grow themselves professionally,” Dufek said. “When we look at the size of our firm, being able to give that opportunity doesn’t just exist here in the state of Wisconsin.”
Pursuing growth for the opportunities it provides the EUA employee base is the main goal.
For Keith Smith, president of Salem Lakes-based Vonco, acquisitions allow the company to create value for their customer base.
“We really take a very strategic and pragmatic approach to finding the core capabilities we’re looking for that can add on or create the scale we want behind the target markets we’re chasing,” Smith said.
For the Vonco team, becoming more relevant to their target market is always the reason behind an acquisition.
Jake Hansen, principal at Milwaukee-based private investment firm Jacsten Holdings, echoed this sentiment by saying acquisitions serve the purpose of long-term value creation.
How to handle the human element of M&A
There can be a lot of emotion on both sides of an M&A transaction. Dufek said this one lesson she learned the hard way when she underestimated the amount of time and the emotional toll a transaction has.
“When we started the process (of all three of our acquisitions), we told our attorneys on both sides of the table that this will be an acquisition, but we want it to be in the spirit of a partnership. We want it to feel like a merger,” Dufek said.
She added you must acknowledge the strengths of the company you are acquiring and its leadership. Going into a deal with an open mind and expecting flexibility to your process are key to a successful acquisition.
Dan Druml of FirstService said when the company talks with potential partners, they always make sure to clarify if there will be a leadership change and take the time to get to know the next in command.
“We do encourage the seller to bring people into the tent because it makes the process that much easier and it takes some of that stress off. When they wait until the last minute and really keep it a secret, we’ve seen some resistance,” Druml said.
Hansen added that the more people you bring into a deal ahead of time can ease the transition process.
“You suddenly get surprised by the employees you didn’t think would rally around you and they think it’s great,” Hansen said.
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