At a conference of dealmakers last October, Sima Griffith of Aethlon Capital in Minneapolis ticked off several reasons that cash-rich public companies, private equity shops and eager sellers would get together in the last several weeks of 2012.
The next day, Ecolab, aiming to get bigger in the oil-and-gas trade, announced a $2.2 billion purchase of Champion Technologies.
Then in December, Northern Tool & Equipment, the Burnsville-based retailer of tools, generators and trailers, announced it planned to pay $215 million to acquire retailers the Sportsman's Guide and the Golf Warehouse. And then the deals just kept coming.
In all, 107 Minnesota-connected merger transactions were struck in the fourth quarter, the biggest quarter of the year.
"It was a strong comeback year for mergers and acquisitions in Minnesota and nationally," said Matthew Knopf, who heads the M&A practice at law firm Dorsey & Whitney. "I worked on six transactions that were determined to close by the end of December and five of the six closed. I hadn't seen that kind of frenetic pace for a number of years.''
The drive to finish deals was hastened by the fiscal cliff debate and the fate of long-term capital gains rates. (Taxes on dividends and long-term capital gains remained the same for most taxpayers, but for high-income earners and couples, the long-term capital gains rate moved from 15 percent to 20 percent for 2013.)
But Knopf also said deals are getting done because, more than three years into the economic recovery, buyers have gained confidence in the future and sellers of "strong businesses that performed through the recession are getting favorable prices and there is capital ... to support them. They vary by sector, but we are seeing sale prices at healthy multiples of earnings."
And John Potter, the Minneapolis-based national deals partner at PricewaterhouseCoopers, said the M&A business looks good for 2013 thanks to "improving corporate confidence, increasing private equity activity from both a buy- and sell-side perspective, and relatively healthy debt markets.''
A recent PwC survey found that 90 percent of top executives expect to see the same or a higher level of acquisitions this year. Active merger and IPO markets are indicative of growing business confidence that has slowly recovered since the Great Recession bottom of March 2009.
Minnesota deals top 300
For the year, Minnesota companies participated as buyers or sellers in 338 deals, the most since 2008. Nationally, mergers and acquisitions hit a five-year high of 11,993.
Other, Minnesota-related big-deals in the last months of 2012 included:
• UnitedHealth Group's bid to buy Brazil's largest health care company for nearly $5 billion, giving UnitedHealth a big stake in that fast-growing Latin American hub.
The Minnetonka-based insurance giant will acquire a 90 percent stake of Amil Participacoes, the top health insurer and hospital operator in Brazil. The growing middle class is creating demand for more health care services and private insurance.
• Medtronic will pay $816 million for China Kanghui Holdings Inc., an orthopedic implant maker. The deal marks a big bid by Medtronic to generate 20 percent of its revenue from fast-growing emerging markets.
• Minneapolis-bred Caribou Coffee, is ending its 20-year run as an independent company through a $340 million sale to a privately held German food concern. The Benckiser Group is expected to expand Caribou's bagged coffee retail sales through grocers and other retailers.
The fourth-quarter surge has led to a so-far-quiet January.
"Right now everything is very quiet and bankers aren't pitching much so the pipeline is light," said Tim DeVries, managing general partner at Norwest Equity Partners, the region's largest private-equity investor. "I'm just not sure what is going to happen in 2013."
Pace expected to quicken
Rick Hartfiel, director of investment banking at Craig-Hallum Capital, the institutional research and banking firm, said the slow early weeks of this year will give way to more activity later in the quarter. The rising stock market increases confidence and makes it easier to go public and also allows large companies to use their stock -- and record stockpiles of cash -- to make acquisitions.
Craig-Hallum and Piper Jaffray were underwriters last year of Proto Labs' first quarter IPO and an additional equity offering in the fourth quarter.
Shares of the Maple Plain-based company closed at $43 Friday, up 169 percent since it went public at $16 per share last February. Proto Labs makes custom parts for prototyping and short-run production for manufacturers around the globe. It boasts a recent market value of $1 billion.
Nationally, 130 companies went public last year in initial public offerings and 601 sold additional stock in public markets, the best numbers in five years.
"The window is open for equity offerings, and we expect to see a pickup in late February and March after companies report their fourth quarter earnings and complete their year-end audits," Hartfiel said. "Investors are back to looking for new ideas."
Said Griffith, of Aethlon Capital: "If the stock market and economy continue to perform well, we should see robust deal activity in 2013. There are hundreds of private-equity funds looking for companies to invest in and an abundance of publicly traded companies with strong balance sheets looking to grow via acquisition."