Mergers and acquisitions in Minnesota and nationally cooled a bit in the third quarter, but bidding wars among private equity firms and strategic buyers helped drive up prices in a seller’s market.
“We’re selling a couple companies right now out of our portfolio of 14 companies, and we’re thinking about putting up for sale a couple more,’’ said Cary Musech, a founder of Tonka Bay Equity Partners, which invests mostly in small precision manufacturers. “It’s a seller’s market. Private equity firms have a lot of money and strategic buyers are having trouble with organic sales growth and they are on the hunt.’’
Banks are willing to lend, and interest rates are low. “We think there are a lot of entrepreneurs also sitting on the sidelines,’’ Musech said.
The result? While the number of transactions has slid from 8,976 during the first nine months of 2012 to 7,601 this year, the value of those transactions rose more than 40 percent to $881 billion, according to Dealogic.
In Minnesota during the third quarter, 56 deals were announced involving Minnesota companies as either a buyer or seller, according to data from Bloomberg News.
In addition, six Minnesota companies announced that they’d received venture capital financing either in the third quarter or earlier this year. Three joint ventures were announced and two Minnesota-based public companies raised equity in additional stock offerings.
Andrew Duff, CEO of investment banker Piper Jaffray Cos., told investors earlier this month: “Our equity-related businesses, led by equity capital raising and asset management, registered strong performance and third quarter M&A revenue surpassed the revenue generated in the first half of the year.”
So, despite the consternation and economic dip that resulted from the two-week federal government shutdown, capitalism marches on.
“I get the sense the fourth quarter will continue to be good,” said Eric Nicholson, an investment banker at Greene, Holcomb and Fisher, which represents sellers exclusively. “We’re still in a strong seller’s market due to vast appetite of buyers and there’s low-cost financing available. The government shutdown … fostered fear and uncertainty and that’s not good. It dampens the enthusiasm of sellers and hurts the economy.’’
But Nicholson said good deals get done and valuations are very strong. “There are a lot of strategic buyers and private equity groups desperate to put money to work. Last year was an aberration because so many deals got pulled into the fourth quarter in an anticipation of the 2013 tax increases [on high-earning Americans]. But I’m working on two deals for sellers that should close in the next 30 days.”
Notable Minnesota third-quarter deals include:
• Spartan Stores of Michigan will acquire food wholesaler Nash Finch of Edina, which has struggled in recent years, in a stock deal valued at about $700 million.
• Huge medical products firm CR Bard is acquiring urinary products maker Rochester Medical for about $262 million. On Aug. 19, Bard also agreed to acquire Brooklyn Center-based Medafor, which makes blood clot treatments, for $200 million in cash and as much as $80 million more, depending on performance.
• Publicly traded Patterson Cos. of Mendota Heights announced it acquired Expert Dental Consultants of Novi, Mich., for an undisclosed amount.
• Printing conglomerate Taylor Corp. of North Mankato is buying two smaller firms in Minnetonka and Grand Rapids, Mich., in private transactions.
• Chanhassen-based Snap Fitness is buying smaller Steele Fitness of Wayzata. Terms were not disclosed. Snap Fitness said it had revenue of $70 million last year with operating earnings of $21 million, a figure that has been growing at a 20 percent annual clip. Snap Fitness has been adding new franchises at rate of 15 to 20 clubs a month. The acquisition of Steele is expected to add higher-end personal training services throughout its system.
• On Sept. 30, the last day of the quarter, Andersen Corp., the big window manufacturer based in Bayport, announced it would buy Weiland Sliding Doors & Windows of Oceanside, Calif.
Meanwhile, equity-capital raising is surging.
The number of U.S. initial public offerings and follow-on sales of public stock was 754 through Oct. 22, compared with a total of 730 offerings in all of 2012.
“The offering environment continues to be as strong as I’ve seen since 2007,” Rick Hartfiel, Craig-Hallum Capital’s investment banking chief, said last week. “I see a good pipeline of offerings in November-December, after companies report third-quarter earnings. Companies take advantage of this market to strengthen balance sheets. Institutional investors want good stocks to buy.”
To that end, Datalink, a Craig-Hallum client, and Stratasys raised equity capital during the third quarter as their stock prices rose in a buoyant market.
Star Tribune researcher Jim Foster contributed to this report.