Corporate buyers drove M&A deals in 2014's first quarter

Strong M&A activity signaled confidence that the economy continues to rebound.

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The children of company founder Joe Fleischhacker gathered in the Chaska manufacturing area of Lake Region Medical, which they sold to a larger company in the first quarter of 2014.

Photo: Richard Sennott , Star Tribune

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Fueled by strong demand from corporate buyers of smaller companies, the Minnesota deals market picked up in the first quarter.

A strong deals market is viewed as a harbinger of solid economic performance because sellers believe they’re getting a good price and buyers, such as strategic corporate buyers and private equity firms, believe business and revenue will continue to grow in an improving economic up-ticking environment.

There may be no better evidence than the fact that Minneapolis-based Piper Jaffray, the investment bank, last week reported that net earnings had risen 75 percent in the first quarter on revenue that jumped 53 percent to $168.1 million.

“The first quarter of this year certainly was much stronger than the first quarter of 2013,” said Bruce Engler, the veteran deal lawyer at Faegre Baker Daniels. “In Q1 2013, we were suffering the hangover from deals that were pulled into 2012 to beat the [2013] increase in capital-gains tax rates. But middle-market M&A valuations are currently very high and solid companies are getting strong buyer interest and premium valuations.’’

Engler, head of Faegre’s M&A practice, represented family-owned Lake Region Medical of Chaska, a maker of medical guide wires for medical-device companies, in its eye-popping, $390 million cash-stock sale to larger Accellent Inc. of Boston. Accellent, also a medical equipment manufacturer, is principally owned by private equity firm Kohlberg Kravis Roberts & Co.

Nationally, the value of the 2,399 deals announced in the first quarter totaled $380.5 billion, up from $301.2 billion for the 2,727 done deals in the year-ago quarter — a 26 percent jump. So are prices getting too high?

“I wouldn’t describe the M&A market as ‘frothy’ yet,’’ said Engler. “Not enough volume to reach that conclusion. I do think valuations are quite high, though.”

There were 94 acquisitions involving Minnesota companies as buyers or sellers in the first quarter, up 15 percent from the 82 deals in the fourth quarter of 2013 and up 24 percent from the 76 deals in the first quarter a year ago.

Overseas action picks up

And the rest of the global M&A business, particularly in Europe, is starting to blossom.

While the United States continues to stage most of the M&A action with 51 percent of the market by value of deals so far this year, Europe and Asia-Pacific are gradually catching up with 24 percent and 16 percent of the market. Asia-Pacific had the strongest start of the year of any region with announced deals worth $113 billion and 1,751 transaction, according to Thomson Reuters.

And the U.S. may be headed for its busiest M&A year in nearly a decade. Corporate America is sitting on an estimated $3 trillion in cash, optimism is rising in boardrooms, the stock market is resting near all-time highs and there’s plenty of low-cost financing available. So investment bankers see pretty good times ahead.

“I feel like we’ve got a long way to run,” said Jamie Frommelt, co-head of M&A at Craig-Hallum Capital Group. “It’s a good deal market, especially for sellers of businesses. There’s a lot of money out there. And there’s a shortage of good companies for sale. Owners still think they can wait and grow a little more [and] get a better price later.’’

Hitting the ground running

In Minnesota, the second quarter got off to a fast start, topped by the biggest planned acquisition of the year so far.

Minneapolis-based ­Ability Network, a Web-based health care technology provider that links client hospitals and clinics with Medicare, will be acquired by Summit Partners, the Boston-based private equity investor, for $550 million in cash and debt. The 220-employee company, with several offices around the country, has doubled in size over the last few years. More importantly, Summit Partners, in one of its biggest portfolio buys ever, is betting that Ability has secret-sauce software that can improve the efficiency and productivity of the Byzantine billing systems found within the U.S. health care universe.

Meanwhile, Graco, Ecolab, 3M, U.S. Bancorp, Medtronic and Cargill all announced smaller deals during the first quarter. And several Minnesota companies, public and private, said they raised equity capital during the first quarter.

That included TenKsolar, the Bloomington-based maker of solar electric panels, which said it had received something less than $25 million from the GFI Energy Group of Oaktree Capital Management, the big California-based investment group. TenKsolar has raised $25 million in two previous rounds of private funding from local, national and international investors.

  • First-quarter deals

    There were at least 94 deals involving Minnesota companies as buyer or seller in the first quarter of 2014. Here’s a breakdown by type. (A deal can have multiple deal types.)

    Type Rank

    Company takeover 46

    Asset sale 31

    Cross-border 21

    Private equity 21

    Venture capital 10

    Private equity buyout 5

    Joint venture 2

    Source: Bloomberg News

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