The red-hot mergers-and-acquisitions market of the last several years cooled during the first half of 2016.
The slowdown, following a couple annual records for deals and dollar volumes, was typical amid uncertainty over the pending U.S. presidential election, rising prices in a frothy market and concerns that most of the good targets already are taken.
Prices have reached 10-year highs, Bloomberg reported recently, as buyers seek growth through acquisitions in a low-inflation, slow-growth environment in many industries. Acquirers paid a median of 11 times target companies EBIDTA — or earnings before interest, taxes, depreciation and amortization.
“Things have slowed down a bit but not enough so that people are worried,” said Bill Jonason, a veteran mergers-and-acquisition attorney at Dorsey & Whitney in Minneapolis. “Total deals in terms of numbers and value were down in the first half of 2016. Some of that is because 2014 and 2015 were really good years.
“Maybe 2016 will just get back to normal. I’m busy working on deals that likely will close in the second half of the year.”
Nationally, there were 4,937 transactions during the first half valued at $757.3 billion, compared with 5,321 deals valued at $910.74 billion during the first six months of 2015, according to Dealogic, which tracks mergers and public stock offerings.
In Minnesota, there were 92 deals so far this year, compared to 101 during the first half of last year. However, the value of the transactions in which a Minnesota firm was a buyer or seller rose in 2016 to $52.5 billion from $20.9 billion during the first six months of 2015.
The value uptick was driven by two large transactions among public companies: Valspar’s $11.3 billion sale of the coatings manufacturer to rival Sherwin-Williams. And St. Jude Medical’s $25 billion sale to Abbott Laboratories.
According to Dealogic, the number of megadeals, those valued greater than $10 billion, dropped off in the first half of 2016. Globally there were 24 big deals in first half of 2015 compared to 16 in the first half of 2016. Half were outsiders buying U.S. targets. The Abbott-St. Jude deal was third largest deal by dollar value announced in the first half. The deal is expected to close by year’s end.
Those titanic transactions got the headlines, but the mergers-and-acquisitions market is dominated by numerous sales of private companies.
One of the most intriguing private deals in the year’s first half wasn’t even announced. It involved the sale of a $30 million-plus revenue day-care provider that was started in 2001 by a student in his University of St. Thomas dorm room.
Joe Keeley, 35, said he sold his company, College Nannies & Tutors, which provides baby sitters on demand through 100 franchisees across the country to Bright Horizons, the Boston-based, $1.5 billion revenue operator of day cares and on-demand sitters for an undisclosed sum.
“I had to determine what’s the right answer to accelerate the company and when a $1.5 billion approaches you …” said Keeley, who will stay to run the nanny business for Bright Horizons. “And we had been kind of dating for eight years. This gives us a chance to play a bit, if you will, with the house’s money.”
Keeley’s company actually did about $10 million in business annually through Bright Horizons.
Bright Horizons has about 900 day-care centers. They also sell “family services” to companies such as 3M, Gray Plant Mooty and Goldman Sachs, as part of a fast-growing division called Care Advantage. If an employee can’t get to work, because of slightly ill child or a day-care provider who is ill or on vacation, Bright Horizons will send an in-home care provider who actually is a contracted College Nannies employees.
That’s made possible through the Nannies “my sitter” software application.
“I’m not done yet,” Keeley said. “I’m excited to stay on. This also is best for our franchisees.”
Keeley, who hails from Grafton, N.D., employs about 3,500 people at the Nannies. That’s more than the population of his hometown.
Meanwhile no Minnesota company has gone public so far in 2016. Capital-hungry companies are choosing to raise cash through low-cost debt or selling themselves to strategic buyers, private equity or other institutional owners.