New insurance product is helping fuel hot M&A market

The mergers-and-acquisitions business is approaching pre-Great Recession levels in terms of numbers of transactions and deal valuations.

There's a lot of low-cost financing sloshing around, and buyers are using acquisitions to build out or add businesses as a way to accelerate sales growth in a no-inflation environment.

Private company transactions also are being lubricated by an increase in the use of a relatively new product called "representations and warranties" insurance. It expedites the closing process and allows sellers to avoid placing up to 10 percent of the proceeds in escrow to cover deal contingencies or blowups over several years.

"There's less hand-wringing negotiations with the people with whom you are about to hop into bed," said Sean Kearney, co-chair of the M&A practice at law firm Fredrikson & Byron. "It has been a huge change in the market. Investment bankers are now just assuming you're going to get this product. It's becoming a requirement among bidders."

Minneapolis-based Goldner Hawn Johnson & Morrison, a private equity firm that usually invests in majority positions alongside managements, recently acquired Stellar Materials of Florida in a multimillion-dollar recapitalization. Normally, the selling shareholders would have been required to put up to 5 to 10 percent into escrow. Instead, the sellers were required to put up only 1 percent and the rest of what would have gone into escrow is covered by a $300,000 insurance policy, the cost of which is covered by the buyer and seller.

It's a way to make the Goldner offer more attractive to the sellers in a hot market, said Andrew Tomashek, a Goldner vice president.

"For the cost of about $300,000 for a policy, which we split with the seller, and the seller only puts up [a small amount] in escrow and beyond that escrow the seller is not at risk. … For them, for $150,000, I can take several million in risk off the table and put [more money] in my pocket," Tomashek said.

Way Better Snacks gets tasty investment

Jim Breen, the entrepreneur who moved his Way Better Snacks line of healthy, premium-priced chips from New York to Minneapolis in 2013, has sold a minority stake in his company to Alliance Consumer Growth, a private equity firm that invests in consumer companies.

"Way Better has the rare opportunity to create the best-tasting snacks while also being the healthiest," said Julian Steinberg, managing partner of New York-based Alliance.

In an interview, Breen declined to say how much Alliance has invested other than to say it is a minority stake that will accelerate growth of a firm capitalized largely by Breen, family and friends.

Alliance typically invests $5 million to $15 million in companies of up to $25 million in revenue.

He relocated the company to the Warehouse District in 2013.

Way Better is tapping into a trend among consumers who want to eat healthier snacks but aren't content to nibble solely on apple slices and carrots. They also are willing to pay more than the cost of mass-market chips, at prices that range up to $3.50 for a 5 ½-ounce bag.

Breen said the company, which uses a contract manufacturer, should employ about 25 people by the end of the year.

A Minnesota-made biofuel that is recommended for use in boat engines instead of ethanol could soon be available at marinas, its maker says.

Isobutanol, blended up to 16 percent with gasoline, won endorsement this month from the National Marine Manufacturers Association after five years of testing it in boat engines.

But isobutanol, also called biobutanol, doesn't separate in water, has a higher energy content than ethanol and causes no performance issues in boat motors, the trade group said.

The nation's first corn-to-isobutanol plant is in Luverne, Minn. Gevo Inc., which developed the technology and owns the plant, said it is in discussions with marinas to sell isobutanol-blended fuel and hopes it will be available at some locations this year.

The technology has been viewed as promising, but Gevo has struggled to produce commercial levels of isobutanol. The Denver company has seen its shares drop from about $30 per share two years ago to a recent price around $4 per share. It has raised equity capital twice in recent months.

David Shaffer

Donaldson Co., filtration-equipment industry pioneer, celebrated its 100-year anniversary with a low-key ceremony at its Bloomington headquarters Wednesday. While Gov. Mark Dayton proclaimed June 24 Donaldson Day and Bloomington Mayor Gene Winstead and the founder's family came out for the festivities, the affair was decidedly lower-key than originally planned.

In April, Donaldson cut roughly 1 percent of its 12,500 global workforce, including fewer than 50 in Bloomington.

Dee DePass