Slowing corporate-deal market still commands premium prices

The Erickson family, owners of Bloomington-based Holiday Stationstores, are expected to hand over the keys to Canadian convenience-store consolidator Couche-Tard when the deal is expected to close this fall.

It's a big transaction for the descendants of Arthur and Alfred Erickson, who started with a rural general store in 1928, followed by a gas station in 1939. Couche-Tard did not disclose what it will pay for what is now a 522-store business when it announced the deal in July.

Industry speculation has pegged it at around $1.7 billion.

Holiday generates $180 million-plus in operating earnings on revenue of $2.6 billion, according to Couche-Tard statements.

And in a mature mergers-and-acquisition market in a solid economy, analysts said the dwindling ranks of quality private targets fetch a hefty 8-to-10 times operating earnings.

CEO Ronald Erickson has declined to comment, other than that Couche-Tard puts Holiday's future in 10 states in good hands.

The Holiday deal also demonstrates that ample corporate and private equity buyers have bid up prices of quality companies.

"In our conversations with chief investment officers, fund managers and private equity firms, increasingly we hear that they are positioning for market change. We are eight years into an equity bull market and markets are vulnerable to disruption. That said, over the near-term, it's a great time to be a seller or to be raising capital. How long valuations and capital availability will hold is harder to predict."

The number of M&A deals has started to slow since the eight-year peak in 2015.

The number of transactions involving a Minnesota buyer or seller slowed to 104 this year through the third week of August, compared to 117 during the comparable time period in 2016.

The value of the 2017 deals dropped even more markedly; from $44.7 billion to $13.2 billion, according to Dealogic.

Blockbuster deals, a regular occurrence in Minnesota in 2016, have been rare this year.

Nationally, there have been fewer blockbuster deals so far this year, but more deals overall.

However, there is only recent evidence of a tiring U.S. M&A market.

In the first half of 2017, there were 5,155 deals valued at $607 billion compared with the 4,949 deals valued at $742 billion in first half of 2016.

The number of M&A transactions in July decreased to 692, the lowest monthly total since November 2009, before the M&A market had started to rebound from the Great Recession of 2008-09 and begun a strong run from 2010 to 2016.

"We are in an extended seller's market, driven by supply-demand imbalance," said Bruce Engler, head of the M&A practice at Faegre Baker Daniels of Minneapolis. "There are not enough good companies for sale to satisfy demand, coupled with loads of available cash for private equity and strategic buyers, and cheap and easy debt financing.

The range of large-to-small Minnesota deals announced or closed this summer includes:

• Maple Grove-based Upsher-Smith Laboratories selling its headquarters building and its biggest business, generic pharmaceuticals, for $1.05 billion to Sawai Pharmaceutical of Japan.

English-born pharmacist and chemist Frederick Alfred Upsher Smith founded the company in Minneapolis in 1919 to produce digitalis, a drug used to treat people suffering from cardiac disease.

The sale marked the departure of Chairman Ken ­Evenstad and CEO Mark Evenstad, whose family had owned Upsher-Smith since 1970 through their private holding company ACOVA. Mitsuo Sawai, president of Sawai, said at the Upsher-Smith closing that the acquisition "adds significantly to our capabilities and supports the acceleration of our vision of becoming a globally recognized generic drug company."

• The August-announced acquisition of 18-branch Anchor Bank by Old National Bancorp in a $303 million deal for the Indiana-based community-bank consolidator. Anchor Bank has $2.1 billion in assets and is one of the largest privately held community banks in Minnesota.

• The $71.5 million acquisition of SC Railing Co. of Brooklyn Park by Trex Co., which makes composite decking and railing material. SC Railing, which had revenue of $56 million last year, makes modular and architectural railing systems for commercial and multifamily markets, including a recent job of 3,300 feet of railings for Princeton ­University.

Trex CEO James Cline said this month that SC Railing will aid Trex's push into the commercial market from its cornerstone residential decks from recycled plastics and other composite materials.

"SC Railing has a deep understanding of the markets it serves and unparalleled design and engineering expertise," Cline said in a statement. "They are the absolute best at what they do and the only company among peers with a national presence."

Meanwhile, the number of initial public offerings of stock, which flagged in recent years of ample cheap debt for corporate acquisitions and expansion, is growing. There are already more IPOs priced in 2017 (104) then there were in all of 2016 (98).

And two Minnesota companies have gone public this year.

New Brighton-based gene editing company Calyxt Inc. raised about $56 million in a July IPO. Though ASV and Calxyt raised less money than they wanted, shares of both companies are trading above their offering prices.

Neal St. Anthony • 612-673-7144