There are a variety of factors driving continued healthy merger and acquisition levels in the Milwaukee area, and they are particularly favorable to sellers.
Baby boomers are considering retirement, private equity holdings are at record highs and there is a shortage of high-performing companies for sale. There’s strong buyer demand because organic growth is challenging in the current environment, corporate balance sheets are strong, private equity has significant uninvested capital, interest rates are low and banks are lending.
All of these factors have been in place for about five years, said Doug Marconnet, managing director at Milwaukee-based M&A advisory firm Bridgewood Advisors Inc. So is the window of opportunity closing for sellers?
“I think the window’s been open for a while,” Marconnet said. “I don’t see anything really drastic changing that.”
Marconnet was part of a panel discussion Tuesday at the Metropolitan Milwaukee Association of Commerce’s event, “The M&A Game: You can’t sit on the sidelines forever,” held at the Milwaukee Athletic Club.
Also on the panel were Dave Drury, former owner of Poblocki Sign in Milwaukee; Bill Berrien, new owner of A.S. Pindel Corp. in New Berlin; Rob deJong, an M&A attorney at Rose and deJong S.C. in Milwaukee; and Steve Peterson, managing director at Brass Ring Capital in Milwaukee. Paul Sweeney, owner of PS Capital Partners in Milwaukee, moderated the panel.
The recession has created some pent up demand in the M&A market, the panelists said. Like many sellers, Drury waited out the economic downturn before selling.
“I ended up with the business for a couple years longer than my original plan,” he said. “The world is awash in capital, which means there were a lot of private equity guys with interest.”
Drury closed the sale of Poblocki in January.
Valuations are high right now, depending on the deal size, Peterson said.
“I know it’s a great time to be a seller, and it probably is a good time to be a buyer,” he said. “When there’s higher multiples like this, buyers are really stretched and they have to make sure what they think they’re buying is what they’re really buying.”
Demand is high enough that private equity firms and strategic buyers are proactively contacting potential acquisition targets that aren’t on the market, Marconnet said.
“To owners, if someone approaches you who is a good strategic fit, it’s probably worth at least talking to them,” he said. But, he cautioned buyers, “there has to be a strategic fit that makes sense—otherwise you’re just someone with money.”
Planning for a sale should start years ahead of the sale of the business, deJong said. Bringing credibility to the table is important for both sides in a transaction, which is why it can be helpful to hire advisors early in the process.
Another preparation sellers can make: make sure a good management team is in place, deJong said.
“If you have built a good team, they’re going to want those people to stick around,” he said.
The teams at the approximately 100 companies he evaluated for purchase were important, Berrien confirmed.
“It all starts with trying to build a good team,” he said.
