Last December, a pair of private equity firms made headlines when they acquired De Pere-based Sustana Group’s recycled packaging business and Appleton-based Appvion’s thermal coatings business.
In February, Menasha Packaging announced it would acquire Color-Box from Georgia-Pacific. In March, the private equity firm Altus Capital Partners acquired Marinette-based alloy manufacturer Winsert, and Neenah Paper announced a merger with Schweitzer-Mauduit International.
This flurry of mergers and acquisitions comes as no surprise to Scott Bushkie, an M&A expert who is managing partner and founder of Green Bay-based Cornerstone Business Services. The boutique investment bank’s fiscal year begins Dec. 1 annually. Bushkie says that through the end of March 2022, business is poised to obliterate last year’s record.
“In four months, we have already done more deals and beat our revenue from last year, which is crazy,” Bushkie says. “We’ve never been busier.”
And it’s not just Northeast Wisconsin manufacturers being affected. According to GF Data, a subscription-based national service that tracks private equity-sponsored M&A transactions, a record 151 private equity deals were made in the $10 million to $250 million total enterprise value range just in the fourth quarter of 2021. Globally, 2021 was a record year for M&A at more than $5 trillion.
The rise of private equity is the primary driver of the surge, Bushkie says, and manufacturing companies are particularly appealing to private equity investors.
“Buyers love a proprietary product that has high margin,” he says. “There’s nothing wrong with buying a retail location, but you’re not going to buy a sub shop and quadruple sales. With manufacturing, we can add other products; we can go to other markets; what they’re really looking for is, ‘How can we scale a company and grow it?’”
The private equity model also has made M&A less susceptible to slowdowns, even in times of crisis, Bushkie says. The 9/11 terrorist attacks of 2001 brought transactions screeching to a halt; the COVID-19 pandemic, on the other hand, didn’t slow down the M&A marketplace.
“[Private equity investors] basically have a 10-year window to raise funds, buy a business, grow the business and sell the business, so they can’t go, ‘Hey, you know what? COVID’s a little scary; let’s wait two years and see what happens,’” Bushkie says. “That’s 20% of the time period they have to make money. [Even with] COVID, labor shortages, supply chain, inflation … nothing’s stopping this thing because of the money and the timing they have to put the money to work.”
Right now, Bushkie says, most successful manufacturers are inundated with M&A fishing expeditions and requests to sell. And despite its ubiquity, Bushkie says, many business owners still find themselves caught off guard or unprepared for the opportunity. Many, he says, just wake up one morning and decide to sell.
At Cornerstone, Bushkie and his team specialize in helping business owners plan and prepare. He says talking to a credible M&A adviser is important to maintain confidentiality, make an informed decision and get the best possible deal. It starts with knowing what your company is worth.
“You know what your house is worth; you know what your car is worth. But for that asset that’s probably 80% to 90% of your net worth, you’re just guessing,” Bushkie says, adding that one of the worst things a business owner can do is throw out a valuation number to a potential buyer.
“Talk to someone; get a valuation done,” he urges.
A booming issue
In addition to the rise of private equity, Bushkie says the retirement of baby boomers has contributed significantly to the hot M&A market. Boomers own 63% of private businesses nationally and 60% of those in Wisconsin. And retirement is the No. 1 trigger for selling — meaning the business of buying businesses likely will stay strong for another decade, Bushkie says. In a Wisconsin survey conducted three years ago, 75% of boomer business owners said they planned to sell in the next 10 years.
Statistically speaking, the idea of passing those businesses along to future generations is a financial gamble. Thirty percent make it to the second generation, 12% to the third and only 3% to the fourth. But for some business owners, the business is their “baby” and the idea of selling it to just anyone is emotionally fraught.
Bushkie recently authored a book and created a companion workbook to help business owners: “Finish Strong: Sell Your Business on Your Own Terms.”
“It’s not like selling a house where you put it on the market today, receive 17 offers tomorrow, and by the end of the month we close and here’s the keys and I’m done,” he says. “It doesn’t work like that. You want to be out at 65? You should start preparing at 61. At least 90% of people don’t [do that].”
Cornerstone’s workbook helps business owners calculate what Bushkie terms their “lifestyle” and “net” numbers and makes recommendations about when to sell based on the delta between them. This, he says, prevents business owners from fretting over an offer — there’s some actual math behind the decision.
The chances to sell are plentiful, but it’s not always the right choice, Bushkie says. High customer concentration, lack of an empowered management team, and “energy in the tank” are all reasons it might not be time.
“Seller remorse comes in when [owners] don’t know where to [redirect] that passion and energy,” Bushkie says.
