Wisconsin-unique: Private Equity’s Role in Wisconsin M&A Transactions

Posted by Andrea Wolf on May 09, 2017 21:00:00 PM

Topic: ALL


Today, private equity funds have an abundance of capital they are starving to put to work ─ as of February 2017, a record amount of dry powder, totaling $1.5 trillion, existed across all funds globally. This, coupled with a scarcity of ‘A’ quality assets for sale, has led to higher valuations, making it even more difficult for private equity firms to win over strategic buyers. Obviously, this is good for sellers, but makes it somewhat more difficult for private equity firms to prevail.

It’s no secret that Wisconsin is a great place to live and also a great state to conduct business. Our state is filled with a large amount of stellar manufacturing and distribution businesses, among other industries, with solid, quality brand names. Many of these businesses have been in operation for decades, and are being led by second or third generation family members and management teams. Additionally, our sound Midwestern values, strong work ethic and loyal workforces tend to make companies here attractive acquisition targets.

So, how is private equity playing in Wisconsin? In such a competitive market, fairly well, actually. Over the past 12 months, private equity firms acquired 25 Wisconsin-based companies. These private equity groups are located throughout the U.S., spanning from New York to California and acquired companies in industries ranging from manufacturing to healthcare to retail.

In my experience, compared to other parts of the country, private equity firms make attractive partners for Wisconsin business sellers, mainly because private equity firms look for certain criteria that Wisconsin businesses tend to meet, and vice versa. Some of these criteria include:

  • Strong, Experienced Management Teams
    Private equity firms will seldom acquire a company without an existing management team in place. In my experience, business owners take pride in grooming the next generation of management and leveling responsibilities throughout the organization, reducing the focus on leadership that may be lost when an owner sells. Additionally, private equity firms typically want the management team to invest in the deal, incentivizing them to grow the company, which could result in a nice payday upon exit.

  • Operational and Employee Continuity
    Unless a private equity buyer has a similar existing portfolio company to the target, synergies will be limited. As a result, they will likely be unable to consolidate operations or reduce headcount, as a strategic buyer could in certain circumstances.

  • Brand Continuation and Growth
    With the exception of family offices, private equity firms have an investment horizon, which is typically five to 7 years. Thus, they focus on growing and expanding the business during this time, in order to generate their required return upon exit. Because they don’t have an existing business platform, there is generally no benefit for them to change the company or brand names. So, there is less of a chance that the sign on your building with your company’s name on it will change.

While valuation ultimately drives deals, intangibles such as culture and business continuity also have an impact when sellers choose their buyer partner. As buyers, private equity firms have certain criteria they require in a seller and if this lines up with what a business owner desires, they can make great partners.