Mergers and Acquisitions Boom in Northern Michigan: Who’s buying, who’s selling and why?
According to data from Thomson Reuters, mergers and acquisitions (M&A) hit an all-time global high during the first half of 2018 at $2.5 trillion. The United States alone tallied $1.03 trillion.
Northern Michigan has had its own trend this past year. The Grand Traverse area has seen major M&A deals in a range of sectors, from banking to the service industry, all the way to restaurants and breweries. What do these deals say about business in the area, and should locals expect the trend to continue in the future?
Curtis Kuttnauer, who has helped put together several major acquisition deals in northern Michigan, believes that the level of M&A in the area will only “increase further in the coming years.” Kuttnauer is a co-founder and senior partner at Golden Circle Advisors, a brokerage advisory firm that works with business owners interested in putting their businesses up for sale. The company works to market businesses for sale and identify potential acquirers through its network of private equity firms, investors and corporations.
“The main reason [for the uptick] is the aging of the baby boomer business owners and a very attractive environment for financial acquisitions,” Kuttnauer said. “In the United States, there are over 70 million baby boomers, with 11,000 turning 65 years old each day. Of these … it is estimated there is one business owner turning 65 years old every 57 seconds. There are 12 million businesses that are expected to be sold in the next 10 to 15 years, representing $10 trillion worth of assets.”
Kuttnauer says that the baby boomers selling their businesses right now are ahead of the curve. Interest rates are low, as are capital gains taxes. Furthermore, despite the noticeable recent increase in M&A activity, there is still what Kuttnauer calls “a relatively low inventory of quality businesses on the market.”
Together, these factors are inflating business valuations and leading to high-value acquisitions across the board.
“As more … owners decide to sell, there will be an increasing number of businesses on the market,” Kuttnauer said. “[T]he law of supply and demand will start kicking in, thus reducing business valuations.”
In the meantime, Golden Circle Advisors is helping to close strong acquisition deals for numerous northern Michigan clients. Those clients include Williams & Bay Pumping, a septic pumping and portable restroom business based in Maple City; Overhead Door Company of Grand Traverse, a garage door supplier on South Airport Road; and Access Window, Door & Hardware, located on Cass Road. Kuttnauer says that, with each of these businesses, the owners were either ready to retire or were interested in pursuing other interests after many years spent building their businesses.
Williams & Bay Pumping, one of the largest septic pumping companies in the state, was acquired last year by True North Environmental Corporation, a company formed to acquire the assets of both Williams & Bay Pumping and its partner business, Williams & Bay Portable Restroom. The company’s former owner, Joe Williams, worked with Golden Circle Advisors to find a local buyer for the business. That buyer was Rodrigo Meirelles, a local businessman with a background in business development.
Meirelles, a relatively recent transplant to the Traverse City area, just happened to be looking for local businesses to acquire around the time that Williams & Bay went on the market. In late 2016, he closed a deal to purchase Hampel’s Gun Company in Garfield Township. According to Meirelles, he evaluated between 20 and 30 businesses in the last half of 2016, looking for the right investment. Williams & Bay caught his eye early on, but was under contract at the time. When that deal fell through, Kuttnauer reached out to ask if Meirelles was still interested.
“Williams & Bay is what would be called a ‘core industry,’” Meirelles said, explaining why the company piqued his interest. “[They provide] a service that is required and that is as recession-proof as an industry can be. It made sense for me to go there.”
While an aging boomer population is triggering M&A activity in many sectors – especially, Kuttnauer notes, in the service and manufacturing industries – it isn’t the only explanation behind some of northern Michigan’s biggest deals.
Another trend has been the merging of local regional banks with larger banking operations. Northwestern Bank sold to Chemical Bank in 2014, and Independent Bank merged with Traverse City State Bank (TCSB) earlier this year. In a June Traverse City Business News cover story, former TCSB CEO Connie Deneweth told the TCBN that the merger had been motivated by the resource gap between local banks and national banks. Service and loan challenges have spurred consolidation in the banking industry … not just in northern Michigan. A recent article published by Inc. noted that there were 5,670 FDIC-insured banks operating in the U.S. at the end of last year – about 50 percent of what there were in the 1990s, because of M&A.
In the craft brewing industry, the market appears to be expanding. In 2017 alone, nearly 1,000 new breweries opened in the United States, according to the Brewer’s Association. However, the bigger players are purchasing parts of or entire local breweries. In 2011, Anheuser-Busch bought the Chicago-based craft brewery Goose Island, and northern Michigan’s own Short’s Brewing sold a 20 percent stake to Heineken in 2017.
Recently, the Royal Oak-based craft brewer Roak announced plans to acquire Traverse City’s Right Brain Brewery. The deal is in response to both the rapid growth of the craft beer industry and the creeping influence of brewing giants like Anheuser-Bush. Roak CEO John Leone told the Detroit Free Press that he wants to create a “militia” of Michigan breweries, where the businesses help one another to succeed but still retain their local, independent identities.
The Roak/Right Brain merger will allow both breweries to keep their brands intact and continue brewing their flagship beer styles. Leone says that packaging the two breweries together will also make them more attractive to beer distributors. Bigger and better distributors, in turn, could help the breweries win more shelf space in stores and reach new out-of-state markets. Currently, Roak distributes in Michigan, Indiana, and North Carolina; Right Brain only has a presence in Michigan.
Russell Springsteen, the owner and founder of Right Brain Brewery, says that he can’t talk much about the Roak merger until the deal closes. Still, Springsteen, who will have a stake in the ownership of the new company – and will presumably continue running Right Brain – is enthusiastic about the merger.
“[It’s a] pretty exciting and awesome opportunity ahead,” he said.