Mergers-and-acquisitions business slowed in 1st half of '16

The red-hot mergers-and-acquisitions market of the last several years cooled during the first half of 2016.

The slowdown, fol­low­ing a cou­ple annual re­cords for deals and dol­lar vol­umes, was typi­cal amid un­cer­tain­ty over the pend­ing U.S. pres­i­den­tial e­lec­tion, ris­ing prices in a froth­y mar­ket and con­cerns that most of the good targets al­read­y are taken.

Prices have reached 10-year high­s, Bloomberg re­port­ed re­cent­ly, as buyers seek growth through ac­qui­si­tions in a low-in­fla­tion, slow-growth en­vi­ron­ment in many in­dus­tries. Ac­quir­ers paid a me­di­an of 11 times tar­get com­panies EBIDTA — or earn­ings be­fore in­ter­est, tax­es, de­pre­ci­a­tion and am­or­ti­za­tion.

"Things have slowed down a bit but not en­ough so that peo­ple are wor­ried," said Bill Jonason, a vet­er­an mer­gers-and-ac­qui­si­tion at­tor­ney at Dor­sey & Whit­ney in Minneapolis. "Total deals in terms of num­bers and value were down in the first half of 2016. Some of that is be­cause 2014 and 2015 were re­al­ly good years.

"May­be 2016 will just get back to nor­mal. I'm busy work­ing on deals that like­ly will close in the se­cond half of the year."

Na­tion­al­ly, there were 4,937 trans­ac­tions dur­ing the first half valued at $757.3 bil­lion, com­pared with 5,321 deals valued at $910.74 billion dur­ing the first six months of 2015, ac­cord­ing to Dealogic, which tracks mer­gers and public stock of­fer­ings.

In Minnesota, there were 92 deals so far this year, com­pared to 101 dur­ing the first half of last year. How­ever, the value of the trans­ac­tions in which a Minnesota firm was a buy­er or sell­er rose in 2016 to $52.5 bil­lion from $20.9 bil­lion dur­ing the first six months of 2015.

The value up­tick was driv­en by two large trans­ac­tions a­mong public com­panies: Valspar's $11.3 bil­lion sale of the coat­ings man­u­fac­tur­er to ri­val Sher­win-Williams. And St. Jude Medical's $25 bil­lion sale to Ab­bott Laboratories.

Ac­cord­ing to Dealogic, the num­ber of megadeals, those valued great­er than $10 bil­lion, dropped off in the first half of 2016. Glob­al­ly there were 24 big deals in first half of 2015 com­pared to 16 in the first half of 2016. Half were outsiders buying U.S. tar­gets. The Abbott-St. Jude deal was third larg­est deal by dol­lar value an­nounced in the first half. The deal is expected to close by year's end.

Those ti­tan­ic trans­ac­tions got the head­lines, but the mergers-and-acquisitions mar­ket is domi­nat­ed by nu­mer­ous sales of pri­vate com­panies.

One of the most intriguing private deals in the year's first half wasn't even an­nounced. It in­volved the sale of a $30 mil­lion-plus revenue day-care pro­vid­er that was start­ed in 2001 by a stu­dent in his University of St. Thomas dor­m room.

Joe Keeley, 35, said he sold his com­pany, College Nannies & Tutors, which pro­vides baby sit­ters on de­mand through 100 fran­chi­sees across the coun­try to Bright Ho­ri­zons, the Bos­ton-based, $1.5 bil­lion revenue op­er­a­tor of day cares and on-de­mand sit­ters for an un­dis­closed sum.

"I had to de­ter­mine what's the right an­swer to ac­cel­er­ate the com­pany and when a $1.5 bil­lion ap­proach­es you …" said Keeley, who will stay to run the nan­ny busi­ness for Bright Ho­ri­zons. "And we had been kind of dat­ing for eight years. This gives us a chance to play a bit, if you will, with the house's mon­ey."

Keeley's com­pany ac­tu­al­ly did about $10 mil­lion in busi­ness an­nu­al­ly through Bright Ho­ri­zons.

Bright Ho­ri­zons has about 900 day-care centers. They also sell "fam­i­ly ser­vices" to com­panies such as 3M, Gray Plant Mooty and Gold­man Sachs, as part of a fast-grow­ing di­vi­sion called Care Ad­van­tage. If an employee can't get to work, be­cause of slight­ly ill child or a day-care pro­vid­er who is ill or on va­ca­tion, Bright Ho­ri­zons will send an in-home care pro­vid­er who ac­tu­al­ly is a con­tract­ed College Nan­nies employees.

That's made pos­si­ble through the Nannies "my sit­ter" soft­ware ap­pli­ca­tion.

"I'm not done yet," Keeley said. "I'm ex­cit­ed to stay on. This also is best for our fran­chi­sees."

Keeley, who hails from Grafton, N.D., employs about 3,500 people at the Nannies. That's more than the population of his hometown.

Meanwhile no Minnesota company has gone public so far in 2016. Capital-hungry companies are choosing to raise cash through low-cost debt or selling themselves to strategic buyers, private equity or other institutional owners.

Neal St. Anthony • 612-673-7144 • neal.st.anthony@startribune.com

Patrick Kennedy • 612-673-7926 • patrick.kennedy@startribune.com