Minnesota mergers and acquisitions already top full-year 2013 volumes

Minnesota companies are having the most active year of dealmaking since 2007.

Despite a slight drop in mergers and acquisitions in the third quarter, Minnesota companies are buying and selling at a pace that already tops 2013's full-year total. Minnesota had 332 deals through Friday, already 11 percent above last year with two months to go.

"It's gotten pretty frothy," said Kyle Crowe, a veteran investment banker at Greene Holcomb Fisher.

In three of the bigger transactions of the third quarter, food-sector enterprises landed in the arms of Minnesota agribusiness giants. Technology companies remained acquisition favorites, accounting for 19 of the 98 deals in the quarter. And device maker Medtronic kept on buying companies.

Many public corporations have lots of cash, Crowe said. They aren't growing fast enough to satisfy Wall Street investors, so they are trying to buy growth through acquisitions.

"It's a great time to be a seller," Crowe said.

Sale prices have been rising. Profitable, established private companies often fetch more than 10 times EBITDA, or earnings before interest expense, taxes, depreciation and amortization.

Big Minnesota companies, public and private, were on the prowl in the third quarter.

• 3M Co., which reported strong earnings last week, bought Sunmitomo Electric Industries of Japan for $885 million.

• General Mills acquired Annie's for $810 million, adding to its offerings of organic and natural foods amid stagnating demand for traditional cereals and packaged foods.

• Hormel Foods, the maker of Spam and Skippy peanut butter, acquired the California producer of Muscle Milk in a $450 million transaction. The deal was announced on the last day of the second quarter, and closed Aug. 12.

• Cargill announced it would buy the global chocolate business of Archer Daniels Midland Co. for $440 million in cash.

Bruce Engler, head of the mergers-and-acquisition practice at the Faegre Baker Daniels law firm, said mergers and acquisitions picked up in slow-growth food-and-beverage sector.

"The improving economy still isn't generating the organic growth that many companies need, so those companies continue to resort to M&A for additional near-term earnings growth," he said. "Even though the deal volume is not yet back to peak levels, the valuations for sellers are getting there."

Medtronic was the most acquisitive Minnesota company in the third quarter with four deals. The largest, announced Aug. 26, was the $200 million acquisition of a German company Sapiens Steering Brain Stimulation. In the second quarter, Medtronic announced its largest deal, to acquire Covidien of Ireland for $46 billion and move its legal headquarters to low-tax Ireland while keeping its executive offices in Fridley. It's one of several controversial tax inversion deals that have brought calls for change in U.S. corporate tax policy.

Overall, the value of U.S. mergers proposed during the first nine months of this year was $1.31 trillion, already higher than full-year 2013, according to Dealogic.

Dealmakers and analysts often look at an active merger market as foretelling of a strengthening economy. Sellers get good prices and buyers pay them, anticipating that they can turn the acquired business into something more productive and valuable.

Some smaller Minnesota companies became targets of larger firms from outside the state.

Eden Prairie-based transportation software firm XRS Corp. is being acquired by rival Omnitracs of San Diego for nearly double its market value, or $55 million in cash, in a deal that reflects consolidation in the trucking-analytics industry. XRS has transformed itself from offering services through hardware attached to trucks to a provider of services based on widely available mobile devices. Omnitracs, a big provider of fleet management software for transportation and logistics firms, is owned by Vista Equity Partners, a $13 billion private equity firm.

Bergquist Co., a Chanhassen maker of insulating materials for electronics products, has been sold to German industrial conglomerate Henkel AG & Co. for an undisclosed price.

Privately held Bergquist, founded in 1964 by Chairman Carl Bergquist, had sales last year of about $170 million and employs about 1,000 people at five plants in the United States and one in China. Henkel said the acquisition is part of its global strategy to invest in complementary technologies and strengthen its position as global market and technology leader.

Yocum Oil Co., another private company, founded in 1959 by Paul Yocum, has sold its Maplewood-based business to four buyers.

Former CEO Tim Yocum, grandson of the founder, said the 225-employee, family-owned company needed outside investment to compete at the next level. That prompted questions about the future among family shareholders.

"At the end of the day the decision to sell was a reflection of the current market conditions and a high valuation placed on the company," Yocum said. "We were fortunate to find four strategic [buyers] we knew very closely. To see our company become part of these entities and grow from there was appealing."

Yocum sold its franchised Holiday Station Stores to Bloomington-based Holiday Cos., the franchiser. Georgia-based Mansfield Oil bought Yocum's fuel-distribution business. Yocum sold its Clean Energies rail-service and-fuel-blending business to Flint Hills Resources, owner of the nearby Rosemount oil refinery. And Yocum sold its lubrication business to Lubrication Technologies of Golden Valley.

"I miss the business," said Tim Yocum, 40, who joined the board of Lubrication Technologies. "But the time was right for the family."

Hunt Greene, the 40-year investment banker whose firm represented Bergquist and Yocum, said the good times should continue even though it's starting to feel "very much like a bubble."

"The strategic acquirers and private equity firms have a lot of capital and they get paid to put the money to work," Greene said. "The economy is good. These companies are performing. Put those things together and you get record volumes. Another thing, during the Great Recession, a lot of family-owned businesses … their owners maybe saw a lifetime's work at risk. And now that things have returned to 'normal,' some of the owners say, 'Maybe I shouldn't hold on any longer.' "

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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