Between a Rock and a Better Place

Ready to Spend

Demand for high-performing companies in industries with the potential for big returns—health care, technology, manufacturing, business services, and energy, particularly clean energy technology—exceeded supply by late 2010. “Lenders have loosened up and private equity firms have plenty of money,” Engler says. Corporations also have cash for acquisitions, creating multiple buyer situations for strong companies.

“There’s financing out there, but it’s a little more prudent,” Knopf says. Most investment banks are requiring equity of 25 percent to 40 percent. “That’s a range private equity firms can work with and feel good about,” Knopf adds. “Much above 40 percent equity, and it negatively impacts the investor’s return.”

In September 2010, Goldner Hawn Private Equity, LP, in Minneapolis, which acquires control positions in middle market businesses mainly in the Midwest, purchased Missouri Basin Well Services, Inc., as a platform company in its newly launched fund. The trucking company transports crude oil for energy companies primarily in North Dakota’s Williston basin. It was Goldner Hawn’s first purchase since October 2008. (Goldner Hawn will change its name to Mill City Capital, LP, in March.)

In late 2010, Spell Capital Partners, a firm in Minneapolis that purchases controlling interests in industrial manufacturing businesses, had sent out “a handful” of letters of intent to purchase and hoped to close on several of the deals in first-quarter 2011.

Norwest Equity Partners (NEP), a private equity firm in Minneapolis specializing in middle market companies in a range of industries, opened its $1.2-billion ninth fund, NEP IX, in September 2008. Recently, it has made five major investments, one in 2009 (Amcom Software, a technology business services company based in Eden Prairie) and four in 2010 (Gopher Resources, a recycler of lead-bearing materials based in Eagan; California-based Skinit, a provider of technology and products to customize personal electronic devices; Univar, a distributor of commodity chemicals; and Surgical Information Systems, a Georgia-based health care IT vendor).

Cary Musech, managing principal of Tonka Bay Equity Partners in Minnetonka, had four companies under letter of intent to purchase in late 2010. “Good companies can still attract very good prices,” says Musech, whose firm focuses on highly engineered manufacturing, value-added distribution, and business services companies with EBITDAs greater than $2 million. “If a company performed pretty well through the recession and bounced back in 2010, buyers have given it a free pass for 2009, recognizing that was an unusual year.” Because of that, Musech warns of the rubber band effect: companies may have snapped back in 2010, but 2010-like gains may not be realistic going forward. “We are being careful,” he says. “We want to be certain that 2010 performance is sustainable.”