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Sunday, 29 September 2013 22:00

M&A activity transforms local public firms — and the region’s reputation, too

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West Michigan’s homegrown public companies have often ended up as the prey rather than the predator over the past two decades.

Companies like Old Kent Bank, Upjohn, Donnelly Corporation and X-Rite grew up here and then became expansion plays for out-of-state public companies looking to become major players in their industries.

Suddenly, though, that dynamic has changed. Over the last year, five major transactions involving West Michigan-based public companies in five different industries have broken the old mold.  

In each instance, the local corporation was the buyer rather than seller, and each deal holds the potential to transform the acquirer into a leader in its respective industry. 

Taken together, the deals also bring another intangible asset that won’t show up on any company balance sheet: cachet for the region as a good place to build a market-leading business.

“When we can be proud and/or boast of having these types of companies here in the region, doesn’t that make us more attractive to other companies as well?” asked Tom Hiller, a partner in the Grand Rapids office of BDO USA LLP. “I think that the momentum can get stronger when we market that kind of success, that kind of employment base and that kind of management talent right here in West Michigan.”

Making the headlines were five potentially transformative deals:

  • Rockford-based Wolverine World Wide Inc.’s (NYSE: WWW) $1.2 billion acquisition of the Collective Brands Inc. Performance + Lifestyle Group footwear brands in late 2012 to become the world’s third-largest maker of footwear.

  • Allegan-based Perrigo Co.’s (NYSE: PRGO) $8.6 billion merger with Elan Corp. (NYSE: ELN) in Ireland that will enable it to expand into Europe and become a global player in the industry. The deal is targeted to close by the end of the year.

  • Grand Rapids-based Spartan Stores Inc.’s (Nasdaq: SPTN) acquisition of larger rival Nash Finch Stores (Nasdaq: NAFC) that will create a $7.3 billion (revenues) national market leader in the grocery distribution business.

  • The merger of Grand Rapids-based Mercantile Bank Corp. (Nasdaq: MBWM) and Alma-based Firstbank Corp. (Nasdaq: FBMI), which will create the third-largest bank based in Michigan by market capitalization and deposit market share.

  • Zeeland-based Gentex Corp.’s (Nasdaq: GNTX) $700 million acquisition of the HomeLink electronics business from Johnson Controls Inc. (NYSE: JCI).

In each of the deals, the West Michigan company had strong earnings and a healthy balance sheet, Hiller said. The challenge for executives and their board members was figuring out how to maximize those strengths for shareholder value.

“Any publicly held company is going to look at the best alternatives for their use of capital,” Hiller said. “These are very strong companies, but organic growth can have its challenges. (W)ith these opportunities, they found a way to put some additional revenue and growth into the equation.”

While the relatively close timing of the deals is coincidental, the transactions do say something about West Michigan as a region, said Sean Welsh, regional president for PNC Bank in Grand Rapids.

These major homegrown corporations have matured and grown to the point that they are becoming the acquirers, and the region has either groomed or attracted the kind of executive talent that can execute major transactions, Welsh said.

“They are not only transformational deals for the company, but they are very good for West Michigan,” he said. “You want to be a region whose companies are able to do that. They are big transactions in dollars, but when you look at the scale of the companies that are doing them, they are big companies already. They are taking on acquisitions that are very manageable to their scale and capabilities.

“They are going to change the companies, but they are not by any means over-the-top aggressive.”

While each deal significantly spreads the corporation across a wider market, Hiller doubts that it will diminish their hometown ties. All have been major supporters of the region and their local communities and executives “have the common objective of keeping this a strong region and a good place to make a living and live.”

As each company grows further across a larger market, that’s good for the headquarters and operations back home, he said. Hiller views the transactions with “more optimism than concern at this point.”

“This represents, I think, improved odds for continued employment growth in the region because of how these companies have handled these transactions and taken advantage of these opportunities,’ Hiller said.

But having a homegrown company that becomes an acquirer and evolves into a major corporation does not always end well for the hometown.

In the most recent example in Michigan, Comerica Inc. moved its headquarters out of its Detroit hometown to Dallas, Texas in 2007.

In Muskegon, SPX Corp., after years of acquisitions and growth, decided to pull up stakes and relocate its corporate headquarters to Charlotte, N.C. in 2001. In essence, SPX outgrew its hometown.

Grand Rapids, of course, is much larger than Muskegon and has more amenities to offer, and it’s certainly not the same town it was more than a decade ago.

Yet as hometown corporations become global players, local communities and economic developers need to continue to adapt accordingly, Hiller said.

“To think for a minute that there’s not other regions around the country that would love to have some part or the whole of these operations would be naïve,” Hiller said.

Amid an improved economic environment from a few years ago, you can expect to see more of these big deals that M&A attorney Jeff LaBine of Miller Canfield PLC views as a product of the times.

Since the recession, corporations have been holding onto their cash, becoming leaner and bolstering their balance sheets, LaBine said. They’re now looking to deploy that money to expand their reach, gain market share and create greater shareholder value through major strategic acquisitions.

“There’s a lot of cash that’s been sitting on the sidelines that the strategics are really starting to get out there and play with,” LaBine said. 

“The strategics have finally decided, ‘Look, we need to chase market share and markets. We have as much as we can get and playing with balance sheets isn’t going to get it anymore,’” LaBine said. “So the growth is coming through acquisitions and the big balance sheet is timing well for them.”

Over the next 18 months or so, LaBine expects “to see a large amount” of transformative deals occurring across the state and the U.S.

Read 4994 times Last modified on Monday, 30 September 2013 09:38

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