Group helps level the playing field for buyers and sellers of mid-sized businesses

A Des Moines-based association is shrinking the world for buyers and sellers of businesses valued at between $2 million and $200 million.

Diversified Management Services, 525 S.W. Fifth St., provides association management services for the International Association of Merger and Acquisition Professionals, a group of 59 merger and acquisition companies and boutique investment banking firms located in 19 countries. The association links buyers and sellers, helping both parties unsnarl complicated regulatory requirements, cultural nuances and protocols, and currency differences they encounter when they do business outside their own countries.

“Members in different countries are automatically contacted,” said Kevin Kruse, IMAP’s executive director. “The contact knows the language, knows the culture, knows the currency and knows the key players in that organization.”

The IMAP, a hybrid of two organizations, retained the name of the old IMAP, which primarily represented buyers and sellers in the domestic market, when it merged in 1995 with the International Association of Merger and Acquisition Consultants, a group of investment bankers primarily doing business in Europe. By combining their resources, the two groups have been able to significantly increase both the number and the value of deals made.

“Many American companies acquiring companies in Europe make the mistake of wanting to implement their own strategy and culture, and this is a good tool to advise American buyers,” said IMAP President Oddbjorn Skredderberget, a principal in the Norwegian merger and acquisition firm Nordic Merger. Skredderberget was in Des Moines recently meeting with Kruse and IMAP Treasurer Mark Esbeck, chairman of Des Moines-based Business Capital Corp. The meeting preceded the IMAP’s semiannual strategy session in New York City.

Such face-to-face meetings are an important ingredient in the association’s formula for building trust among members. M&A is an industry that is either as strong or as fragile as the relationships it builds.  

The IMAP has set increasing both the number and quality of firms involved in the organization as a goal, but membership is nevertheless exclusive. In addition to meeting specified standards, members must have a high level of comfort with other members due to the sensitive nature of M&A negotiations. “You do not want to entrust your client to someone who doesn’t have the same set of ethics,” Esbeck said.  

The 15-year-old firm Esbeck heads primarily represents sellers and does business valuations and merger and acquisition work. Most of the companies he represents are located in the Midwest, but he’s currently working on projects with IMAP affiliates in Brazil and Spain. In a normal year, his company might make a half-dozen or more deals, each ranging from $5 million to $20 million in value.  

Business Capital Corp. is a generalist firm that works with companies in the service, food, manufacturing, construction, information technology and financial services sectors, but is focusing more on specialty food businesses such as meat processing plants and others that add value to food products. In Brazil, he is representing a U.S. company interested in buying a chicken processing plant.  

Esbeck said the IMAP expands the reach of his company and allows him to add value to his clients. Members discuss best practices among themselves and identify opportunities, building a network that exposes their clients to an outside group of people operating in the same mid-market arena, he said.  

The IMAP also helps equalize the playing field for middle-market firms. “If our clients were several levels larger, New York banking firms might help, but many of our clients barely make the radar screen for large investment firms,” Esbeck said. “We like to say we offer Wall Street expertise for middle-market needs in an uncertain world.”  

The association also schedules a series of focus groups on a specific industry to share expertise individual members might have with the entire group. The focus groups primarily deal with industry trends, but help increase awareness of cultural differences and offer local management knowledge as well, Kruse said.  

In 2001, the latest year for which statistics are available, the group’s members completed almost 200 transactions totaling nearly $2.1 billion. In the prior year, IMAP members made fewer deals – 182 – but they were worth more than $3.15 billion. The association is still gathering information to complete its 2002 report, but Kruse expects soft market conditions created by the technology bubble burst and the economic slowdown that followed the September 2001 terrorist attacks to produce results similar to 2001’s.

In the current economy, it’s more difficult to find buyers, Skredderberget said. And, he said, “it takes a longer time to close a transaction than it did before.”

The reason? Sellers are still clinging to hopes that the high valuations that defined the stock market prior to 2001 will return, but buyers haven’t been willing to pay those high prices. “There was a disconnect,” Esbeck said, and firms like his weren’t always able to bridge the gap between sellers’ and buyers’ expectations.

Skredderberget and Esbeck think the climate for mergers and acquisitions is improving, however. Nordic Merger closed on only one deal in 2002, but Skredderberget says his company will close on a half-dozen deals in the first six months of 2003.

Stock market conditions caused many companies that were considering acquiring others to restructure before making a decision. “They have done their job, and now they’re prepared to buy,” Skredderberget said.

“I see 2003 as a year when deal-making activity is recovering from two years of a soft market,” Esbeck said.

Some of the best opportunities may be in Eastern European countries, particularly in the Czech Republic and Poland, said Esbeck, who was recently contacted by the owner of a large bakery operation in the Czech Republic. “It’s a very good business with people in place,” he said. “In order to grow and expand, they need additional [partners]. There are millions of people living in the country who are very anxious to become part of the European community.”