Mike Astrup is the administrative officer of Eide Bailly. Photo by Justin Eiler

Phil Ankeny, CFO, Minnetronix. Photo by Derek Thomson

Mergers & acquisitions rebound in Minnesota

State companies share lessons learned from recent acquisitions

By Dan Emerson
Monday, March 30, 2015

Regardless of industry, and whether they are small or large, a number of Minnesota’s fastest-growing companies have employed a common strategy: augmenting their “organic” growth by growing through strategic acquisition. A well-timed acquisition can strengthen a company’s position in its industry in several ways: reaching new geographical markets, growing sales via new customers, and adding product lines, intellectual property, or other assets or capabilities that will spark growth.

Kate Sherburne, an attorney and M&A specialist with Minneapolis-based Faegre Baker Daniels, uses another term to describe the objective of strategic acquisition. “It’s all about synergy,” she says. “We always hear clients talk about trying to put something together that is worth more than the sum of the parts.”

Trying just that will be the focus of many companies this year. While 2014 was the best year for middle-market M&A since 2007, according to Thomson Reuters, 2015 is projected to be even better.

Following, we visit five Minnesota-based companies involved in recent merges and acquisitions — and ask what they learned from the experience.


Chris Heim, CEO (right) and Mark Ties, COO (left)

In recent years, one of the most “acquisitive” companies in Minnesota has been Eden Prairie–based software firm HelpSystems, which has completed 14 acquisitions since 2006. Founded in 1982, HelpSystems is a provider of systems and network management, security and compliance, and business intelligence solutions to more than 9,500 customers.
Last year it made four strategic acquisitions, including Burnsville-based RJS Software Systems and Los Angeles–based Network Automation. It also acquired data warehouse software from Coglin Mill, an Australia-based company with operations in Rochester. Its most recent acquisition closed in January: Halcyon Software, which is headquartered in the U.K. and also has operations in North Carolina and Australia.

The underlying motive for each of the firm’s acquisitions has been the same, according to CEO Chris Heim: better serving customer needs. “When we’re buying a software firm, it’s really the whole enchilada,” he says. “We’re after talented employees, intellectual property, and customers, and in turn we can offer a broader array of solutions to our customers.”
HelpSystems’ growth-through-acquisition strategy has been enabled by an infusion of capital from Boston-based Summit Partners. The global private equity firm, with more than $15 billion raised, acquired majority ownership of HelpSystems in 2012. That added the financial wherewithal to make targeted acquisitions, says Mark Ties, who has been the company’s CFO since 2011.

In the IT business, acquisitions are often technology-focused, but there is more involved than finding and evaluating technology, says Heim: “Quality of leadership is very important, because we’re not just buying intellectual property. Their top leader doesn’t necessarily have to stick around, but the next layer of leadership is very important. We want them working with us to help us drive forward.”

Heim stresses the importance of enlisting “all of the expertise you need to understand the various elements of a transaction, and making sure there are no hidden issues. There are 100 ways for a deal not to realize its potential.”
One of the more common errors is “focusing exclusively on getting a deal done and not focusing on what will happen after the paperwork is finished,” he says. “That’s where you can realize the benefits for employees and ensure that customers’ needs will be served.”


Cognita display, one of the products developed by Minnetronix

Companies hoping to boost their growth sometimes focus on acquiring proprietary technology. That was the case in 2013 when St. Paul–based med-tech designer and manufacturer Minnetronix acquired Neurofluidics, a California firm with patented technology for treating neurological conditions.

Since its founding in 1996 by three former 3M engineers, Minnetronix has developed a profitable niche serving med-tech clients, among them Medtronic and St. Jude Medical. But the company has also worked toward developing and marketing its own medical devices, according to CFO Phil Ankeny.

In 2013 it acquired California-based Neurofluidics, which creates technologies for treating neurological diseases. That “added a technology base we didn’t have in-house, and is something we can add a lot of value to, in taking it from concept to finished medical device,” says Ankeny, who was involved in several acquisitions during his previous tenure at Eden Prairie–based SurModics.

Leading up to the acquisition, Minnetronix leaders had spent about three years evaluating the landscape of technologies that might be available for acquisition, focusing on those with potential to fill unmet clinical needs and with a clear path toward regulatory approval. They sifted through nearly a thousand “opportunities” and narrowed the list to three before settling on Neurofluidics.

Though there’s a certain excitement in growing through acquisition, Ankeny says, it’s important to avoid getting carried away by emotions: “You need to be thoroughly convinced that it makes strategic sense to acquire, and that the cultures will meld, when talking about bringing people on board. If it’s not done carefully and thoroughly, you can run into big problems.”

Based on his deal-making experience, Ankeny also says interpersonal dynamics are still key factors in the success or failure of any acquisition: “Companies often don’t give that as much consideration as they should. At the end of the day, business is a team sport. It’s incredibly important that people see eye-to-eye on where the company should go, and have shared missions and values. If those views are radically different, it can be hard to get everyone rowing in the same direction.”

Imagine Print Solutions

Bob Lothenback, founder and CEO of Imagine Print Solutions. Photo courtesy of Imagine Print Solutions

Within the past five years, growing through acquisition has become a key strategy for Shakopee-based Imagine Print Solutions. Founded in 1988, it’s grown into a $302 million company with nationwide reach.

In 2011, founder and CEO Bob Lothenbach made his first acquisition, a relatively small one “because we wanted to learn from it.” Imagine acquired DigiGraphics, a Minneapolis-based firm specializing in large-format digital printing that had direct-to-fabric printing capabilities. Adding the latter specialty was one of the primary reasons for the acquisition, Lothenbach says.

The owner of DigiGraphics, who retired at the end of last year, had opportunities to sell to other companies. “But he believed in me and our team and knew we would take good care of his business and his employees,” says Lothenbach. To get the deal done, Imagine’s management team worked with a business broker hired by DigiGraphics.

In late 2013, Imagine also took ownership of two printing firms in North Carolina, in separate deals: Classic Graphics and Creative Marketing Solutions. It then combined the two companies’ operations to create one of the largest, privately held mailing and fulfillment operations in the region.

Based on his experience in making acquisitions, Lothenbach believes the key to a successful acquisition might be “the quality of the management team and the people you are acquiring the business from.” Each of Imagine’s three acquisitions have been “very successful,” he says, largely because each of the management teams stayed intact and included quality, well-qualified individuals.
Along with accurately assessing the financial health and potential of the company being acquired, one important aspect of due diligence “is making sure the company culture is similar to ours,” he says. “We key on mirroring our culture.” In the case of Imagine, that means placing a high value on employees and providing good customer service.

In the printing business, making sure facilities are technologically up-to-date and well cared for is another facet particularly important to Imagine, given the “incredibly expensive” equipment required to stay competitive and grow as a company, Lothenbach adds.
His advice for other entrepreneurs is to conduct detailed due diligence. That includes speaking with employees and customers and investigating the integrity of the other party.

Citon Computer

Steven Dastoor, CEO of Citon Computer Corp. Photo courtesy of Citon Computer Corp.

Early this year, Duluth technology firm Citon Computer Corp. nearly doubled in size by acquiring Invisible Inc. of Eau Claire, Wisconsin, a 35-year-old IT provider with five divisions. By doing the deal, Citon expanded its service area southeast into Wisconsin, added security and surveillance capabilities, and doubled its workforce to about 80 people, according to CEO Steven Dastoor.

Since its founding in 1994, Citon has developed a broad range of IT services, from building customized, commercial PCs to designing and deploying high-end security solutions for international companies. Ten years later, it made its first “growth through acquisition” move, acquiring the network services division of Duluth-based CP Internet.

In recent years, Citon’s leaders had considered four other acquisitions of smaller IT firms, none of which came to fruition. In some of those cases, says Dastoor, “the sellers were not really ready to part with something that was their life work.”

That wasn’t the case with Citon’s most recent acquisition. After 35 years, Invisible’s founder-owner Bob Krause was ready to sell and wanted to see the company and employees end up in good hands. The negotiating period of about one year included a number of site visits and team meetings between the two firms, so Krause and his team “could get a clear understanding of how we might acquire and merge the talent,” says Dastoor.

In buying Invisible Inc., Citon was entering a new market 150 miles away in Eau Claire. As part of the due diligence, Dastoor and other Citon execs spent several days in the Eau Claire market.

“Understanding how each market works is essential in ensuring that your company’s methodology for sales, marketing, and HR are appropriate,” says Dastoor. “For example, our research and area knowledge confirmed that ‘Midwestern’ values were as important in Eau Claire as they were in Duluth. We were also able to confirm that, as in Duluth, the Eau Claire region has a strong Chamber membership culture, which encourages business-to-business opportunities. This type of structure does not necessarily hold true in larger, more fragmented markets such as the Twin Cities.”

The goal was to minimize “surprises” — though Dastoor says “they will inevitably happen. It’s like buying a house: You can have the inspections all done, but something will still surprise you.”

Eide Bailly

Dave Stende is the managing partner/CEO of Eide Bailly. Photo by Justin Eiler

One of the business sectors with the highest level of M&A activity in recent years has been the accounting/management consulting profession. Regional CPA firm Eide Bailly is an example.

Although its home office is in Fargo, North Dakota, Eide Bailly has had a major presence in the Twin Cities for decades. In recent years, it’s used an acquisition strategy to become one of the region’s major accounting firms, with more than 44,000 clients, 1,300 professionals, and 26 offices in 12 Midwestern and western states.

Last year, says Dave Stende, the firm’s managing partner and CEO, Eide Bailly developed a plan to double in size every five years, largely through expanding its presence in western states such as Colorado, where the firm now has five offices. In 2014, Eide Bailly assumed ownership of two CPA firms in Nevada, two in Colorado, and one in the state of Washington.

Not all of the strategic M&A deals Eide Bailly has pursued have come to fruition. In 2012, Eide Bailly and Milwaukee-based Wipfli planned to merge and open a combined headquarters in the Twin Cities. But the deal fell through after it had been announced, because the parties could not come to an agreement on key terms.

Experience counts, and — to some degree — the experience Eide Bailly has gained in completing a number of successful acquisitions has enhanced its ability to do so in the future, says Mike Astrup, its chief administrative officer: “In some respects, the more acquisitions you have done, the better you get. On the other hand, every acquisition is different, in some way.”

Astrup cites one step that should precede beginning negotiations for an acquisition: “Before you venture in, you need to understand yourself — what are your strengths and strategy as a company?” He says it’s also important to analyze the reasons for doing an acquisition or consolidation, and make sure those reasons make sense for your company. “Particularly these days, it seems as though [some companies] might consider doing an acquisition just because everyone else is doing them. But if acquisitions aren’t a good fit for your situation, they can become expensive.”

When a firm agrees to be acquired by Eide Bailly, it is typically for one of two primary reasons, Astrup says: “One or more of their founding partners might be nearing retirement, and they are looking for a buyout. Another reason is to gain access to a broader range of resources to serve clients.”

When considering a possible acquisition target, “You need to get a feel for the type of clients they serve, and also what kind of talent pool — how they have developed people internally,” Astrup explains.

In choosing an acquisition target, he says, “culture is the number one consideration — understanding how a firm operates.” That includes how work is assigned internally and the level of involvement of partners with clients and staff. Giving clients the benefit of senior partners’ expertise and experience is important, and so is developing new talent. “For the most part, our employees join us right out of college, and we need to be able to mentor and develop those people.”

Another component of company culture is how employees are treated, Astrup says: “This  business is full of deadlines, especially during tax season. So we sometimes work some crazy hours, but you also need to have time to recharge and get away.” Not all CPA firms handle that issue the same way, he points out. “Our approach is to recognize that, while we need to serve clients, our employees also need to have lives.”