Dealmaking has played a pivotal role in Detroit’s economic revitalization, says Jim Robinson, regional president for Southeast Michigan at Chemical Bank, a division of TCF National Bank.
A sizable number of baby boomers and multigenerational companies are looking to sell, creating a plethora of deal opportunities.
“A good amount of them are selling their companies to private equity or family offices,” Robinson says. “It may be due to the lack of a succession plan, or maybe just because the deal market is awfully strong and is creating unforeseen wealth. It’s leading to fresh capital being invested and creating wealth for these business owners, as well.”
The rise in the number of family offices plays into this whole new ecosystem, Robinson says.
“The deal environment in Michigan has picked up significantly, and I do think a decent amount of that is the family office movement,” Robinson says. “There are just more people interested in making deals. Some of their investments take them outside of Michigan, or even the Midwest, but there's a good concentration here. The dealmaking environment is alive and well for sure.”
Dealmakers spoke with Robinson about other trends impacting dealmaking activity and his takeaways from the recent merger of Chemical Bank and TCF.
Ready to deal
The family office boom can be credited in part to entrepreneurs and business owners with newfound wealth and liquidity.
“They generally seem to invest their wealth in the equity markets, but many of them pursue alternative investments,” Robinson says. “It might be a million-dollar investment, or maybe something a little bit less than that. But we’ve seen people who have put $10 million, $20 million or more into this arena, where they'll start a family office. So they’ll either partner up with other people who are finding deals or start leading the search, put in some of their own money, then attract other investors.”
The market continues to be a great place for sellers, with prices that have “gotten pretty frothy,” Robinson says.
“The multiples that companies are selling for, their EBITDA has come off of the top a little bit,” he says. “It’s still good, but not at the peak. So I think when you put that all together, it’s an environment that is conducive to getting deals done. Lenders are still, because the economic winds have been at our back for so long, lenders are still lending fairly aggressively — not overly so, but it has not gone conservative.”
He says there’s not an imminent recession where we’re starting to see those signs.
“People are hanging in there longer in terms of providing that kind of financing, so it’s still a good environment and the activity remains strong,” he says.
That doesn’t mean caution is out the window, however. The memories of the 2008 recession are still too fresh to forget.
“It still seems to be top of their mind when they’re thinking about, should I sell,” Robinson says. “If I don’t sell, I need to reinvest in my company. And if I do that, I probably need to ride this out for another five or 10 years and go through another cycle before it might be an equally good time to sell.”
He says a lot of business owners today are in that situation.
“There’s certainly no rulebook,” he says. “Everyone’s got to make up their own mind as they go through that thought process.’
Good times ahead
As Robinson reflects on last year’s merger between Chemical Bank and TCF Bank, he is confident the deal will prove to be very accretive in the years ahead.
“Both of us did what the other did well a little bit, and yet I think both of us were searching for how we could be better in those arenas,” Robinson says. “TCF has extensively built out, with technology and experienced professionals, a leasing business line and inventory floor plan financing. That was something that Chemical did a little bit of, but not nearly to the same expertise and extent that TCF did.”
Conversely, Chemical did not have the same concentration on real estate lending as TCF.
“You put the companies together, there’s just a lot more opportunities for revenue synergies of those businesses working together,” Robinson says.
Another advantage of the deal is that there wasn’t a lot of overlap geographically or across business lines.
“The cost reductions that had to be realized to make the deal work were much less significant,” Robinson says. “We did not disrupt the businesses very significantly. The customer should not feel a ton of change from it ,versus if we had a lot more overlap, it could have been disruptive to where there would have been a reduction of salespeople.”