What drives value in a merger or acquisition?

The BizTimes M&A Forum, held March 12 at the Brookfield Conference Center, placed a deep focus on this topic, giving attendees insights into how deals come together and how both sides of a transaction can achieve their goals.

Ahead of the event, panelists and speakers shared their insights on what drives value.

On the surface, it would seem a company’s financials would be the key factor. Is revenue growing or flat? Are earnings and profits consistent, growing or up-and-down from year to year?

To be sure, the numbers matter.

“Free cash flow,” Steve Laczniak, principal and co-founder of Milwaukee-based Bel Air Growth Partners and one of the event’s panelists, said when asked what drives value. “The quality and predictability of that cash flow, and the market’s perception of the growth opportunities and risks related to that cash flow.”

Beyond the health of key financial metrics, nuances of a business can also shape what a buyer is willing to pay. Is most of the revenue concentrated with just a few customers? Do sales come from specific projects or a more recurring source? Does the company have expertise and intellectual property properly protected? Are key employees staying with the company or are clear successors in place? Will the business require significant investment to grow in the future?

“Value in an M&A transaction comes from strong market positioning built on long-term OEM partnerships in technology-driven sectors producing complex, mission-critical components with clear program visibility and deep integration into customer platforms, driving recurring demand,” said Parker Tumanic, limited partner, prior owner and president of Shawano-based JR Machine. “Just as critical is a committed management team staying post-close to ensure continuity and reduce risk.”

Tumanic joined Paul Schneider, principal of Green Bay-based Schneider Resources Holding, for a conversation at the M&A Forum reflecting on their transaction. Schneider Resources Holding acquired a majority stake in JR Machine in 2024.

JR Machine, a machining parts manufacturer specializing in working with superalloys, had moved into the space exploration market starting around 2020 and experienced strong growth. Recognizing the need for additional expertise for the company to reach its potential, Tumanic and his father, Tim Tumanic, had explored a sale to a private equity firm a few years ago, ultimately deciding against a transaction that didn’t quite feel like the right fit.

While looking to fill an executive leadership position, a candidate connected JR Machine to Schneider, which ultimately led to the 2024 deal.

Schneider pointed to more intangible factors as key to driving value in an M&A process.

“In Wisconsin, trust and transparency in the M&A process are critical to a successful transaction,” he said. “When the buyer and seller are aligned on goals – often best facilitated by third-party advisors – then the processes of exploration, validation, agreement, and transition are smooth.”

“The buyer and seller often must compromise to get a deal done,” Schneider added. “During the inevitable last-minute horse trading, if both parties trust each other, terms that seemed to be sticking points can be agreed on.”

Similarly, Rob Hogan, managing director, business development for Chicago-based Shorehill Capital and a panelist at the M&A Forum, pointed to communication as a key for successful deals.

“An M&A transaction is most efficient and generates an optimal outcome for everyone when there is frequent, open and clear communication between all parties throughout the diligence and closing process,” Hogan said. “This allows for issues to be dealt with quickly, and it builds trust. It represents a terrific start to the post-closing partnership.”

In addition to the conversation with Tumanic and Schneider, the event featured two case study panel discussions. Utilizing fictional companies and financials based on common, real-world experiences, panels of buyers, experts and advisors dug into the nuances of transactions, providing attendees with insight on how deals are valued.

Find more from the M&A Forum, including videos of the keynote conversation and case study discussions, at biztimes.com/maforum.

The M&A Forum was made possible by sponsors Old National Bank, Reinhart and Taureau Group, along with partner Annex Wealth Management.