Buyouts of startup firms prove sticky

A recent string of buyouts and expansions of business spawned by Wisconsin entrepreneurs ought to put to rest one misguided complaint about a state strategy that goes all out for high growth startups.

Critics of public investments in a startup ecosystem point to the occasional move to another state of an acquired venture. To be sure, that has happened.

But a large majority of those acquisitions result in faster growth in Wisconsin for the new ventures. Here are some recent examples:

An arm of the Chicago Pritzker family bought Signicast, an investment casting company in Hartford, from Terry Lutz in 2008. It had about 650 employees at the time, and, despite the Great Recession in 2008 and 2009, it has grown to 830 under the new ownership, with 100 more currently being added.

The Pritzker Group has recently invested $50 million in the latest phase of the company’s growth and said it plans to invest another $100 million over the next 15 years and add 400 more employees. Nice.

In the same town, API Healthcare, which was started by Luis Garcia in 1982, shows that even quick-flip private equity firms (PEs) can propel growth. API had 250 employees when Garcia sold it to a private equity firm in 2008. It sold again early this year when it had a reported 400 employees, with 300 in Hartford.

The buyer was GE Healthcare, which plans to accelerate growth. API sells hospital staffing software, and GE has a huge sales force that sells multiple medical devices and services to hospitals all over the world.

It’s possible that GE could move API to its campus in Wauwatosa, but Wisconsin and the M7 region will still be a winner in terms of jobs. GE may well decide not to move, because much of the intellectual property they bought is in the heads of the people who work at API and who might not want to drive further to work.

Incidentally, GE Healthcare got started in Wisconsin in the X-ray business in 1946 in a surplus war production plant. It was a move from Chicago, before the days of states trying to poach companies from one another.

An older Wisconsin startup, Bell Laboratories, a manufacturer of pest control products founded in Madison in 1974, sold its consumer rodent-control business to Scotts Miracle Gro last October. Scotts’ large sales force will mean more volume, so Bell is expanding into a 300,000 square foot facility in DeForest to make the product for Scotts. More jobs will result.

One of the state’s all time success stories has been Renaissance Learning in Wisconsin Rapids. It was started by Judi and Terry Paul in basement of their home in 1984 and, after two sales, is valued at $1.1 billion. That’s a “B.”

The Pauls sold the company to one private equity firm in 2011 for $455 million and it was just sold to another for the big number. In between, Google Equity invested $50 million in the company and may stay in. That’s another harbinger for growth.

On the jobs front, the company has grown to 900 employees, with 600 at the headquarters in Rapids. The new owners, Hellman & Freidman, say they will keep the headquarters there.

Private equity firms (PEs) sometimes get a bad name, as Mitt Romney found out in 2012, when they take over distressed firms and try to turn them around. On the positive side, they do the emergency surgery necessary to save the patient. That generally means job cuts, but at least the company has a chance at survival and protection of some jobs. On the negative side, they generally load the company with debt, and that can be hard to out from under.

Nonetheless, most PEs prefer the safer route of investing in healthy companies with good cash flows. They add a load of debt, but look for growth as a way to increase enterprise value and win a big pay day with a subsequent sale. That means more jobs.

Some PEs, like the Pritzkers, take a longer view and buy and hold for longer periods. They may even turn the acquired company into an acquirer, as has happened with Renaissance, and offset the flow of companies to buyers and locations out of state.

In other words, it works both ways with acquisitions of young companies.

These stories of acquisitions, capital injections and job growth point in only one strategic direction: Wisconsin has to position itself as one of the best places in the world to for an entrepreneur to get started.

Not all risky startups will make it, and some will be bought and moved, but the net outcome is still a huge positive for the prosperity of the state.
Does anyone have a better idea for job creation?

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