The companies that experts say will be ripest for M&A activity in the second half of the year are those with the stability and proven growth that can offset an uncertain economic environment.
"I would say the areas we're getting more activity as far as buyers coming in are certainly on the distribution and manufacturing side," said Steve Boylan, president of Beacon Business Group in Mequon. "It's still the Midwest. Blue collar companies, they're just much more attractive to Midwest businesses."
Beacon focuses on low to middle market deals, usually under $15 million. The first half of the year started out much busier on both the buy and sell side, but May and June were quiet, possibly because of Wisconsin's recall battle, Boylan said.
"The second half, I don't think it's going to take off and get super busy, but we are still seeing a steady flow of activity on the buy and sell side," he said.
Timothy Bullard, chief executive officer of VR Business Brokers in Pewaukee, said he expects staples that are not as affected by the economy, like distribution, packaging and food service businesses, to be popular during the remainder of the year.
"Right now, manufacturing is unbelievably hot in Wisconsin, just because the ones that have made it through the recession are pretty solid companies and they have the people that are qualified to do the work," Bullard said. "The horrible businesses to be in right now to sell is any restaurant or bar."
VR focuses on sell side for both small and large businesses, with a division focused on each.
While smaller companies are struggling to get financing, many other deals are happening this year, which may be driven by the expiration of the capital gains tax break at the end of 2012, Bullard said.
"The $2 million plus deals, it's very brisk," he said. "There's a lot of money on the sidelines. People are paying premium prices for them right now. It's a hot marketplace."
Anthony Dols, owner of Catalina Financial Group in Cedarburg, said he has seen firsthand the need to strengthen a company's finances before sale for picky buyers.
"I'm seeing individuals willing to buy, but they're still having problems getting the equity or the confidence to buy," Dols said. "I'm seeing some strategic buyers, but they are big budget corporations. They're picking the cream, the best deals."
He doesn't expect any specific industries to pick up in the second half of the year, just companies that have proven their worth.
"It all boils back down to the individual business and whether it's generating enough cash flow to be sold," he said. "If someone's buying the business, they're buying the ability to make money."
Some of the hottest industries for M&A are food, medical devices and information technology, and they will likely continue to be top choices because buyers favor them for their good margins and growth rates, said John Kielich, managing director of M&A Services at Kolb + Co. in Brookfield.
Many were expecting the capital gains incentive to drive more buyers to market than it has so far this year, Kielich said.
"If the deal is not started or is not soon to be started, it is going to be very difficult–not impossible – to get a transaction done," he said. "It would be a rush, because generally the timeline is six to nine months."
M&A activity does seem a little slow as a result of economic and political uncertainty, said Richard Taylor, principal at M&A Consultants Ltd. in Milwaukee.
"Particularly the buyers, they want to know what they should be assuming in their forecasts and the crystal ball's a little bit cloudy," Taylor said. "There's still a lot of herky-jerky economic movement out there."
Manufacturing companies, though, are commanding multiples between five and seven times EBITDA and will continue to do well, he said.
Long-term, baby boomer business owners will come to market gradually as they decide to sell, said Linda Mertz, CEO of Mertz Associates Inc. in Rubicon.
In the short-term, stable industries like food, since everyone needs to eat, and health care, because of an aging population that needs increasing care, are desirable for buyers, she said.
"Anything that can show growth is hot, whether it's an industry or a company with a niche," Mertz said.