The Middle Market Review Insights on the Middle Market.

Subscribe Subscribe

Subscribe Today

I want to receive:

Thanks for subscribing!

Acquisitions in Alaska: Venture North Group Finds Its Niche in the Country’s 49th State

Tags

Middle market deals all come with their own distinctive challenges. But add to these trials an environment that is rugged, remote, often cold and dark, and somewhat strange to most of the U.S. population and the world. There, you have entered the State of Alaska, where M&A activity occurs but often in its own frosty little bubble.

Nobody knows this better than Neil Gunn, partner and co-founder of Venture North Group, an M&A advisory and capital raising firm in Anchorage. Previously living in Arizona, Gunn relocated to Alaska in 2000 because he wanted a lifestyle change. He had built up notable deal-making and leadership expertise working for large manufacturers in Mexico, and once in Alaska he quickly saw a missing link: businesses in the state could use a savvy M&A advisor, particularly on the sell side.  So in 2006, Venture North was born.

Much has transpired in the last 16 years for Gunn and his five-member team. His firm, focused exclusively on the lower middle market, has amassed a commendable referral base since its inception  and has gotten to know Alaska, its people, its businesses, and the landscape. The state is filled with companies focused on engineering, construction, and oil and gas and marine services, many of them decades old and thriving. Thus, it is no surprise that “2021 was a record year for our firm in the number of deals closed and revenues generated,” Gunn acknowledged. “Right now the climate is healthy, and a lot of mature companies are seeking to exit to the next buyer.”

That’s exactly what happened with Chris Hubble, co-founder and former CEO of Anchorage-based Pacific Asphalt, Inc., an asphalt-striping business founded 32 years ago. In 2019 Hubble and his business partner wanted to sell, but their situation was complicated, he said. An Alaska Native Corporation had acquired 52% of Pacific Asphalt in 2017, so any sale would involve another party at the deal-making table.

So upon a referral, Hubble and his team hired Venture North, shortly before COVID-19 hit the news. After seven months of negotiating and conducting due diligence during one of the most abnormal times in history, an Alaska Regional Corporation acquired Pacific Asphalt in its entirety. Hubble, who has stayed on as president during the transition, was pleased with the outcome.

“Neil was able to hold the glue to keep it all together, and get the deal closed,” he said. “To get a company sold during COVID is really impressive to me.” Per Hubble, Gunn and his team understand what to worry about and what to let go, where to push the buyers and when to hold back.  “Neil’s company is just highly regarded in Alaska,” he said.

This “high regard” didn’t happen by accident. Since its founding Venture North has advised clients on numerous deals, both on the sell side (95% of its work), on the buy side, and through capital raising. Many of its sell-side clients are sold to Alaska Native Corporations – and roughly 65% of Gunn’s clients get sold to buyers already in the state. In one of its recent deals, Venture North sold an environmental construction and demolition business, Central Environmental Inc., to a large Alaska Native Corporation. The seller operated five separate companies under its umbrella, and Venture North “sold all five in one day”, Gunn said. “All five of those companies required full diligence and a full transaction process.” 

Venture North builds an entire team around a transaction, bringing in attorneys, accountants, tax consultants, sometimes subject matter experts – and may hire temporary team members to help get the deal done. “We weren’t just born brokers,” Gunn noted. “We’ve been in the trenches and know what these business owners are facing, dealing with employees, suppliers, contractors.” 

Snow and Stumbling Blocks

While the transaction process can be taxing for anyone involved in M&A, doing business in Alaska comes with additional hiccups. First, attracting buyers and investors to a state miles away from the rest of the country takes stamina and skill.

“Some people have forgotten where Alaska is on the map, and we’re such an isolated business community that you have to work quite hard to attract outside buyers,” Gunn said. Lending institutions also may scrutinize, particularly for out-of-state suitors. And some buyers “will discount the valuation” just because their target is in Alaska, Gunn said. He finds out swiftly how serious buyers or investors are before wasting months on due diligence. 

Then there’s the issue of weather. It may be a no-brainer for an asphalt-striping company in California to acquire a similar business in Georgia, but buyers of an Alaskan company – particularly a business involved in construction, engineering, utilities, or any other outdoor service – need to know what to expect once the papers are signed. The seasons are short, the snow is abundant, and the roads are limited. 

“If you have a project going on in Southeast Alaska, one in Western Alaska, and one in the North Slope area – there is no road connecting any of them,” Hubble said. “This is not something you plan out two weeks in advance.” Companies move equipment where it needs to go – often by barge or airplane – and then it sits over the winter. The following summer the project gets underway.

Finally, quipped Hubble, Alaska is the “smallest biggest state there is”. Alaska is over 665,000 square miles and geography-wise the largest state in the country, followed by the next largest U.S. state, Texas, at just over 268,000 miles. But Alaska’s population is only about 737,000, compared to Texas’ population of over 29 million. That translates into an insulated and close society of Alaskan business owners, many of whom socialize, go fishing together, and swap stories.

“It’s a very tight-knit community,” noted Gunn. “Word of mouth is strong here and if we screw up a deal that will turn the other way on us.” 

So the bottom line for Gunn and his team is clear: Reputation is everything. And it’s why Venture North has worked hard to build a favorable status over the past 18 years. 

Gunn said his firm abides by this rule:  “Don’t take on a client if you can’t do a good job.”

Learn More About Joining Axial

Request Information

Subscribe to Middle Market Review

Subscribe to Middle Market Review

Subscribe Today

I want to receive:
Subscribe

Thanks for subscribing!