| |
Top Stories
It Pays to Network: Golub Capital Provides Financing
 Golub Capital announced that it has provided $13.3 million of subordinated debt and co-investment equity in support of Graham Partners' acquisition of B&B Electronics Manufacturing Company. Headquartered in Ottawa, IL, B&B is an engineering and manufacturing company, which produces devices to network machines in rigorous industrial and commercial environments. The Company's principal end customers are middle-market manufacturers and utilities with industrial equipment that has not yet been networked or is operating on disparate technology. B&B's addressable market within the industrial networking sector totals approximately $600 million.
First Close: Atlantic Street Raises $70 million
 Atlantic Street Capital, a private equity firm with a focus on lower middle-market special situation and deep value investments, announced today that it has successfully completed the first closing on its $70 million target for Atlantic Street Capital with a commitment from funds managed by the investment management arm of a leading investment bank. The firm takes controlling equity positions in businesses with revenues between $30 and $120 million.Chinese Medicine: China Sky One Medical Closes Acquisition of Heilongjiang Tianlong Pharmaceutical
Chinese Medicine: China Sky One Medical Closes Pharmaceutical Deal
 China Sky One Medical, Inc. a leading manufacturer, marketer, and distributor of over-the- counter pharmaceuticals for external use in the People's Republic of China ("PRC") and international markets, today announced that it has closed its acquisition of Heilongjiang Tianlong Pharmaceutical, Inc. ("Tianlong"), an external-use drug manufacturing specialty pharmaceutical company. The acquisition was announced on February 29, 2008 and closed on April 3, 2008. Under the terms of the agreement, China Sky One Medical's wholly-owned subsidiary, Harbin Tian Di Ren Medical Science and Technology Company, acquired 100% of Talon's outstanding capital stock for a cash payment of approximately $8.0 million and $300,000 of China Sky One Medical's common shares.
Shifting Current: EDP Acquires Wind Assets
EDP Renovaveis, parent company EDP Group, acquired three wind farms from EOLE 76. The wind farms operate in Normandy; additional farm projects under development, mostly located in the Normandy and Rhones-Alpes regions. The payment will amount to euro 51.3 million (including euro 8.5 million of shareholders' loans). EDP Renovaveis will assume an additional euro 43.3 million of project finance financial debt.
UK Bargain Hunting: Liquidity Services to Acquire Geneva Group
Liquidity Services, Inc., a leading online auction marketplace for wholesale, surplus and salvage assets, announced it has agreed to acquire the Geneva Group, including Geneva Industries Ltd., Willen Trading Ltd., and Geneva Auctions Ltd. for approximately $17.0 million in cash and contingent earn-out payments worth up to an aggregate of approximately $2.9 million payable over the next three years. The Geneva Group is a leading United Kingdom based remarketer of reverse supply chain merchandise, including customer returns and overstock merchandise. The Geneva Group serves leading UK retailers and manufactures with a product focus on consumer electronics, technology equipment and hard goods general merchandise. LSI expects the transaction to add approximately $23 million in revenues and one to two cents per share to its fiscal year 2009 results.
As some banks move to position themselves in the debt markets by selling higher risk securities and even high rated debt, it is unclear what the immediate future holds. Here in the US, the Dow Jones Industrial average and The Nasdaq Composite Index have ticked up, while Asian equity markets are mixed. EU equities, however, are trading lower.
Where should M&A deal makers look in 2008 for opportunities in this shaky environment? A recent Thomson Financial report shows that Q1 of 2008 has seen domestic M&A deal volumes fall 41% to $204 billion. The EU has taken less of a hit, dropping 17% to $305 billion. So far this year, worldwide, only three M&A deals have exceeded $10 billion. Will Microsoft prevail in its takeover of Yahoo? Even with Google’s help it is hard to say. This snapshot, of course, suggests that middle-market M&A deals will likely drive year 2008, as the market did in 2007 where middle-market M&A deals totaled 84% of all transactions.
In Q1 2008, the leading industries in M&A deals were: computer software supplies (apprx. 300 deals), miscellaneous services (apprx. 200 deals), brokerage investment and management consulting (apprx. 100 deals), construction and engineering services (apprx. 50 deals), and leisure and entertainment (apprx. 50 deals). Going forward, while I urge caution, I also suggest that solid middle-market deals may be found in staples.
As I noted last week, energy is a good sector. This week, I encourage the basics. Contrary to what some might think, consumer products—as these provide predictable cash flows—is a good sector for growth. Recent activity in this sector includes: both Hickory Farms and Smokey Bones Barbeque (Sun Capital Partners), Great American Cookie Company’s recent acquisition of NexCen Brands; and Pfingsten Partners, LLC buy of Tropitone Furniture.
Not all consumer markets, however, will be good buys. Deal makers will want to look for recession resistant or counter-cyclical companies. What do I mean by this? Look for everyday goods and products that consumers will continue to buy regardless of larger-macro economy conditions.
Another thing buyers should consider is that any buy that has added value, such as property and other assets, might well be worth the purchase over the long-term. Take Extreme Networks, located in Santa Clara, California; the company’s stock is down 15%, but the company is located on prime California real estate worth over $41 M.
For sellers, buyers will be buying based on several factors, these include, but are not limited to: need to gain market share, need to expand product portfolios, desire for new sales channels, desire for growth segments, foreign buyers looking for lower dollar strength deals, and brand familiarity.
I am predicting that middle-market M&A activity will not see a significant jump until later in the year. This does not mean that value is not out there. In fact, real gains might be in front of you, in your cabinet or on your computer desktop. Think staples.
|
|
|
Coming Events |
|
|
Classic Q&A
|
|
Alan Murray
Associate Managing Editor
Last year M&A Advisor interviewed Alan Murray-- Associate Managing Editor of the Wall Street Journal, and its Wednesday “Business” columnist. We asked Alan a range of questions about issues that would directly impact middle-market M&A deals. Because of the current economic climate and Alan's enduring insights, we thought his answers are a good gauge for today's investors.
M&A: How is Private Equity money changing how business is conducted?
A.M.: It’s caused a dramatic change. We’re seeing a battle between two models, public and private. This situation has evolved dramatically over the past two years, reflecting changes that have come in after Enron, increased scrutiny from state attorneys general and from pension funds and other shareholder groups. All of which has made it much more challenging to run public companies. Meanwhile the flood of money into the private sector makes it much more appealing to run a private company.
M&A: I notice you left the S.E.C. off your scrutinizing llist.
A.M.: I think the S.E.C. got left behind the eight-ball prior to Enron. It’s gotten more aggressive of late.
M&A: Market forces drive transparency too, don’t you think?
A.M.: One of the big changes in Private Equity has been a flood of money from pension plans. Many are public-employee plans. They often don’t have a good deal of ability to see what happens to their money. Should they lose money, it becomes a big political issue. It becomes a circus.
M&A: Some people feel the private sector needs more regulating. Others feel the current level is too high. On which side are you?
A.M.: Let’s distinguish between regulation and transparency. I believe in more transparency. I believe that letting people see where the risks are is a good thing. Having pension funds operate in brighter sunlight is a good thing. That’s certainly better than having government tell them where they can invest.
M&A: It’s a case of fund managers having the economic juice to do what government regulators should be doing – demanding transparency.
A.M.: It’s a nice counterbalance. It’s not just pension funds. Hedge funds are out there forcing public companies to take more risks. They’re saying, in effect, ‘You can’t just sit on piles of cash and make regulators happy. You’ve got to take some risk.’ They are making public companies more aggressive.
M&A: Public companies are also taking the hit on option backdating, which is fast becoming the scandal du jour.
A.M. I don’t think we’ve gotten to the end of the backdating scandals. Most of the backdating occurred five years ago, before Sarbanes Oxley. Sarbanes hasn’t cleared everything up, but it seems to have exposed the most egregious examples.
M&A: Your employer hasn’t just been reporting the news lately, it’s been making some of its own. The paper looks different these days – it’s more compact, for one thing – but now the name of the game isn’t paper, it’s digital.
A.M.: There has been an evolutionary change at the Wall Street Journal, and Jan. 2 was an important step in that evolution. There’s been substantial thinking about how people use the online version versus how they use the print version.
M&A: And the conclusion is…?
A.M.: Consumers use the online medium to get real-time news, for search and for viewing video clips. They use the print paper to view what happened yesterday in context, and analytically. But we’re still thinking through those distinctions, trying to see them more clearly.
M&A: Certainly a lot’s riding on those distinctions for traditional media.
A.M.: Absolutely. My old economics professor at Stanford used to ask what he called the ‘gold standard’ question: Who is your number one competitor?’ We used to think it was The New York Times. I don’t think so anymore. Now we’re looking at competition coming from all kinds of places. For example, if you’re looking at gathering content and servicing advertisers, you’re looking at Google.
M&A: Are C.E.O.’s overpaid?
A.M.: That’s hard to answer in the objective sense. What we have learned over the past five years is that public corporations are political organizations and depend on public good will to survive. The perception that C.E.O.s are overpaid fuels enormous public resentment. A case like Bob Nardelli’s severance package at Home Depot creates a great deal of anger on the part of the public. And that anger has to be addressed.
You know, Wall Street Journal readers are not anti-business but they are very angry at the people who run large corporations. They got very angry about what happened at Enron and Tyco and so forth and they are very angry at C.E.O. pay. And they are very angry they are not getting the kind of returns they got used to getting in the 1990s. They feel they are not getting their piece of the pie and that people who run the corporations are getting too much of that pie.
M&A: Which drives investments into the private sector.
A.M.: Something odd is going on right now in terms of liquidity. There is a flood of money and it is relentless and it is bidding the premium of risk out of all kinds of markets. Sooner or later the flood will dry up. And when it does we will discover that a whole lot of people made a whole lot of bad decisions.
|
|
|
