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Music to Their Ears: Sony to buy Gracenote for $260 million
Sony Corp. of America agreed to buy digital media identification company Gracenote Inc. for $260 million. Gracenote's database supplies song names for CDs in a computer. It is also working on building a movie library to identify DVDs and determine if online videos contain copyrighted material. The deal is expected to close in late May. Gracenote's senior management will stay with the company, Sony said. The deal includes other "contingent consideration" on top of the $260 million, the company said without giving details.


A Growing Market? Sí: CBS Acquires IOA for $110m
CBS has acquired International Outdoor Advertising Group (IOA), the leading out-of-home advertising company in South America with more than 17,000 advertising faces in Argentina, Brazil, Chile and Uruguay, for $110 million in cash. The four countries in which IOA operates comprise more than two-thirds of the continent's population, GDP and advertising-spending growth, and offer CBS Corporation an entry point and leadership position into the fast-growing South American market.

Timing is Everything: LVMH Acquires the Swiss Watchmaker Hublot
LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury group, announces that it has signed an agreement to acquire the Hublot group, a top of the range watchmaker enjoying very strong growth.  Hublot, which has its headquarters and workshops near Geneva, has started building a factory at Nyon to accommodate its expansion plans. Having grown at a rapid pace since 2004, the brand achieved net revenue of more than CHF150 million in 2007 with an excellent profitability. A very significant increase in revenue is expected in 2008.

How Old is Old?: GlaxoSmithKline to Acquire Sirtris Pharmaceuticals
GlaxoSmithKline and Sirtris Pharmaceuticals, Inc. announced that the two companies have entered into a definitive agreement pursuant to which GlaxoSmithKline will acquire Sirtris Pharmaceuticals for approximately USD720 million through a cash tender offer of USD22.50 per share.  Through the acquisition of Sirtris, GSK will significantly enhance its metabolic, neurology, immunology and inflammation research efforts by establishing a presence in the field of sirtuins, a recently discovered class of enzymes that are believed to be involved in the ageing process.

Start Your Engines:  China Automotive Systems Revs Up With $35 Million
China Automotive Systems, Inc. a leading power steering components and systems supplier in China, today announced that it has received all the $35 million from a previously announced private placement transaction with Lehman Brothers for $30 million and with YA Global Investments, L.P., which is managed by Yorkville Advisors, LLC, for $5 million. The proceeds are planned to support the Company's acquisitions, capital expenditures for expansion and working capital for future growth. The Company also announced that the previously announced acquisition of an additional 35.5% of Henglong Automotive Parts Company ("Henglong") was approved by the local Ministry of Commerce of the People's Republic of China in Jingzhou, Hubei Province, China. With the transaction completed, China Automotive Systems now owns 80% of Henglong, and this transaction will be accretive to net earnings in 2008.

Wired to Go: Halyard Capital Forms Cable Broadband Platform
Halyard Capital, a New York-based private equity firm, in partnership with cable veteran John Brooks, announced today the formation of NuLink and the acquisition of cable assets from Newnan Utilities, a municipally-owned utility based in Newnan, GA, for $70 million. The transaction closed April 21. The acquisition provides NuLink a platform in Coweta County, GA, a demographically attractive and high-growth region approximately 40 miles southwest of Atlanta. Newnan Utilities has developed a strong competitive position through first-rate customer service and a state-of-the-art network.

Sure it looks tough out there.  Yet there are some bright spots.  Whatever happens at next week’s Federal Reserve meeting, Wall Street is prepared for either a quarter-point or a half-point rate cut and that is good news for investors and the markets in general. 

This expectation comes as strong economic data in the US, led this week by Ford, defied the credit crisis.  We are in a situation now where the dollar has risen against both the euro and the yen.  But with oil prices still over one-hundred dollars a barrel investors are again turning to Treasurys to cover their bets.  So, what’s a deal maker to do in this climate?

On the macro level, I say deal makers should continue to look to emerging markets.  Both the Brazilian and the Russian economies continue to grow at leaps and bounds, with GDP rising respectively to 26% and 17%.  Analysts are forecasting that Vietnam is also set for continued fast pace growth, as is Nigeria; and of course there is always China and India.

At the micro level, deal making goes on and certainly will not grind to a halt.  If for no other reason than global GDP continues apace.  For now, private equity firms are continuing to invest the cash on hand.  Risk metrics at many firms, however, are being reviewed and seem to be settling at 5 or 6 times EBITDA.  Meanwhile, the due diligence process is either being revamped or is under serious revision, depending on the firm and its sector specialties. 

Under the current credit conditions, Special Purpose Acquisition Corporations (SPACs), which have existed since the ‘90s, are receiving renewed attention.  SPACs are publicly traded investment vehicles that allow public shareholders to participate in buys generally performed by private equity.  SPACs go public with the purpose of participating in M&A deals mostly to reap proceeds from a deal’s IPO. 

Since inception, SPACs have been on the rise.  According to Dealogic, a provider of global investment banking and analysis, 65 SPACs launched last year, to raise approximately $12 billion.  These offerings represented 22% of all IPOs, and a significant increase from the 37 started in 2006.

Unlike private equity deals, anyone can buy shares in a SPAC.  SPACs are regulated because they are public entities.  Specific time frames are required for an investment to be found and consummated, with majority shareholder approval.  Similar to private equity, SPAC deals do not require debt.  As Kara Stearns-Sharp, Director of Advisory Services, for Kaufman, Rossin & Co., points out, “Once the credit markets rebound, these deals may be candidates for refinancing." 

Sharp goes on to say, "Sellers too might find advantages in being acquired by a SPAC.  In these deals, the company’s management is allowed to continue running the business and benefit from the upside of public market participating, including the access to capital.” 

Sharp advices that sellers should pay acute attention to complete and accurate documentation.  Her checklist calls for ensuring that:

1. Agreements are already in place, like shareholder agreements, trust agreements, buy/sell agreements, and right of first refusal agreements
2. Debt arrangements, guarantees or indemnification between officers, directors and the company are complete
3. Contracts with suppliers, clients, or employees are understood by all parties
4. Loans or other debt arrangements, credit agreements, or financial guarantees are reviewed
5. Litigation, whether threatened, pending or complete  is specified.

SPACs, as one way of raising needed capital, certainly are worth consideration. 

On Wednesday of this week, I attended Morgan Joseph’s SPAC Conference.  The highlight of the event was when Eric Rosenfeld, President and CEO of Crescendo Partners—who also teaches at Columbia Business School and at Directors College—broke out in song with his own lyrics “Any Loan Will Do” set to the tune of “Any Dream Will Do” from Joseph and the Amazing Technicolor Dreamcoat. 

I closed my eyes
Drew back the curtain
To see for certain
What I thought I knew

Far far away
Bankers were quaking
And the deal was breaking
Any loan will do

I did my deal
With financial sponsors
They became monsters
We have to sue

No more great feast
The deal is breaking
The banks were faking
Any loan will do

A crash of debt
From such a height
My golden deal flew out of sight
The money faded into darkness
I was left alone or
There was no mezz loan

May I return
To the beginning
The stock is dimming
And the deal is too

The board and I
We are still waiting
Still hesitating
Any loan will do

A crash of debt
From such a height
My golden deal flew out of sight
The money faded into darkness
I began to moan

The board and I
We are still waiting
Still negotiating
Any bank will do.


Singer Extraordinaire

Deal makers, if that doesn’t sum things up, I don’t know what does. 

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