June 12, 2009

Top Stories
Think or Swim. That's the Deal:
Thinkorswim Sold to TD Ameritrade
Thinkorswim Group Inc., an online brokerage which also offers investor education services, announced this week its stockholders have approved its sale to TD Ameritrade Holding.
The combined cash and stock deal is valued at $606 million. Shareholders of thinkorswim will receive $3.34 per share at the closing. Shareholders will also receive 0.3980 of a share of TD Ameritrade common stock for each share of thinkorswim common stock. Shareholders also approved an amendment to permit the grant of thinkorswim restricted stock units and a stock option exchange program that will allow employees to exchange certain thinkorswim options for restricted stock units. These units will be assumed by TD Ameritrade in the acquisition, the company said.
 
A Girl's Best Assets: Talbots Signs
Definitive Agreement for Sale of J. Jill
The Talbots, Inc. announced this week that the company has signed a
definitive agreement to sell substantially all of the J. Jill brand assets to Jill Acquisition, LLC, an affiliate of Golden Gate Capital, for approximately $75 million. The transaction includes the transfer of certain assets and liabilities to the buyer, including the Tilton, NH distribution facility, sublease of a portion of its Quincy, MA office facility, and substantially all of the brand's intellectual property and inventories. Two hundred and four of the existing 279 J. Jill brand store leases will be assigned to the buyer and will continue to operate. The 75 remaining J. Jill brand store leases will be retained by Talbots and are currently expected to be closed by Talbots within the next sixty days. The Board of Directors of The Talbots, Inc. has unanimously approved the transaction. The transaction is not conditioned upon financing and no Company shareholder approval is required.
 
Lone Star State Not Alone:
Pepsi Bottling Group to buy Texas Bottler
The Pepsi Bottling Group Inc., (PBGI) announced early this week that it would buy Ab-Tex Beverage Ltd.
Though the terms of the deal were not disclosed, the transaction is the latest acquisition by Pepsi Bottling Group, which rejected a takeover offer from PepsiCo Inc., in May. Since May, PBGI has acquired another Texas bottler, Better Beverages Ltd., and has said the company is planning to purchase Pepsi-Cola Bottlers for the Merrimack Valley Inc., based in Massachusetts. Terms of this deal were also not disclosed. PBGI has also bought two other bottlers that do business in Colorado, Arizona, New Mexico and upstate New York.
 
Banking on Eastern EU: Naspers Announces
Acquisition of Polish Financial Portal Bankier.pl
MIH Allegro B.V., the Polish subsidiary of MIH B.V., part of the Naspers group has announced that the company has made a public tender offer to acquire up to 100% of Warsaw-listed Polish financial portal Bankier.pl. If the offer is accepted, Allegro, the leading e-commerce platform in Eastern Europe, intends to fold Bankier.pl's products and services into its e-commerce platform. Bankier provides financial news, analysis and comparison-shopping information on consumer financial products, ranging from mutual funds to mortgages. To initiate the public offer, one of Bankier's main shareholders has irrevocably committed to tender its 18.4% holding. Should the deal be in acceptance, the total purchase investment is estimated to be approximately $19.3 million.
 
A Clean Practice: Iron Capital Expands Clean Technology
Iron Capital announced its acquisition of EnviroTech Capital, an investment and consulting practice focused on clean technology.
Based in Boston, EnviroTech Capital focuses on technology projects that leverage technical and financial expertise. Iron Capital focuses on fully vetting and investing solely in high-technology and clean-technology companies that have disruptive business models--while targeting a large, addressable market. Iron Capital's pipeline management includes $67 million of equity funding and $20 million of debt funding. Terms of the deal were not disclosed.
 
Calling 4.1 Billion Customers: OutStart Merges With Hot Lava Software
OutStart, Inc., a social business software and learning systems company, has merged with mobile leader Hot Lava Software, a company with applications that target the world's estimated 4.1 billion mobile cellular subscribers.
The newly combined company will conduct business as OutStart. OutStart will make use of Hot Lava's patent-pending technology to develop, deliver and track mobile content such as product training, surveys, job aids and checklists. The new company plans to incorporate mobile capabilities in its social business software and learning systems. Terms of the deal were not disclosed.

We have read the headlines. And if our middle market deals depended on them, we'd be sunk. This past May M&A across the board dropped to a record low. According to Thomson Reuters and Freeman and Company, M&A deals last month plunged 63% year-over-year to $892.4 million, leaving May 2009 one of the poorest showing months since stats were introduced in 1998, in which fees fell below a billion.

For the industry as a whole, worldwide M&A deals stood at just $480 billion for the first quarter of 2009, dropping 28% from the year-earlier period.

Middle market deals under $500 million were hit hard, plummeting by 48% to $98 billion, the first quarterly period since 1996 to fall under $100 billion.

Worldwide, banks brought in $2 billion in fees for completed transactions since the beginning of April. This is a 78% drop on the $9 billion banks earned in the second quarter last year.

Europe, so far, has been hardest hit, with deal volume declining to 48% from last year. Asian deals dropped off at 46%. We in the US fared slightly better, with a 33% drop in volume.

Looking at cash on hand, global M&A fees for transactions completed this year stands at $6.7 billion, a 58% decline from a year-ago.

The macro number doesn't look much better for the M&A industry on a monthly basis. Overall, deals complete stands at an average of $56.7 billion a month. This of course does not in any way compare to the high flying days of 2007 when completed deals per month never dipped below $200 billion.

Depending on a dealmaker's perch and outlook, there might be some solace in the fact that syndicated loan fees dropped 64% last month (year-over-year) and debt capital market fees dipped 24%, figures showed. ECM fees, however, jumped 15% year-over-year to $2.20 billion.

If we lived in a vacuum things would be different but the reality is that the amount of debt financing for acquisitions has slowed the deal process for both companies and LBO firms. Thus far, companies have announced $655 billion of transactions this year. Unfortunately, this is a drop of almost 50% over the same period last year.

By dollar amount Morgan Stanley, so far, this year has completed $255 billion worth of mergers. JPMorgan Chase & Co. ranks second for the year thus far with $231.0 billion of deals, according to Bloomberg.

As most dealmakers know the action is taking place in China, India, the Middle East and in parts of Europe. But deals are slower to transact.

If deal making was the auto industry, that would be one thing. As an industry, deal making, however, is not even close to bailout territory. And things have taken a turn for the better. Across the board while the numbers weren't good last month, deal making did in fact turn upwards, as $186bn worth of deals were announced in May, better than the $118bn announced in April.

For the middle market professional, things get even rosier, as many predict the middle market will continue to lead the way in deal making. Why? Because big deals have become fewer in number and will likely do so going forward.

If you are like most dealmakers, and are sanguine about the future, you probably anticipate the latter half of the year to improve. Which is to say, we have likely hit bottom.

Meanwhile, buyout targets have become affordable and battered equities have made companies cheap, which in time will prove to be the silver lining to the current cloud. Strategic buyers, for example, who are acting now, are getting values they wouldn't or couldn't otherwise.

Across the pond, banks from Barclays Capital to Societe Generale--which are aiming for the EU M&A market-- to boutique firms such as Centerview Partners, Moelis & Co and Qatalyst--which are opening London M&A offices--are gearing up for the recovery.

Middle market sectors to watch:

• Construction and manufacturing. Yes, believe it or not. With $29 billion of stimulus spending by the US federal government deal making in this area should swing upwards. Just in the last three months, 164 deals have been announced.

• Health care. With the US Congress and the Obama administration wrestling over the details expect a deal to be cut sometime this year. Therefore, opportunity awaits the ones who read this market well. In the last three months 53 deals have been announced.

• Financial services. Right now, firms big and small on both the private equity and regional bank sides are working to find the right deals as a result of bad mortgages. Trust your colleagues this sector should see significant deals in the coming months. Leading the latest drive, financial services has announced 380 deals in the last three months.

Our sector data comes from Zephus Ltd., producers of the powerful Zephyr database. Readers of the M&A Alerts will want to be on the lookout for coming reports, as we team-up with one of the world's leading sources of M&A data. On a regular basis we will be reporting on global middle market M&A activity.

As we await the final thaw to the credit markets we can choose to look at the numbers with doom and gloom or we can prepare for our own turnaround.

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Q & A

Best Practices in Lender Negotiations for Underperforming Companies
Mark Chesen Bobby Mannepalli

Mark Chesen, Managing Director, and Bobby Mannepalli, Analyst, of SSG Capital Advisors, LLC, layout the important guidelines for companies to survive and thrive in these challenging times when lender negotiations may be central to survival.

M.A.: What is the overall state of mid-market companies and firms as the result of the downturn, and how is this impacting deals in the middle-market and how wide spread is the damage?

M.C. & B.M.: The current global economic downturn is clearly a once-in-a- lifetime phenomenon that is adversely affecting companies across almost all sectors. Stalwarts of American business such as General Motors have filed for bankruptcy protection. The economic crisis is having a severe impact on the middle-market segment, as a result of reduced customer demand and liquidity constraint. This is evidenced by the sharp drop in senior and second-lien loan volume in 2008. As a result, previously sound companies are suddenly finding themselves in financial distress. Even stable, diversified, multinational conglomerates such as General Electric have been battered.

M.A.: What can companies proactively do in this market should they find themselves underperforming?

M.C. & B.M.: It is important that companies and firms retain turnaround professionals--such as crisis managers, investment bankers and legal counsel to help assess the situation. As a company or firm does employ these subject matter experts, it is imperative that the organization maintains ongoing honest communication with lender(s).

M.A.: What should distressed companies expect if they want to remain viable?

M.C. & B.M.: Companies in this situation should be prepared to take the "painful medicine" early on by taking actions such as cutting costs, divesting non-core assets or consolidating operations. Taking these steps early on may lead to a company's ultimate financial recovery whereas waiting too long may lead to liquidation. If a company continues to underperform, in addition to following the steps mentioned above, the company officers need to understand that as senior management and/or as Board Member(s), they have a fiduciary responsibility, not only to shareholders, but also to senior lender(s), suppliers, other creditors, customers, and employees.

M.A.: What first steps should a company or firm do when negotiating with lenders?

M.C. & B.M.: Communicating with a lender on a timely basis--while providing all updates, both good and bad, instead of waiting until the very end and hoping for a miracle--is key. Companies and firms should also provide as much financial and operational detail as possible, so that a lender(s) can make informed decisions as to how to proceed with the borrower.

Before--or while requesting any modifications to a current loan agreement--companies and firms should make sure they have done everything to present the company in the best light; for example, retaining turnaround professionals, cutting costs, divesting in non-core assets, and/or consolidating operations. A lender(s) does not want to feel like the only party being asked to make sacrifices to solve the challenges at hand.

M.A.: Should a distressed firm or company seek temporary forbearance?

M.C. & B.M.: In most cases, amending or renegotiating a current loan agreement is more beneficial than entering into a temporary forbearance agreement.

M.A.: What else should company managers keep in mind?

M.C. & B.M.: All company officers should remember to remain emotionally detached when in negotiations with senior and mezzanine lenders--especially before offering up additional collateral or personal or partnership guarantees. If a company has a well thought out turnaround plan in place, then providing an additional investment and/or collateral may be warranted to motivate lender(s) to continue to support the company, both through providing additional capital and/or agreeing to restructure credit agreements in a manner that works for both the company and the lender(s).

Again, companies that want to survive should consider retaining turnaround professionals, such as crisis managers, investment bankers, and legal counsel that are well versed in dealing with underperforming companies. These professionals provide unbiased assessments of a situation and can also determine how best to move forward, as they evaluate the most important undertakings for any company or firm that is underperforming or in distress.

Remember, skillfully negotiating with lenders can ultimately result in the preservation of jobs as well as value for all stakeholders.

M.A.: Thank you Mark and Bobby.

 
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