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Top Stories
Millions for Billions: Ameriprise to buy J&W Seligman
 Ameriprise Financial Inc. has agreed to acquire asset management firm J&W Seligman & Co. for $440 million. Seligman manages approximately $18 billion in assets in open- and closed-end funds, hedge funds and institutional accounts. The deal will be funded with cash on hand. UBS Investment Bank served as financial adviser, and Ropes & Gray LLP acted as legal adviser for Ameriprise Financial. Merrill Lynch acted as financial adviser, and Cleary Gottlieb Steen & Hamilton LLP acted as legal adviser for Seligman.
An Optical Fusion: Opnext to buy StrataLight
 Opnext Inc., a maker of fiber-optic communication network products, announced it has agreed to buy privately held StrataLight Communications Inc. for $169.9 million in cash and stock. StrataLight manufactures ultra-high capacity optical transmission subsystems used by the communications industry. The company said the acquisition of StrataLight will expand its product offerings. As part of the purchase agreement, Opnext will acquire StrataLight for approximately 26.55 million shares and $30 million in cash. The deal is worth approximately $169.9 million.
Hospital Assistance: Huron Acquires Stockamp
 Huron Consulting Group Inc., a leading provider of financial and operational consulting services, announced the acquisition of Stockamp & Associates, Inc., a national management consulting firm that specializes in helping high-performing hospitals and health systems optimize their financial and operational performance. Under the terms of the agreement, Huron has acquired the assets of Stockamp & Associates for approximately $219 million, consisting of $169 million in cash and $50 million in stock, subject to adjustment.
A Steel Deal: Severstal Completes Acquisition
 OAO Severstal completed its previously announced acquisition of WCI Steel, a company that participates in the production of value-added steel products based in Warren, Ohio. WCI Steel shall be named Severstal Warren, Inc. Severstal acquired all of the outstanding equity of WCI for a total cash consideration of US$140 million. Citi and Raymond James acted as financial advisors, and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel to Severstal.
Merge for the Cure: Lilly to Acquire SGX Pharmaceuticals
 Eli Lilly and Company and SGX Pharmaceuticals, Inc. have announced that the companies have signed a definitive merger agreement, providing for the acquisition of SGX in an all-cash transaction. SGX, based in San Diego, is a biotechnology company focused on drug discovery and development in the area of oncology. Under the terms of the agreement, Lilly will acquire all of the outstanding shares of SGX common stock at a price of $3.00 per share, for a total purchase price of approximately $64.0 million.
For a check on how our industry is doing, one can always contact the folks at GF Data Resources. The company owns and maintains a proprietary database that keeps accurate and detailed information on business transactions to PE buyers, intermediaries, capital sources and valuation professionals.
Specifically, GFDR collects, analyzes and reports on private equity-sponsored M&A transactions in the $10 million - $250 million value range. The firm has analyzed nearly 550 transactions, reported by 79 private equity firms, and provides industry drilldown data in more than 100 NAICS categories and sub-categories.
Access to this key industry information is available on a firm-wide basis. Graeme Frazier, one of the co-founders of GFDR, explains, “database subscriptions are available on an annual basis, which includes four quarterly reports with high level data delivered electronically in .pdf format, and unlimited access to our searchable online utility through our website. Pricing depends on the type of firm and how many professionals work at the firm. Our subscribers do not buy ‘seat licenses;’ rather they get unlimited firm access.”
As a preview, late last month, GFDR released its June 2008, Middle Market M&A Valuation Report. According to the report, “both deal volume and pricing reported by nearly 80 middle-market private equity firms declined in the first quarter of 2008. Valuations in the GFDR universe also continued the downward slide that began to take hold, following the onset of the sub-prime mortgage crisis in July of last year.”
GFDR’s primary valuation metric – Total Enterprise Value as a multiple of adjusted EBITDA (TEV/EBITDA) – averaged 5.6x for 1Q 2007, down from 5.8x in the second half of 2007, and significally off of the 6.5x average in the first half of ’07.
The report outlines that deals between $10 and $25 million were valued at 4.8x for Q1, down from 5.4x. Similarly, deals valued between $25 and $50 million dropped from 6.0x to 5.3x in the last quarter. In the $100 - $250 million range, valuations fell from 7.4x at the end of 2007 to 6.5x. Noted, however, is the fact that in Q1 of 2008, deals valued between $50 and $100 million rose from 5.8x at the end of 2007 to 7.4x.
Another bright spot, despite the continued drop, PE firms said they were seeing a “flight to quality,” meaning intense competitive interest in quality businesses being offered for sale. Quality, Frazier clarifies, “is more of an anecdotal measure. The facts are that target companies with EBITDA margins above the norm (for argument, let’s say 15%), and good growth characteristics (let’s say the target company operates in an industry where the average growth rate is higher than GDP growth for the same period, and that target company also grows faster than its industry average), are more desirable to institutional buyers. Desirable companies also have less risk (measured by supplier and customer diversity, intellectual property protection and many other attributes).”
Further, according to GFDR, while there are still some troubled sectors and conditions, resulting from oil prices, the market GFDR covers is not experiencing a broad economic or capital-market reverses that could justify a sustained pullback.
Frazier also points out, “the dip seems to have bottomed out in the market in the $10 to $250mm in transaction value. According to our data, the lending market has rebounded since the second half of 2007. This has happened in the face of a lot of ‘doom and gloom’ press reports that do not define coverage to be our segment of the market.”
That’s good news for middle-market deal makers.
For more information visit: www.gfdataresources.com
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Coming Events |
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The M&A Advisor Annual
Conference
and Awards Gala
December 15, 2008
New York, NY
NOMINATE NOW
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A Double Header
If you are looking for a double header this summer, look no further than TM Capital. TM Capital provides expertise, in structuring, negotiating and closing strategic transactions. A few of the firm's core focuses include: sales of public and private companies; acquisitions and buyouts of businesses; arrangement of debt and equity financing; and arrangement of capital for acquisitions. With a track record of over $10 billion in transactions the firm is continuing its growth play in the technology and media sectors. Recently, the firm closed two important deals.
First, the firm successfully advised CedarCrestone in its acquisition of E2E Consulting, an Oracle Certified Partner that specializes in providing Service Oriented Architecture (SOA) solutions. CedarCrestone is a leader in IT consulting and managed services that focuses on Oracle and PeopleSoft technologies, The purchase deal was completed in just three short months.
Brad Adams, Managing Director at TM Capital, explains the strategic buy, “CedarCrestone is a very significant  Oracle services partner. To date, they have been entirely focused on implementing Oracle’s PeopleSoft Human Capital Management solutions. CedarCrestone’s strategy is to become an even stronger Oracle partner by acquiring other leading Oracle-focused service providers that have expertise in some of the other Oracle applications such as the Enterprise Business Suite.”
Acquisitions of services companies can be challenging, as the primary assets are not tangibles but human capital. In such cases, according to Adams, “what is important is the ability to structure a transaction that allows the management shareholders to take some capital off the table, but still retain and motivate not only key executives, but the remainder of other key professionals as well.” Adams offers this insight for such deals, “In order to accomplish this task, it is imperative to find meaningful roles for the target’s key executives and align compensation, benefits and incentives for all the professionals at the target company.”
TM Capital also recently advised Babel Media Ltd., an industry leader in specialist outsourced services for the games and interactive entertainment industry, in obtaining new majority investments from Quatrro BPO Solutions. Quatrro is an outsourcing company with over 2,000 employees across the globe. With this transaction, Babel has become a part of the Quatrro group of companies. TM Capital also helped obtain further investment for the deal from the D.E. Shaw group. The D.E. Shaw group is a global investment and technology development firm with approximately $39 billion in aggregate capital.
Jereme LeBlanc, Vice President at TM Capital, believes that the deal represents, “an industry-transforming  event that couples the leading games outsourcing provider with a world class outsourcing platform.” At this critical juncture the interactive entertainment industry faces both a colossal opportunity and its biggest challenge. Currently, there are multiple platforms on which games publishers can produce their content. “The emergence of new markets has created demand for interactive entertainment across the globe. The proliferation of platforms and territories, however, has simultaneously caused production costs to increase and has created a far more complex games development lifecycle,” says LeBlanc.
The transaction posed a great challenge as the deal was truly global nature, involving a significant number of parties. LeBlanc says in this case, “This dynamic was exacerbated by the fact that there were multiple parties involved from all over the world. Aside from the more obvious differences in time zones, accounting standards, culture, foreign currency, tax policy, compliance regulations and funds transfer processes, transaction structuring and negotiation tactics often times varied by region.”
To mitigate the complexity of global deals, LeBlanc offers the following check list of advice:
--Involve attorneys and accountants with significant experience in those regions where the target, buyer and financial sponsor are domiciled
--For services companies, negotiate as much of the deal as possible at the LOI stage.
--Address the roles and compensation structure for key employees at the target early on and address
major restrictive covenants prior to initiating drafting of the SPA
--Discuss the size and terms of the ESOP plan in the LOI whenever possible
--In transactions where there is a financial sponsor, it is critical for the strategic buyer and the financial buyer to have their terms agreed to prior to initiating negotiations with the target.
Congratulations to TM Capital on closing these two important deals.
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