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Top Stories |
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A Stock in the Future: LabCorp Completes Acquisition of Monogram Biosciences
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Laboratory Corporation of America Holdings (LabCorp) announced successful completion of its acquisition of Monogram Biosciences, Inc. (Monogram). LabCorp acquired Monogram pursuant to a cash tender offer, followed by an additional merger of a wholly-owned subsidiary of LabCorp and Monogram. As a result of the acquisition, Monogram became a wholly-owned subsidiary of LabCorp, and Monogram shares ceased to be traded on the NASDAQ Global Market at the close of trading on August 4, 2009. At the effective time of the merger, all outstanding shares of Monogram common stock not validly tendered and accepted for payment in the tender offer were converted into the right to receive $4.55 per share in cash (the same price paid in the tender offer), without interest and subject to applicable withholding taxes. American Stock Transfer & Trust Company, acting as agent for the merger, and will mail to the remaining former stockholders of Monogram materials necessary to exchange their former Monogram shares for such payment. Additional terms of the deal were not disclosed.
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Strategic Flight: Arlington Capital Partners Announces Buy of J.A. Reinhardt
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Arlington Capital Partners announced its acquisition of J.A. Reinhardt and Company Inc. (J.A. Reinhardt). The strategic acquisition is to enhance the defense and aerospace portfolio of Arlington Capital Partners. J.A. Reinhardt designs, engineers and manufactures thermal and mechanical products, such as avionics chassis, cold plates, integrated cold walls, heat exchangers and microwave antennas for the defense and aerospace industries. Terms of the deal were not disclosed.
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News to Trade: Capital Partners to Acquire PRonlineNews.com
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Capital Partners Limited, LLP announced the acquisition of PRonlineNews.com, an Internet-based news outlet, of intellectual capital and technology. H. Richard Oprinski, a current officer at Capital Earnings & Research, will serve as new divisional Managing Partner for the media company effective September 1, 2009. Oprinski will retain his seat on the parent company's Board of Directors. Under the terms of the agreement, the transaction will remain revenue-neutral for one year. As well, PRonlineNews.com will focus its news authoring and release capability on its niche market of existing small business clients, while targeting the release of its products across the nation. The acquisition has been approved by the Board of Directors of each company for the 4th quarter of 2009, and is subject to concluded standard closing conditions, including approval under similar laws outside the U.S. PRonlineNews.com is expected to launch its full operation by October 1, 2009. Terms of the deal were not disclosed.
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New Shoes: Eddie Bauer Completes Sale to Golden Gate Capital
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Eddie Bauer Holdings, Inc. announced the company has completed its previously announced sale of its assets and operations to Golden Gate Capital for $286 million in cash. With the closing, Eddie Bauer will operate as a newly formed company, and will continue to serve its customers. The distressed deal should allow Eddie Bauer to create a stronger balance sheet, with little or no long-term debt and a substantially lower cost structure. Golden Gate Capital has indicated its support for management and their strategy of brand refocusing. Eddie Bauer plans to maintain a substantial majority of its stores and employees. Under Golden Gate's ownership, Eddie Bauer will benefit from having a well-capitalized partner with extensive expertise in multi-channel specialty retail.
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A Sound Infrastructure: SAIC Completes Acquisition of R.W. Beck
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Science Applications International Corporation announced earlier this week that it has completed its acquisition of R.W. Beck Group, Inc., a provider of business and technical consulting services in engineering, energy and infrastructure. R.W. Beck serves public and private infrastructure organizations and financiers in the energy, water, wastewater and solid waste industries. R.W. Beck's customers include utility organizations, government entities, financial institutions and other commercial customers. The acquisition includes Beck Disaster Recovery (BDR), Inc. BDR provides all hazards mitigation, preparedness/planning, response, recovery and reconstruction services; continuity and emergency operations planning; risk management and mitigation; and training services to local and state government agencies nationwide. R.W. Beck's 670 employees will join SAIC's Infrastructure, Logistics and Product Solutions Group. The group provides integrated solutions for a variety of customers across energy, environment, homeland security and logistics markets. R.W. Beck's core consulting and engineering organization will join the Group's Energy, Environment, and Infrastructure business unit. Terms of the deal were not disclosed.
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Energy Credit: MVC Capital Sponsors US
Gas & Electric
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MVC Capital, Inc. a publicly traded company focused on private debt and equity investments, announced that it has sponsored one of its portfolio companies, US Gas & Electric Inc., (USGE), in the acquisition of Energy Service Providers, Inc. (ESPI). The transaction required no new investment capital from MVC. As part of the transaction, MVC will provide a $10.0 million limited guaranty and a short-term $4 million letter of credit. For sponsoring and providing the credit, MVC will earn a one-time fee income of approximately $2.2 million. In addition, MVC's management fee for the oversight of the combined company will increase annually from $250,000 to $650,000 annually. MVC, meanwhile, continues to be a majority shareholder of USG&E. USG&E is an energy service company that sells natural gas to small commercial and residential retail customers in Indiana, Michigan, New Jersey, New York and Ohio. ESPI sells electricity to small commercial and residential retail customers in the state of New York. Both companies have recorded compounded annual sales growth of greater than 100% since 2003. Post USG&E's acquisition, ESPI will become a wholly-owned subsidiary of USG&E.
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Pipeline Profile
Juan Tosoni is founder and Chief Executive Officer at TX2 Systems, Inc., and our Pipeline Professional for the week. Prior to founding TX2 Systems, Inc., Juan has had extensive experience in the software industry working for companies such as SAP, Pivotal and Group 1 Software. Juan's expertise includes helping large and mid-sized corporations integrate enterprise software solutions into their organizations and leveraging technology to streamline workflow and complex business processes.
Juan is also a dynamic public speaker, and has been a featured speaker at many industry and educational events, including the Association for Corporate Growth; the IMAP conference; Association of Corporate Counsel; Johns Hopkins University; Boston University, and Georgetown University. Juan holds a Bachelor of Science degree in Marketing from the University of Maryland. He also served in the United States Air Force where he was a member of the elite Honor Guard Team and held a Top Secret security clearance.
If you need a middle market software specialist, reach out to Juan and his team. You can find him on our website at www.maadvisor.com
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Metrics Meter
July 2009: Deals valued at less than $500 million accounted for 40% of total world-wide M&A volume for the month.
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What to Look for When
Summer Shopping
Roger's Corner
by Roger Aguinaldo
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It's summer in the city and everyone is feeling the heat. Middle market deal volume is down around 20% and valuation disputes can make any dealmaker hot under the collar, as some enterprise-value-to-EBITDA multiples have withered as much as 40%.
Not surprisingly, the financial sector has recorded the biggest deal volume by sector for 2009 thus far, but this mostly a result of government injections into banks of all sizes. Where the middle market is getting a bit of a breeze is in the area of PE fundraising.
PE fundraising for the year is as much as $400 billion. Post crisis this means that PE has approximately $800 billion in purchasing power. Why? Because our PE friends and colleagues have managed to pack away $400 billion for a rainy day. Therefore, if the credit markets see an uptick, a wave of sunshine deals may well be on the way.
But like the summer weather, things can change quickly. One large lurking cloud is that US syndicated loans stand at $368.3 million, a decline of 57% from last year.
So which sector has a summer breeze at its back? You guessed it. Healthcare. US syndicated loans for the sector come in thus far at $974.3 million for the year, a nice gust of 198% from last year's $326.7 million.
Window shopping under these conditions may not, however, be the best deal in town, as cool deals are worth getting in on. Some of our corporate friends know, an August deal now just may be a great deal for heating revenue in the coming months.
Take Google's middle market purchase of On2Technologies this week. On2Technologies compresses online video files for smaller swifter service. Like many equity deals out there, the deal was valued at approximately $106 million. The per-share purchase was 57% above On2's closing stock price on Tuesday of this week. Not surprisingly, On2's shares jumped early Wednesday in reaction to the news.
So if you're a dealmaker with change in your pocket and you like summer shopping what should one look for? Distressed or bankrupt businesses with consolidation in the industry might provide some relieve from the summer heat.
Dealmakers, however, should keep in mind that a summer sale does not mean that the company will deliver next season. Once bought broken, it's yours. Liabilities, costs, and other fiduciary commitments can't be avoided.
And while that summer side walk sale seemed like a good idea, remember that a summer romance is just that.
Post-summer romance requires due diligence and common sense targets.
Dealmakers should also find a management team that understand the history and has the motivational tools to turn your summer love into a longer term commitment. Meanwhile, compliance changes across the board in every sector have been instituted or are up for an overhaul.
Summer games and summer romance can help a dealmaker's strategy, but one should be sure that any debt deal three times below EBITDA may not be the partnership of one's dreams.
Buyers should also remember that a strategic investment is just that. Emphasis on strategy. So, use the summer to implement targets and benchmarks, while reviewing the competition's game. Why so now? Two words. Hostile takeover.
According to a Conference Board Governance Center recent report, hostile offers accounted for 47% of M&A transactions during the first few months of this year--which compares to 24% in all of 2008 and only 4% of M&A deals in 2004.
Everyone watched the high-end Exelon-NRG dance. At first, Exelon made a $6.1 billion offer late last year, representing a 37% premium to NRG's shares at the time. The proposal was coldly turned down. NRG, meanwhile, went about its summer plans and bought Reliant Energy's Texas Retail business for $287 million–while shrugging off its mining operations in Germany, for slightly over $200 million.
Dealmakers, what I am saying is: don't let the summer heat get to you.
Future Dealmakers
The M&A Advisor has four new interns who were selected for their intelligence and professionalism. Please join us in welcoming and acknowledging their efforts and their enthusiasm.
Regina Berdybaeva, who hails from Kyrgyzstan, will begin working on her MBA at Northeastern this September. Regina recently graduated from American University of Central Asia in June of this year.
Gary Ma graduated from Queens College in 2008, where he earned his B.B.A. in Finance.
Penelope Figuereo is a first year graduate student at John Jay College. Penelope is working towards her Master's degree in Public Administration, with a specialization in organizational assessment.
Milan Thakkar is a rising sophomore at Cornell University, majoring in Applied Economics & Management.
Welcome interns and thank you for your hard work.
You can meet other emerging leaders at the next ACG New York event on August 20.
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Q & A |
M&A Synergy: Valuation and Integration
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| R. Balon |
L. Toops |
Robert Balon and Linda Toops are Managing Partners at Clerestory Consulting LLC, a merger integration, technology adoption and operations firm. We asked Robert and Linda for their input with regards to valuation and integration from both the buy side and sell side.
M.A.: What does the current M&A middle market look like when it comes to systems integration? And how does this differ from previous market conditions?
R.B. & L.T.: As we are sure you are aware, middle market M&A activity is down 86% from just one year ago. Therefore, today's mergers have absolutely no room for failure. We shepherd two distinct types of mergers; those that involve integrating operations, strategic/portfolio mergers, and of course mergers that expand capabilities.
Though M&A activity is down, recent mergers are demonstrating a greater reliance on integrating operations. At the height of 2007, mergers and acquisitions yielded returns that sometimes, but not always overlooked integration from a monetizing perspective. Today's deal market, however, provides high yield opportunities for deal makers on both the sell side and the buy side that are able to leverage systems integration.
M.A.: What are the most important factors deal makers should consider when weighing the integration process and the execution of any transaction?
R.B. & L.T.: Integration mergers are particularly critical for a number of reasons. First, business managers must execute successfully to deliver cost savings and operational efficiencies to shareholders. Given M&A market conditions, the pressure to deliver integration plans is greater than ever. Once the financial and the legal aspects of the transaction are closed, a different type of risk kicks in. Dealmakers should remember that the challenges of integration can undermine promised results.
Rapid and successful merger integration requires buyers to judge the true size and scale of the integration effort during due diligence, before the deal is closed. All involved should bear in mind that delivering rapid and successful integration results requires a multi-faceted approach.
M.A.: What are the critical integration factors during due diligence?
R.B. & L.T.: There is no shortage of merger integration checklists, success criteria, or recommended steps. After advising more than $4 billion in projects with Fortune 500 clients, however, we recognize and have developed the most successful integration efforts, which share several common traits. Many dealmakers should know – or probably recognize by now – that every item on each list should not be treated with equal importance. While the latter is difficult, we recommend a prioritized approach that breaks integration down into three manageable components.
First, dealmakers need to review the strategic reasons for the transaction in the first place, and ask:
- What are the basic reasons for the transaction?
- What must both buyer and seller achieve for the transaction to be successful?
- What will the new entity be able to do after integration that it cannot do today?
For example, is the transaction so that one or both parties can:
- Add-on capabilities (e.g., innovation, R&D, sales, service
- Acquire complementary products or services
- Cross-sell to complementary sets of customers
- Expand geographical market presence
- Achieve economies of scale by streamlining operations
- Create a new brand for the new entity.
From the buy side perspective, buyers should frequently revisit these strategic drivers and manage priorities--as more information is learned about the acquisition. From the sell side perspective, sellers should not overlook these strategic drivers when determining value.
M.A.: Do you have additional checklists that dealmakers can reference prior to or during the due diligence process; and how do these things help with leveraging value?
R.B. & L.T.: Bear in mind, no two mergers are identical, and merger integration activities are not equal in priority. Focusing execution efforts on the areas that deliver the biggest bang for the buck, in the shortest time, requires an understanding of where the greatest opportunities lie. To help frame high-priority, high-impact opportunities, dealmakers will want to pay close attention to both operations and resources :
Operational Areas
- How must functional/operating areas change to achieve our merger objectives?
- How will revenues be enhanced?
- What customer support/service opportunities exist?
- How do we avoid disrupting our most important customers?
- Who are our most important customers in the integrated entity?
- What back-office support, operational efficiencies can be streamlined?
- What is the true effort involved in achieving these things?
Resources
- How will the integrated entity change the current organization of departments and groups?
- Which groups will be combined? Which groups must remain intact?
- How do organizational changes impact facilities?
- Who are the highest performing employees?
- How will they be identified and retained?
- How will integration plans be communicated?
- What business process improvements will be implemented?
- What information technology capabilities are we buying?
- How does this fit with our current IT environment?
- What IT opportunities exist?
- How will differences in business cultures be addressed?
- What is the true effort involved in achieving these things?
M.A.: In order to execute any strategic integration post agreement, what do dealmakers need to know?
R.B. & L.T.: First, understanding a merger's true "degree of difficulty" during due diligence helps reach an accurate integration budget and minimizes valuation surprises after financial close. Once the deal is closed, focusing execution activities on the things that matter most is the key to successfully managing complex integration efforts.
To that end, we offer some of the most effective practices for managing integration activities.
Metrics
Key business metrics, measurements, or performance indicators are defined before merger integration plans unfold. It is essential that the integration team defines what will be measured, how it will be measured, and who will answer for the results. The integration metrics form the basis for subsequent execution activities.
Communication
Mergers can involve significant levels of uncertainty, business interruptions, fear, and at worst, surprises. Well-crafted project plans are based on weekly momentum; a solid communication plan delivers the right messages to the right audiences. Stakeholders may include customers, suppliers, shareholders, and employees. Special consideration must be given to the highest priority stakeholders to minimize the risk of lost business, disruption, or undesired attrition.
Weekly Momentum
The most effective project plans contain tasks in weekly increments. Merger integration activities move quickly. Senior executives must frequently monitor progress, and stand ready to take action in key areas. More detail is not always better and monthly status reports are too infrequent. Grouping tasks into weekly buckets allows project managers to easily track progress and helps executives visualize where things stand every Friday.
Milestones
Successful mergers are not an event; they are journeys. Prioritization and weekly momentum paves the way for achieving high impact results in 30-, 60-, and 90-day increments. Project plans, merger integration dashboards, and communication plans must be aligned to deliver fundamental business results in measurable milestones that are visible to stakeholders.
Merger Integration Dashboard
Organizing activities into weekly segments is one thing; providing quick, easy, graphical visibility to progress and risks is another. The most effective dashboards highlight the top priority, high impact work streams. They allow detailed project plans to be easily summarized into a one-page executive view. The best dashboards also relate progress in key work streams to integration metrics.
M.A.: Thanks Robert and Linda.
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