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A $318M Smile: 012 Smile.Communications to Sell to Ampal
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012 Smile.Communications, a telecommunications service provider, announced that it has signed an agreement with a wholly owned subsidiary of Ampal-American Israel Corporation to sell its current telecom business for $318 million. 012 Smile.Communications is a provider of communication services, offering a wide range of broadband and traditional voice services. The Company's broadband services include broadband Internet access, specialized data services and server hosting, as well local telephony via voice over broadband and a network of WiFi hotspots across Israel. The transaction is subject to customary closing conditions, including regulatory approvals from the Israel Ministry of Communications, and the Israel Antitrust Commissioner. For the transaction, J.P. Morgan acted as exclusive financial adviser and Fischer Behar Chen Well Orion & Co. acted as legal adviser to 012 Smile.Communications.
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Buying In: The First American Acquires First Advantage
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The First American Corporation announced the expiration of the subsequent offering period for its offer to exchange all shares of Class A common stock of its subsidiary, First Advantage Corporation. The Company also announced that it has completed the buy-in of First Advantage, by acquiring all outstanding First Advantage shares not tendered in the exchange offer by means of a short-form merger. First Advantage is now a wholly owned subsidiary of First American, and First American intends to cause First Advantage's Class A common stock to be delisted from the NASDAQ Stock Market. Wells Fargo acted as the exchange agent for the exchange offer, and has advised First American that, as of the expiration of the subsequent offering period, an aggregate of 13,975,239 shares of First Advantage Class A common stock had been tendered and accepted for purchase in the exchange offer. The shares validly tendered in the exchange offer and accepted for purchase represent approximately 89% of the shares of Class A common stock. Giving effect to the conversion of shares of First Advantage Class B common stock owned by First American, after expiration of the exchange offer, First American owned approximately 58,241,731 shares of First Advantage Class A common stock representing approximately 97% of the shares of Class A common stock outstanding
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Sweet and Tender: Kimberly-Clark Corporation Completes Initial Offer
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Kimberly-Clark Corporation announced that its initial tender offering period for all outstanding shares of common stock of I-Flow Corporation expired at midnight/EST on November 17, 2009. The offer was conducted through Boxer Acquisition, Inc., a wholly-owned subsidiary of Kimberly-Clark. The depositary has advised the Company, as of the expiration of the initial offering period, a total of approximately 21,279,272 shares of I-Flow common stock were validly tendered and not validly withdrawn, which represents approximately 87.1% of the outstanding shares of I-Flow common stock. All shares that were validly tendered, and not validly withdrawn during the initial offering period, have been accepted for payment. The depositary has also advised Kimberly-Clark that it has received commitments to tender approximately 506,582 additional shares under the guaranteed delivery procedures described in the offer. Kimberly-Clark, meanwhile, announced that it is commencing a subsequent offering period of its tender offer to acquire all remaining shares of I-Flow. Following the completion of the merger, I-Flow will operate as part of Kimberly-Clark Health Care. The Company also announced, following the expiration of the subsequent offering period , it intends to complete the acquisition of all remaining shares of I-Flow through a merger.
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Equity With Prospect: Kennedy Wilson Raises Approximately $110 Million
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Kennedy-Wilson announced it has completed a reverse merger with blank check company, Prospect Acquisition Corp., which will allow the combined company to have significant capital, with the intent to leverage its advantage in distressed real estate opportunities–while growing its auction services and property management businesses. Kennedy Wilson is a strategic investor and manager of real estate investments in the United States and Japan. The newly merged company has approximately 41 million shares outstanding–of which Kennedy-Wilson, Inc.'s former shareholders and management own approximately 70%. The Company expects to continue trading its common stock and warrants on NYSE Amex under the symbols "KWIC" and "KWIC.WS", respectively.
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Is Talk Cheap?: MySpace in talks to buy imeem
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Online social hub MySpace is in talks to acquire the struggling free music site imeem, said two people familiar with the matter. The sources spoke on condition of anonymity because talks and any subsequent announcement could be weeks away. MySpace is trying to both revamp the site and its MySpace Music joint venture with the major recording companies. A buy is seen as the potential to bolster News Corp's site by adding imeem's approximately 4.5 million users, its technology and its management team. MySpace recently purchased music recommendation service iLike for $20 million. imeem launched its free music business in 2007, but the company is having trouble making ends meet. As a unit of media giant News Corp., MySpace would be better able to support any losses at the company stemming from royalties owed to recording companies than it could on its own. In May of this year, Warner Music Group Corp. wrote off its $16 million investment in imeem; and forgave $4 million owed by imeem, in exchange for a small-minority equity stake. imeem is majority owned by private equity firm Morgenthaler Ventures.
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Pipeline Profile
This week, we profile Christopher J. Andersen, President and Founder of the intermediary firm Atlas Business Advisors. Chris has over 25 years of professional experience as an entrepreneur; and has helped build six companies or divisions, some of which he has sold. Chris founded Atlas after a career that included: general management of a new division for Harley-Davidson Motorcycles, selling a consumer products company to A&E Television Networks, and founding a database marketing company. He was also part of a management team that built three other companies in the financial, professional and personal services industries. Currently, Chris serves as President of the Association for Corporate Growth's San Francisco Chapter. If you are an attorney, CPA, financial advisory firm, investment banker, or a consultant to a privately held business you may want to reach out to Chris on our M&A Advisor network.
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Metrics Meter
As debt and equity stabilize, buyout firms' coffers are estimated to have approximately $400B in unspent capital–according to the latest numbers of private equity research firm PitchBook Data. Noteworthy: lower middle-market deals accounted for 70% of the 407 deals completed by buyout funds in H109.
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Things To Be Thankful For
Roger's Corner
by Roger Aguinaldo
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It's that time of year when we take into account all the things we can be thankful for. I personally am grateful for my staff and our interns, the M&A Advisor Advisory Board; and of course my wife and my daughter, my family, God, and work that is worthy and important.
Also on my list--in what has been a challenging time for everyone--is the optimism shown by middle market dealmakers, despite all of the challenges facing deals in general. In particular, folks continue to be optimistic that in 2010 PE will return in full to the middle market deal space.
Evidence of this optimism can be found in a recent report by MergerMarket, The Future of Global Private Equity. According to the survey, 72% of respondents--which includes private equity practitioners, financial advisors and legal advisors--anticipate the level of PE activity to increase over the course of the coming year.
What is good news, for the middle market in particular, is that our deal space is anticipated to be the focus of future private equity deals. Indeed, of those surveyed, 63% expect the $15M to $100M deal size to be the focus for the coming year. There are those, however--depending on their sector focus--who actually think deal activity will increase in the $101M to $250 million range; in fact this deal range accounted for over 20% of those surveyed.
For 2009, the number of PE deals in the $15M to $100M account for 51% of the PE funded deals thus far this year.
When it comes to future funding of middle market deals, PE teams largely anticipate distressed debt investments to continue to rein over all activity. It will come as no surprise to middle market dealmakers that exit transactions rank near the bottom of anticipated deals; depressed values are obviously the reason for this, as the category is anticipated to include only 21% of future deals.
As PE teams look outward it is clear that buyside activity will continue most especially in the U.S. In fact, the U.S. comes in at 92% of all anticipated buyside activity for 2010. Yet dealmakers might be interested to know that, so far, this year only 28% of buyside global deals have come from the U.S. Across the pond, dealmakers anticipate Germany and the UK to lead in buyout deals, with 71% and 65% of dealmakers anticipating activity in these countries.
When dealmakers look to Asia in anticipation of PE deals for 2010, the numbers surprise. A whopping 96% of dealmakers anticipate China to lead the way in middle market PE deals. Only 38% of the respondents anticipate deal activity to come from India, and the numbers are even lower for Japan (25%), Australia (8%), Singapore (4%) and South Korea (4%).
The sectors that are anticipated to lead the way should not be a surprise. These are: Energy, Mining & Utilities; Pharma, Medical and Biotech; and Financial Services. Of all the deals on track for 2010, trade sales lead the way as being the principal exit strategy (54%).
To execute their strategies PE dealmakers are most concerned with the future of portfolio company performance and the struggle to finance new investments. These factors may explain why 76% of the respondents expect due diligence to play a crucial role in deal closure. Not surprisingly, 72% of the respondents believe that they will be spending more time on due diligence going forward.
To the seasoned dealmaker, it won't come as a surprise that 84% of folks surveyed believe restructurings will increase over the course of the coming year. In a much tighter toss-up, 52% to 42%, PE dealmakers anticipate debt financing to improve more in the later half of the year than in the first half of 2010.
The survey is worth reading in full, as it details historical buyout and exits by region and over time. So what is the underpinning of PE dealmakers' current mood; and what does this mean for the middle market in general? Here's a thought: no matter the market conditions, PE firms that are committed to value and craft their knitting accordingly, can make returns that beat the market and lead innovation.
Need a concrete example? How about Castle Harlan's return on the sale of United Malt, which lead to 80% IRR for the deal. The firm completed its $655M sale, generating a 4.5x return on the investment--as a result of Ebitda increasing more than 4x's, from $27M in cash flow to $114M in cash flow. The market share jump, proves that PE firms--and other middle market dealmakers--should seize the coming year's optimism.
Here, I should also note that the M&A Awards, which is taking place on December 14, 2009, includes an unprecedented number of finalists. When 170 finalists are competing for world renown recognition, what is clear is that middle market dealmakers remain indispensable leaders when it comes to transactions being closed. And that too is something to be thankful for.
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Awards |
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Join Top Deal-Making Performers at the 8th Annual M&A Awards in New York City on Monday, December 14, 2009.
Finalists Announced!
For more details visit the event website.
To register, please click here.
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Anatomy of a Deal |
Top Turnaround Talent
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| John Rapisardi |
George Davis |
If you can't turn it around these days, the middle market is not likely for you. If, however, you need a legal team to help with the workout then you probably want to consider Caldwalader, Wickersham &Taft LLP. Earlier this year, the firm earned the Global M&A Advisor Turnaround Award for their work on the Centro Properties Group deal for JP Morgan Chase Bank ("JPMCB").
The deal was a highly complex transaction that was closed despite the following challenges (just to name a few): initially divergent interests of stockholders, cross-border corporate governance, tax, finance and accounting issues.
What was sought and gained was a two year extension of a bridge facility and other U.S. facilities, and a three year extension of Australian facilities and private placement notes. Caldwalader, Wickersham &Taft represented JPMCB and four other banks in syndication in a multi-billion dollar bridge loan made in April 2007 to Super, a U.S. subsidiary of Centro Properties Group.
So we asked one of Caldwalader, Wickersham &Taft's lead partners on the deal, John Rapisardi and George Davis, to explain the process. We also think by the time you finish reading about this deal you will understand why the firm was awarded the Global M&A Advisor Turnaround Award of the Year.
M.A.: What was the credit and debt status of Centro prior to the restructuring?
J.R. &G.D.: At the parent company level, Centro had a $1.8B U.S. bridge facility and a number of Australian debt facilities that totaled around A$3B. These facilities were all headed toward maturity at the end of 2007. There was also $450m in U.S. private placement notes issued by Centro -- these noteholders aligned with the Australian lenders. And there was about $830m in unsecured bonds that would have come to the table had we been unable to restructure the larger debt facilities.
M.A.: What major credit issues did the company face?
J.R. &G.D.: When the bridge facility was issued in early 2007, Centro assumed it would refinance it before maturity. In what has become a common refrain across all industries, the freeze in the credit markets in the fall of 2007 turned that assumption on its head and vaulted the parties rapidly into restructuring talks. Furthermore, there were limitations in other credit documents that impaired Centro's ability to provide unencumbered collateral for a liquidity facility or a restructured bridge facility.
M.A.: JP Morgan Chase Bank was the lender and agent for a syndicate of banks, as such, what concerns going into the deal did JPMCB have and did any other lenders have specific concerns?
J.R. &G.D.: First, the parties needed to agree on a couple of common themes. After much intense dialogue and analysis, a consensus emerged around the notion that (i) an Australian insolvency had to be avoided at all costs and (ii) the Australian and the U.S. debt facilities had to be de-linked in order to simplify matters going forward. Even though the lenders encountered innumerable complexities and had a number of concerns on the way toward achieving these goals, knowing that none of the parties was considering looking back over the precipice was a psychological advantage to getting the deal done.
M.A.: What was the most difficult aspect of the deal from an execution stand point?
J.R. &G.D.: This restructuring occurred over 8 distinct interim extension periods in 2008 and early 2009 in order to hammer out different components of the deal. Having to go down to the wire that many times was physically and psychologically exhausting, given the 14 to 16 hour time zone difference. You could never call it a night because there would be calls on critical all-hands issues that would take place on Australian time, which was often late at night and into the wee hours in New York.
Another issue was the Australian legal component to the deal, which entailed legal concepts and documents that were altogether foreign to us. We worked very closely with our excellent Australian counsel (Corrs Chambers Westgarth) to understand the Australian credit, insolvency and structural aspects of the restructuring and to ensure the U.S. lenders' rights were being protected. Given the substantial release and re-assembly of the collateral and guarantee structure on both sides of this deal, one of the lenders with many years of workout experience commented to me that he never saw a restructuring that involved as much paper as this deal!
M.A.: What did you do as counsel to ensure your client could provide the bridge loan?
J.R. &G.D.: If you mean the liquidity facility that the lenders arranged to close the restructuring, we structured it so that we could have access to as much unencumbered collateral as possible to secure the loan. We also developed a repayment regime that would optimize and hopefully accelerate the repayment of the larger bridge facility.
M.A.: What was the final solution or structure for all parties?
J.R. &G.D.: The U.S. and Australian facilities were extended for 2 and 3 years, respectively, and were substantially disentangled by removing common obligors from the facilities. The new U.S. facility basically swapped its Australian parent guarantee for substantial additional collateral, some of which had to be released by the Australian lenders.
M.A.: Thanks John and George. Again congratulations to you both and to your team.
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