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Powered by Cash: Dynegy Completes Sale
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Dynegy Inc. announced earlier this week that it has completed its previously announced sale of generation assets to LS Power, a move that the Company says boosts liquidity, adds to earnings and transforms Dynegy into a 100% publicly held company. Dynegy sold to LS Power five peaking and three combined-cycle generation assets, as well as Dynegy's remaining interest in a project under construction in Texas. In exchange, LS Power paid $970 million in cash and 245 million shares of Dynegy stock. LS Power also received a senior unsecured note of $235 million in the transaction. The sale has raised Dynegy's liquidity to approximately $3 billion, enabling the Company to pay off near-term debt. The sale is immediately accretive to Dynegy's adjusted Ebitda on a per share basis, as well as to earnings per share attributable to common stockholders.
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Deal With a Mission: GTCR & Six3 Buy BIT
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Private Equity firm GTCR, and Six3 Systems, Inc., a GTCR portfolio company that specializes in providing national security and defense intelligence services, announced that it has entered into a definitive agreement to acquire BIT Systems, Inc. ("BITS"). BITS is an intelligence, surveillance, and reconnaissance company that specializes in the design, development, integration and maintenance of signal processing systems, data analysis, software development, and other mission operations. BITS has over 300 highly technical, trained and cleared employees and provides advanced solutions to its key intelligence community partners. The deal is expected to close in December 2009. The acquisition by Six3 Systems is anticipated to result in annual revenue of approximately $200 million. Kirkland & Ellis LLP served as legal counsel to GTCR and Six3 Systems. Financing for the transaction is to be provided by Bank of America, Citizens Bank and SunTrust Bank. Sheppard, Mullin, Richter & Hamilton, LLP served as legal counsel to BIT Systems.
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Over 20 Countries, One Deal: Watson Buys Arrow Group
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Watson Pharmaceuticals, Inc. announced it has completed the acquisition of Arrow Group in the combination of cash and stock. The purchase creates a global specialty pharmaceutical company with over $3 billion in annual revenues and operations in more than 20 countries. Watson purchased Arrow Group for a cash payment of $1.05 billion, and the issuance of 16.9 million shares of Watson common stock. Further, $200 million in the form of zero-coupon, non-convertible preferred shares was placed in escrow for the benefit of Arrow's shareholders. The preferred shares will be mandatorily redeemable in 2012. The cash portion of the transaction was funded using cash on hand and borrowings of $275 million under the Company's $500 million revolving credit facility. Borrowings under the revolving credit facility bear interest at LIBOR plus 0.75%. Shareholders of the parent of the Arrow Group are to receive additional contingent payments based on sales of the authorized generic version of Lipitor&right; (atorvastatin).
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Trust Your Banker: UMB Bank Buys American National
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UMB Bank has closed its transaction with American National Bank to acquire American National Bank’s corporate trust business under UMB Corporate Trust and Escrow Services. Terms of the deal were not disclosed, but the transaction consists of more than 1,400 accounts with nearly $3 billion in assets under administration. American National Bank’s corporate trust portfolio will be transitioned to UMB's Corporate Trust and Escrow Services office in Denver.
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Buy and Sell Now: NYSE Euronext Completes Acquisition
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NYSE Euronext announced it has completed its acquisition of trading technology provider NYFIX, Inc. The $144-million all cash deal, announced earlier this year, valued NYFIX stock at $1.675 per common share. Most of NYFIX's business units will be folded into NYSE Technologies. The combined Company provides a link between more than 450 buy-side institutions and more than 600 sell-side institutions, and connections to exchanges and electronic trading around the world. NYFIX Euro Millennium operations will close, with the goal of shifting customers to SmartPool, a London-based multilateral trading facility created by NYSE Euronext in partnership with JPMorgan, HSBC and BNP Paribas.
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Tis the Season for a Light Sale: Federal Signal Announces Sale
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Federal Signal Corporation announced the Company has completed the sale of its industrial lighting manufacturer subsidiary, Pauluhn, to the Cooper Crouse-Hinds division of Cooper Industries for $35 million. Pauluhn has been providing marine, offshore and industrial lighting products with solutions for hazardous locations and corrosive environments for over 75 years. Pauluhn is a leading supplier of a wide range of specialized area lighting and connecting products used in offshore and onshore drilling, shipbuilding, mining, petrochemical and other industrial applications involving harsh and corrosive environments. Federal Signal is a global designer and manufacturer of products and solutions that serve municipal, governmental, industrial and institutional customers. Additional terms of the deal were not disclosed.
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Moving a Deal: Caterpillar to Acquire JCS Co.
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Caterpillar Inc. announced this week that it has entered into an agreement to acquire JCS Co., Ltd., a subsidiary of Jinsung T.E.C. Co., Ltd., a South Korea-based manufacturer which specializes in producing undercarriage components for earth-moving and other off-road machinery. Currently Jinsung supplies Caterpillar with rollers, idlers and metal-faced seals used on a wide range of Caterpillar machines. The acquisition of JCS will provide Caterpillar proprietary technology to competitively produce highly engineered seals that is hoped to improve machine undercarriage reliability and durability. The acquisition, which is subject to, among other things, regulatory approval, is expected to be completed early next year.
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Pipeline Profile
Tis the Season to move goods and give back. Therefore, if you are dealing in the transportation, logistics, and supply chain sector you may want to reach out to Benjamin Gordon. Ben is the founder and Managing Director of BG Strategic Advisors. His clients include a range of leading companies from Wall Street, venture capital, and the supply chain industry. Ben has led strategy projects in transportation and technology at Mercer Management Consulting, where he developed one of the first e-marketplace strategies for a logistics client. Ben is also an active civic leader who is committed to giving back. As founder and chairman of GesherCity, he has boosted young adult volunteerism in the greater Boston area. Ben earned his Masters in Business Administration from Harvard Business School and a Bachelor of Arts degree from Yale College. You can reach out him on our M&A Advisor network.
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Metrics Meter
France is the only EU country to have more M&A deals, so far this year, than last year. Thus far this year, France has closed $62.4B (EUR 41.4B) in M&A transactions. France now ranks fourth as the most active M&A EU country--behind the UK, Germany and the Netherlands, while replacing Spain for the number four spot.
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Following In Footsteps of a Giant
Roger's Corner
by Roger Aguinaldo
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Dealmakers everywhere know by now that we have lost a giant. A week ago Fred Joseph, a founding member and named partner of Morgan Joseph & Co. Inc., passed on. Fred was pioneer in our industry and an avid supporter and speaker at the M&A Advisor conferences and events. For 46 years he served as one of the world's leading investment bankers, backing middle market companies. His work over the years helped to establish the high yield bond market, as we have come to know it.
Fred began working on Wall Street in 1963 for E.F. Hutton. He was mentored by renowned investment banker John Shad. On his steady ascent he committed himself to helping young bankers find their way.
In just three years time, after joining Shearson Hammill's Corporate Finance Department in 1970, he was appointed Chief Operating Officer. In 1974, he negotiated the acquisition of Shearson Hammill by Hayden Stone with Sanford I. Weill.
Later in 1974, Fred joined the Corporate Finance Department of Drexel Burnham. In keeping with his intelligence and insight and leadership, Fred ended up taking leadership of the group. The bankers he trained and mentored now hold key leadership positions throughout the financial industry. In May 1985, he was named Chief Executive Officer of Drexel Burnham. His work at Drexel, while teaming with Michael Milken, ushered in a new era in the underwriting of high yield bonds and the commercialization of the high yield bond market.
After Fred's work at Drexel, he became Chairman of Clovebrook Capital, an investment banking boutique, from January 1994 until May 1998. Fred then served for the following three years as a Senior Advisor and Managing Director at ING Barings LLC.
Fred's passion for the middle market was rekindled when he and a group of colleagues bought Morgan Lewis Githens & Ahn, which subsequently became Morgan Joseph & Co. Inc. As a named partner, Fred was instrumental in taking the lead to building Morgan Joseph into one of the leading full service firms dedicated to serving middle market companies.
In his services to the community and the larger world, Fred was a member of the Board of Directors of Watsco Inc. and American Biltrite Inc., as well as a Trustee of WNET/Channel Thirteen, a Director of the Multiple Myeloma Research Foundation and Vice Chairman of Partners of '63 of Harvard Business School. Fred earned his A.B. from Harvard College and an M.B.A. from Harvard Business School, and served as a naval line officer after college.
Fred lived to shape and see our industry through unprecedented times. He will be sorely missed by the M&A Advisor and all middle market dealmakers.
As we pause to reflect on Fred's impact, I think, if we were to ask him his take on the industry going forward, it would likely be that of optimism.
While dealmakers are cautiously optimistic, for fear of lack of credit, we have definitely come out of the dark days of fall 2007 and the slow down of H1 2009. Right now, there is credit available for small deals–even as LBO financing over $300 million is tight. While our PE friends are focused on company optimization, folks are expanding and reaching out.
With a load of liquidity still on the sidelines, however, valuation has not moved much, and PE is still not moving towards senior lenders. So the environment is still cautious, but as I said, cautiously optimistic, would be the correct term.
What is striking is that the middle market investor has changed over this last year. Larger banks are not lending, but smaller banks are taking on the challenges and the risks, and ultimately the rewards. In fact, smaller special dedicated funds have emerged in the latter half of this year. And of course, seller financing, corporate carve outs and the lead from health-care deals have all evolved in importance this year. For corporates, smaller strategic deals and dividend talk lead the way. Meanwhile, banks are providing some breathing room.
Despite the end of covenant-lite deals–as rates will likely remain higher with more restrictions–growth continues. Indeed, November was the best month for M&A globally in over a year, as a strong rebound in corporate activity and confidence has emerged. "Global M&A volume reached $305 billion (EUR 202.4 billion) in November 2009, the highest monthly volume for the year, and the first time that the total breached $300 billion since July 2008, when it stood at $406.5 billion," according to Dealogic. The numbers compare to a monthly average for the first 10 months of $181.2 billion, 32% down on the $264.9 billion average in 2008, and less than half the $384 billion average for 2007.
In Europe, the total was $106.5 billion, the highest monthly total since October 2008's $153.9 billion and double the $53.8 billion average for the first 10 months. The numbers were lifted by a $41.8 billion state capital injection into Royal Bank of Scotland.
Yet, according to Deutsche Bank, "market conditions are ripe for an increase in M&A after a long hiatus, with readier access to finance, a sustained rally in global equities, and few other options for company's looking to grow in a subdued economic landscape."
Meanwhile, in a recent survey published this month by Ernst & Young, a quarter of Fortune 500 company leaders said that they planned to conduct a deal within the next six months, and a third of those polled said they have M&A plans for the coming 12 months. This comes at a time when firms' ability to increase profits through cost cutting is becoming limited, which leaves M&A deal making as one of the few ways to increase revenue and profits. Those surveyed, 62%, are concerned that their ability to enact a transition may be constrained by the lack of available financing, among other reasons.
In this environment, however, dealmakers everywhere should follow Fred Joseph's lead by leveraging innovation and leading with optimism.
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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.
Last Day to Save $200.
Now Accepting Nominations for the 2010 Turnaround Awards
To download a nomination form, please click here.
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Excellence Achieved |
From Good to Great Deal Making
Readers, dealmakers, and industry experts consistently ask what makes a good deal a great deal. Well there are many factors and we thought one way to examine and answer that question would be to reflect on some of our recent award recipients, as we prepare for the M&A Advisor 8th Annual M&A Awards Gala.
This past year will surely go down in the books as one of the toughest years on record for deal making. With financing from senior lenders nearly frozen and investors exercising caution, despite corporate strategic plays, we hope not to repeat the year going forward. And yet, regardless of the climate, around the globe creative and intrepid dealmakers forged ahead. In September of this year, we announced the winners of our Global M&A Advisor Awards. Since then, this column has profiled many of the recipients (see past Alerts issues).
We also remind readers, as we approach the 8th Annual M&A Awards Gala, which will be held this month on December 14, 2009, that the judges invited to jury nominated deals are experienced industry professionals, including financial professionals, academics, consultants and service providers. Judges are volunteers and are not past or present employees of, or consultants to, The M&A Advisor. Our judges have no financial or business affiliation with our organization.
Here we thought it important, in this historic year, to take note of what makes an M&A Advisor award recipient by recounting excellence achieved, as demonstrated by a hand full of our previous Global winners.
To be selected as a winner this past year meant that the deal was likely impacted by a credit environment that would have halted any deal had the team not been committed and innovative. Take the Americas Consumer and Retail Products Deal of the Year which was the sale of George Weston Ltd.'s U.S. Bakeries to Grupo Bimbo SA de CV via CIBC World Markets. The transaction was successfully completed during a very challenging time for global credit markets. To close the deal, Grupo Bimbo was able to secure financing commitments in what was then a very challenging capital lending environment.
In a time of global uncertainty for all parties, global worldwide service cannot be overlooked. In the case of the Americas Investment Banking Firm of the Year award, which was bestowed upon Houlihan Lokey, service took the lead. Houlihan Lokey's leadership in client service stands them apart. In addition, besides being ranked number one by the M&A advisor for U.S. transactions under $2 billion, the firm has also been awarded the M&A fairness opinion advisor by Thomson Reuters--and is ranked number one as the restructuring investment banking firm by TheDeal.com’s Bankruptcy Insider. The firm's industry teams also hold ten #1 rankings from Thomson Reuters. To expand their services, in the past few years Houlihan Lokey has opened an office in Tokyo, Hong Kong and Beijing. The firm also is committed to strengthen their client position in Europe, as demonstrated by their acquisition of investment banking business of Acris, and the debt advisory firm Blenheim Advisors LTD.
One consistent key element of a deal that should never be overlooked is satisfying shareholders. Shareholders, as all dealmakers know, can make or break a great deal. As demonstrated by the Americas Industrial Manufacturing/Distribution Deal of the Year Acquisition of Arlington Tankers by General Maritime Corporation – Kramer Levin Naftalis & Frankel LLP, General Maritime successfully competed the Arlington auction. In a stock for stock consolidation in the tanker industry ‐ an industry which has rarely seen stock combinations of public companies. Dealmakers were able to execute an unusual double merger structure in which each of the existing companies combined with merger subsidiaries of a new parent company and shareholders of each existing company received shares of the new parent company according to a fixed ratio.
Dealmakers are reminded that the consistent honing of negotiating any deal requires honesty, integrity and, at times, great flexibility; as some deals require negotiating, not between two parties, but at times more than just a single buyer or a single seller. In the case of the M&A Advisor Green/Environmental Deal of the Year for Asia, Middle-East, Africa and Oceania, the formation of a joint venture and acquisition of Honiton Energy Holdings plc., by a joint venture was led by YES Bank. The transaction required dealmakers to negotiate on three different fronts with the buyer, the sellers and founding management. Transacting and closing the deal required dealmakers to also negotiate reasonable terms with outgoing investors, while simultaneously creating a structure that was win-win for both the founder management and the incoming investors. Negotiations of the joint venture arrangement between three parties, simultaneously with the negotiations for the acquisition, presented a unique challenge. This deal was finally achieved through several rounds of parallel negotiations between the three invested parties.
Finally, what makes a deal an award winning deal, often comes down to both the favored timing and the unique talents of a deal team to create a deal--despite larger market forces--that shapes the deal environment for years to come. In the case of the M&A Advisor European Professional Services (B-to-B focus) Deal of the Year, a lasting impact was demonstrated in the structuring of the first German SPAC by Nörr Stiefenhofer Lutz.
Here, Norr Stiefenhofer Lutz's Berlin office advised the Sponsor LCP1 Limited of the first German Special Purpose Acquisition Company ("SPAC") – Germany1 Acquisition Limited ("Germany1") – on the structuring of the shareholdings of LCP1 and the shareholdings of the management team in Germany1. Dealmakers everywhere, especially in the US may want to remember that a Special Purpose Acquisition Company is a new investment class in Europe. In the USA SPACs have been on the market for sometime. Germany1 was the second largest listing of an SPAC in Europe. Investors include family offices, public funds and traditional SPAC investors and hedge funds. The members of the management team hold a total of 20%. Deutsche Bank is the sole consortium leader and manager.
To execute the award winning deal, Germany1 went public on the Euronext Amsterdam in July 2008. The company will takeover one or more operative companies with a value of up to three billion Euros in Germany, Austria and Switzerland. Germany1 will not, initially, carry on business itself but will do so by taking over other companies. Through its creative solution, Germany1 offers the target companies an alternative way to access the capital markets without the uncertainty and expense of themselves conducting an IPO.
The best middle market deals on the planet are recognized for what they are, leadership and innovation acumen that should be illuminated and celebrated. To that end we look forward to seeing everyone on December 14, 2009 here in New York City.
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