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Put Your Trust in Dealmaking: Federal Capital Partners Completes $320 Million Acquisition
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American Community Properties Trust goes private. Federal Capital Partners (FCP) announced the closing of its acquisition of American Community Properties Trust (ACPT). The acquisition was initiated through a cash merger between FCP Fund I, L.P. and ACPT–in which ACPT Shareholders received total consideration of $43.6M. The purchase of ACPT includes real estate holdings with an approximate book value of $320 million. ACPT is a real estate development and operating company that owns 3,200 apartments and 230,000 square feet of commercial property, as well as 4,000 acres of land entitled for 2,500 apartments, 8,500 homes and 5 million square feet of commercial development. FCP hopes that taking ACPT private will allow the Company to reduce operating costs, improve financial flexibility and accelerate growth. FBR Capital Markets & Co. acted as financial advisor to the special committee of ACPT's board of trustees.
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Indian Alliances: ICICI Bank and First Data Merge
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ICICI Bank, India's largest private sector bank, and First Data, an electronic commerce and payment services company, have formed a merchant acquiring alliance named ICICI Merchant Services, which has acquired ICICI Bank's merchant acquiring portfolio. ICICI Merchant Services, which is owned 81% by First Data and 19% by ICICI Bank, will build on the bank's existing acquiring portfolio of approximately 150,000 merchants. ICICI Bank will continue to act as a settlement banker for the merchants. ICICI Bank is India's second largest bank with more than 1,500 branches across the country. First Data is a KKR-portfolio company that provides payment processing services in 5.3 million merchant locations globally and serves customers in 36 countries. Both ICICI Bank and First Data are to be represented on the board of directors of ICICI Merchant Services. Day-to-day operations will be coordinated by First Data. Terms of the deal were not disclosed.
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A Deal Worth Listening To: InSound Bought by Sonova
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InSound Medical, creator of Lyric, the world's first "100% invisible, extended wear" hearing aid, announced the company has been acquired by Sonova Holding AG, of Switzerland, a provider of hearing systems. Lyric is a revolutionary, non-surgical hearing device placed deep in the ear canal and is designed to provide outstanding and continuous hearing for months at a time. InSound Medical will become an independent business unit of Sonova with access to Sonova's resources and extensive hearing industry expertise. The acquisition is to allow Sonova to capture the mild-to-moderate hearing loss population. Sonova is pursuing a clear growth strategy and is intent on building its market share. Sonova generated sales of CHF 1.249 billion in the financial year 2008/09 and a net profit of CHF 284 million. Terms of the deal were not disclosed. |
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Backed by J&J: Johnson & Johnson to Acquire Sunbelt
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US giant Johnson & Johnson announced that it has acquired the Sunbelt General Agency from American Modern Insurance Group. Sunbelt General Agency, a subsidiary of American Modern Insurance Group, is a full service managing general agency. In addition to writing products with the insurance companies of American Modern Insurance Group, Sunbelt also has an in-house insurance brokerage division and a premium finance division, Sunbelt Premium Finance. Terms of the agreement were not disclosed.
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"Look Ma, No Hands": Metalink to Sell its WLAN Business
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Metalink Ltd. announced that it has entered into a definitive asset purchase agreement to sell its wireless local area network business to Lantiq, a newly-formed fabless semiconductor company funded by Golden Gate Capital. In consideration of the acquired business, Lantiq will pay Metalink up to $16.9M in cash as follows: $8.9M, of which $5.7M will be paid concurrently with the closing, up to $1.2M (subject to downward adjustments) to be paid on March 31, 2010; and $2.0M to be paid in four installments throughout the year 2010; and earn-out payments of up to an aggregate $8.0M, contingent upon the acquired business's achievement of specified performance targets through March 2012. The transaction is expected to close in the coming weeks, and is subject to customary closing conditions, including regulatory approvals. Metalink also reported that it has entered into an amendment to its loan agreement with an institutional investor, under which the repayment of the $4,312,500 originally due upon the closing of the Lantiq transaction will be reduced to $4,100,000 and repaid in four installments: $3,750,000 at closing and the remainder in three installments by March 31, 2011.
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Nothing Beats GOLD: Golub Capital Provides Financing to Sentinel Capital Partners
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Golub Capital announced the firm has provided Massage Envy, LLC with "GOLD" financing to support the acquisition of the company by Sentinel Capital Partners. This is Golub Capital's third lead-agent deal supporting Sentinel Capital Partners, and the second to utilize the proprietary Golub Capital One-Loan Debt ("GOLD") facilities. Massage Envy, LLC, is the largest provider of therapeutic massage services in the United States. Through a national franchise system of massage clinics, the company provides professional and affordable therapeutic massage services to consumers at convenient times and locations. Founded in 2002, Massage Envy has opened more than 600 clinics in 42 states. Additional terms of the deal were not disclosed.
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Pipeline Profile
Buying or selling in the lower middle market? Try reaching out to Eric K. King, founder of Gladius Capital Group. Over his career, Eric has led or advised on acquisitions or divestitures totaling nearly $12B. Most recently, Eric was the co-founder of Arena Group, a lower middle market provider of leadership capital and advisory services. Prior to Arena Eric co-founded and served as the President and CFO of FastFind.com, an online lead generation company that he successfully sold to Bankrate, Inc. Prior to that he served as Vice President of Corporate Development for Providian Financial Corporation and as Senior Financial Analyst at USI Insurance. Eric earned his B.A. from Southern Illinois University and M.B.A. from San Francisco State University. Eric currently serves on the Board of Directors for SafetyCertified.com, an advisory board member of VestMatch.com, an advisor to Clean Power Finance. Erics is also a volunteer Business ADVANCE advisor for Pacific Community Ventures. You can reach out to Eric on the M&A Advisor network here.
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Metrics Meter
News from down-under. Australia lights the world for global M&A dealmaking. Australian M&A activity was up by 33.5% or $US155.2B last year, according to Thomson Reuters. Further, according to Dealogic figures for 2009, Australian-based law firm Allens Arthur Robinson was among the top two busiest M&A firms in the world in 2009 managing $US248.6B in deals.
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Out With the Old, In With 2010
Roger's Corner
by Roger Aguinaldo
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It's a new year and time to think about the future. Let's jump in.
So, what are dealmakers contemplating for the year ahead? According to a recent survey by the Association for Corporate Growth (ACG), 94% of middle-market M&A dealmakers believe strategic investments will accelerate in the first half of 2010.
Furthermore, 8% of the survey respondents said the current market favors private equity investors, and well over the majority (74%) said the current environment favors strategic investors. More than half of the PE respondents (54%) say they are actively pursuing distressed companies; and 48% of all respondents expect more than one in four M&A deals to be distressed deals for the first half of the new year.
For a quick look back (but not to dwell), worldwide, M&A activity totaled $1.8T in announced deals through November of 2009. The latter represents a drop of 33% from the previous year 2008, according to news organization Thomson Reuters. Of the total, $461.9B was a result of mid-market deals (defined by Thomson Reuters as transactions under $500M), a drop of 31% from the 2008 numbers. Not surprising, strategic M&A deals accounted for 94% of total announced deals in 2009, the highest percentage since 2001. Yet the total still represents a 32% decline from 2008 numbers.
When asked to forecast, dealmakers said they believe that the healthcare/life sciences sector (23% of respondents) will be the most active area for merger activity in the first half of 2010, followed by manufacturing and distribution (18%), financial services (14%) and technology (11%).
When asked about organic growth, dealmakers also cited the healthcare/life sciences sector as taking the lead (28%), followed by government-related businesses (16%), energy (13%) and technology (12%). Thirty four percent of dealmakers predict that manufacturing and distribution will present the best opportunities for distressed investing, followed by real estate (16%), consumer products and services (15%) and financial services (13%).
Revealing in ACG's year-end roundup survey is the presistent pessimism among dealmakers, as 87% describe the current M&A environment as fair or poor, compared with 88% at mid-year 2009 and 86% in the previous year. On an upbeat note, the survey also revealed a more positive forward outlook, with 82% of dealmakers anticipating an increase in merger activity over the next six months; this is in contrast to 56% of dealmakers who registered a positive outlook in June of 2009.
Seasoned dealmakers will not be surprised to learn that 80% of surveyed dealmakers believe that current market conditions remain a buyer's market although average middle-market EBITDA levels have fallen to 8.4, as of late 2009, from a high of 10.1 in 2007, according to Thomson Reuters. Savvy dealmakers, however, are and should continue to look for bargains. Of dealmakers surveyed by ACG, 80% expect to pay no more than 5x's EBIDTA for companies over the next six months.
Happily, many do not cite the credit crunch as the biggest obstacle to deal making going forward in 2010 (29% today vs 33% mid-year 2009, and 43% this same time last year). Right now, and for the immediate future, the bid/ask gap is seen as the largest hurdle in the current dealmaking environment, with 37% identifying it as the main obstacle to closing a deal, compared with 27% mid-year 2009, and 22% this same time last year.
In other words, it's a new ball game folks.
But before we depart for the future, let's take one last quick tour around the world, as Thomson Reuters released the final fourth quarter 2009 global reviews. For 2009, M&A dealmaking finished the year at $1.97tr, down 32% from the 2008 ($2.89T), and down 53% from the record high reached in 2007 ($4.17tr).
US targets accounted for 36% of all global M&A activity ($705B in deals). What may surprise some is that the most active sector for 2009 was not healthcare, but the financial services sector ($390B in deals; this figure, however, represents a 5 year low for M&A in financial services sector). Global buyside financial sponsor activity in 2009 came in at a 7 year low of $130B. Not surprising for many, Morgan Stanley was the leading advisor for global M&A with $620.6B in deals.
Further, global equity markets dominated in 2009, with record offerings from US financial issuers and a surge in IPO offerings in Q3 and Q4. Tellingly, equity issuance reached $858.4B in 2009, up 36% over 2008, with $294B in follow-on issuance from global financial issuers.
For proof positive of movement in Asia, there were 44 IPOs priced in Asia in the fourth quarter, which brought the total annual proceeds to $73B, a figure over 133% higher than the 2008 total, which accounted for 63% of global IPO activity. Last year, JP Morgan led that space, and was the lead bookrunner for global equity offerings with $103.7B in underwriting.
According to Thomson Reuters, "[g]lobal debt markets saw record appetite from investors, marking the highest year on record for corporate debt offerings at $1.2T in global issuance of non-financial investment-grade corporate bonds. Issuance of high-yield bonds in the fourth quarter reached $65T, bringing the annual global total to a three-year high of $176.1B. Government guarantee schemes in 16 countries raised $845B in debt for qualifying issuers since various initiatives began in October 2008, with over 50% of such issuance coming from the US, France, and the UK." For global record keepers, JP Morgan led bookrunning for global debt offerings last year with $429.8B in underwriting.
Meanwhile, syndicated loans issuance reached $1.5T in 2009, a 41.5% decline from the 2008. Here at home, America's proceeds comprised 43.6% of global deal volume with $668.8B in proceeds, while Europe accounted for 27% of global deal volume. By contrast, Japanese and Asian lending dealmaking records for 2009 their highest ever proportion of global deal making volume, with market share of 17.4% and 10.5%, respectively.
Last year, for the first time in a decade, issuance of equity follow-on offerings and corporate bonds resulted in bookrunning fees outstripping M&A advisory. Yet dealmaking looks good for M&A going forward, as strong indicators in the last quarter include a 32% increase in Q4 activity. Indeed, Q4 was the biggest quarter for private equity-backed M&A in eighteen months, and the biggest quarter for global IPOs in two years. Two-thirds of 2009 activity was driven by China, US and Brazil.
For all the pains of the last year and a half, middle-market dealmakers should note that banking fees were down last year by only 7% (69.5B) compared to 2008. Given what we went through, that number is not so bad. Not great, but not so bad if you think about it.
When looking for additional positive signs in the new year, look no further than VC M&A activity. Dealmakers should note with optimism that the public sector has seen a great demand appetite for IPOs from venture-backed companies. Since September of 2009, 18 venture-backed companies filed to go public, and by all accounts many more are preparing to file. Since last year, technology firms saw most of the acquisition activity with buyers spending $1.83B for 18 venture-backed medical companies in Q4, up from $186.2M on nine acquisitions in Q3 of 2009.
Still a skeptic? That's understandable. But check out what Howard Lanser, Director of M&A at Robert W. Baird, who is predicting a resurgence of M&A and IPO activity among middle market companies, has to say. Howard notes risk appetite returning and industrial deals. One can view his interview with the WSJ here: http://online.wsj.com/video/looking-for-a-resurgence-in-the-middle-market/B1795CE3-BA00-4D76-B669-C4F20EB7C8B8.html.
As a sidebar, for avid scorekeepers, Skadden, Arps, Slate, Meagher & Flom LLP, was top-grossing U.S. law firm in 2009, and overtook U.K. competitor to advise on the highest amount of global mergers and acquisitions last year. The New York-based firm decrowned 2008 leader Linklaters LLP, which ranked 5th among legal advisers to buyers and sellers last year. Linklaters, however, retained its position as the top legal adviser on European M&A deal making in 2009. Skadden Arps Slate Meagher & Flom also regained its crown as the top adviser in global M&A after working on deals worth $316B in 2009. Our hats are off to the firm and its advisors.
For a global look at 2010 going forward here is what I predict:
- China's M&A outbound appetite will continue (note: 2008 and 2009 surpassed all of China's outbound M&A activity for the previous 8 years).
- Canada's mining and metals sector will continue to dominate the country's M&A space (Canada's businesses are looking for synergies).
- Middle East M&A dealmaking will come back in the latter half of 2010 (I think it hit bottom in the equity/capital markets).
- Economic stability will continue in the US and thus abroad, despite property value declines.
- PE funds will make a comeback.
- And of course, the middle market will take front and center, driving all M&A activity for 2010.
Happy New Year dealmakers!
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Awards |
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It's not too late to nominate.
Now Accepting Nominations for the 2010 Turnaround Awards.
To download a nomination form, please click here.
Late Submission Deadline: January 11, 2010.
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Anatomy of a Deal |
Powering the Road to Success
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| Wojciech Hann |
As all dealmakers know, some deals are simply more complex than others. The road to closure can be fraught with obstacles ranging from, but not limited to, a target's financial fitness, local and national policy, as well as a myriad of rules governing the global road. One such example of savvy dealmaking on a grand scale can be found in Deloitte's in Poland closure of power company CEZ's bid for Albanian company OSSH, led by Deloitte Partner Wojciech Hann and his deal team.
Their challenge began in September 2008, when CEZ placed the binding bid of EUR 102M for a 76% stake in Operatori i Sistemit te Shperndarjes (OSSH), the privatized Albanian distribution company.
OSSH attends to nearly a million customers on all Albanian territory and its annual gross electricity supply amounts to 5.3TWh. CEZ was declared a winner of the single-round OSSH privatization tender and the preferred investor in October of 2008. Since November 2008, intensive negotiations were held withthe seller, regarding the Share Purchase Agreement (SPA), the Regulatory Statement (RS), the coverage of net financial loss incurred in 2008 and the World Bank's Partial Risk Guarantee. The privatization contract was signed by the government of Albania and CEZ in March 2009.
If only it were that simple; as OSSH like all sellers needed the right buyer. As Hann told the M&A Advisor, "OSSH specifically looked for a strategic investor which would be financially credible, technologically advanced and culturally able to operate in an environment exotic to itself." Fortunately for the buyer, Deloitte identified CEZ. As it turned out, CEZ was able to score high on all three accounts. Hann notes that "CEZ with its impressive series of acquisitions throughout Central and Eastern Europe, including Bulgaria, Romania, Poland, Germany, Slovakia and Hungary [was] probably the best positioned of all investors to [acquire] the target."
Making matters more complicated, the company's health was not good. OSSH suffered from extremely low collection rates, which led to high levels of bad debts, and excessive technical and non-technical losses. As a result, the financial health of the company had deteriorated considerably.
Yet finding the right buyer and managing the company's precarious financial state were only two aspects of the challenge. Perhaps even greater was the challenging market environment itself. Specifically, Albania has been affected by a devastating deficiency of electricity, in particular due to the absence of investment in power development in the last few decades. The annual volume of imported electricity varies according to the availability of hydroelectric power plants in the country. In 2007, for example, Albania imported approximately 40% of its annual energy consumption.
As dealmakers are reminded on a daily basis, the regulatory environment is not for the faint of heart. OSSH was set up through the elimination of the distribution assets from the state monopoly KESH only in 2007. No detail or complex regulatory environment was introduced at the time of placing the binding bid and was incorporated only during the transaction negotiations. In addition, the transfer of some assets/liabilities was not settled between OSSH and KESH by the transaction closing.
Fortunately, the government of Albania played a positive role in facilitating the deal. Says Hann, "the Government of Albania played a vital role in facilitating the deal, specifically through approval of a long term distribution and retail regulatory framework ,which was a novelty for the country and which for the first time in its history has introduced a concept of prices fulfilling the cost coverage principle or the remuneration of investors for the cost of capital associated with their investments."
The deal ultimately worked in CEZ's favor, says Hann, "because major obstacles including the uncertainties related to stability of the regulatory framework and to the interpretations of certain issues related to it were clarified. Moreover the due diligence process helped it to propose a fair and realistic valuation given the structure of the deal, which formed a key part of the winning bid."
CEZ financed the deal from its own means, including both cash and existing credit lines.
The outcome, was not less than remarkable, thanks to Hann and his deal team. As it turns out, the acquisition fit CEZ's strategy of a power sector leader in the Central and South-Eastern European region. CEZ's major focus is now on massive investments in the distribution network and human capital. The goal is to decrease both technical and non-technical losses, increase the collection rate and improve stability of the power distribution system in Albania.
When asked, what was the human story behind the deal, Hann reflects, "the long hours and physical stress related to negotiations, as well as an ambitious timetable related to preparation of the final bid. Moreover, we had to learn how to adapt to some cultural differences but the outcome – i.e. the successfully closed deal – which was a long sought after reward for all of us."
Hann and his team at Deloitte were also awarded both the Global M&A Advisor Deal of the Year (Europe) and the Global M&A Advisor Energy Deal of the Year (Europe) in September of last year.
Congratulations to Wojciech Hann and his deal team from all of us here at The M&A Advisor.
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