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Clear Vision: Valeant to Acquire Aton Pharma
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Valeant Pharmaceuticals International said the Company has agreed to acquire privately held Aton Pharma Inc for approximately $318M. The Company said the acquisition of Aton Pharma, which is focused on ophthalmology and certain orphan drug indications, will strengthen its neurology and other products segment. The deal is expected to add to earnings in 2010. For the first quarter, income from continuing operations was $35.6M, compared to $30.8M a year ago. Total revenue rose 30% to $232M. Analysts on average were expecting revenue of $224.7M, according to Thomson Reuters.
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A Clean Deal: Sophos Buys Out
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The co-founders of anti-virus software maker Sophos are set to make about $300M (£197m) after Apax Partners, the private equity group, agreed to buy a majority stake in the company they founded 25 years ago. Jan Hruska and Peter Lammer are selling a large part of their combined 60% of the company in a deal valued at $830M. The Company had been in talks with banks about launching an IPO in New York when it was approached by Apax this year about a buy-out. Apax is buying approximately 70% of the Company's equity and is using debt to finance a third of the deal. Apax plans to continue the company's strategy of growing through acquisitions, such as its takeover of Utimaco Safeware in Germany two years ago.
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Cloudy With a Chance of Profit: IBM Buys Cast Iron Systems
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IBM announced the Company has purchased the privately held software company Cast Iron Systems. The acquisition is intended to bolster IBM's expertise in cloud computing, an increasingly popular technology that helps companies cut costs by enabling access to software online. Since its founding in 2001, Cast Iron had raised $63 million in venture capital from investors including Artis Capital Management, Invesco Private Capital, Tenaya Capital, Norwest Venture Partners and Sequoia Capital. Cast Iron, previously known as Ironhide, was seeded by Sequoia Capital with $275,000 and spent its first eight to nine months working out of the investor's California office. In addition to Sequoia Capital, the company's board had representatives from Norwest Venture Partners, Invesco, and Tenaya Capital.
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Africa Gets Investment: Renaissance Capital Buys BJM
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Russian private investment bank Renaissance Capital expects its 2010 Africa revenue to double after buying South African broker BJM Securities as it looks to secure equities deals of up to $1B in Africa. RenCap announced the Company was buying South Africa's leading independent full-service broker-dealer for 207M rand ($28 million) to help tap into the increasing number of deals between emerging and frontier markets for Africa's resource sector. Rencap said last month it would expand in Africa, adding further local expertise in a continent rich with minerals and oil. The Company plans to open more branches in Africa before year end and was looking at prospects in Tanzania, Uganda, Egypt, Angola and francophone West Africa. In February, BJM appointed a senior Merrill Lynch director to run its new offices in South Africa to focus primarily on metals and mining, oil and gas, financials and telecoms.
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Renewing M&A: ABB to Buy Ventyx For Over $1B
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Swiss engineering group ABB is set to buy U.S. software company Ventyx for more than $1B. The move is intended to bolster ABB's position in the fast-growing area of renewable energy network management. Ventyx posted 2009 revenues of approximately $250M. The deal is the cash-rich ABB's first billion-dollar acquisition in over 10 years, and will also increase the Company's presence in North America. ABB, which had a cash-pile of $7.1B at the end of the first quarter, has been looking for acquisition opportunities over the past few years and has taken a more conservative approach to buys, going for smaller deals. This latest buy does not, however, mark the beginning of a spending spree at the group, a spokesman for ABB said on Wednesday. ABB's last major deal was in 1998 when it bought Elsag Bailey in a deal worth $2.1B at the time. ABB, which sells power equipment to utilities as well as to oil and gas companies, said it expected the transaction to be completed in Q2 of 2010. ABB is buying Ventyx from San Francisco-based private equity company Vista Equity Partners.
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Foreign Exchange Deal: UK Forex Aquired by US FXCM
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UK foreign exchange broker ODL Group, Ltd announced this week that the Company has agreed to be acquired by US peer FXCM Holdings, LLC, in a move to expand their operations globally. ODL would continue to trade under its current name, following the acquisition. Together, the companies will have client assets of more than $800M. "ODL's strong UK and European businesses will provide an excellent complement to FXCM's sizable operations in both the United States and Asia," the Company said in a statement. The deal is still pending regulatory approval. ODL Group was formed in April 2003, following a management buyout of the general insurance division of the O'Donoghue Lindsay Group, a New Zealand-based brokerage. Financial details of the deal were not disclosed.
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Pipeline Profile
Need assistance financing real estate deals? Try reaching out to Colleen Meyers, Founder of Asset Solutions, based in Los Gatos, CA. The firm provides start–to–finish corporate asset valuation, management, marketing and liquidation services in the real estate sector, and successfully matches individual and bulk investors with real property vehicles, while providing top–shelf legal and logistical representation in the financing and acquisition of personal and commercial properties. You can reach out to Colleen here on the M&A Advisor network.
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Metrics Meter
Merger and acquisition activity in the Arab Gulf is on the rebound after two consecutive years in decline, and is now up to $25B for the year, according to investment banks surveyed by Zawya.com. M&A deals announced in the Middle East and North Africa region dropped by 67% in value to $34B in 2009, a decline from $102B in 2008, according to Ernst & Young.
Meanwhile, India's M&A market–which accounts for over 4%, by value, of Asia–Pacific deals and 11% by deal count, has increased from 40 deals to 53 deals compared to Q1 2009. Deal value, however, declined from $5.1B last quarter to $4.7B this quarter. India's inbound activity has also had a strong start to the year, up 81% by value and 69% by volume over Q1 2009.
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| Q & A |
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Apple's Big Bite
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| Ken Hackel |
Into nearly every deal, middle market dealmakers–be it on the sell or buy side–think about how value and risk are the two deciding factors. Ken Hackel is President and founder of CT Capital, LLC–a firm that manages PE portfolios. Hackel has also written a soon to be released book, "Security Valuation and Risk Analysis: Assessing Value in Risk Decision–Making."
We asked Hackel his views on targets, and specifically particular companies that are targeted by cash rich king Apple Computer, Inc.
M.A.: Just how much cash does Apple have to work with; and what do you think the company will do with it?
K.H.: Well, what do you do when you have $50B in loose change in your pockets? This is the dilemma Apple Computer will be facing by the end of its fiscal year. And that may be conservative given that Apple's cash hoard has already risen by $ 10B since the end of September.
Financial theory posits that a company that continues to watch its excess cash rise, to the point where it is greater than its shareholder's equity, with no debt other than a reasonable lease structure, would be frowned upon by investors. It is expected that such an entity should either return that cash to shareholders in the form of dividends or share buybacks, re–invest back into the business, or to make acquisitions above its weighted average cost of capital. Apple, however, is an exception to financial theory. They have been so adept at using other firms' capital, there is really no need, at this time to spend more within, than they are already doing. From their supply chain to their marketing and R&D, Apple is unparalleled.
As Steve Jobs and the board of directors at Apple have so far shown no inclination to pay a dividend or buy back stock, the only remaining outlet for that continuing cash rise is a large acquisition.
M.A.: If Apple were to do a large deal, what would be the parameters of such a deal and what company or companies would be a good target?
K.H.: Under a reasonable scenario, Apple management would most likely only approve a large business combination meeting all of the following criteria:
- the deal size could be no greater than $100B
- any target must, like Apple, be conservatively managed, with strong credit
- the target would also have to be a strong producer of normalized and prospective free cash flow
- any target must be in a business Apple understands which can propel their respective competitive positions going forward
- the target must have return on invested capital at least 3% above its cost of capital.
A good target would be Qualcomm. BTW: the universe is extremely limited, baring a large number of small acquisitions, which Apple can do anyway.
M.A.: What do you think shareholder reaction would be under such a deal?
K.H.: Qualcomm stock has been flat for the past 5 years and shareholders would most likely greet such a (premium) deal while providing Apple with important proprietary wireless and Internet technology, global positioning tech and satellite software, all of which are currently large cash generators for Qualcomm, and which can move Apple up to the next level. This would not be a cheap deal by any stretch, but given that Apple is investing its cash short–term earning de–minimum returns, the ROIC from a deal would exceed current use of that cash and add to shareholder value. Once analysts come to understand that, stock would react. Funds should be buying Qualcomm, and perhaps shorting some Apple.
M.A.: What would Qualcomm be looking for in such a deal; and what would be the outcome?
K.H.: Qualcomm would most likely be looking for a 30% premium to its current $64B market value, payable at least ¾ in cash, given Apple's 1.5 beta. Any deal because of low earning cash assets, would be accretive in 3 years.
M.A.: What do you foresee Apple will do with their cash in the immediate future?
K.H.: I would expect Apple to continue to buy many companies each year, as they have traditionally done.
M.A.: What sort of debt does the company hold?
K.H.: With its only debt related to lease obligations, Apple has been as big a cash machine as there exists in the US financial marketplace. Apple has a little over $ 1B in operating leases, which have been growing rapidly. The leases, however, are small in relation to the cash flow from those locations and spillover sales from the Internet.
M.A.: Thanks Ken.
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Springing Into Action
Roger's Corner
by Roger Aguinaldo
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A turnaround is happening and our industry is leading the way. Despite the fragile recovery and recent developments in Europe, M&A activity is picking up across the board.
This week, we attended ACG InterGrowth,the Association for Corporate Growth's (ACG), annual conference for middle market M&A professionals. As a positive sign, the conference attracted a nearly record-breaking 1,985 attendees to Miami Beach this week. The all-time high attendance was 1,994 was set in 2008. Stuart Johnson, Partner, Barnes & Thornburg, LLP and Chairman of ACG InterGrowth 2010, was quoted as saying. "ACG InterGrowth's attendance is a strong indicator that middle-market M&A is poised for recovery, and dealmakers are gearing up to find ways to put billions of dollars of dry powder to work."
Deal makers are now focused on sourcing and evaluating potential deals. One industry expert who commented on the uptick in deal activity said, "There is always a bit of a time lag between the time company owners decide to sell, when the investment bankers and business brokers organize the sales process, and when the private equity firms or strategic acquirers bid and then close the deals."
The biggest drag on deals, was not what one might expect. No, it wasn't the overall economic outlook, rather the biggest deterrent was sellers who would not sell at the multiples offered to them. In fact, 38% of dealmakers said that unwillingness to sell was the reason that M&A activity was not moving ahead at a faster pace. That does not mean that the fallout from the credit-crisis wasn't real. What it does mean is that the impact is waning. How about this number to help dealmakers exhale, "The volume of all worldwide mergers and acquisitions totaled $573.3B during Q1 of 2010, up 21% over Q1 of 2009," according to Thomson Reuters.
For skeptics who question the role of M&A activity in market upswings, how about this: a report released this week by PricewaterhouseCoopers illustrates the role M&A activity has had on the long-term sustainability of the Indian automotive sector. According to the ‘Automotive M&A insights for 2009' report, "Automotive companies with stronger operating models and cash positions are likely to leverage M&A to develop a competitive advantage through the consolidation of scale and expertise." But that's just one market.
So, how about this: according to Bender Consulting, the deal activity in the energy and the technology sectors that buoyed Q1 of 2010 looks to continue. M&A activity should increase as companies pursue scale and efficiency, and as cash-rich companies seek good valuations, while key technologies and IP drive growth and competition.
Some additional highlights of the Bender report include:
Asia and other emerging M&A markets outperform developed markets 3-to-1 for shareholder return; "economic fundamentals of emerging markets–including reserves, public debt levels, and external debt–look better than those of the developed markets. M&A activity is up 18% in Q1 of 2010, compared to Q1 of 2009, driven in large part by emerging market deals." And M&A deals in Asia are outpacing EU-targeted activity.
In the energy sector, uncertainty regarding CO2 legislation, distressed assets, and the emerging renewables sector will result in companies looking to either make strategic acquisitions or will unload their dead weight.
The Bender report also notes that VC backed M&A exits, IPO's and PE deals are being fueled by the pent-up demand created from the stagnation of all the deals made in the last two to three years. First quarter 2010 ended with more than 110 venture-backed M&A transactions, and the best quarterly total for venture-backed IPOs since Q4 of 2007. The report notes, however, "while the volume of these deals is not enough to claim that a full recovery is in place, it is a positive sign. Expect additional ramping-up of deal-making in the 2nd half of 2010."
While this is all good news, it is important to remember that financing is the key to all of the deals we hope and anticipate will help fuel economic activity throughout the year and beyond. To that end, my next two columns will cover financing trends as we head into our 5th Annual Middle-Market Financing Awards Gala. For more information see here. |
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