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Banking on a Healthy Deal: HGI Sells |
The approval for the sale of HGI Holdings, a medical device distributor, to Clayton, Dubilier & Rice and Goldman Sachs came this week. The transaction is unofficially worth approximately $850M. This sale is an example of a growing trend in the mergers & acquisitions market of secondary buyouts where private equity firms seek less traditional exits for their holdings. HGI has two businesses, Edgepark Medical Supplies and Independence Medical that distribute medical devices to patients with chronic diseases. CD & R sees HGI with potential long-term growth in the expanding home health market. The deal is expected to close at the end of October.
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Capitalizing on Intellectual Capital: Evercore Buys G5
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Evercore Partners, Inc. has agreed to pay an initial $20M in cash and securities to acquire a 50% interest in G5 Advisors, an independent investment banking and management firm based in Sao Paulo. Evercore stands to earn more through performance-based payments through the end of 2013 with the possibility that it can acquire the remaining 50% beginning in 2014. G5 Advisors is an independent advisor in mergers and acquisitions and wealth and asset management formed in 2007. The acquisition of G5 Advisors by Evercore is based on G5s reliance on intellectual capital and strong relationships with its clients. Evercore sees the move as a path to strengthen its ability to cross borders in merger transactions in Brazil and Latin America. G5 Advisors and Evercore had previously established a strategic relationship in 2008.
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Big Sticker, or No: Lloyds sells to Crest Nicholson |
In a move to refocus its efforts on its lending activities, Lloyds Banking Group is selling its interest in Crest Nicholson. The difficulties that Lloyds experienced during the credit crisis of 2008 have made this move necessary to shore up its now part-nationalized retail bank. A U.S. investment company, Varde, is said to be the buyer. Crest Nicholson is a house building company and joins Lloyds private equity business as the latest move to bring Lloyds back to its basic work. The deal is said to be in the vicinity of $232M. Lloyds, however, has declined to comment on the sale price. |
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Europe Gases Up on Power Deal: Czech Holding Buys |
Praûská plynárenská Holding a.s has been acquired by E.ON Czech Holding, which previously had held only a minority interest. Praûská plynárenská is the primary supplier of gas in the Prague area. The city of Prague will also hold an interest in Praûská plynárenská. ECH has agreed to take the shares currently held by RWE Energy AG in a share swap. |
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Google Sees More in Deal: Google Buys MentorWave |
In a move meant to enhance its geo products, Google has agreed to buy MentorWave Technologies, based in Israel. Mentor Wave has a software product called Quicksee that will make Google services Maps, Earth and Street View videos into virtual tours, thus increasing the flexibility of these services. The purchase price has not been announced, but preliminary reports put the sale at $10-12M with the founding team joining Google Geo.
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Pipeline Professional
Planning strategy in China, or more specifically, Shanghi? Try reaching out to David Wang, Senior Consultant with InterChina. Wang specializes in lower middle-market and mid-market deals. His firm, InterChina, is a boutique management consultancy specializing in strategy, corporate transaction, and human resources services for companies doing business in China. Since its founding 1994, InterChina has emerged as one of the leading consultancy firms in China.
You can find Wang here on our M&A Advisor network - Click Here
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Metrics Meter
Brazil is on a roll and keeps rolling. M&A in Brazil may top the record this year. According to Bloomberg and the Brazilian Association of Capital Markets, so far this year, there have been 349 M&A deals in Brazil, valued at 141.6B reais. The numbers may soon top the 354 M&A deals and 140B reais of 2009. The record thus far for Brazil was set in 2008, with 506 deals, valued at 142.8B reais. Then again, records are for breaking.
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When in India, Bring Cash
Roger's Corner
by Roger Aguinaldo
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The expansion of India’s M&A activity has brought new attention from investment bank shareholders who are the decision-makers in brokering the bigger deals. The busy field of these promoters makes available financing the tipping point in making the decision to go ahead. More and more, we see that new business in India attracts banks that bring the financing in quickly to make the decision easier.
This week, Frank Hancock, Managing Director of Advisory Services at Barclay’s India was quoted as saying, “Increasingly, we are seeing what a number of promoters will tell you: if you bring financing, we will give you the advisory role as well.”
The prospect of advisory fees coupled with lower banking fees is drawing the most investors as India’s M&A activity is going through the roof. With the addition of Reliance Infratel’s USD 10.86B merger deal with GTL Infrastructure, the overall value of M&A deals has grown an astounding nine times over, totaling USD 24.8B in the second quarter.
Access to debt in this emerging market increases the comfort level of potential buyers. Where does that leave the middle market?
One perspective comes from Shiraz Bugwadia, manager of the Mumbai office of IMAP India and o3 Capital. His credentials include a stint with Avendus Advisors and Rochem-India, where he headed up the life sciences and infrastructure sectors, comprised of custom synthesis, diagnostic services and CROs.
Bugwadia says that middle-market dealmakers who make cross-border deals should note the following trends:
1) Manufacturing is undergoing a growth cycle in automobile-related sectors and in making power equipment. He also says that these promoters look for foreign M&A deals.
2) India’s infrastructure sectors such as highways and transportation venues is drawing intense interest from foreign dealmakers along the lines of joining forces in bidding on projects.
3) Within India, some companies are looking about for M&A deals in emerging economies in order to expand their market.
“In essence, we are seeing a revival of cross-border deal flow in various segments after a significant drop over the last two years and (we) expect this to only improve in the medium term. The outbound deals are driven by need for technology or new markets, while inbound ones are driven by a desire to participate in the Indian consumption story,” says Bugwadia.
The nature of Indian firms being family-owned and run poses some thorny problems for dealmakers. Most of the strategic growth plans have been formulated by the family whose expertise falls short of the experience and knowledge of the new management team thus setting up a pecking order that is not always to the promoters’ liking. Resentments and mis-communications usually result in blunting the promoters’ efforts.
He also says, “(t)here are subtle cultural differences—for instance, Indian managers, like many of their other Asian counterparts, tend to be less forthright and informal as compared to Western professionals—that needs to be kept in mind while working on any cross-border transaction.”
In addressing the regulatory environment, Bugwadia warns that sometimes the regulations are not always as clear as the dealmakers are accustomed to. Though there has been some inroads make in clarifying the regulatory environment, the promoters should be aware that potential difficulties could arise.
Potential issues in some of these deals might include inaccurate valuations expectations, legal problems concerned with vague regulations (specifically in commodities), mismatches in labor laws and certainly cultural differences.
All in all, the best approach to make the best impression is to bring financing with you. |
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| Q&A |
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The First, Among Firsts
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| Charles W. Downer |
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This September 27th, the M&A Advisor will present Charles W. Downer, founder of global investment bank, C.W. Downer & Co., with our M&A Advisor’s Lifetime Achievement Award. Mr. Downer is to be honored for his pioneering achievements in international M&A transactions.
Among his many achievements, Mr. Downer has been a trailblazer and middle-market pioneer since 1966, when he founded a buy-side firm immediately after earning his MBA from Harvard Business School. Mr. Downer was an early pioneer in cross-border transactions, opening offices in Paris, France and Sydney, Australia, the latter of which enabled him to gain early entrance into Asian markets.
Mr. Downer has served as the President for the Association for Corporate Growth. He is a Director of the Boston Fulbright Scholarship Committee and a former Trustee of the Joslin Diabetes Center.
Mr. Downer is also a former Director of the Boston Big Brother Association, a former member of the Harvard University Art Museums' Board of Overseers Visiting Committee, and a former member of the Young Presidents Organization.
Here, Mr. Downer shares his insights and reflections on his many accomplishments.
M.A.: In 1966, what was the original deal that sparked your interest in the international market?
C.D.: That's an interesting question but the answer may surprise you. It was, in fact, the lack of international deals that sparked my interest in the international market. In 1966, international deals were few and far between but I knew that the desire for international deals was strong. The problem was that there were few facilitators of international deals and those that did exist (such as Lazard Frere, S.G. Warburg, Kuhn Loeb, J.P. Morgan, Morgan Stanley, etc.) were interested only in the very largest deals. For a company of medium size, the barriers to completing an international deal were daunting. Imagine the owner of a French company with $100 million in sales who wants to expand into the United States by acquisition. First, he must speak fluent English. Second, he must know how to find the right acquisition. Third, he must understand the legal and accounting systems in the US. Lastly, he must understand the subtleties of negotiating with an American seller. Without an advisor who could lead him through this complex process, he would not attempt it. I saw this as an important need and I tried to fill it
M.A.: What was the first cross-border transaction that you worked on? What was the most difficult aspect of the deal?
Another interesting question. The first cross-border transaction I ever did was between a Belgian cast iron stove manufacturer and an East Coast distributor of stoves. The year was 1967 (my first year in business, I did no deals!). I had been hired by a privately-held Belgian company to find them a distributor for their products on the East Coast. My research uncovered 5 distributors up and down the East Coast who were interested in taking on the distributorship. I visited all the target companies with my client and, at the end of the week, we met to evaluate them all. My client informed me that there was one candidate that he particularly liked and he confided in me that the owner of that company asked him if he would be interested in purchasing his company. The answer to that question was "yes". My client then asked if I could help with the acquisition and asked to know what fee I would charge for advising on the acquisition. As I had never made an acquisition before (I was working for him on an hourly consulting basis) I had no idea of what to charge! My mind raced! I knew that real estate commissions were around 6% but this transaction value was much higher than the usual house so I replied, "Our usual fees on acquisitions amount to 5% of the acquisition price" There was a long silence during which I was sure I had made a huge mistake. Finally, he turned to me and said, "fine".
M.A.: What changes did the formation of the EU bring to cross-border deals?
The EU, created in 1958 and continually developed and expanded thereafter, provided the impetus for European companies to acquire outside their own borders. Once the tariff barriers between countries came down and European regulations were standardized throughout the EU, companies felt the need to be pan-European. Take, for example, Stella Artois beer, the market leader in Belgium who could control prices, distribution, marketing, etc. in its own country before the EU. After the EU, Stella Artois became the 5th largest beer company in the market and lost all its market leadership advantages. They responded by buying brewers and distributors in other European countries so that they could maintain their leading position in a far larger market. This effect was repeated thousands of times. Cross-border deals in Europe exploded! The EU also created a huge, single market that attracted North American companies who wanted to participate. Thus began the trans-Atlantic flow of acquisitions that continues today.
M.A.: What has been the most interesting deal you put together in your venerable career and what made it so?
Our most interesting deal was the sale of Leiner Davis Gelatin to Tessenderlo Chemie of Belgium. Leiner Davis had operations in South America, Australia and Europe. Their Goodman Fielder parent was in Australia. When all was said and done, we had used our international knowledge of 6 languages, 5 legal systems, 3 accounting systems and closing were held simultaneously on 4 continents.
M.A.: How do you see cross-border deals evolving with the emergence of India and China and South America as global players?
The emergence of India, China and Brazil will have a dual effect on cross-border M&A. First, as these economies grow and mature, they will generate excess cash on their balance sheets and will exhaust interesting domestic acquisition opportunities. In order to generate acceptable returns on their expansion, they will have to look outside their own borders for suitable acquisitions. Similarly, as these economies grow and develop, they will attract investment from companies in more mature economies in Europe, North America and Japan who are looking for markets with higher growth profiles. Already Chinese and Indian companies are acquiring abroad to begin to control their own foreign distribution.
M.A.: What do you think of the current state of the global economy (post 2008) in regards to the changes in cross-border deals. And what challenges do these changes present to middle-market dealmakers? Equally, where do you see the most opportunity in cross-border deals and why?
The past three years have been difficult ones for cross-border deals but these difficulties have also increased the positive outlook for the future. Buyers have been frustrated by the lack of acquisition financing, the need to fortify their own balance sheets and the uncertain business outlook over the next few years. The accumulation of cash within the business community is unprecedented and that cash needs to be invested or returned to the shareholders. We all know that management does not like to return money to the shareholder so they will look to make acquisitions to diversify or to increase their market share. They will also turn to overseas markets for acquisitions. This pent-up demand on the part of buyers is now being met by an increase in the supply of sellers. As acquisition multiples declined over the last few years, owners have been reluctant to sell. This is now changing, as owners grow older and as they feel the economic pressure to be a part of a larger organization for financial or market reasons. The convergence of motivated and financially capable buyers and willing sellers will again put M&A advisory work high on the list of revenue generators for investment banks, large and small. For middle-market dealmakers, Europe will continue to offer the most opportunity for cross-border deals simply because there are more borders and the need to be pan-European is still a strong driver of cross-border deals.
M.A.: You have served as the head of many service organizations. Please tell us a bit more about your current philanthropic work.
Now that I have retired as the CEO of C.W. Downer & Co., I plan to extend my philanthropic activities but not expand them. I prefer to concentrate my efforts on one organization. I was for many years a Trustee of the Joslin Diabetes Center in Boston before I moved to Paris. I will soon again become engaged in the search for a solution to the diabetes condition that now affects so many people worldwide.
M.A.: Thanks, Charlie for all of your wonderful leadership!
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