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Sector Deals: Huge Healthcare, Big Tech; Aerospace Picks Up

The healthcare and technology sectors dominated the wheeling and dealing in Orange County last year. Restaurants were big, too.

But one of the hottest areas to catch the eye of out-of-town suitors was OC’s aerospace and defense sector.

Strong commercial and military jet orders, plus a record-high backlog for goods and services needed to support defense upgrades and U.S.-led activity in the Middle East, have made defense contractors attractive targets.

The weak dollar and improving international economies have fueled aerospace acquisitions by foreign companies, said Hector Cuellar, president of Costa Mesa-based RSM EquiCo’s Capital Markets LLC unit, the deal-making arm of RSM.

In December, RSM EquiCo brokered a deal between United Kingdom-based Hampson Industries PLC and Irvine-based Coast Composites Inc., a maker of tooling systems for carbon fiber composites in the aerospace industry.

Hampson paid $58 million for the business, once owned by private equity company Hammond Kennedy Whitney.

The largest aerospace deal in OC during the past year was French aerospace company Zodiac SA’s buy of Huntington Beach-based C & D; Aerospace Group. Zodiac paid $600 million for C & D;, which designs commercial and military aircraft cabin fixtures, including overhead bins and cabin lighting.

Other aerospace deals last year included Portland, Ore.-based Precision Castparts Corp.’s $194 million acquisition of Garden Grove’s Air Industries Corp. And earlier this year Precision Castparts wrapped up its $110 million acquisition of Shur-Lok Group, an Irvine maker of aerospace fasteners.

A family business founded some 55 years ago, Shur-Lok became part of Precision Castparts’ fastener business.

Bellevue, Wash.-based Esterline Technologies Corp. has a keen eye for OC-based aerospace companies.

In 2004, Esterline paid $145 million for Buena Park’s Leach International Corp. Then last year Esterline paid $29 million to buy Rancho Santa Margarita-based military communications equipment maker Palomar Products Inc.

Overall, healthcare and technology companies were top buyers and sellers,a normal pattern for OC, which has a strong presence in the two sectors (see related story, page 26).

“We’ve not seen a climate like this in 20 years,” said Michael Ellington, managing director of Santa Ana-based Strategic Equity Group, an investment banking firm.

“I still see a tremendous amount of activity in technology, retail and consumer-branded products,” said Ellington, who provided advisory services on Huntington Beach-based surfwear maker Quiksilver Inc.’s $314 million purchase of France’s Skis Rossignol SA last year.

Ellington also said he’s busy doing M & A; valuations for technology and biomedical companies in OC and northern San Diego County. He sees the trend continuing due to low capital gains taxes coupled with high sales prices.

“Who knows how long the capital gains taxes will last, especially if you sell two to three years from now,” he said. “Now is the time to sell because the multiples are higher. If you’re angling to get out, now is the time.”

Technology buyers included Santa Ana-based Ingram Micro Inc., which bought Hollywood, Fla.-based Avad LLC for $200 million and Santa Ana-based Powerwave Technologies Inc., which bought assets of Del Mar-based Remec Inc. for $145 million.

Irvine-based Broadcom Corp. and Aliso Viejo-based Quest Software Inc. continued their patterns of past years with several acquisitions each.

“What we are seeing is that the technology sector remains hot,” observed Dan Donahue, a mergers and acquisitions attorney with Irvine-based Preston Gates & Ellis LLP.

On the sales side, New York private equity firm Fenway Partners Inc. bought Anaheim-based Targus Group International Inc., a maker of accessories and devices for laptop computers, for $383 million in September.

The top sale and buy of the past year in OC were healthcare-related.

Cypress-based PacifiCare Health Systems Inc. was sold to Minnesota’s UnitedHealth Group Inc. for $8.1 billion in the top sale. Irvine-based Allergan Inc. acquired Santa Barbara’s Inamed Corp. for $3.2 billion in the largest buy.

On the restaurant front, private equity firms snapped up a couple of high-profile OC restaurant chains. New York’s Trimaran Capital Partners LLC bought Irvine-based Mexican fast-food chain El Pollo Loco Inc. in the fall for an estimated $400 million.

El Pollo Loco Chief Executive Stephen Carley said the company, which had to comply with Sarbanes-Oxley accounting rules because it had publicly traded debt, wanted a buyer that would pay off its debt and take the company completely private.

Meanwhile, Los Angeles-based Leonard Green & Partners LP paid an estimated $225 million for a majority stake in Irvine’s Claim Jumper Enterprises Inc. from owner and President Craig Nickoloff.


No Drop in M & A; Seen

Most observers see M & A; activity continuing to be strong in OC and across the U.S.

“We think it’s kind of the perfect storm,” said RSM’s Cuellar. “I could see OC continuing to chug along at a very nice growth rate. I don’t know if the volume of deals will be as high, but I could see the same number of deals or better.”

Cuellar cited a generally positive economic outlook given the rising interest rate climate. He also pointed to hedge funds and private equity firms as being flush with cash, coupled with aggressive M & A; lending by banks.

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