Mergers and acquisitions are starting to come out of hibernation.
“The M&A market has been pretty challenged over the last several years with any number of factors, but it has begun to show some signs of resurgence,” said Greg Presson, senior managing director and head of investment banking for Los Angeles-based B. Riley & Co., which has a Newport Beach office.
In particular, Presson said that he started to see more “solidification” of the market starting in the third and fourth quarters.
“And we have pretty high hopes for it in 2010, based on some of the things we’re seeing,” he said.
Those things include improved performance of companies that would either be buyers or candidates to be bought, Presson said.
Big strategic buyers have been hoarding cash and are beginning to be able to access credit markets, he said.
Medical technology maker Beckman Coulter Inc. could be one such buyer. The Brea-based company bought Olympus Corp.’s lab-based diagnostic business for $800 million in a deal that closed in August, during the financial meltdown. Charles Slacik, chief financial officer of Beckman Coulter, was able to find financing for the buy, Presson said.
“Companies and private equity groups—just general deal doers—are getting a little bit more comfortable stepping back into the market,” said Paul Kacik, a managing director and head of healthcare investment banking for McGladrey Capital Markets LLC in Costa Mesa.
Part of that comfort is driven by the rising valuations of companies as the stock market continues its run-up from last year’s low.
“Certain public companies are now finding that their stock prices are higher than they were a few months ago, so therefore they have the acquisition currency to step into the market,” Kacik said.
Debt markets appear to be loosening up, he said, but are “certainly not as free-wheeling as they were back in 2005 and 2006.”
Lenders are placing conditions on their borrowers, including keeping tight control over how much they are willing to lend to buyers based on earnings before interest, taxes, depreciation and amortization, Kacik said.
Most debt providers have almost cut in half the amount they are willing to lend over those earnings, he said.
As for the deals that have been made, healthcare—particularly medical devices and device makers—has been one of the primary targets for buys during the past year.
One of the bigger deals in the latter part of 2009 came in September, when Abbott Laboratories of Chicago bought Irvine startup eye device maker Visiogen Inc. for $400 million in cash. Visiogen makes a lens that’s implanted into the eye to treat presbyopia, a condition where the eye loses its ability to focus close up.
Abbott bought Visiogen because it loves the category, said James Mazzo, president of Abbott’s Santa Ana-based Abbott Medical Optics Inc., the unit under which Visiogen falls.
Wells Fargo Securities LLC analyst Larry Biegelsen said at the time of the deal that buying Visiogen showed that Abbott “is serious about ophthalmology” and was putting pressure on rival Alcon Inc., which employs about 800 people in Irvine and also makes intraocular lenses as well as contact lens solutions.
Abbott got into the $22 billion yearly eye products market in early 2009, when it bought the former Advanced Medical Optics Inc., a maker of eye surgery devices, lasers and contact lens products, for $2.8 billion.
Valeant
Valeant Pharmaceuticals International, an AlisoViejo-basedmaker of skin, neurology and antiviral drugs, was a prolific deal maker in 2009. Chief Executive J. Michael Pearson, as part of his ongoing reconstruction of Valeant, spent $395 million to buy three skin care companies, as well as products from a fourth.
Valeant began 2009 by wrapping up an earlier deal for Dow Pharmaceutical Sciences Inc., a Northern California drug maker. That deal brought Valeant the Acanya acne treatment gel and other drugs.
The company’s other 2009 deals included a buy ofAustralia’s Private Formula International Holdings Pty Ltd. for $69 million and 162,500 shares of its stock, $18 million to buy the rights to several skin drugs from an undisclosed Polish drug maker and $21.7 million for Canada’s Laboratoire Dr. Renaud.
Valeant’s most recent deal came about two weeks ago, when it said it was paying Spear Pharmaceuticals Inc. of Florida $12 million for the rights to Refissa, a wrinkle-reducing skin cream.
Revenue diversification was behind Valeant’s decision to buy more skin drug companies, said Rajiv De Silva, its chief operating officer of specialty pharmaceuticals, in a November interview.
Dermatology brings prescription drugs covered by insurers as well as products that patients pay for out of their own pockets, he said.
“From our standpoint, given the shifting sands of healthcare reform around the world, hedging by having businesses that actually go outside the traditional prescription business (is) helpful,” De Silva said.
On a wider scale, Kacik noted that larger drug makers, particularly those that can be considered “big pharma,” have been making deals because they need to bolster their development pipelines.
He also said OC’s three large public life science companies—Irvine drug maker Allergan Inc., Beckman Coulter and Edwards Lifesciences Corp., an Irvine maker of heart valves—were all at 52-week highs in their stock prices as of early March.
“They have pretty strong acquisition currency now,” Kacik said.
Healthcare isn’t the only field attracting buyout attention. Diedrich Coffee Inc., an Irvine-based coffee seller, is in the process of being bought for $290 million in cash byVermont-based GreenMountain Coffee Roasters Inc., which prevailed over Emeryville-based Peet’s Coffee & Tea Inc. in a bidding war in December and extended its offer last week after running into regulatory issues.
Diedrich still has the $265 million cash-andstock offer from Peet’s on the table. Peet’s said earlier this month that it would extend its proposed deal for Diedrich in the hopes that regulators kill the rival bid.
Technology’s also seen a few deals in recent months.
Networks in Motion Inc., an Aliso Viejo mobile software maker, took a $170 million buyout from TeleCommunication Systems Inc. that closed in December. Networks in Motion makes navigation and local search software for phones and other
mobile devices. Its software provides what are called location-based services such as looking up maps, offering driving directions and searching for local businesses. TeleCommunication Systems makes mobile software that’s sold to governments and wireless telecommunications companies.
The company’s overall exit plan had been to try to go public, but it instead opted to keep the company together through a buyout, said Steven Petilli, an initialNetworks inMotion investor, in an earlier interview.
