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Lawyers Benefit From Deals Uptick, Relationships

Orange County’s merger-and-acquisition lawyers stayed busy last year with a steady flow of deals that included well-watched transactions and a good number of local businesses buying and selling.

Growing emphasis on relationship and trust between clients and attorneys, in addition to an improving economy, was a significant driver of deals, said George Wall of Rutan & Tucker LLP, one of the largest law offices in the county. He’s a senior partner in the Costa Mesa-based firm’s corporate practice.

Wall worked on about 20 deals last year, with valuations and purchase prices combining to top $1 billion. That followed a year of more than 25 deals worth about $2 billion overall.

Sacramento Kings Deal

Not all transaction values were available, but Wall’s biggest deal was representing the ownership group in the acquisition of the Sacramento Kings basketball team. The sale of the NBA franchise from the Maloof family, a longtime owner, to a group of investors led by Vivek Ranadive brought more than $530 million, setting an NBA record. Raj Bhathal, founder of Raj Manufacturing in Tustin, is part of the team’s new ownership.

“That was extremely challenging, and there were a number of issues outside the ordinary scope of being involved in an M&A transaction,” Wall said. “For example … there were rights that the NBA agreed to in connection to real estate. At the end of the day, the ownership group was allowed to develop the property where the Sacramento arena is now. And additionally, they were given 90 acres downtown to build a new arena. Overall, there were factors other than just the revenue that the team generated.”

Local deals Wall advised on included the $94 million sale of Irvine-based staffing firm CyberCoders Inc. to On Assignment Inc. in Calabasas, the sixth-biggest sale involving an OC-based company last year, according to the Business Journal’s list this week (see list, page 20). Milestone payments potentially put the deal at about $105 million.

“I represented the private equity group on that transaction,” Wall said, referring to Riordan, Lewis & Haden Equity Partners, which had held CyberCoders in its portfolio for about six years.

Los Angeles-based RLH has an office in Irvine. Wall has represented the investment firm in other deals, including the sale of maxIT Healthcare Holdings Inc. for $500 million in 2012.

He also helped Dallas-based engineering and construction company Primoris Services Corp. in three deals last year, buying companies and other assets engaged in construction and infrastructure management. Primoris was based in Lake Forest before its move to Texas in 2011. Its ARB Inc. unit stayed and still operates here.

“They moved, and I’m still doing all their M&A work,” Wall said, adding that relationships often drive companies to continue working with the same lawyer or team. “They’ve worked with me before, and they have confidence in me.”

Case in Point

A couple of Latham & Watkins LLP lawyers know what that’s like.

R. Scott Shean, former managing partner of the Orange County office of the L.A-based firm, and Charles Ruck, a partner here, have been working with a local-turned-global pharmaceuticals company for about 15 years, staying “intimately involved in the growth and strategy of the company every step of the way,” Shean said.

The duo last month advised Actavis PLC in its $25 billion acquisition of New York-based Forest Laboratories Inc. Actavis had about $33 billion in market value at the time of the deal announcement, and Forest had about $19 billion.

Actavis previously was known as Watson Pharmaceuticals Inc. and had its headquarters in Corona.

“We started advising them when they were in Southern California, and we maintained the relationship,” Shean said.

The company moved its headquarters to New Jersey in 2011 during a period of consistent acquisitions and “transformative growth” that has increased its market value from about $3 billion several years ago to a projected $60 billion now.

“I’ve personally represented Actavis in over 15 M&A transactions since 2006, including four multibillion-dollar deals in the last five years,” he said. “Charles partnered with me on some of the largest of these deals.”

The buys include then-Watson’s $1.9 billion acquisition of pharmaceuticals company Andrx Corp. in 2006 that Watson followed with a nearly $1.8 billion buy of generic drug maker Arrow Group in 2009. Watson changed its name in 2012 when it acquired Actavis Group for $5.6 billion. Actavis last year acquired rival Warner Chilcott PLC for $8.5 billion.

“These were all transformational deals,” Shean said. “The Andrx deal in 2006 made the company the third-largest generic pharmaceutical company in the U.S. Arrow Group was the first real move by the company to become international. The Actavis group deal then expanded the footprint of the company in a much more significant way. The 2013 deal resulted in the company’s [relocation] to Ireland. Now Forest is primarily branded products. So the Forest transaction is transformational, in that the company now will be balanced between generic and branded pharmaceutical [products].”

Shean and Ruck have handled plenty of other recent deals besides Actavis in the healthcare, real estate and technology sectors.

Shean worked with Ruck in representing Aliso Viejo-based Quest Software Inc. in its $2.4 billion sale to Dell Inc. in 2012, the largest deal involving an OC business that year.

The largest OC deal of 2013—TRI Pointe Homes Inc.’s $2.7 billion acquisition of the homebuilding unit of Weyerhaeuser Co.—was handled by Mike Flynn at Gibson Dunn & Crutcher LLP.

Flynn is a partner in the Irvine office of the L.A.-based firm.

Real estate developer TRI Pointe last year went public through an initial public offering. The Irvine-based company is about 5 years old and is poised to become one of the largest builders in the country as a result of the pending Weyerhaeuser deal.

The purchase reflects Flynn and his

firm’s latest efforts to “really get deep into real estate and homebuilding” in their M&A practice.

Flynn has advised companies in industries including “restaurants, consumer, technology … those major industries that are here in OC,” he said.

A couple of local restaurant chains in Orange County took his counsel last year as they secured investments from consumer-focused private equity backers.

Huntington Beach-based Lazy Dog Restaurant & Bar got a “significant” investment from Los Angeles-based Brentwood Associates. The restaurant, which has 12 locations, is expected to use the money to open three more this year.

Flynn also represented Orange-based Bruxie LLC when it got an undisclosed amount of capital from Catterton Partners in October.

More M&A Expected

He said he expects M&A activity to continue this year, thanks in part to the “relatively strong [trajectory] of the stock market as of late,” which allows publicly traded companies to use stock as currency.

“Another thing is that banks are lending, and rates are cheap,” he said. “Those two factors can facilitate M&A, because money is available. Typically, you also see competitive processes, where if a company wants to put itself up for sale or put up a division of itself for sale, usually the best way to get the best price is to run a competitive process and see what bidders will do. Typically, if you have a good, healthy company that’s attractive, you can either get a strategic buyer, which would be a competitor or a company that wants to get into that industry, or you can get a financial buyer, like a private equity firm.”

Rutan’s Wall agrees.

He’s seen 2014 take off and is working

on 10 transactions scattered across the construction, healthcare, food, and oil and gas sectors.

“I believe that 2014 will be a very active year,” he said, “because both strategic buyers and the private investor groups continue to hold large amounts of cash. Interest rates, although they’ve crept up some, still remain at historical lows. I think that the most active sectors are going to be probably healthcare because of issues associated with the Affordable Care Act; technology; telecommunications; and energy. Overall, this should be a good year, barring some independent economic or geopolitical events.”

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