Mergers and acquisitions slipped for the second year in a row as investors became more hesitant and local lenders tightened their purse strings.
That left foreign buyers to drive the county’s two biggest deals in the past year. Meanwhile, corporate buyers looking to add to their businesses were more active than their private equity counterparts.
“We’ve come off a very good market,” said Michael Lowell, managing director at investment bank B. Riley & Co. in Newport Beach. “It’s still active but there’s some slowdown.”
Local companies were involved in 265 deals for the 12 months through February, according to market tracker FactSet Mergerstat LLC. That’s down from 292 a year ago, and from 345 two years ago.
The count includes two types of deals: buys by OC companies or units based here and acquisitions of OC businesses or units by other companies.
The Business Journal’s list doesn’t include deals that didn’t have values disclosed. Those with prices don’t include cashed out options or cash payments in their calculations. Some figures are Business Journal estimates.
Notable deals that didn’t disclose values included Santa Ana-based Sweet Life Enterprises Inc., which sold in November to Brea-based Fresh Start Bakeries Inc., and Irvine’s Yard House Restaurants LLC, which sold a majority stake to TSG Consumer Partners for an estimated $175 million.
A notable recent deal that didn’t make the list’s cutoff date: Allegiance Investment Management LLC in Huntington Beach, which is being bought by Australia’s Macquarie Bank Ltd. this month.
In all, the deals accounted for nearly $10 billion, down from $14.3 billion a year ago, and down from $28.8 billion two years ago.
The top five buys by local companies totaled $2.2 billion, with only one deal hitting more than $1 billion.
The total for the top five is just slightly ahead of a year ago’s $2 billion total, but well off the $7 billion seen two years ago.
Foreign buyers benefiting from favorable currency exchange rates were behind the county’s two largest sales.
Foothill Ranch-based clothing and sunglasses maker Oakley Inc. sold in November to Italy’s Luxottica Group SPA for $2 billion. Luxottica makes upscale sunglasses and also sells designer frames such as Chanel and Prada through its retail stores Sunglass Hut, LensCrafters and Pearle Vision.
The other big sale was of Irvine-based Gateway Inc. The computer maker was sold to Taiwan’s Acer Inc for $709 million, forming the world’s third largest PC maker after Hewlett Packard Co. and Dell Inc. Gateway also sold its struggling business selling computers and services to businesses for $90 million to MPC Corp.
A year earlier, billion dollar deals went to Newport Beach-based Sybron Dental Specialties Inc., which sold for $2 billion to Washington, D.C.-based Danaher Corp., Costa Mesa-based FileNet Corp., which sold to IBM Corp. for $1.5 billion, and Newport Beach-based John Laing Homes, which was bought by Dubai’s Emaar Properties for about $1 billion.
Blockbuster deals from two years ago included Cypress-based PacifiCare Health Systems Inc., which went to UnitedHealth Group Inc. for $8 billion, and Irvine-based Westcorp Inc., which went to Wachovia Corp. for $4 billion.
A slowdown in bigger deals stems from a credit crunch that makes it harder for private equity firms to borrow enough to bid prices up, according to Murray Rudin, who heads the Irvine office for Los Angeles-based private equity firm Riordan, Lewis & Haden.
The credit crunch affects private equity firms that finance their deals more than it affects corporate buyers, Rudin said.
Corporate buyers held larger appetites for local companies than private equity players and were responsible for 14 of the top 20 sales in the county.
“Strategic (corporate) buyers weren’t using high debt levels to fund their purchases so it doesn’t affect them,” Rudin said.
But corporate buyers also may be becoming more hesitant to do deals because of recession forecasts, he said.
Top Buys
The top three buys made by OC companies totaled a little more than $1.5 billion and were part of moves to enhance existing businesses.
The No. 1 buy was by Lake Forest-based disk drive maker Western Digital Corp., which bought Komag Inc. for $979 million. Western Digital said the San Jose-based maker of disk drive parts would allow it to make almost an entire drive without relying on suppliers.
Irvine-based drug maker Allergan Inc. paid $370 million for New Jersey’s Esprit Pharma Holding Co. Allergan eyed Esprit’s overactive bladder drug as way to get into a new market.
Lake Forest-based Apria Healthcare Group, Inc. bought homecare specialist and specialty drug maker Coram Inc. for $350 million.
“We’ll probably see more strategic buying this year,” B. Riley’s Lowell said. “Their focus is to add to their business, and they’ve been waiting for opportunities.”
As for private equity firms, they may find it tougher to borrow. But they still have a lot of cash to deploy, he said.
Many private equity firms are forced to make buys because of time restrictions written in their charters, Lowell said.
Local private equity firm Fairmont Capital Inc. in Yorba Linda made the biggest buy when it bought Bridgeview, Ill.-based Stampede Meat Inc. for $127 million.
Deals for smaller companies have been easier to get done, according to Ken Jones, executive managing director of Lyndon Group LLC, a Newport Beach-based accounting firm.
“You’ll probably see the smaller companies get a lot more attention in this environment,” he said.
Some other notable deals during the past year:
Software maker Epicor Software Corp. in Irvine paid $294 million for Canada’s NSB Retail Systems PLC.
Santa Ana-based real estate investor NNN Realty Advisors Inc. bought Chicago-based brokerage Grubb & Ellis Co. for $247 million.
Sunstone Hotel Investors Inc. in San Clemente bought the Boston Marriott Long Wharf Hotel for $228 million.
Irvine based chipmaker Broadcom Corp. paid $223 million for Global Locate Inc., a San Jose-based maker of GPS chips and software.
Defense contractor SRS Technologies Inc. of Newport Beach sold to ManTech International Corp. of Fairfax, Va., for $195 million.
