NO BIG DEAL: As M & A; Activity in OC Slipped in the Past Year, Dollar Volume Plummeted
The biggest OC acquisition in the past year had a price tag of $152 million, a far cry from the billion-dollar deals of 2000
By RAJIV VYAS
Big deals no longer make headlines in Orange County these days.
Whether OC companies are acquiring other companies or selling their businesses, deals are fewer in number. And the billion-dollar megadeal has disappeared altogether.
According to Los Angeles-based Mergerstat, a unit of Houlihan Lokey Howard & Zukin OC companies made some 134 buys in the past 12 months, compared with 202 deals in the prior period and 186 in the 12 months before that.
And the value of the biggest deal in the past year was more than 90% less than the $2 billion-plus No. 1 of the 12 months ended in March 2001.
As the stock prices of many OC companies have tumbled, they have become more reluctant,and in many cases unable,to make big buys like those that made news in 1999 and 2000. Also, sellers are unwilling to complete deals at lower valuations.
“This is clearly a very challenging market,” said Stephen Perry, managing partner at Irvine-based investment bank Janes Capital Partners, whose firm did relatively well,closing four deals last year (see story, page 26).
“We had to work so much harder for every ground that we gained,” he said.
The biggest buy made by an OC-based company last year was the buyout of Irvine-based eMachines Inc. Garden Grove-based EM Holdings Inc., owned by eMachines director Lap Shun “John” Hui, bought the discount PC seller late last year and took it private.
The deal was valued at $152.3 million. And while it was the biggest buy last year, the deal would have ranked No. 20 in size in the 12 months ended in 2001, when billion-dollar deals were happening almost every other month.
In 1999 and 2000, Irvine-based Broadcom Corp., Newport Beach-based Conexant Systems Inc. and other technology companies were on buying binges. Their stock prices gave them plenty of currency to make big deals.
Broadcom made five acquisitions in 2000 and the early part of 2001, each valued at more than $1 billion. The chipmaker acquired Santa Clara-based ServerWorks Corp. for $2.2 billion. This was the largest acquisition deal in the period. Broadcom also acquired SiByte Inc. for $2.1 billion in the second-largest deal for the period.
The company made all of the top five acquisitions in during the period. Other big acquirers were Conexant, Aliso Viejo-based QLogic Corp. and Irvine-based Newport Corp.
“Broadcom was more of an opportunistic strategy,” said Murray Rudin, a partner at Los Angeles-based private equity firm Riordan, Lewis & Haden and head of its Irvine office. “If they could buy technology for nothing, why not.”
Both Broadcom and Conexant were taking advantage of their stock prices at the time. Shares of Broadcom were trading at more than 200, while Conexant shares peaked at around 100. Broadcom made 14 acquisitions in 2000 while Conexant spent $1.9 billion acquiring companies.
But with the downward slide in stock prices acquisitions have gotten fewer and smaller. Last year, Broadcom made only one acquisition, while Conexant spent $11 million to acquire one company in its fiscal year ended Sept. 30.
Still, a few companies have been buying.
MSC.Software Corp. of Santa Ana bought two companies last year. One of them was Mechanical Dynamics Inc. of Ann Arbor, Mich., in a deal valued at $117 million, the second-biggest buy made by an OC-based company in the 12 months. MSC also bought Santa Ana-based Advanced Enterprise Solutions in a deal valued at $116 million, the third-largest deal in the period.
Irvine-based Consumer Portfolio Services, a subprime auto lender, bought MFN Financial Corp. of Lake Forest, Ill., in a deal valued at around $100 million.
Consumer Portfolio Services Inc. purchases, sells and services auto loans originated by dealers. The company finances automobile purchases through more than 4,000 dealers under contract throughout the U.S.
MFN is a consumer finance company whose principal operating subsidiary is Mercury Finance Co. Like Consumer Portfolio, Mercury Finance provides financing for auto buyers with less than perfect credit.
And Anaheim-based CKE Restaurants Inc. bought Santa Barbara Restaurant Group in a deal valued at $73 million. CKE recently moved its headquarters to Santa Barbara as a result of the deal.
Together, the top five acquisitions by OC companies in the past 12 months were valued at $557 million, vs. $11.4 billion in total valuation for the five largest deals in the 2000-2001 period.
The biggest sell-side deal was that of eMachines. Next was the acquisition of Cypress-based Unigraphics Solutions Inc. by Electronic Data Systems Corp. for $142 million.
Even when it came to selling businesses, deal activity was lower. Some 120 OC-based companies were acquired last year, down from 147 sell-side deals in the 2000-2001 period.
The buy of Advanced Enterprise by MSC.Software was the third biggest sell-side deal by an OC-based company.
Rounding out the top five, Sun Gro Horticulture, a unit Irvine-based Hines Horticulture Inc., was bought by Sun Gro Horticulture Income fund from Vancouver, British Columbia, while Newport Beach-based Pacific Life Insurance Co. sold one of its units to Scottish Annuity & Life Holdings Ltd. in the Cayman Islands.
While the M & A; market has been lackluster for almost a year and a half, investment bankers said they see signs of a pickup this year. The economy is reviving, productivity is up and companies are more comfortable making acquisitions or selling to larger companies.
“We found things are picking up a little bit,” said Andreas Graham, senior vice president of the Newport Beach office of Barrington Associates. “We are getting more engagement activity and it’s a balance between fundraising assignments and M & A; assignments. We probably are working on 20 deals right now and reviewing four to five new deals each week.”
Janes Capital’s Perry said his firm also sees a turning and expects to meet its annual target of doing four to six deals a year. In the first quarter, the firm closed two deals.
