The number of mergers and acquisitions in the past year held steady, with the size of top deals spiking.
Observers expect more of the same this year.
Orange County companies were involved in 286 mergers and acquisitions in the past 12 months through February, according to market tracker FactSet Mergerstat LLC. That’s off slightly from 297 in the prior period, but up from 208 in 2003.
The M & A; count includes two types of deals: buys by OC-based companies or units and acquisitions of OC businesses or units by other companies (see list of top deals, page 28).
Overall, the OC buys and sales were for more than $9 billion.
A pair of acquisitions stood out. Santa Ana-based Advanced Medical Optics Inc. bought Santa Clara-based Visx Inc. for about $1.3 billion and Lake Forest-based Cooper Cos. bought Concord-based Ocular Sciences Inc. for $1.2 billion.
The biggest deal a year earlier was a sale: Irvine’s Sicor Inc. was bought by Israel’s Teva Pharmaceutical Industries Ltd. for about $3.4 billion.
The top five acquisitions by OC-based companies in the past year cost $3.9 billion, higher than last year’s $2.7 billion.
Activity lags the M & A; heyday in 2001, when the top five acquisitions cost $11.4 billion. Technology companies helped boost the 2001 numbers, with Irvine chipmaker Broadcom Corp. alone making five $1 billion-plus acquisitions that year, including two worth more than $2 billion.
The 2001-2002 period was a watershed one for activity, with 349 deals involving OC companies reported. But industry watchers say the rebound during the past couple of years should continue in 2005.
“I suspect 2005 will be busier than 2004. You’ll see a continuing trend of consolidation in the technology industry,” said Michael Flynn, a partner at Newport Beach law firm Stradling, Yocca, Carlson & Rauth. “Since OC has a very healthy community of tech companies you will see both acquisitions of and by OC technology companies,more so than last year. With the stock market being stronger and the economy stronger, companies are bullish and more aggressive. They are more willing to compete for acquisitions.”
Economy Boosts Activity
Officials at Costa Mesa-based RSM EquiCo said the improving economy has bolstered M & A; activity, and that they expect more of the same in 2005.
“Interest rates remained low, there was a general devaluing of the dollar, plus the capital overhang created a strong environment,” said Hector Cuellar, president of RSM EquiCo Capital Markets, the deal-making arm of the company. “We’re seeing life sciences as very active. Business services like temporary staffing agencies also are active.”
RSM EquiCo President Coby Sonenshine said mid-tier deal activity was up in the past year. He said that the number of U.S. M & A; deals from $200 million to $500 million was 4,700 last year, versus 3,900 in 2003, Sonenshine said.
Broadcom, OC’s biggest company by market value, bought 20 companies during its peak a few years ago. The chipmaker has taken a break from its acquisition pace since then. But it’s picked up of late with a handful of notable buys in the past 12 months.
The chipmaker’s buys: San Diego wireless phone chip designer Zyray Wireless Inc. for $100 million, Andover, Mass.-based Sand Video Inc. for $77 million, San Diego-based Widcomm Inc., a provider of software for Bluetooth wireless products, for $49 million, and Israel’s M-Stream Inc. for some $10 million. M-Stream makes chips for improved reception of voice, video and music on wireless phones.
On the medical side, Advanced Medical Optics’ buy of Visx wasn’t its only big one of the year. The company also bought New York-based Pfizer Inc.’s ophthalmic surgical business last year for $450 million.
Santa Ana tech products distributor Ingram Micro Inc. bought Tech Pacific Australia Pty Ltd. for about $530 million.
Other top deals: Cypress-based PacifiCare Health Systems Inc. bought Green Bay, Wis.-based American Medical Security Group for $448 million; and Irvine-based Westcorp’s buy of the remainder of Irvine-based WFS Financial Inc. it didn’t already own, for $310 million.
One deal that should show up on next year’s list is a pending acquisition announced in March by Huntington Beach-based Quiksilver Inc. The surfwear company plans to buy France’s Skis Rossignol SA for $312 million.
The deal would stand to boost Quiksilver’s yearly sales from $1.3 billion now to nearly $2 billion and turn the surfwear company into the world’s largest maker of skis.
Quiksilver plans to use the Rossignol name on clothes as well as skiing and other mountain gear.
Big sales of OC-based companies included Lincolnshire, Ill.-based Hewitt Associates Inc.’s $584 million buy of Irvine human resources services provider Exult Inc. And Warsaw, Ind.-based Biomet Inc. bought Irvine-based Interpore International Inc. for $261 million.
A trio of OC-based aerospace companies were bought in the past 12 months.
Portland, Ore.-based Precision Castparts Corp. said earlier this year it was paying $194 million to buy Garden Grove’s Air Industries Corp. and a related company, Air Tuf Products Inc. of Phoenix.
Last year, Bellevue, Wash.-based Esterline Technologies Corp. paid $145 million for Buena Park’s Leach International Corp. And, in another 2004 deal, Britain’s Smiths Group PLC bought Santa Ana-based landing gear maker Integrated Aerospace Inc. for $110 million.
While M & A; watchers are optimistic about 2005, they said the faster pace of deals nationally could start to taper off.
“I believe toward the latter part of the year, purchase prices will hit a ceiling and either remain at that level or soften a bit,” said George Wall, a partner with Costa Mesa law firm Rutan & Tucker LLP.
Wall nevertheless said he expects 2005 to be an “excellent” year for M & A; activity.
Leonard Hecht, a member of the executive advisory team at San Juan Capistrano-based Waterstone Capital Partners, said rising interest rates could limit debt-financed deal activity.
“When interest rates start to climb, the cost of money goes up,” Hecht said. “M & A; activity will start slowing down a bit in terms of leveraged buys. But in terms of buying company with stock, the activity will go up as the stock market goes up. A higher stock market means companies making acquisitions won’t have to do as much leveraging.”
The Federal Reserve Bank raised its key fed funds rate by 25 basis points last month, the seventh such increase since last summer.
