GETTING BUSY
M & A; Dealmaking Picked up Last Year; 297 Total Transactions
By CHRIS CZIBORR
Dealmakers hope activity in the past year is a sign of better times ahead.
Orange County reported some 297 mergers and acquisitions in the past 12 months, versus 208 a year earlier and 253 in 2002, according to data from FactSet Mergerstat LLC.
The totals include two types of deals made for the 12 months through February: acquisitions by OC-based companies and acquisitions of OC businesses or units by other companies (see list of top deals, page 51).
The Business Journal changed the 12-month period for this year’s results. Last year, deal totals were calculated for the 12 months through March.
One deal stood out: Irvine-based Sicor Inc. was sold to Israel’s Teva Pharmaceutical Industries Ltd. for about $3.3 billion, according to FactSet. That was more than triple the size of last year’s biggest deal, the buy of a unit of Little Rock, Ark.-based Alltel by then-Irvine-based Fidelity National Financial Inc. for $1.1 billion.
The top five acquisitions by OC-based companies together cost $2.7 billion, nearly double last year’s figure of $1.5 billion.
The top deal on the buy side,chipmaker Conexant System Inc.’s buy of Red Bank, N.J.-based GlobespanVirata Inc. for nearly $1.2 billion,was a big factor in the gains.
But recent numbers still are a far cry from 2001, when the top five acquisitions cost $11.4 billion.
Technology companies padded the 2001 numbers, with Irvine-based 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 folks say the past year’s rebound trend should continue in the next couple of years.
“It’s hard not to be up from (the period ending March 2003),the last two years have been a real struggle in the M & A; world,” said Charles Ruck, a partner at Latham & Watkins and head of its mergers and acquisitions group in Costa Mesa. “This most recent year we had a little break based on pent-up demand. We saw deals from a variety of sectors. Some of them were troubled deals where people had little choice but to sell. A lot of deals were strategic plays while others were growth drivers for companies already in the industry.”
The rebounding economy has spurred merger action, according to Andy Graham, head of the Newport Beach office of Los Angeles-based Barrington Associates.
“When buyers have greater value or confidence in their own operations, they’re able to consider making acquisitions,” Graham said. “And when the economy and stock market pick up, sellers also are more confident and are better to generate more confidence for potential buyers on future performance.”
Broadcom Breather
Broadcom, OC’s biggest company by market value at $12.4 billion, bought 20 companies during its peak a couple of years ago. But the chipmaker has taken a break from buying, making just two notable acquisitions in the past 12 months.
It bought Nashua, N.H.-based RAIDCore Inc. for $16.5 million and San Jose’s Gadzoox Networks Inc. for $5.8 million in a bid to build its position in the storage market. RaidCore makes software to manage large banks of drives used to store databases, while Gadzoox makes switches for storage networks.
One notable absence from the list is the pending sale of part of Irvine-based Freedom Communications Inc. to private equity firms Blackstone Group LP and Providence Equity Partners Inc.
Sales of privately held companies that don’t disclose a deal value aren’t included on the list of top deals.
More than 50% of the shares of Freedom held by descendants of founder Raymond Cyrus Hoiles are expected to be sold to the private equity firms. Freedom is valued at about $1.7 billion.
Big buys by OC-based companies included Conexant’s $1.2 billion acquisition of GlobespanVirata Inc. As part of the deal, Conexant’s headquarters moved from Newport Beach to GlobespanVirata’s home in Red Bank, N.J.
Irvine-based Commercial Capital Bancorp bought El Segundo-based Hawthorne Financial Corp. for $438 million. It was the second-biggest acquisition of the 12-month period.
Other top deals: Santa Ana-based Powerwave Technologies Inc. bought Sweden-based LGP Allgon Holding AB for $407 million; Santa Ana-based First American Corp. bought Netherlands-based insurer Aegon N.V. for $375 million; and Costa Mesa-based Emulex Corp. bought Bothell, Wash. data networking switch maker Vixel Corp. for $312 million.
Besides the Sicor deal, other big sales of OC-based companies included San Jose-based Cisco Systems Inc.’s $500 million buy of Irvine home networking gear maker Linksys Group Inc. And Irvine computer security products maker Rainbow Technologies Inc. was bought by Baltimore-based SafeNet Inc. for $428 million.
Merger and acquisition observers are cautiously optimistic about 2004.
“It’s going to stay steady from last year,” said Gerald Mars, vice president, corporate finance for Newport Beach-based Roth Capital Partners LLC. “I don’t think we’ll see a large uptick, nor will it be anything like what we saw in the latter part of the 1990s or in 2000. Last year all the pundits said M & A; would take off. It’s going be there but not as robust as everyone’s predicting.”
The nature of deals is changing, according to Bart Greenberg, corporate partner at the Irvine office of Seattle-based law firm Preston Gates & Ellis LLP.
“In 2002 most of the transactions involved failing companies in ‘must-do’ deals,” Greenberg said. “Those deals involved companies lacking liquidity or capital to finance business. During the latter part of last year financial players started to take more of an interest in the M & A; market, in part because of the tremendous amount of unused capital in the market. I’m seeing much more interest on the part of those guys to get back in the game.”
