M & A; Wheeling and Dealing
Deals Triple to $9.5B as Economy Picks Up
By ANDREW SIMONS
If bigger is better, then 2004 is shaping up to be a solid year for mergers and acquisitions in Orange County.
Seventeen deals for more than $100 million have been reported here through August, according to FactSet Mergerstat LLC in Santa Monica. That compares to seven deals for more than $100 million last year.
Three deals have closed for more than $1 billion this year, versus one a year earlier. FactSet tracks both deals in which OC companies make an acquisition, or are acquired themselves.
Overall, some $9.5 billion has been spent on 186 M & A; deals involving OC companies this year. Last year there was about $2.9 billion spent on 187 buyouts through August.
“I’m definitely seeing more activity,” said Mark Wilser, a principal with Irvine-based investment bank Global Capital Markets Inc. “Sellers recognize that the good times may not last forever. And those that didn’t take advantage of the market before the downturn regretted it for the past several years. And they’ll be less inclined to miss it again.”
Nationally, M & A; activity also is on the rise, with 7,047 deals accounting for $586 billion in activity this year, up 88%, versus a year earlier.
M & A; activity traces the economy and stock markets, sources said. That’s because sellers are more inclined to take a buyout offer when valuations are higher, which occurs when stock price values rise or are expected to rise. Buyers are more flush with cash to spend in better economic times.
After posting a 26% gain in 2003, the S & P; 500 index has held steady through August this year. Modest gains in employment and gross domestic product this year have led many observers, including Federal Reserve Chairman Alan Greenspan, to see a rebounding economy.
Many of the M & A; deals closing this year have been in the works since 2003.
The biggest deal this year involved an OC seller. Former Irvine-based Sicor Inc. took a $3.4 billion buyout offer from Israel’s Teva Pharmaceutical Industries Ltd.
The Sicor deal was more than triple last year’s top buy: Fidelity National Financial Inc., which moved from Irvine to Florida last year, bought a unit of Little Rock, Ark.-based Alltel Corp. for $1.1 billion to top the list in 2003.
Then there’s Irvine-based Freedom Communications Inc.’s sale of $1.3 billion in family-owned shares to private equity firms Blackstone Group LP and Providence Equity Partners Inc. earlier this year.
The private equity firms now own a majority interest in the company but a minority portion of Freedom’s total voting shares.
Sellers have become more confident, said Stephen Perry, an investment banker with Jane’s Capital Partners in Newport Beach.
“Before the economy improved, it was the buyers, not the sellers that were interested. And you need two to tango,” he said.
Two companies doing the M & A; dance are Lincolnshire, Ill.-based Hewitt Associates Inc. and Irvine-based human resources services pro-vider Exult Inc.
Hewitt has a pending $690 million deal to buy Exult, which has about 2,500 workers and spent the past five years building a client base that included many Fortune 500 companies.
Financial services deals have contributed to the marquee M & A; activity.
Irvine-based Commercial Capital Bancorp bought El Segundo-based Hawthorne Financial Corp. for $493 million in a deal that wrapped up in June. Together, the thrifts have more than $4.7 billion in assets.
In its buy of Hawthorne, Commercial Capital bet there were more good times ahead for real estate,particularly in Southern California.
Thanks to the heady real estate market, Commercial Capital, which lends money to real estate investment companies and individual investors primarily to buy apartment complexes, was the fastest-growing California thrift or bank by assets in the past three years. Hawthorne does property, residential and construction lending.
Another recent financial deal: Irvine-based Westcorp’s buy of the remainder of WFS Financial Inc. it didn’t already own, for $310 million.
Technology produced both large and small deals, including former Newport Beach chipmaker Conexant Systems Inc.’s $1.1 billion buy earlier this year of Red Bank, N.J.-based GlobespanVirata Inc. The combined company now is based in New Jersey.
A few months back, Irvine-based eMachines Inc. was sold to Gateway Inc. for about $234 million. Gateway subsequently moved its headquarters from Poway to Irvine.
Irvine chipmaker Broadcom Corp. also picked up its acquisition pace. It kicked off 2004 with a $16.5 million buy of Nashua, N.H.-based RAIDCore Inc., a maker of software to manage large banks of drives used to store databases. It also paid $18 million for storage technology patents from Austin, Texas-based Cirrus Logic Inc.
Other Broadcom buys: San Diego-based wireless phone chip designer Zyray Wireless Inc. for about $98 million in stock; Widcomm Inc., a provider of software for Bluetooth wireless products, for $49 million in cash; Sand Video Inc. for $85 million in cash and stock; and Israel’s M-Stream Inc. for some $10 million in cash and stock.
The M & A; market could go either way from here, Global Capital’s Wilser said.
Capital overhang,money that private equity firms have on hand,could spur more deals, he said. On the flipside, he said there’s “a finite number of good deals.”
A large part of the solid M & A; activity this year is a result of the perception that the economy and stock market are strong, Wilser said. Weakness in either could put a crimp in M & A; activity.
BIG DEAL – 2004 has seen twice as many big deals as last year, including three billion-dollar transactions
2003 TOP DEALS
& #149; Fidelity National buys Alltel unit for $1.1 billion
& #149; Linksys Group sold to Cisco for $500 million
& #149; Emulex buys Vixel for $311 million
& #149; Baker Tanks sold to Code Hennessy for $275 million
& #149; Allergan buys Oculex for $230 million
2004 TOP DEALS
& #149; Teva buys Sicor for $3.4 billion
& #149; Blackstone, Providence buy Freedom stake for $1.3 billion
& #149; Conexant buys GlobespanVirata for $1.1 billion
& #149; Hewitt Associates buying Exult for $690 million
& #149; Advanced Medical buys Pfizer unit for $450 million
