Orange County accelerated its already vigorous mergers and acquisitions pace last year as 351 businesses traded hands here.
Deal volume rose 15% over the 303 transactions reported in 2014, according to data provided by Los Angeles-based investment bank B. Riley & Co.
The local market remained an attractive one for dealmakers, said B. Riley Senior Managing Director Greg Presson, who is based in the firm’s Newport Beach office.
“Orange County continues to be a terrific platform for starting companies and growing values. It just continues to support a brisk market for mergers and acquisitions.”
The $1.3 billion sale of IgDraSol, the Fountain Valley-based cancer therapeutics arm of San Diego-based biopharmaceutical company Sorrento Therapeutics, was a unique example. Sorrento paid $28.3 million in common stock for IgDraSol in 2013, according to the company website. Sorrento may realize a 4,600% return from NantWorks LLC, a Culver City-based healthcare umbrella company that bought IgDraSol last May in a milestone-laden deal. NantWorks offered $90 million in cash with $600 million in regulatory and $600 million in sales milestone payments (see related story, page 3).
Data on OC deal values were disclosed for about 29% of the transactions, which totaled $88.9 billion. That compared to the $91.7 billion in 2014, when 25% of deals had disclosed dollar values.
The figures include agreements announced but not yet closed and reflect the Business Journal’s method of counting as two transactions those deals in which both the buyer and seller were OC companies.
This year’s analysis excludes the $37 billion acquisition of Irvine-based Broadcom Ltd. by Singapore-based Avago Technologies for more of an apples-to-apples comparison with last year’s list.
This year’s methodology, as last year’s, excludes all real-estate transactions and sales of healthcare facilities. The list includes only acquisitions of companies, business divisions and intellectual properties.
“Without question, 2015 was a good and solid year for mergers and acquisitions, with a little bounce from 2014,” Presson said.
The increase in deal activity was fueled by low interest rates; active and liquid commercial credit markets; corporations and private equity groups’ abundance of capital; and rising stock markets last year, Presson said.
Four industries—information technology, healthcare, consumer discretionary products and industrial—led the deal making.
“We have great business diversity in Orange County and are a good proxy for the types of mergers and acquisitions activity on a national level,” Presson said.
Data revealed that acquisitions may have become more expensive, with valuations moving into the “mid-teens” of acquiring companies’ earnings before interest, taxes, depreciation and amortization. EBITDA multiples are common measures of companies’ values. Deal valuations were 11 to 13 times EBITDA in 2014.
B. Riley Vice President Grant Husted cautioned against interpreting deal valuations as indicative of 2015 activity, though, because EBITDA or revenue figures were available for just 27 out of 356 OC transactions.
Deal activity was healthy, nonetheless, considering that 21 transactions occurred between OC-based buyers and OC-based sellers, Husted said, similar to the 23 such deals the prior year.
OC Buyers
Orange County-based companies bought 182 firms last year. Privately owned OC companies were 77% of buyers, and they mainly bought other private companies, except for four purchases.
Values were disclosed for 58 deals and totaled $43.8 billion. Most deals for which prices were known—39—were worth less than $100 million. Fifteen deals brought between $100 million and $500 million, and four deals were worth more than $1 billion.
• Irvine-based Western Digital Corp., a maker of computer memory products, acquired Milpitas-based SanDisk for about $20 billion in a cash-and-stock deal.
• OptumRx, an Irvine-based mail-order pharmacy of Minnetonka, Minn.-based UnitedHealth Group, a health insurance provider, bought Schaumburg, Ill.-based pharmacy benefits manager Catamaran Corp. in a $14.2 billion deal.
• Irvine-based CalAtlantic Group Inc. was formed after the $3.4 billion merger of homebuilders Ryland Group Inc. in Westlake Village and Standard Pacific in Irvine.
• Aliso Viejo-headquartered Microsemi Corp. bought Sunnyvale-based semiconductor manufacturer PMC-Sierra in a $1.9 billion transaction. Microsemi provides computer chips to the defense, security and aerospace industries. PMC-Sierra creates chips for high-speed communications systems.
Nine OC-based companies accounted for 43 acquisitions:
• Huntington Beach-based Confie Seguros Insurance Services acquired eight U.S. insurance distributors.
• Alorica Inc., a call-center management firm based in Irvine, bought seven call centers and office support companies.
• Santa Ana-based Montrose Environmental, which provides environmental and regulatory compliance services, purchased six providers of environmental research.
• Irvine-based Ingram Micro Inc., a distributor of electronics and information technology to corporations, acquired five firms in the information technology sector.
• Alliant Insurance in Newport Beach bought five insurance broker companies.
• Universal Services of America, a Santa Ana-based security and janitorial service provider for commercial real estate managers, bought five security and alarm service providers.
• San Clemente-based DealerSocket, a maker of management software for auto dealers, purchased four IT companies.
• Core Logic, an Irvine-based software maker for real estate professionals, made three deals for companies that provide appraisal services and construction management software.
OC Sellers
A total of 168 OC businesses were sold last year. Prices were disclosed for 47 of the transactions, including two OC businesses besides Broadcom that sold for more than $1 billion.
Irvine-based software maker Kofax Ltd. was sold for $1 billion to Lexington, Ky.-based Lexmark International Inc., a maker of laser printers and provider of enterprise software. Kofax’s scanning software improves the flow of information, eliminates paper and increases productivity.
Ten of the deals for which prices were available were between $100 million and $500 million, and 31 deals were made for less than $100 million.
2016 and Beyond
“Given the set of dynamics in the market today, I believe M&A activity will continue at a steady pace, with multiples for best-of-class companies continuing to garner premium EBITDA multiples throughout the year,” Presson said.
He said the number of transactions could slow later in the year. “We’re sort of in uncharted waters. It’s unusual to be in the eighth year of economic growth.”
The average peak-to-trough economic cycle is four years, he said, citing economic data from 1942 to 2005. Companies with high growth prospects and robust business models, and that are sustainable over time should get premium offers or higher EBITDA multiples.
“Healthcare has been unbelievably resilient based on demographics, and medical devices are strong investments,” he said, referring to the baby boom generation.
