M&A Deals: Big Deals, Big Risks

Hefty cash outlays by a couple of gargantuan companies highlighted the merger-and-acquisition market last week.
Vincent RyanAugust 22, 2011

(Data for the following was provided to CFO by mergermarket.)

The yo-yo equity markets didn’t dampen the enthusiasm for big-ticket deals last week, as companies in several industries plunked down sizable amounts of cash for acquisitions. Not only were the deals large, but some were transformative — and transformative deals carry sizable risk as well. With equity markets ultrasensitive to risk, the stocks of all the big-ticket acquirers fell post-transaction.


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In the first big purchase, Google agreed to acquire spin-off Motorola Mobility Holdings, a maker of mobile phones and set-top boxes, for $12.5 billion, adding 17,000 patents to the Google portfolio. The deal is stirring concerns among other partners in Google’s mobile operating system, Android, but the agreement comes with a $375 million breakup fee. Next up was Time Warner Cable’s buyout of cable and broadband Internet service provider Insight Communications from a trio of financial sponsors. Time Warner is paying $3 billion in cash for the Midwest cable operator.

Another large dollar outlay for an asset was TD Bank Group’s agreement to buy the credit-card business of MBNA Canada Bank, an affiliate of Bank of America. As CFO reported last week, commercial banks are buying up credit-card portfolios as part of a drive to boost their net interest margins. TD Bank will pay $7.6 billion in cash and will assume liabilities of $1.1 billion. In a cross-border tie-up, U.S.-based food producer Cargill agreed to acquire Provimi Holding, a Netherlands-based animal-feed provider, for $2.2 billion.

The week’s final blockbuster was Hewlett-Packard’s announcement last Thursday of its agreement to acquire Autonomy, a U.K.-based developer of infrastructure software, for $10.3 billion in cash. Hewlett-Packard paid an earnings before interest, taxes, depreciation, and amortization multiple of 25 and a price-to-earnings multiple of 47 for the 15-year-old company, and simultaneously announced plans to discontinue its tablet unit and put its PC business up for sale.

Overall last week, among buyers and sellers in North America, 39 deals were announced with a total disclosed value of $38.9 billion. (Twelve had undisclosed values.) Year-to-date, there have been 3,198 deals agreed to, with 1,791 of them having a total value of $952.7 billion. The number of deals is down 6.4% from last year at this time, but the total value of the deals announced year-to-date is up 21.2%.

Here’s a sampling of other notable M&A transactions involving North American buyers or sellers last week, according to data from mergermarket.

It didn’t make the upper echelon, but it was big nonetheless: General Dynamics acquired Vangent for $960 million in cash. The defense contractor is buying Vangent to beef up its health-care IT department, which supplies systems to federal, military, and commercial customers.

In midmarket deals, London-based financial sponsor Permira is taking Renaissance Learning of Wisconsin Rapid, Wisconsin, private in a deal valued at $429 billion. Renaissance provides school-improvement and student-assessment software for the K-12 market.

Blount International, a maker of equipment and parts for the forestry, yard care, and general contractor industries, agreed to buy Woods Equipment of Oregon, Illinois, for $185 million in cash. In a tie-up of women’s retailers, publicly held Chico’s FAS bought Boston Proper for $205 million. And BServ, a payments-technology vendor with a software-as-a-service delivery model, was purchased in a management buyout supported by private-equity firm GTCR in a transaction valued at $150 million.


The financial-services industry continued its consolidation last week. Investment bank Ladenburg Thalmann Financial Services agreed to acquire Securities America Financial Corp. from Ameriprise Financial for $150 million. Ameriprise had been looking to shed the independent broker-dealer business since April. First Financial Bank agreed to purchase deposits and 22 branches in Indiana from Flagstar Bancorp. Finally, PE firm Blackstone Group acquired a majority stake in Exeter Finance, which purchases and services nonprime automobile loans. The sellers were financial sponsors Navigation Capital Partners and GS Capital Partners. They exited the Exeter Finance investment for $277 million after buying a majority stake in the company in 2008.