Strategy

Will M&A Bidders Hit Pause?

Acquisition activity was steady at $11 billion in transactions last week, but will the stock market tumble disrupt deal making?
Vincent RyanAugust 8, 2011

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

As the major stock indices fell last week, target firms that previously scorned what they deemed lowball bids were trading at discounts to the prices buyers were offering. Ralcorp Holdings, Temple-Inland, M&F Worldwide, and Dollar Thrifty Automotive all were in play to some degree, hoping for white knights or modestly higher bids.

Those companies could be out of luck now. Or not. Standard & Poor’s downgrade of U.S. debt and the short-term, violent reaction of equity markets should not affect the M&A world, says Hiter Williams, co-founder and managing director of M&A advisory Harris Williams.

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“The M&A market and specifically leveraged debt are just very different markets — and not connected to the public markets like some might think,” says Williams. “The leveraged-debt market has plenty of cash and capital available, and there is nowhere else to park that cash — they certainly can’t in Treasuries. Corporations have a lot of resources and capital, and private-equity groups have more money than they have had in history, and it’s all urgent money.”

Over the weekend, teams at Harris Williams assessed the possible impact on the company’s 50 to 60 pending deals and found zero impact from the U.S. debt downgrade, says Williams.

He acknowledges, however, that if negative sentiment about the economy builds over time, it could affect M&A activity. “We know sentiment can drive actions,” says Williams. “An economy that is not growing as much as it should be is not a good thing.” At the same time, both corporations and private-equity firms will have more armor to withstand a down cycle. “Balance sheets in the corporate world are clean, companies are running more efficiently, and private-company earnings are good.”

In North America, there were 50 deals announced the week ending August 5, with 27 of them having an aggregate disclosed value of $11 billion. (The rest did not disclose pricing terms.) Year-to-date, there have been 2,290 deals announced, with 1,250 of them having an aggregate disclosed value of $703.4 billion. The number of transactions YTD is down from one year ago, when at this time deal total was 2,476, but aggregate deal value is up 29%.

Here’s a sampling of North American M&A transactions last week, as provided by mergermarket.

In the largest transaction, Blackstone Capital Partners agreed to buy medical biller Emdeon for $3 billion. Blackstone will use about $2 billion in debt financing to fund the transaction. In another relatively large deal, Little Rock, Arkansas-based Windstream, a provider of high-speed broadband, agreed to acquire Fairport, New York-based PAETEC, another broadband provider, for $2.2 billion. Windstream is seeking a bigger national fiber network to sell to businesses.

The third-biggest acquisition was a cross-border rollup. Germany-listed Fresnius Medical Care AG acquired Liberty Dialysis Holdings, an operator of dialysis clinics, for $1.7 billion. The sellers were Bain Capital, Norwest Equity Partners, and KRG Capital Partners. Fresnius also tacked on a $385 million takeover of Glen Rock, Pennsylvania-based American Access Care, a provider of outpatient dialysis-related services.

In the only other deal to cross the $1 billion mark last week, First Niagara Bank agreed to acquire 195 Upstate New York bank branches from HSBC Bank USA, a transaction with an implied equity value of $1 billion.

Meanwhile, the energy, health care, and media and technology sectors continued their active M&A climates. In energy, U.K.-based Hunting PLC acquired Houston-based Titan Specialties, a provider of equipment for oil and gas well drilling, for $775 million; Archer acquired Great White Energy Services, an oil-field service provider, from Wexford Capital for $742 million; and Energy Capital Partners signed a deal to buy CoaLogix, a clean coal technology firm, for $101 million.

In health care, after a lengthy bidding process Siemens Hearing Instruments agreed to buy HearUSA out of Chapter 11 for $129.3 million. And SXC Health Solutions, a provider of pharmacy-benefit-management services, acquired PTRx and SaveDirectRX, pharmacy-benefit-manager and mail-order-pharmacy businesses, respectively. The combined consideration was $81.5 million.

The headline media and technology deal last week was Russia-based Digital Sky Technologies’s $800 million investment in Twitter, but there were other notable investments. Online audience measurement firm comScore inked a deal to buy AdXpose, a provider of digital advertising analytics, from Draper Fisher Jurvetson for $22 million; InMobi, a mobile advertising network, acquired Sprout, a maker of mobile applications and mobile advertising, from Polaris Venture Partners; and Israel-based IncrediMail agreed to buy Smilebox, a Redmond, Washington-based online service that lets users create greeting cards and share photos, for $40 million.

 

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