Strategy

Breakups Overshadow Mergers

Spin-off moves by corporations were the focus of last week's deal activity.
Vincent RyanSeptember 20, 2011

Last week was more about subtraction than addition. Two large corporate spin-offs were announced. Tyco International split into three groups: a residential security company, a non-U.S.-based flow-control products group, and a Switzerland-based commercial fire and security business. Meanwhile, McGraw-Hill divided into a business-information unit and an education-products business.

Managements positioned the spin-offs as creating pure-play investments that will allow investors to better assess value and performance. The irony is that breaking up a conglomerate with diverse business units is sometimes done to attract suitors for the post-breakup pieces. Those pieces can often draw a premium because they are not encumbered by assets the seller doesn’t want. So spin-offs can easily lead to other mergers and acquisitions.

The M&A scene was not totally without activity in the week ending September 16, as three deals passed the $1 billion level. In addition, the total value of North American M&A year-to-date surpassed the $1 trillion mark, according to mergermarket.

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Twenty-five deals were announced, representing a total value of $11.7 billion. (The value for 7 of the deals was undisclosed.) That was up from 19 deals worth $6.4 billion in the previous week.

United Kingdom-based Pearson Plc agreed to buy Connections Education for $400 million in cash. The sellers were financial sponsors Apollo Global Management and Sterling Partners, which bought the online learning platform company for $12 million in 2004.

Another financial sponsor selling was Carlyle Partners. A Carlyle fund sold its interest in Open Link Financial, a provider of portfolio-management software for commodity markets, to a private-equity fund of Hellman & Friedman. In other PE-related sales, 8×8 acquired cloud-based call-center provider Contractual from Leapfrog Ventures for double what Leapfrog paid five years ago; National Express Group agreed to acquire Peterman Partners from Australia’s Macquarie Group to expand its U.S. presence in the school-bus transportation market; and three PE funds in life sciences sold Ascension Orthopedics to Integra LifeSciences, a developer of surgical implants and medical instruments.

Financial sponsors were also buying. Advent International of the United States agreed to acquire a 49.9% sake in MaxamCorp, a manufacturer of explosives for mining and quarry construction, and Welsh, Carson, Anderson & Stowe bought a controlling stake in Valeritas for $150 million. (Valeritas develops drug delivery systems for the treatment of diabetes.)

Of the three large deals, Broadcom’s agreement to acquire NetLogic was tops in value. The $3.5  billion combination of semiconductor companies is priced at a 57% premium to NetLogic’s September 9 share price. In a $2.4 billion deal, a wholly owned subsidiary of Fulton, Maryland-based Colfax acquired Charter Ltd., an electronics group based in Ireland. And Global Industries of the United States consented to be bought by France-based Technip, which provides construction and subsea services in the offshore oil and gas industry.

In midsize deals, Ronald O. Perelman’s holding company MacAndrews & Forbes agreed to acquire the 57% of shares in M&F Worldwide that it doesn’t already own. The consideration was $277 million in cash. M&F owns subsidiaries that sell checking products and technology tools for financial-services companies.

In emerging markets, PepsiCo did some divesting in Thailand. The beverage company sold its 42% stake in Thailand-based bottler Serm Suk Public Co. to Thai Beverage Logistics. PepsiCo divested because Serm Suk’s investors had voted to end the PepsiCo contract earlier this year. PepsiCo tried to buy the company in 2010 but the deal was blocked by another large shareholder.