M&A wrap: Asbury Automotive, Park Place, Diamond Offshore, Warren Buffett, Goldman Sachs, Paycheck Protection Program

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The coronavirus pandemic has already quashed a number of previously announced deals, including Xerox’s hostile takeover bid for HP. More deals are expected to fail, as companies focus on preserving cash and ensuring debt access just to make it through the challenging economic cycle. The auto, retail, restaurant, travel and manufacturing sectors have been particularly hit hard, as they face declining sales and location closures. Automotive manufacturers are restructuring their businesses, and car dealerships are seeing fewer people walk in the door. Car dealership operator Asbury Automotive Group Inc. (NYSE: ABG) has called off its $1 billion acquisition Park Place Dealerships, citing a drop in car sales from the coronavirus. The purchase was supposed to expand Asbury’s presence in Texas, while growing its portfolio of luxury brands including Mercedes-Benz, Lexus, Jaguar and Rolls Royce. Park Place operates 17 dealerships with 15 of them in Texas. “The Covid-19 pandemic has caused a dramatic decrease in economic activity across the United States,” Asbury stated in a SEC filing. “The company has experienced a sudden and significant decline in its sales and service business operations. Because the company cannot predict the duration of the pandemic and resulting economic impact on its business, the company will continue to evaluate its options and manage its business as appropriate in order to preserve its financial flexibility during this challenging time.” For more, read our full coverage: 5 derailed deals: HP, TGI Fridays among those losing buyers during coronavirus crisis.

MORE ON CORONAVIRUS IMPACT
Diamond Offshore Drilling Inc., the rig contractor controlled by Loews Corp., filed for bankruptcy amid an unprecedented crash in crude prices that’s wrecking demand for oil exploration at sea. The company listed $5.8 billion of assets and $2.6 billion of debt in a Chapter 11 petition filed in Houston, citing year-end 2019 data. It has about $434.9 million of cash on hand, according to the document. Diamond owns rigs that can drill in water more than two miles deep. But offshore oil is among the most expensive to produce, putting the company at a disadvantage when prices plunged to less than $30 a barrel. Read the full story by Bloomberg News: Diamond Offshore files for bankruptcy amid historic crude crash.

With buyouts at a virtual standstill, private equity firms are finding a new place to put their billions of dollars: investing in public companies that have been pummeled by the Covid-19 economic collapse. The technique is a throwback to the 2008 financial crisis when, in one notable deal, Warren Buffett threw a $5 billion lifeline to Goldman Sachs Group Inc. This time around, it’s gotten so popular that the bidding for slices of distressed companies can resemble a heated takeover battle, with as many as 20 private equity firms clamoring for a piece of one deal. Read full coverage by Bloomberg: Private equity firms fight for lifeline deals in Buffett-Goldman redux.

While some mom-and-pop businesses waited in vain for their share of a federal bailout, a 700-person biotech firm that recently paid a multimillion-dollar settlement to the Justice Department was approved for one. The Paycheck Protection Program, touted as a Covid-19 lifeline for businesses with fewer than 500 workers, provided tens of millions of dollars in loans to firms with far larger payrolls than that, according to disclosures filed by publicly traded firms that received the aid. Read the full story by Bloomberg: Private equity firms fight for lifeline deals in Buffett-Goldman redux.

To explore how the coronavirus is affecting the middle market, Mergers & Acquisitions interviews dealmakers from Alvarez & Marsal, Merrill Corp., M33 Growth, M-III Partners, Paul Hastings and the Riverside Co. Read our full coverage: “Brace for impact,” say private equity firms to portfolio companies about the coronavirus.

Deal structures are changing, especially in terms of what happens after a deal is completed. Read our story: How to manage post-closing disputes in M&A as a result of the coronavirus.

Covid-19 is forcing M&A practitioners to assess appropriate risk allocation mechanisms to address the impact of the virus on global business operations, including Representations and Warranties Insurance (RWI). Read the guest article: How the coronavirus forces dealmakers to assess effectiveness of RWI policies.

As consumer spending and business investment is declining, we expect a slowdown in private equity transaction volume. Read the story: Private equity deals will slow down, as global economy stalls amid coronavirus pandemic.

For more on how to cope with these challenging times, see: Coronavirus contingency planning checklist for the middle market.

PEOPLE MOVES
Fred Ebrahemi has been named chief operating officer, and Paul Huber has been promoted to principal at private equity firm Clearlake Capital. In addition, John Cannon has joined the firm as managing director. Cannon was most recently with Stradling Yocca Carlson & Rauth.

Mary Storella has joined law firm Lowenstein Sandler as vice chair of the life Sciences group where she is focusing on M&A. Storella was most recently vice president and senior counsel of corporate transactions at Celgene Corp.

FEATURED CONTENT
In the challenging times we face now, it’s more important than ever to come together as a community and recognize the people and companies that excel and lead. We invite you to join us in honoring the 2019 winners of Mergers & Acquisitions’ M&A Mid-Market Awards. In contrast with the volatile coronavirus-driven conditions unfolding in 2020, the dealmaking environment of 2019 was remarkably stable. Among the PE firms benefitting from the auspicious fundraising climate was Vista Private Equity, which raised a $16 billion fund – the largest technology-focused PE fund ever raised. Mergers & Acquisitions is honoring Vista founder and CEO Robert F. Smith with our 2019 Dealmaker of the Year award. In addition to leading his firm’s unprecedented fundraising, Smith excelled in philanthropy. When he spoke at the commencement of Morehouse College, he announced he would pay off all the student loans of the HBCU’s 2019 graduates, providing a helping hand in the student debt crisis facing many U.S. families. The financial services sector saw a lot of consolidation in 2019. Piper Jaffray wins our 2019 Deal of the Year for buying Sandler O’Neill to form Piper Sandler, which instantly became a leading investment bank in the financial services sector. And Stifel wins our 2019 Investment Bank of the Year for growing dramatically and making several acquisitions. Read our full awards coverage: Meet the winners of Mergers & Acquisitions’ M&A Mid-Market Awards.

Once venture capital-backed startups themselves, today’s tech giants know a thing or two about VC seed money. It’s fitting that many of them have created corporate venture capital groups of their own. These CVCs help their owners experiment and nurture new technologies and ideas in the early stages, without requiring the commitment of an acquisition. The CVC strategy often augments a company’s research and development efforts as well as complementing its M&A strategy. Middle-market dealmakers would be wise to track the VC investments of the five companies we highlight: Amazon.com Inc. (Nasdaq: AMZN), Google (Nasdaq: GOOG), Intel (Nasdaq: INTC), Microsoft Corp. (Nasdaq: MSFT) and Salesforce.com Inc. (NYSE: CRM. Read our full coverage: Venture forth: How five of the biggest tech companies explore new territory through early-stage investments.

In a period of accelerating technology innovation and investment, it’s critical to stay aware of new technologies, offerings, data and analytics types and business models in your space, and adjacent spaces. Most companies are looking for ways to get better and earlier access to the startup space. While corporate venture capital (CVC) is only one method, it can be a fairly powerful one. Read full coverage: How corporations can benefit from VC investments in technology

Houlihan Lokey, Lincoln International, Jefferies Financial Group, William Blair and Piper Sandler Cos. rank as the top five most active M&A investment banks in 2019, based on the volume of completed private equity-backed deals in the U.S., according to PitchBook. Besides advising on M&A deals, the investment banks on the top 10 list also had a busy year with acquisitions of their own in 2019, including two acquisitions by Houlihan Lokey and three by Stifel Financial. Piper Sandler Cos., was created when Minneapolis-based Piper Jaffray Cos. acquired New York-based Sandler O’Neill & Partners in a deal representing more than half of Piper Jaffray’s $930 million market capitalization. The firm also had another acquisition in 2019 and sold a company to exit the traditional asset management business. See our full coverage: Top investment banks for PE-backed deals in 2019: Houlihan Lokey led the pack.

Audax, HarbourVest and Genstar ranked as the top three most active private equity firms in 2019, based on the volume of completed deals in the U.S., according to PitchBook. Three companies tied for fourth place: Abry, Carlyle and Shore Capital. Where were these PE firms looking for deals? Eight of the firms on our list name the software and technology sector among their top investment targets, and seven put healthcare companies on their priority list. Financial services and consumer services are each named by five of the firms as industries they focus on, with four naming business services companies. Fundraising from investors in 2019 led to two notable fund launches earlier in 2020: KKR’s Global Impact Fund and HarbourVest’s $2.6 billion HarbourVest Fund XI. See our full coverage: Top private equity firms in U.S. deals in 2019: Audax Private Equity ranked No. 1.

To celebrate deals, dealmakers and dealmaking firms, Mergers & Acquisitions produces three special reports every year: the M&A Mid-Market Awards; the Rising Stars of Private Equity; and the Most Influenital Women in Mid-Market M&A. For an overview of what we're looking for in each project, including timelines, see Special reports overview: M&A Mid-Market Awards, Rising Stars, Most Influential Women.

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