M&A wrap: FireEye, Verodin, Stifel, KeyBanc, Morningstar, Vista

cyberthreats
hacker at work with graphic user interface around

Cybersecurity company FireEye Inc. (Nasdaq: FEYE) has acquired Verodin, another cybersecurity provider, for $250 million. The acquisition expands FireEye's services by identifying gaps in security effectiveness due to equipment misconfiguration, changes in the IT environment and evolving attacker tactics. “Security effort does not equal security effectiveness," says FireEye CEO Kevin Mandia. "That is why security-conscious customers red-team their networks – they need the unvarnished truth of how effective their security programs are. Verodin gives us the ability to automate security effectiveness testing using the sophisticated attacks we spend hundreds of thousands of hours responding to, and provides a systematic, quantifiable, and continuous approach to security program validation." The majority of small and mid-sized businesses have yet to migrate to the cloud, which means there’s still lots of room for growth in the cybersecurity sector, and strategic buyers have been eagerly snatching up service providers. “Cybersecurity today is based on assumptions – that technologies work as vendors claim, products are deployed and configured correctly, processes are fully effective, and changes to the environment are properly understood, communicated and implemented," says Verodin co-founder Chris Key. "However, the reality is much different for almost every organization and often they discover this only after being on the wrong side of a breach."

Activity and urgency characterize the current dealmaking environment, say investment bankers and other M&A advisors interviewed by Mergers & Acquisitions. After a record-breaking 2018, forecasts for 2019 remain bullish. Advisors point to a lot of cash that must be deployed by strategic buyers and private equity firms alike; a healthy U.S. economy; and low interest rates. Competition for high-quality targets has never been more intense, especially for technology providers, they report, which means sellers are commanding high prices. It all adds up to a seller’s market. A mood of urgency prevails, as dealmakers seek to close deals quickly, while conditions remain favorable. The advisors interviewed for this story say they don’t see signs of a recession this year; however they are closely monitoring bellwethers, including corporate earnings, wage pressure, global supply chains and slowdowns abroad. They are recommending that clients be prepared for an economic slowdown in the next two years. Specialization is the name of the game, and investment bankers advise clients to seek targets with business-model stability, limited cyclical exposure and a recurring revenue business model. Technology, business services, healthcare, consumer and manufacturing are among the most promising sectors. Read the story: 8 M&A advisors urge closing deals now, while economy stays strong, for our interviews with these prominent advisors:

Paul Aversano, Alvarez & Marsal
Cole Bader, Stifel
Karen Davies, Huntington National Bank
J.R. Doolos, KeyBanc Capital Markets
Andrew Jessen, William Blair
Derek Lewis, Harris Williams
Peter Lombard, Piper Jaffray & Co.
Christopher Stradling, Lincoln International

DEAL NEWS
Angelo, Gordon & Co. has raised $2.75 billion in a new U.S. real estate fund. The fund will seek off-market investment opportunities with a focus on sub-performing or distressed office, multifamily, retail, residential, hotel, for-sale housing, senior housing, self-storage, and student housing assets, mainly in the U.S.

Adams Street Partners has raised $1.1 billion for its inaugural private credit program. The firm's private credit investment strategy provides financing for sponsor-backed middle-market companies with first lien loans, revolvers, unitranche facilities, second lien loans, mezzanine debt, and preferred equity.

Morningstar Inc. (Nasdaq: MORN) is buying DBRS, the world's fourth-largest credit ratings agency, for $669 million. The deal will expand Morningstar's global asset class coverage and provide an enhanced platform for providing investors with fixed-income analysis and research, according to Morningstar. Advisors to DBRS include: Lazard Frères & Co. and Wachtell, Lipton, Rosen & Katz. The legal advisor to Morningstar is Winston & Strawn.

Vista Equity Partners is buying data software company Black Mountain Systems. Advisors to Black Mountain include: Jefferies and Kramer Levin Naftalis & Frankel LLP. Advisors to Vista include: SunTrust Robinson Humphrey and Kirkland & Ellis.

Transon Capital Group has acquired video surveillance provider Pelco from Schneider Electric. Advisors to Transom include: Latham & Watkins and Perkins Coie. The advisor to Pelco is R.W. Baird. Financing was provided by Wells Fargo (NYSE: WFC).

Bain Capital Double Impact has invested in Rodeo Dental & Orthodontics, a dental services provider in Texas. Advisors to the target include: Houlihan Lokey (NYSE: HLI) and Choate, Hall and Stewart. Advisors to Bain include: Dykema and Kirkland & Ellis. Financing was provided by THL Credit.

WindRose Health Investors has invested $85 million in health management company Healthmap Solutions. McDermott Will & Emery LLP was the legal advisor to WindRose

The Riverside Co. has invested in German injury claims insurer Actineo.

FEATURED CONTENT
Healthcare companies are spending more on information technology than ever before. Private equity firms including: Bain Capital, GTCR, Great Hill Partners, The Riverside Co. and New Heritage Capital, are investing in the innovations most in demand, including big data, SaaS and artificial intelligence, as we explore in depth in Mergers & Acquisitions' feature, Healthcare's must-have technologies. “Healthcare IT is the largest cottage industry in the world,” says Sam Hendler, who leads healthcare IT deals at Harris Williams.“Healthcare IT is a highly fragmented, multi-billion-dollar market with thousands of companies focused on different $250 million to $500 million sub-markets. Savvy investors see there is an opportunity to aggregate assets and build platforms of scale. It’s an incredibly exciting time in healthcare IT.” For recent transactions that showcase the trends, see 5 private equity-backed healthcare IT deals.

Global Payments' purchase of TSYS is the latest merger of large payment technology companies — and by no means the last. Payment processing as a standalone industry is already gone, as the FIS-Worldpay and Fiserv-First Data deals attest. While these companies are quick to tout massive scale, they still have holes that keep them from serving their markets. Read the full story: 6 takeaways from the Global Payments-TSYS merger.

Tech dominates dealmaking. The technology, media and telecom, or TMT, sector accounted for about 40 percent of total private equity deal volume and one-third of total capital invested by PE firms over the last five years, according to EY Private Equity. Looking forward, the next five years of M&A activity will be fueled by a whole new set of developments. As one wave of technological innovation crests, another is forming. “With themes such as cloud computing and mobility now mainstream, PE firms are focusing on the next wave of disruption — technologies such as artificial intelligence and machine learning, robotic process automation (RPA), Internet of Things (IoT), robotics, drones, blockchain, augmented reality and virtual reality,” finds the April edition of EY’s quarterly PE Pulse report. Read our full coverage: Smart cities, IoT, AI, robots, edge computing will fuel next wave of tech M&A.

Genstar Capital, Audax and HarbourVest ranked as the top U.S. private equity firms of 2018, based on volume of completed deals, according to PitchBook. Check out Mergers & Acquisitions' profiles of 21 firms that led the league tables. Top private equity firms: Genstar, Audax, HarbourVest.

Also see: Top investment banks in PE-backed deals: KPMG, Houlihan, GS, William Blair.

At least two-thirds of U.S. homes have at least one pet, and people are spending more money on their pets than ever, driving M&A across the entire pet care sector. Read the full story: Demand for animal health products and services rises, driving deals.

One of the most significant opportunities to impact the success of due diligence is understanding how to leverage data. In today’s market, the ability to tap into the volume and variety of big data can provide private equity stakeholders with the competitive edge in operational due diligence. Read the full guest article by Maine Pointe's Mark McTigue and Nathanael Powrie: How data can help PE accelerate value at due diligence.

Excelled. Innovated. Inspired. That’s what the eight winners of Mergers & Acquisitions’ 12th Annual M&A Mid-Market Awards did in 2018. Our awards honor the leading dealmakers and deals that set the standard for transactions in the middle market. In addition to Nike, award winners include: Fortive, TA Associates, the Riverside Co., Harris Williams, Monroe Capital, Goodwin and Luminate Capital Partners' Hollie Haynes. Read our full coverage: Meet the winners of the M&A Mid-Market Awards: Nike, Fortive, TA, Harris Williams.

Mergers & Acquisitions has named 36 leaders the 2019 Most Influential Women in Mid-Market M&A, including Kainos Capital's Sarah Bradley, Kayne Anderson Capital Advisors' Nishita Cummings and Pelham S2K Managers' Venita Fields. All 36 are outstanding dealmakers both inside and outside of their firms. This year, we asked the featured dealmakers to tell their own stories through Q&As, including their advice for women. Related: Meet the 2019 Most Influential Women in Mid-Market M&A.

EVENTS
ACG New York, ACG Boston and ACG Philadelphia are holding the Industrial Conference with Value Creation at the Infor in New York on June 6. The event is part of the Northeast Industry Tour.

ACG Minnesota hosts the the Upper Midwest ACG Capital Connection at the Renaissance Minneapolis Hotel, The Depot, June 10-11.

ACG Boston brings together 700-plus dealmakers for DealFest Northeast and DealSource Select 2019 at the Cyclorama and the State Room, June 12-13.

Exponent Women hosts the Annual Exchange, which brings a trusted network of women dealmakers together for a focused day of robust content and networking, at Second in New York, on July 11. The Exchange provides attendees with opportunities to establish new connections, reinforce existing ones and absorb timely and relevant knowledge from industry leaders.

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