M&A wrap: PepsiCo, Rockstar, Coronavirus, Riverside, Gladstone, Marlin Equity, Merrill, Paul Hastings

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PepsiCo Inc. (Nasdaq: PEP) is buying energy-drink maker Rockstar Inc. for $3.85 billion, as the U.S. soft drink and snacks giant seeks to expand its beverage range amid waning appetite for traditional sodas. The deal is one of the first strategic moves by Pepsi CEO Ramon Laguarta since he took over from Indra Nooyi in 2018, according to Bloomberg News. Pepsi and Las Vegas-based Rockstar have had a distribution agreement in North America since 2009. Pepsi and rival Coca-Cola Co. (NYSE: KO) have been racing to expand their lineups of faster-growing drinks as consumers shun sugary beverages. Pepsi’s energy portfolio already includes Mountain Dew’s Kickstart, GameFuel and AMP. "As we work to be more consumer-centric and capitalize on rising demand in the functional beverage space, this highly strategic acquisition will enable us to leverage Pepsi's capabilities to both accelerate Rockstar's performance and unlock our ability to expand in the category with existing brands such as Mountain Dew," says Laguarta. "Over time, we expect to capture our fair share of this fast-growing, highly profitable category and create meaningful new partnerships in the energy space." Centerview Partners, Gibson, Dunn & Crutcher and Davis Polk & Wardwell are advising Pepsi. Goldman Sachs (NYSE: GS) and King & Spalding are advising Rockstar. Read the full story by Bloomberg: Pepsi buys Rockstar in energy drink push.

The Dow Jones Industrial Average opened 750 points lower Wednesday, as investors fear the coronavirus may end the bear market. Monday was Wall Street's worst day since 2008, as oil prices plunged and investors continue to assess the impact of the coronavirus, also known as Covid-19, on the global economy. To get a sense of how the coronavirus is playing out in the middle market, Mergers & Acquisitions asked executives from private equity firm the Riverside Co., virtual data room provider Merrill Corp. and law firm Paul Hastings to weigh in. Read our full coverage: Viral impact: How COVID-19 is affecting M&A and private equity

MORE ON CORONAVIRUS
For the past two months, the coronavirus, also known as Covid-19, has been front page news across the world, as the situation escalates with new cases and an increased number of fatalities. While the long-term economic impact on American companies remains uncertain, there are important lessons to learn on how to manage future pandemic risks. Read the full story: Coronavirus contingency planning checklist for the middle market.

The coronavirus threat is the type of risk that material adverse change, or MAC, clauses are designed to address in M&A. The MAC clauses are used to qualify representations, warranties and covenants in an acquisition agreement, establish a threshold for determining the scope of disclosure or compliance relating to risks associated with the target’s business, and to delineate the circumstances in which a bidder is permitted to a transaction without liability. Read our full Q&A with Nixon Peabody's Dick Langan: Why the coronavirus makes material adverse change (MAC) clauses more important than ever.

The coronavirus may cause a drastic change in payment habits, as consumers shift to digital channels to reduce their risk of infection from handling cash, reports PaymentsSource, published by Mergers & Acquisitions parent company, Arizent. Many regions are already seeing a rise in contactless transactions, which could be seen as less prone to spreading disease than the handling of cash or paper checks. Travel advisories could lead to a drastic drop in tourism spending, which could hurt the growth of global payment systems that rely on foreign travel for growth. At the same time, companies that have been undergoing a digital transformation, or promoting new technologies such as cashier-free checkout, may see more rapid adoption if their offerings can reduce the risks of transmitting the virus through human interactions. See the full story, How coronavirus could change the payments industry.

DEAL NEWS
The Riverside Co. has invested in flavors producer National Flavors. “The market for flavor manufacturing businesses is highly attractive, and it is a great time for founders to sell,” says Riverside managing partner Loren Schlachet. "We are actively pursuing add-ons of other leading flavor houses to complement NF.”

Gladstone Investment Corp. (Nasdaq: GAIN) bought residential cleaning services company the Maids International. D.A. Davidson advised the target.

Lifesize and Serenova are merging to create a new contact center communications and workplace collaboration company. The deal is backed by Marlin Equity Partners.

FEATURED CONTENT
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.

“The manufacturing industry is changing so quickly, and on a global basis, that the sector presents an enormous investment opportunity,” says Michael Psaros, co-founder and managing partner of KPS Capital Partners, a manufacturing-focused private equity firm that recently raised $6 billion and $1 billion funds in four weeks. “Companies and entire industries are being transformed by technology and by globalization, We see value in manufacturing where others do not and we make these manufacturers better. It’s a great time to invest in the sector and we are excited about what’s to come.” Mergers & Acquisitions explores five trends fueling manufacturing deals. Read our full coverage: 5 trends driving manufacturing M&A.

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.

EVENTS
ACG Raleigh Durham's 18th annual capital conference is being held March 31-April 1 at the Raleigh Marriott Crabtree Hotel in Raleigh.

ACG Global's InterGrowth 2020 is taking place at the Aria Resort & Casino in Las Vegas April 20-22.

The Most Powerful Women in Banking is hosting LEAD at Pier 60 in New York on May 12. The industry’s rising stars get to hear from American Banker's The Most Powerful Women in Banking honorees.

Digital Banking 2020 is taking place June 8-10 at the Austin Convention Center.

The 4th annual Emerging Manager Connect conference is taking place at the Harvard Club in New York on July 22.

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