M&A wrap: AstraZeneca, Sanofi, J&J, GSK, Blackstone, Carlyle, TA, Centerbridge, AEI, Genstar, Alera, Race for Vaccines

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The global urgency to develop a Covid-19 vaccine coupled with prepandemic M&A momentum has set the stage for a robust dealmaking environment for pharmaceutical companies. The task is monumental: To develop a coronavirus vaccine within a year, even though no vaccine has ever been developed in less than four, and then to produce billions of vaccine doses. Pharma M&A will likely exceed prepandemic levels because the factors that were driving deals before the coronavirus are still there, says Arthur Wong, director of healthcare corporate ratings for S&P Global Ratings. “It’s going to probably take an accelerated pace,” he says. “The pharma industry is still relatively fragmented, so there are still more merger opportunities out there.” Many of the world’s largest pharma companies have enlisted in the vaccine race, including companies active in M&A. More than 250 vaccine candidates are under development, according to McKinsey and Co., and partnerships involving giant pharma companies are backing some of the most promising candidates. AstraZeneca (NYSE: AZN) has partnered with the University of Oxford and Pfizer (NYSE: PFE) with BioNTech for potential vaccines now in Phase 3 large-scale human trials.GlaxoSmithKline (NYSE: GSK) has partnered separately on three early-stage vaccine candidates with Clover Biopharmaceuticals, Sanofi (Nasdaq: SNY) and the University of Queensland. Sanofi has also partnered with Translate Bio (Nasdaq: TBIO) on an early-stage candidate. Moderna Therapeutics (Nasdaq: MRNA) has the only other vaccine currently in Phase 3 trials, according to Stat news. The U.S. government has vaccine development deals with the Pfizer/BioNTech team, Sanofi, Johnson & Johnson (NYSE: JNJ), Novavax (Nasdaq: NVAX) and Regeneron (Nasdaq: REGN). Wong expects to see more megamergers like drugmaker AbbVie’s (NYSE: ABBV) $63 billion acquisition of rival Allergan and Bristol-Myers Squibb’s (NYSE: BMY) $74 billion acquisition of biopharmaceutical company Celgene, which were both in 2019. In the September issue of our magazine, Mergers & Acquisitionsexplores 5 ways the coronavirus is changing dealmaking, as pharmaceutical companies scramble to develop vaccines, diagnostic tools and treatments. For the full story, see: Covid-19 vaccines, tests and treatments spur healthcare M&A deals.

DEAL NEWS
Blackstone Group Inc. and Global Infrastructure Partners have made an offer to buy North American railroad operator Kansas City Southern, according to Bloomberg News. Kansas City Southern’s network links central Mexico to the U.S. Midwest. The Kansas City-based company is positioned to benefit if fraying ties between the U.S. and China prompt companies to move more manufacturing from Asia to North America. Read the full story by Bloomberg: Blackstone and GIP make offer for Kansas City Southern.

Roark Capital is buying ServiceMaster Brands from ServiceMaster Global Holdings Inc. (NYSE: SERV) for $1.55 billion. The deal will allow ServiceMaster to focus on growing its Terminix business. "Through this divestiture, Terminix will become a pure-play, global pest control company, better positioned for the future," says ServiceMaster Global interim CEO Naren Gursahaney. The target owns the ServiceMaster Restore, ServiceMaster Clean, Merry Maids, AmeriSpec and Furniture Medic brands. Lazard and Wachtell, Lipton, Rosen & Katz are advising ServiceMaster. J.P. Morgan and Paul, Weiss, Rifkind, Wharton & Garrison LLP are advising Roark. Barclays is providing financing.

Centerbridge Partners is buying a majority stake in cloud services company Ahead from Court Square Capital Partners. Berkshire Partners LLC is also purchasing a minority stake in the target. Ahead builds software platforms for businesses. Guggenheim Securities and Dechert are advising Ahead and Court Square. Jefferies LLC, RBC Capital Markets, Deutsche Bank and Kirkland & Ellis LLP are advising Centerbridge. Ropes & Gray LLP is advising Berkshire. RBC Capital Markets, Deutsche Bank, Barclays, KKR Capital Markets and Macquarie Capital are providing financing.

TCV has acquired a majority stake in spend management technology company Oversight from Luminate Capital Partners. Oversight's software monitors and analyzes corporate card and vendor transactions to identify fraud, errors and wasteful spending to help businesses manage risk. "Oversight's platform uniquely addresses the spend risk that is inherent in today's enterprise organizations," says Tim McAdam, general partner at TCV. Shea & Co. and Kirkland & Ellis advised Oversight. Simpson Thacher & Bartlett advised TCV.

TA Associates-backed Compusoft is buying Soft Tech, a software services provider for the windows and doors industry. Soft Tech’s software helps design, estimate and manufacture windows and doors, and also helps businesses monitor the process from pricing to manufacturing.

Carlyle (Nasdaq: CG) has made a $150 million invesment in Genstar-backed insurance broker Alera Group. The lattter will use the investment to look for acquisitions.

AE Industrial Partners-backed Applied Composites Holdings has acquired Alliance Spacesystems. The target offers payload structures for satellite buses, antenna reflectors and support structures for satellites. Kirkland & Ellis and RSM advised applied composites. Blank Rome and KippsDeSanto & Co. advised alliance.

CenterOak Partners LLC-backed Service Champions has acquired ASI Hastings Inc., a provider of residential HVAC and plumbing services in San Diego. This deal marks Service Champion’s sixth acquisition since CenterOak completed a majority investment in the company in May 2019.

NewSpring has invested in Fasionphile, a buyer and reseller of luxury pre-owned handbags, watches and jewelry. “As the demand for sustainable fashion continues to balloon, we believe resale is driving the future of retail,” says Fasionphile founder Sarah Davis.

Graycliff Partners LP has purchased Gerard Daniel Worldwide, a manufacturer and distributor of wire mesh and other wire products. The deal is Graycliff's first from its fourth PE fund.

PEOPLE MOVES
Maura Davalos has joined Cain Brothers, a division of KeyBanc Capital Markets Inc., as a director in the firm's healthcare public finance group. She is responsible for originating and underwriting FHA-insured financings for hospitals and other healthcare systems. Davalos was a previously a senior vice president at AMS Health Care Mortgage Corp.

Keith Barry was hired by Houlihan Lokey (NYSE: HLI) as a managing director and head of medical technology, a new practice within the healthcare group. He is based in San Francisco. He was previously with Wells Fargo Securities.

Scott Horrigan has been promoted to chief financial officer at Clearlake Capital-backed Unifrax. He joined Unifrax in 2015.

Daniel Rubin was hired by retail-focused alternative investment firm ReStore Capital as a managing director. He was most recently with TLP Invest.

Andrew Bishop was hired by law firm Latham & Watkins as a partner, where he is concentrating on private equity. He was most recently with White & Case.

CORONAVIRUS IMPACT
The pet supply sector is soaring during the pandemic, as demand for companion animals, particularly dogs and cats, is rising with people turning to comfort while quarantined. Consumers continue to spend more money on their pets even while cutting back in other areas, and are treating pets as family members. Earlier in 2020, Petmate acquired Pet Qwerks, a maker of dog chews and toys. Carl Marks Advisors advised the target. Mergers & Acquisitions' spoke with Carl Marks managing director Chris Parisi about the deal and M&A trends in the sector. Read the full story: Q&A: Rise in pandemic-driven dog and cat adoptions attracts Petmate and other M&A buyers.

Today’s private equity firms face greater risk and uncertainty when evaluating potential portfolio acquisitions, in light of the Covid-19 pandemic. While things like market size and product quality are still important factors, private equity firms must also gauge a portfolio company’s character and ability to withstand economic turbulence. Read the full article: Agility matters: 4 signs PE firms should examine when considering acquisitions.

Car dealerships saw a drop in sales during the height of the pandemic from the slowdown in production with less people driving, and that impacted some deals. For example, Asbury Automotive Group Inc. (NYSE: ABG) originally backed away from its $1 billion acquisition of Park Place Dealerships. However, citing a pickup in business, Asbury revived the deal for $735 million. Now some dealmakers are predicting robust sector dealflow in the second half of 2020. Mergers & Acquisitions spoke with Erin Kerrigan, managing director of auto dealership-focused investment bank Kerrigan Advisors about deal trends in the industry. Read the full story: M&A among car dealers expected to reach record levels in the second half of the year.

With everything from Broadway to indoor dining closed, people are starved for entertainment. Enter mobile gaming. Despite restrictions slowly easing, mobile games are expected to see strong interest in the long-term and game makers are looking for acquisitions to keep their portfolios fresh. “There’s a lot of supply of great companies out there, big, small and different categories in different regions of the world," Zynga CEO Frank Gibeau recently told investors. He pointed out that Zynga has the cash to make more deals and will continue to look for them. "So, consolidation is obviously underway in the interactive category. We’re actively participating in growth through finding partnerships with companies out there. Scale is going to be increasingly important in mobile.” Read the full story: Quarantine drives M&A in mobile gaming.

Covid-19 and quarantines may lead to an increase in carve-out deals. The Covid quarantines across the globe led to economic disruption. All sectors of the economy are impacted. Many corporations looking to improve their financial situation will likely look to sell non-core units. Read the full article: More carve-out deals ahead, driven by pandemic.

The construction software industry is fragmented, and there is a growing demand for technology that will help contractors, drawing deal activity particularly from strategic buyers. One company that is active in the sector is Autodesk Inc. (Nasdaq: ADSK), which recently aquired Pype. Pype's software helps automate construction projects. Mergers & Acquisitions spoke with Sidharth Haksar, Autodesk's director of corporate development about the Pype deal. Read the full story: Autodesk seeks construction software deals during pandemic.

Deal activity in the cybersecurity sector is being driven by a combination of rising cyber threats and more people working from home. Earlier in 2020, Francisco Partners and Vector Capital-backed cybersecurity company WatchGuard Technologies acquired network security provider Panda Security. Mergers & Acquisitions spoke with WatchGuard CEO Prakash Panjwani about the Panda deal and M&A trends in the sector. "The security market will continue to experience significant consolidation throughout 2020 and beyond," says Panjwani. "This has been and will continue to be driven by customer needs. As the volume and sophistication of security threats continue to grow, vendors will answer with innovative new solutions. At the same time, the security expertise and resources required to deploy and manage those solutions will continue to be scarce." Read our full coverage: Work from home and increasing cyber threats will drive cybersecurity M&A.

While the novel coronavirus has reshaped the U.S. economy and the healthcare industry, pharmaceutical manufacturing has proven resilient—both in terms of business durability and its increasingly critical role in the global response to the virus. Covid-19 crystalized the U.S. dependence on overseas manufacturing for finished dose products as well as the active pharmaceutical ingredients necessary to produce life-saving medications. Read the full article: Why investors need to consider pharmaceutical manufacturing services.

EQUALITY AND INCLUSION
Ten private equity firms have pledged to each create and post five board seats to make them available to minority and women candidates, participating in an initiative to increase diversity on company boards of directors. Aurora Capital Partners, Clearlake Capital, Genstar Capital, Grain Management, Hellman & Friedman, Hg, Insight Partners, K1 Investment Management, TA Associates and Vista Equity Partners have committed to the board initiative announced by Diligent Corp., provider of company governance software and a portfolio company of Clearlake and Insight. Read our full coverage: Clearlake, Insight, Vista and other private equity firms create 50 new board roles for diverse candidates.

Portfolia Rising America Fund "invests directly in early and growth-stage companies in the U.S. led by people of color and/or LGBTQ founders, or products and services that cater to these markets," says investment partner Lorine Pendleton in a Q&A with Mergers & Acquisitions. "These are founders, ecosystems, products and services historically overlooked by traditional venture capitalists but positioned for significant growth and profitability." The firm is led by five women of color. In addition to Pendleton, the firm's leaders are: Noramay Cadena, co-founder and managing partner of MiLA Capital; Daphne Dufresne, a managing partner of GenNx 360 Capital Partners; Juliana Garaizar, an angel investor; and Karen Kerr, executive managing director at GE Ventures. "We believe that strength lies in differences and seek out entrepreneurs and startups who are using shifting demographics and their own diversity of experience and thought to create innovation that offers outsized opportunities for returns and impact." The fund had its first close earlier in 2020 and has made two investments to date: The first investment is in MoCaFi, a fintech startup founded by Wole Coaxum, a former JPMorgan Chase commercial banking executive and entrepreneur, who is African American. "MoCaFi offers a mobile-first banking platform that brings digital banking products to underbanked or unbanked communities (an 88 million U.S. market), allowing them to build credit and financial mobility," Pendleton explains. The second investment is in a women’s tele-medicine network. For more, read the full interview: Led by 5 women of color, Portfolia Rising America Fund backs mobile banking and women's telemedicine startups.

"As stewards of capital we have an outsized role in determining which businesses to support," says Mina Pacheco Nazemi of Barings Alternative Investments. "As asset allocators, we need to hold ourselves accountable. I can do more. Will you join me?" Dealmakers begin to weigh in, as Gerge Floyd's death sparked two weeks of Black Lives Matter protests against police brutality and racial injustice. Read the story: "Justice doesn’t just happen. It requires action, dedication and accountability," says one private equity investor.

MORE FEATURED CONTENT
Mergers & Acquisitions, the oldest trade publication serving the dealmaker community, has been acquired by Middle Market Information LLC from Arizent. Started in 1965 as Mergers & Acquisitions: a Dealmakers Journal, M&A’s print and digital magazine, news website, daily email newsletters and social media channels inform private equity firms, strategic acquirers, investment banks and other deal intermediaries on breaking news, emerging trends, and rising stars in the industry. Middle Market Information, a B2B data and information company, says M&A will retain its core values of providing quality intelligence to discerning professionals in the dealmaking community. “We are delighted to have an opportunity to invest in and grow Mergers & Acquisitions, a brand that’s been trusted by dealmakers for over 55 years,” said Middle Market Information CEO Jim Beecher. “This industry needs an independent voice that can deliver thoughtful analysis and deep coverage of both private equity and corporate deal activity. Through our website, www.themiddlemarket.com, and our publication, we will build upon the foundation of the brand and deliver an even better experience for the community in the coming months and years.” Editor-in-Chief Mary Kathleen Flynn adds: "The new challenges M&A and private equity professionals are facing in 2020 underscore the need for the trusted, insightful editorial content we produce at Mergers & Acquisitions and themiddlemarket.com. We've built a great foundation under Arizent, and we're looking forward to growing and extending our brand further with Jim and Middle Market Information." See full coverage: Middle Market Information LLC buys Mergers & Acquisitions publishing brand.

Mergers & Acquisitions is recognizing nine dealmakers as the 2020 Rising Stars of Private Equity:

  • David Farsai, Principal, Mainsail Partners, who is the first at the firm to rise from associate to principal
  • Andrea McGuirt, Senior Associate, Palladium Equity Partners, who established a strategy for sourcing and executing opportunities in the current deal environment
  • Molly Fitzpatrick, Vice President, Rallyday Partners, who led three investments and a divestment for the new PE firm
  • Jenny Zhang, Vice President, Investments, Grain Management (pictured), who helps portfolio companies in the telecom infrastructure sector find organic growth opportunities
  • Ross Stern, Principal, Summit Partners, who played a role in nearly $1.3 billion worth of healthcare company investments
  • Arjun Mehta, Vice President, Bregal Sagemount, who has made eight platform investments and seven add-on acquisitions
  • Miguel Tejeda, Vice President, Motive Partners, who stands out for his investment acumen and ability to distill complicated concepts and processes
  • Clara Jackson, Principal, TA Associates, who has become a trusted supporter during the pandemic to help portfolio companies remain sustainable
  • KJ McConnell, Principal, GTCR, who played a leading role in about 10 of the group’s last dozen deals

These outstanding up-and-coming investment professionals have been excelling during a period of profound change in the U.S. and in the world. The publication of this list comes at a pivotal moment in time. The country is beginning to open up after three months of quarantine from the coronavirus, while a second wave picks up steam in the Sun Belt from South Carolina to California and including Texas. Dealmaking under quarantine while working from home has proved challenging, to say the least.Social justice issues have taken on fresh urgency. There is heightened awareness of systemic racial injustice and police brutality against Blacks after the deaths of George Floyd and many others. Meanwhile, the U.S. Supreme Court ruled recently that, “An employer who fires an individual merely for being gay or transgender defies the law.” On immigration policy, the Court recently put the brakes on dismantling the Deferred Action for Childhood Arrivals, or DACA. Meanwhile, the President is asking the Court to overturn the Affordable Care Act, also known as Obamacare.

Click here for full coverage of Mergers & Acquisitions' 2020 Rising Stars of Private Equity.

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.

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.

Editor's Note: M&A wrap is a bi-weekly column, published on Mondays and Thursdays

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