M&A wrap: SAP, Sinch, Alexion, Portola, KPS, Baker Hughes, Sauer Brands, Falfurrias, Cove Hill, Ara, Rising Stars
Meeting other dealmakers and building relationships are essential activities in the middle market. Most dealmakers – especially those in business development roles – typically spend a large percentage of their time on the road, conducting one-on-one meetings, attending conferences, going out for meals and engaging in bonding activities, like playing golf or going to a ball game. So what do you do when you’re quarantined and face-to-face meetings are out of the question? For Work from Home (WFH) strategies, Mergers & Acquisitions turns to eight prominent dealmakers from private equity firms, investment banks, lenders and law firms. “I miss the excitement of a great conference; wearing my nice clothes, early morning breakfasts, the one-on-ones, drinks with my women ‘tribe,’ and dinner at a steakhouse, even though I am a vegan,” says Amy Weisman, managing director, business development, Sterling Investment Partners. “Zoom from home, while effective, does not replace being on the road; the airport meal-on-the-run, the frustrating iPhone tracking of my Uber, the friendly handshake of a banker, and the in-person deal discussions that generate new ideas.” In some respects, it is easier to build relationships, explains Nanette Heide, partner, co-chair, private equity group, Duane Morris. “For the first time, we all have a common social thread – stay at home. Under normal circumstances, we would meet someone and look for that common thread. It is now readily apparent and an easy topic of discussion and all seem interested in sharing experiences in this stay-at-home environment. Further, meeting folks over a video conference from their home is immediately humanizing.” Emotional Quotient (EQ) is "more important than ever during trying times,” says Jeremy Holland (pictured), managing partner, origination, The Riverside Co. “It’s critical to remember that the dealmaker on other side of the (now figurative) deal table is a person, too. They have good and bad days and presumably know many people in high-risk categories, potentially even themselves. Being extra thoughtful about each interaction is important." Read our full coverage: Dealmaking under quarantine: 8 private equity and M&A pros share strategies while social distancing.
The Federal Reserve has taken unprecedented actions to stabilize U.S. financial markets and keep credit flowing in the wake of the coronavirus pandemic. On March 3 it announced its first emergency interest rate cut since the 2007-2009 financial crisis; it further slashed the federal funds rate to zero on March 15 while at the same time urging banks to lend via the discount window. It also used its emergency lending powers under the Federal Reserve Act to prepare credit facilities to rescue flailing markets, something it had not done since the financial crisis. Over a decade ago, the Fed created six credit facilities and used its emergency lending powers to provide financial assistance to AIG, Bear Stearns, Citigroup and Bank of America. In less than two months this year, the Fed has announced 11 different credit facilities, all intended to support the flow of credit to households and businesses that may have encountered financial difficulties as a result of the coronavirus. Read the full story: Cheat sheet: 8 ways Fed is using emergency powers to counter pandemic
Sophia Popova Summit Partners, Pavan Tripathi of Bregal Sagemount and Christine Wang of Francisco Partners were among the 10 individuals Mergers & Acquisitions named the 2019 Rising Stars of Private Equity. Who should be on our list for 2020? We have opened up the nomination process, and we are seeking individuals who are full-time private equity investors and whose best days are yet to come. These are the folks you predict will one day play a key leadership role at your PE firm – or will head up their own. New for 2020: This year, we will be taking a close look at how Rising Stars candidates are performing in the face of the Coronavirus Pandemic, how they are excelling in dealmaking while Working from Home and how they are helping portfolio companies pivot to the future New Normal. Send in nominations by Friday May 22.
Sinch AB, a cloud communications company, is acquiring the communications unit of SAP SE (NYSE: SAP), called SAP Digital Interconnect, for $250 million. This is Sinch’s second large deal announced in recent weeks: in March, it announced its intention to acquire Wavy in a deal valued at $119 million. SDI has more than 1,500 enterprise customers; the combined entity will power almost 70 billion engagements per year, according to company. The customer base will include technology companies, banks, payment gateways, retail brands and mobile operators. “The transaction strengthens our direct connectivity globally,” says Oscar Werner, Sinch CEO. “Plus, it enables us to expand and accelerate a range of business-critical services to mobile operators, including products for person-to-person messaging, reporting and analytics."
Boston-based Alexion Pharmaceuticals Inc. (Nasdaq: ALXN) is acquiring Portola Pharmaceuticals Inc. (Nasdaq: PTLA) of South San Francisco, California, maker of medicine for blood disorders. The deal is expected to close by Sept. 30th. Advisors on the deal included RBC Capital Markets, Centerview Partners and Cooley LLP.
KPS Capital Partners is acquiring the Lufkin oil and gas pump equipment business from Baker Hughes (NYSE: BKR). The deal is expected to close by mid-year 2020. Lufkin, founded in 1902, was acquired in 2013 by General Electric’s (NYSE: GE) oil and gas division, then merged with Baker Hughes in 2017. Lufkin, headquartered in Missouri City, Texas, provides rod lift products, technologies, services and solutions, including automated control and optimization equipment and software for rod lift equipment to the oil and gas industry. Lufkin’s power transmission business will remain with Baker Hughes.
Richmond, Virginia, condiments maker Sauer Brands Inc. has acquired Chicago Custom Foods, maker of popcorn seasonings. Sauer Brands is a portfolio company of Falfurrias Capital Partners, a Charlotte, North Carolina-based middle-market private equity firm. Sauer will operate Chicago Custom Foods as a separate business under Jason Roy, Chicago Custom’s current CEO, who will report to Sauer Brands CEO Martin Kelly. Sauer’s condiments, seasonings and spices brands include Duke’s Mayonnaise and Spice Hunter; the newly acquired Chicago-based business includes Kernel Season’s popcorn flavors, Tasty Shakes oatmeal mix-ins and Veggie Season’s vegetable seasonings.
Boston PE firm Cove Hill Partners has acquired Kalkomey Enterprises, provider of online safety education and government agency management solutions. Kalkomey provides safety courses for boating, hunting, snowmobiling, off-road vehicles and scuba diving and management solutions to state and local agencies in the U.S., Australia, Canada, Guam, Mexico, New Zealand, Puerto Rico and the United Kingdom. Harris Williams advised Kalkomey on the deal; Twin Brook Capital Partners, the middle market direct lending arm of Angelo Gordon, reportedly served as administrative agent on debt financing to support the transaction.
Ara Partners, a Houston-based private equity firm specializing in industrial decarbonization investments, has raised $400 million in capital commitments for its debut fund, Ara Fund I. Ara, co-founded by investors Charles Cherington and Troy Thacker, will use the fund to invest in companies in North America and Europe that are reducing carbon emissions through rapid adoption of sustainable industrial products and services.
Frannie Léautier has been named senior partner, responsible for new business development, at Paris-based SouthBridge Group, a financial services firm for clients in Africa. She was formerly a non-executive board member and chairperson of the board risk and audit committee, and she founded two companies: the Fezembat Group and the Mkoba Private Equity Fund.
EFront, a financial software and solutions provider for alternative investments, has published a retrospective analysis to try to explain the impact of Covid-19 on the private equity asset class. The analysis of PE performance, capital calls and distributions over the past 20 years shows that NAVs under-react to the evolution of market indexes of listed assets, capital calls are expected to fall in the short term but should pick up rapidly throughout the year, funds of vintage years 2016 through 2018 are likely to be most severely impacted, and funds of vintage years 2019 through 2021 should deliver strong returns. EFront is a business unit of BlackRock.
A new report from Deloitte says that PE firms with dry powder and the knowledge to source deals should have “plenty of opportunities ahead.” The report, “Opportunities for private equity post-COVID-19,” also says that PE firms “may be tested to first perform triage on their own portfolio companies.” The returns that PE firm capture will depend on what they do in the next six to 18 months, but many funds need more information about COVID-19’s impact and progress toward containing the virus before they put their capital to work. “This is likely only the first wave of economic pain from the response to the virus,” the report says. “The need to dust off relationships, reengage in conversations, and reconsider deals that seemed unaffordable only a few months ago may be critical. In the end, the volume of merger and acquisition activity may not increase in quantity as much as in quality. The firms willing to invest their dry powder in this environment may take their time and choose their targets carefully. Given the relative absence of competition from other investors, they can afford to hold their fire.”
CORONAVIRUS IMPACT ON THE MIDDLE MARKET
The coronavirus pandemic will change the world and how we live in it profoundly, with dramatic shifts in how we gather and meet, work and learn, make products and distribute them. But exactly how the transformations will play out in the middle market is difficult to discern. Several recent reports and surveys aim to provide a sense of direction. Read the full story: Coronavirus crisis is changing everything, including private equity and M&A.
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.
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. For more, read our full coverage: 5 derailed deals: HP, TGI Fridays among those losing buyers during coronavirus crisis.
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.
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.