Early First Quarter M & A; Data Fail to Support Talk of Rebound
WALL STREET WEST
Los Angeles investment bankers have been predicting a rebound in merger activity for some time, but the numbers indicate it hasn’t arrived yet.
Through the first two months of 2004, only 61 deals worth about $900 million involving Los Angeles companies have been announced, according to data from FactSet/Mergerstat.
The data reflect deals announced through March 1 and exclude Comcast Corp.’s unsolicited $54 billion offer for Walt Disney Co., which was rejected by Disney’s board in February.
The partial results from the first quarter show a pace of dealmaking about on par with the 90 deals announced with Los Angeles-based buyers or sellers in the fourth quarter of 2003. However, deal size is somewhat smaller, tracking toward a total that would be about half of the $2.5 billion logged in the fourth quarter of 2003.
The figures appear to be in keeping with the low levels of activity over the past several years, interrupted by a Disney-like blockbuster here and there. While the stock market’s rebound helped lift M & A; activity off of its deepest lows last year, there is still uncertainty about whether the tepid two-year-old economic recovery is sustainable.
Bankers blamed some of the slowness on seasonal factors. “The first quarter is typically not the strongest,” said Scott Dunfrund, director of corporate finance at Los Angeles-based Houlihan Lokey Howard & Zukin. “A lot of deals are done by the fiscal year end, generally speaking.”
Even so, activity is down nearly one-third from the 87 deals announced in the first two months of 2003.
Bankers remain resolute that activity will be on the upswing. “We are actually at or near full capacity,” said Stephen Perry, managing director of Janes Capital Partners in Newport Beach.
It’s a similar refrain with other local bankers, who expect M & A; activity to build throughout 2004.
“I think that’s due in part to a much improved financing market,” said Dunfrund. He noted that commercial banks, which turned off the spigots after being burned by a number of large merger-related loans in recent years, have become more aggressive in lending into deals. This allows financial buyers, such as private equity firms, to leverage their offers with debt.
“It’s certainly one of the factors we’re seeing as a reason for the pickup. As lenders are willing to go ahead and lend more of a particular purchase price, the buyer can then afford to pay more.”
Bankers insist they’re seeing their backlogs grow. Dennis McCarthy, managing director in Los Angeles for Seidler Cos., said he believes that since stocks are up off of their lows, sellers believe they will get a reasonable price for their companies. “This is a very high level of company interest,” he said.
There have been some notable deals announced thus far this year, including Irvine-based Commercial Capital Bancorp’s $438 million purchase of El Segundo-based Hawthorne Financial Corp. Together, the thrifts will have about $2.4 billion in company-wide deposits and $4.4 billion in assets. The deal, which must be approved by regulators and shareholders, is expected to close this summer.
In January, Los Angeles-based AP Henderson Group, one of the largest independent petroleum refiners, bought Tustin-based Slide View Corp., a computer technology research firm, for $10 million. Also that month, Thousand Oaks-based Amgen Inc. bought Massachusetts-based ViaCell Inc. for $20 million.
Los Angeles sellers have been active too. Santa Monica-based Entravision Communications Corp. sold three radio stations serving the Chicago area for a total of $29 million.
Over the past year, dealmaking activity has risen, although Los Angeles didn’t participate to the extent of neighboring Orange County.
According to figures from FactSet/Mergerstat, there were 440 deals involving Los Angeles County companies for the 12 months ended March 1, a 16 percent increase over the like year-earlier period. That compares with a 42 percent increase registered in Orange County, where 297 deals got made in the like year-earlier 12-month period.
Andrew Simons
Sudden Departure
Analysts scratched their heads after Mike Grainger, president and heir apparent at Santa Ana-based Ingram Micro Inc., suddenly announced he was retiring.
His departure came just after Ingram posted strong fourth quarter results, ahead of Wall Street expectations. Grainger, a company veteran and good friend of the controlling Ingram family, gradually had assumed greater control.
“We view the departure as a disappointment, as Grainger was a seasoned, extremely talented and well-respected member of Ingram’s management team,” Steve Fortuna, an analyst with Prudential Equity Group, said in a note. “We note that Grainger was often viewed by investors as the natural successor to current Chief Executive Kent Foster.”
The company announced that Gregory Spierkel, president of the European region, and Kevin Murai, president of the North American region, would hold the president’s office in a dual role a strategy Fortuna said has “inherent risks.”
Foster said the decision to promote Murai and Spierkel to co-presidency didn’t come in response to Grainger’s decision to retire. Rather, Grainger’s decision came after Ingram’s board decided to promote the two to Grainger’s office. However, Foster said Grainger wasn’t forced out.
Grainger told Computer Reseller News that “I would have wanted a higher position one day, that is for sure.”
A spokeswoman for Ingram Micro, Marie Meoli, declined to make Grainger available for further comment.
Andrew Simons
New Leisure Bank
Los Angeles-based investment banker Matt Sodl has teamed up with Innovation Group in New Orleans to form Innovation Capital Holding LLC, to provide financial advisory services to the gaming, hospitality, leisure and entertainment industries.
Sodl, formerly with Murphy Noell in Westlake Village, will serve as managing director of the new firm, which will have offices in Los Angeles and New Orleans.
The founding principals of Innovation Capital Holding include Sodl and the partners of Innovation Group: Steven Rittvo, president, Stephen Szapor Jr., chief operating officer, and Scott Fisher, managing director of financial analysis.
The company has already been retained by President Casinos Inc., in St. Louis, to assist in the sale or merger of its hotel in Biloxi, Miss.
Kate Berry
