Driven by a few major deals, an uptick in technology transactions and an outbreak of bidding wars, Los Angeles area merger and acquisition activity regained momentum
in March.
Announced deals with disclosed price tags totaled $12.2 billion about triple the prior month surprising even investment bankers who had expected a slowdown.
The biggest acquisition was Public Storage Inc.’s initially hostile $5 billion takeover of Seattle-based Shurgard Storage Centers. After seven months of relentless pursuit, Public Storage ended up paying a 14 percent premium to convince Shurgard shareholders and executives to sign off on the deal.
Meanwhile, Tom Barrack’s real estate firm, Colony Capital, took part in the $3.6 billion buyout of Kerzner International, allowing South African gaming billionaire Sol Kerzner, the creator of Sun City, to take his resort business private.
And Viacom Inc. sold off the DreamWorks Film Library for the lofty price of $900 million to hedge funds Dune Capital Management and George Soros’ Soros Strategic Partners.
Tracking M & A; deals can be problematic because many are announced but never consummated. In a heated market, some firms begin merging with another, only to go to a higher bidder instead. So it comes as no surprise that several Los Angeles companies are in a courtship phase or girding for bidding wars.
Last month, Iconix Brand Group agreed to buy apparel designer Mossimo Inc. for $119 million only to be outbid last week by Van Nuys-based Cherokee Inc., which upped the ante to $135 million. Shareholders have not yet approved a deal.
In the newspaper industry, the McClatchy Co. buyout of Knight Ridder Inc. has created a frenzy among investor groups that want to buy a dozen. Ron Burkle’s Yucaipa Co. has become a major contender in the auction for two Philadelphia newspapers. Burkle, a longtime advocate of labor unions, has created strategic alliances with The Newspaper Guild and two former Philadelphia Inquirer executives, Robert Hall and James Naughton, as part of his bid.
The $12.2 billion M & A; figure easily topped the $4 billion in February, but was down from $16 billion in January.
More than half of the deals last month involved publicly traded companies, many of them small cap issuers on the Pink Sheets. The number of announced deals rose slightly to 67, up from 64 in February and 60 in January.
“M & A; activity is booming,” said Scott Adelson, a senior managing director at investment bank Houlihan Lokey Howard & Zukin. “I originally thought things would turn down at some point, but in the middle of March, somebody flipped a switch, and we’re looking at a very strong market through 2006.”
Shopping sprees
Several local firms continued their acquisition binges.
The Hospitalist Co., a North Hollywood-based manager of in-patient care at hospitals, bought Inpatient Medicine Services, based in Johnson City, Tenn., for an undisclosed sum. The purchase is its sixth acquisition in as many months.
“Our market is really very strong, because the hospitalist specialty (in which acute-care doctors monitor inpatient progress) is brand new and relatively unknown outside the hospital world,” said Adam Singer, president and chief executive of the company. “We’re paying a normal three times EBITDA (earnings before interest, taxes, depreciation and amortization), which is relatively inexpensive. We help the companies make more money because they don’t have the infrastructure in place.”
Health care was one of the hottest sectors for M & A; last year, but the sector appears to have cooled along with energy and consumer products. Business services and finance firms led all sectors last month, followed by real estate, media and entertainment, and technology.
In the world of sports, Anschutz Entertainment Group, the Los Angeles-based sports and media company owned by Denver billionaire and soccer enthusiast Philip Anschutz, sold the MetroStars to Red Bull GmbH, the Austrian company behind the caffeinated beverage. Anschtulz bought the team in 2001 and has long been one of the biggest stakeholders in Major League Soccer. Media reports put the sale at anywhere from $30 million to $50 million. The team is going to be renamed the New York Red Bulls, with naming rights to a stadium that is under construction in Harrison, N.Y.
A signal that technology deals are making a comeback was evident in the sale of iVillage Inc., a network of Web sites for women, to General Electric Co.’s NBC Universal for $617 million.
Game maker THQ Inc., of Agoura Hills, made two acquisitions: Austin-based Vigil Games, and U.K.-based Juice Games Ltd., its first European-based development studio.
“There’s no doubt that this is the strongest M & A; market that we’ve seen,” said Peter Falvey, managing director and co-founder of Revolution Partners, a Boston-based private equity firm that recently opened an office in Los Angeles. “Companies are relatively cash rich, the markets are stable and big deals mean that the smaller guys need to get scale and size.”
Hotels sales are heating up as with Kor Hotel Group’s purchase of the five-star Ikal del Mar Hotel in Mexico, and the Tides Hotel in Miami Beach, both for undisclosed sums. Hilton Hotels Corp. sold its Pointe Hilton Tapatio Cliffs Resort in Phoenix to Highland Hospitality Corp. for $85 million and Hilton Minneapolis to a limited liability company for $92 million, part of Hilton’s strategy toward managing its properties instead of owning them.
A recapitalization of boutique restaurant chain Marmalade LLC could augur more deals for small restaurants by private equity firms.
Jed Johnson, a managing partner at Parallel Investment Partners, a Dallas-based private equity firm, said the seven-unit French bistro-style Marmalade chain offered growth opportunities.
“The private equity environment today is very strong for entrepreneurs seeking a partner,” Johnson said. “There’s a lot of capital out there that has created a fairly competitive environment.”
