The leveraged buyout last week of HCA Inc., the for-profit hospital chain owned by the family of Senate majority leader Bill Frist, highlighted what investment bankers and Wall Street firms have known for years private-equity firms, flush with cash and willing to take on massive debt, now dominate the deal-making industry.
Los Angeles had its own version of the debt-laden leverage buyout last month.
The $13.7 billion sale of Univision Communications Inc., the Spanish language media giant, to a group of private equity investors led by Haim Saban's Saban Capital Group, catapulted monthly merger and acquisition activity in June to its highest level in more than a year.
A total of $20.6 billion changed hands in June for companies that were bought or sold in Los Angeles County, according to Goldsmith Agio Helms, a Minneapolis-based investment bank that compiles monthly deal data for the Business Journal.
That's 75 percent more than the $11.8 billion invested in the previous month, and even greater than the previous high of the past year of $19.6 billion invested in December, when many deals are rushed to close before the year ends.
Merger activity tends to wane in the summer, but this year investment bankers say the market remains hot.
"There's no deal too big for the private equity world," said Jim Freedman, managing director of Barrington Associates, referring to the $2 trillion in private equity buying power worldwide. "Last year, half of the companies we sold were sold to private equity groups. They are a lot more focused and efficient, generally, than strategic buyers in doing acquisitions because that's their business to buy companies."
Only a fraction of the 85 companies that were bought and sold in June actually disclosed their purchase price. Private companies aren't required to disclose information to the public.
Many public companies such as HCA and Univision, whose stocks were out-of-favor on Wall Street, are getting a new lease from private equity investors betting against current market sentiment.
With the bull market on the wane, large institutional investors are looking for new places to invest in.
"It's no secret that pension funds, foundations and endowments have put more money into hedge funds and private equity," said Jeffrey Lovell, chairman and managing director of private equity firm Lovell Minnick Partners LLC, in Rolling Hills Estates. "You have institutional investors looking for different types of return and willing to support different types of investment funds."
Last month, Lovell Minnick sold AssetMark Investment Services Inc. to Genworth Financial Asset Management, based in Encino, in a deal valued at between $230 million to $340 million. The final value will depend on synergies gleaned from a combined sales force and technology platform.
Lovell said the pricing for the deal was strong and the merger and acquisition marketplace remains robust.
Merger activity is often a unique barometer of which industries or market sectors currently are in vogue among investors. Last month, nearly a dozen Internet marketing firms changed hands as old-line media and entertainment companies searched for ways to bolster shrinking revenues.
Shamrock Holdings Inc., the Burbank private investment group that invests on behalf of the Walt Disney family, bought a 35 percent stake in NextWave Media Group LLC, a Chicago firm that offers advertisements on third-party publisher sites.
Bob Perille, a Shamrock managing director, said: "This type of advertising will continue to grow and take share from advertising in traditional media."
Several companies are investing in Web sites to build their brand name or create a unique presence on the Web. Gemstar-TV Guide International Inc. bought Jump the Shark Inc., a Web site where savvy television watchers debate whether TV programs have hit their peak and are on the brink of being cancelled.
Others are cashing out of their investments. Pasadena-based Idealab and a group of private equity investors sold Web site WeddingChannel.com to New York-based Knot Inc., for $78 million.
Many of the Web deals involve companies adding strategic acquisitions.
Los Angeles-based web site Reunion.com bought Minneapolis-based My Address Book LLC for an undisclosed price. Oversee.net, a marketing and lead-generation company in Los Angeles, bought a privately held portfolio of 35,000 Internet domain names.
Lawrence Ng, chief executive of Oversee.net, which has more than 1 million domain names, said the company expects to complete several acquisitions this year.
Greg Range, managing director of the Los Angeles office of Duff & Phelps LLC, said the availability of capital is driving the M & A; market, creating increased competition and higher prices paid to sellers.
"The big question is, what will happen when the economy turns?" he asked. "Because of the capital availability, the equation shouldn't really change. We will continue to see strong profitable companies with growth in certain niche markets."
Though the sale of Univision dominated local deal activity, mega-deals were on the wane in June. The closest big deal was the $2.4 billion sale of Long Beach-based Pacific Energy Partners LP, an oil distributor that was sold to Plains All American Pipeline LP. Recognizing the strength of the energy sector, several private equity firms sold off stakes in Pacific Energy including Los Angeles-based Kayne Anderson Capital Advisors LP and Santa Monica-based Strome Investment Management.
A breakdown by industry sectors shows that business and financial services firms accounted for 20 deals in June, followed by consumer product and technology companies with 13 deals each. Media companies and industrial firms completed 11 deals each.
"Until interest rates reach a certain level or the economy starts to go into a recession, which we're not seeing, I don't really see a lessening of deal activity," said Freedman, at Barrington.
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