Sure, it’s not 2007, when more than two L.A. companies were bought or sold every day.
But, financial professionals say, things are finally getting back to normal in the mergers and acquisitions market. After several years of sluggish M&A activity, dealmakers across Los Angeles said they were busier in 2011 and are hopeful the trend will continue into next year.
There were challenges, including global economic concerns and limited financing options. But many companies that had put their M&A plans on hold during the recession were looking to re-enter the market this year.
“There’s just a pent-up supply,” said James Freedman, chairman and managing director of Intrepid Investment Bankers LLC in West Los Angeles. “They’re feeling a little bit better about their companies and the future, and feel like it’s worthwhile to go out and explore a transaction today.”
With its up-and-coming tech scene, vibrant entertainment sector and growing consumer services industry, L.A. companies were involved in a number of high-profile deals this year, including Santa Monica’s Universal Music Group’s nearly $2 billion purchase of EMI Group of London.
Private equity, too, made a splash. L.A.’s Leonard Green & Partners LP, for instance, bought BJ’s Wholesale Club Inc. in Westborough, Mass., with partners for a whopping $2.8 billion.
Strategic buyers such as Universal and private-equity investors such as Leonard Green have been sitting on record amounts of cash, experts said. Now, many are ready to get off the sidelines.
“They have a lot of capital they are looking to put to work,” said Paul Zaffaroni, a director at Newport Beach investment bank Roth Capital Partners LLC.
The revival of the M&A market has allowed many private-equity firms to exit previous investments, which in turn has freed them to make new acquisitions.
Beverly Hills investment firm Platinum Equity LLC sold out of a pair of investments this year. One of those was the San Diego Union-Tribune, which it unloaded for a reported $110 million, more than twice what it paid for the newspaper in 2009.
Meanwhile, the firm and its subsidiary companies acquired more than 10 companies during the year.
Other local firms, including Gores Group LLC and Levine Leichtman Capital Partners, made a series of acquisitions as well.
“The private-equity community in particular seems to be a lot more active,” said Freedman, who estimated that about two-thirds of deals today are done by private-equity buyers, while companies are more cautious. “Strategics are very picky and very selective about transactions.”
Still, there are plenty of strategic deals taking place. The community banking industry, for instance, is consolidating as a number of local institutions are looking to take advantage of economies of scale. L.A.’s Grandpoint Bank announced a pair of acquisitions this year; Professional Business Bank and Bank of Manhattan agreed last month to merge; and both Gateway Business Bank and Beach Business Bank are being acquired by a Chula Vista institution.
Wade Francis, president of Long Beach-based bank consulting firm Unicon Financial Services Inc., said increasing regulatory burdens have driven up costs for banks and made it more difficult for small institutions to turn a profit. That has driven many of the bank mergers.
“We have had consolidation,” Francis said.
Perhaps no local industry, however, was more active this year than technology.
The local tech scene, nicknamed Silicon Beach, has been getting a lot of buzz for its proliferation of promising startups, particularly in the digital media space. The community is also attracting bigger players such as Google Inc., which opened a large Venice campus this year.
All the interest in the local industry has attracted dollars and spurred deals.
“It’s definitely been a very good year,” said David Siemer, managing director of Siemer & Associates LLC, a Santa Monica merchant bank specializing in technology transactions. “It wasn’t ’07 good, but it was certainly ’05 or ’06 good.”
He noted that the deal sizes were still relatively small, but the volume of transactions has been rising quarterly for more than a year.
ValueClick Inc., an online marketing company in Westlake Village, scored one of the industry’s biggest deals of the year when it acquired competitor Dotomi Inc. in Chicago for $295 million.
There were also a number of noteworthy smaller acquisitions, including Specific Media Inc.’s $35 million purchase of beleaguered Beverly Hills social network Myspace Inc.
Still, Siemer noted that 2011 was not without its setbacks. The year started out strong, looking like “it would be a banner year (but) it slowed down a little.”
Siemer pointed to the global economic unrest caused by Europe’s debt crisis, which stalled the financing markets and put some M&A plans in limbo. While there is hope for a rebound in 2012, with lingering uncertainty in both the domestic and international markets, some experts are less than optimistic about prospects for next year.
“There are some concerns that 2012 will be a down year from 2011,” he said. “A lot of concerns.”
For reprint and licensing requests for this article, CLICK HERE.