Dominated by strategic deals, local merger and acquisition activity kept up a steady pace in April, though with few large transactions total value slipped from prior months.
The Los Angeles area saw 63 deals roughly the same number on average since December but with a disclosed value of only $4.7 billion. By comparison, deals totaled $7.1 billion in February and $9.3 billion in March, according to data compiled for the Business Journal by Goldsmith Agio Helms, a Minneapolis-based investment bank.
The dealmaking was dominated by transactions that were strategic fits to the acquiring entity. An example was MGA Entertainment Inc., the Van Nuys toy company that has soared on the popularity of its Bratz dolls line, acquiring Smoby Majorette SA, the largest toymaker in France.
Far fewer were investment deals, such as the purchase of AVP Inc., the operator of the AVP Pro Beach Volleyball Tour, by Shamrock Holdings Inc., the investment vehicle of former Walt Disney Co. director Roy Disney.
Ed Villeneuve, Los Angeles-based managing director of Goldsmith Agio, said the tilt toward strategic deals may simply be a reflection of the tendency of some private equity firms to not report their acquisitions or sales.
“The preponderance of the buyers are the private equity guys looking to buy and private equity groups looking to divest,” said Villeneuve, noting his recent personal experience.
Real estate activity
Indeed, while there has been a pullback by some large private equity firms from the frenzied pace of dealmaking over the past year, other firms are continuing to pursue deals. Most recently, Cerberus Capital Management LP, a large New York private equity firm, raised eyebrows by taking a $7.4 billion majority stake in Chrysler Group.
Closer to home, Villeneuve said he expects local M & A; activity to continue at its current pace of 60 to 65 deals per month., with commercial real estate among the leading sectors.
For example, in April, Beverly Hills-based Hilton Hotels Corp. sold 10 European hotels to New York-based Morgan Stanley Real Estate for $770 million. Meanwhile, Los Angeles-based Colony Capital LLC sold a 62 percent stake in its French real estate investments to a Canadian firm for $262 million.
“Everybody’s been focused on residential but real estate values in the hotel and commercial area have been continuing to do well,” Villeneuve said. “People who have invested in that area can continue to sell for very nice valuations.”
April’s biggest deal, however, was in the tech industry. El Segundo-based Computer Sciences Corp. acquired Covansys Corp., a Michigan-based information technology services provider, in a $1.3 billion cash transaction. The $34-per-share buyout offer is expected to close in the second quarter of 2008.
Computer Sciences executives said the strategic acquisition will strengthen the company’s capabilities in the emerging India market, where Covansys has a strong presence. The deal also highlighted a strong month for business services, which saw 16 deals the most of any sector with a combined value of more than $2 billion.
Industrial deals also led the way in April, including a pair of acquisitions by Los Angeles-based Dalton Investments LLC. The firm bought a pair of Japanese companies: Fujitec Co. Ltd., a manufacturer of elevator and related equipment, for $711 million, and Nippon Fine Chemical Co. Ltd., a chemical and detergent maker, for $197 million.
Those transactions highlighted the increasing number of international deals involving Los Angeles companies as markets, even for mid-sized companies, become increasingly global. In addition to Japan, some of the businesses involved in April’s deals are based in Australia, Ireland, China and Denmark.
Jean-Christophe Breuil, chairman of French toymaker Smoby Majorette, said his company was pleased to be acquired by American toymaker MGA, which last year acquired a minority stake in Zapf Creation AG, a German toymaker.
“MGA is a very dynamic global player in the toy sector. Its international success and its capacity to innovate are in line with the values developed by Smoby Majorette ever since the group’s inception,” Breuil said in a statement.
Other deals for the month included relatively low-profile transactions in the consumer and technology sectors.
Material Technologies Inc., a Los Angeles company that makes sensors to test metal fatigue in bridges and railroads, acquired two companies through stock transactions. It bought a stake in Orlando-based Rocket City Automotive Group Inc., which develops software for automotive dealerships, for $15 million and Tampa-based Utek Corp., which acquires university technology licenses, for $11 million.
Robert Bernstein, chief executive of Material Technologies, said the company does not often acquire companies, but did so in April because it will increase their technological research and development capabilities.
“This adds to our armory of nondestructive testing of new technologies that will enable us to expand what we’re interested in,” he said. “It was more than a financial thing.”
Also in April, O & S; Holdings LLC, a Santa Monica-based developer started by Kinko’s Copies founder Paul Orfalea, submitted a leading, $41 million bid to acquire the 66-year lease of the Queen Mary and its surrounding 40 acres of mixed-use waterfront property in Long Beach.
