You might have heard that L.A.’s Aecom Technology Corp. bought rival URS last year – but probably not that Aecom’s Michael Burke got the ball rolling on that huge transaction two days before he became chief executive. And you know that Steve Ballmer bought the Clippers, but you might not know the deal came together in only a few days. Those are just two of the inside-the-boardroom details you’ll find in this special report – our first – ranking L.A.’s biggest deals of 2014.

1. Michael Burke, Aecom

The biggest deal in Los Angeles last year was conceived with the help of investment banks, board committees and even an activist hedge fund. But the first move was made the old-fashioned way: a phone call from one boss to another.

On March 4, Aecom Technology Corp.’s then-president, Michael Burke, placed a call to Martin Koffel, chief executive of San Francisco engineering and construction firm URS Corp.

“I picked up the phone and called Martin and said, ‘I’m going to be in San Francisco and would love to meet with you,’” said Burke, who was then just two days away from becoming Aecom’s chief executive.

Eight months later, Aecom, the Century City engineering giant, had acquired URS for nearly $6 billion in a cash-and-stock deal that closed Oct. 17. It was by far the biggest local deal of the year.

Aecom has a history of growing through acquisitions, and had engaged Bank of America Merrill Lynch in February to look at possibly buying competitor URS. Burke, who took over as Aecom’s chief executive on March 6 after being named to that post in December 2013, had identified URS as a target based on its business strategy. He also noticed that the company was dealing with an activist shareholder who was effectively agitating for a deal.

A week after that first call, Burke went to Koffel’s office at the Transamerica Pyramid in San Francisco and began to discuss the parameters of a deal. Burke said that he and Koffel were immediately struck by the natural connections between their companies’ lines of business.

“Both of us came to the table thinking that there were a lot of overlaps, but as we started peeling back the layers, we realized the two companies were much more complementary than we thought,” Burke said.

For example, Burke pointed out that while both companies do significant business with the federal government, Aecom’s main client is the Defense Department, while for URS it was the Energy Department.

At the end of the meeting, Burke made a verbal offer of $57 a share for URS stock, with half in cash and half in Aecom stock. At the time, URS was trading at $46.70 a share on the New York Stock Exchange.

Koffel responded in typical M&A fashion, saying $57 was far too low but agreeing to keep the conversation going.

Active seller

At the same time Aecom’s management was scoping out acquisition opportunities, URS was being primed for a deal. The company had fallen out of favor with Wall Street after missing earnings estimates in recent quarters and had attracted the gaze of an activist investor.

Jana Partners, a New York hedge fund run by Barry Rosenstein, in August 2013 announced that it had built up a 6.4 percent stake in URS, increasing that stake to about 10 percent by the end of that year. In March 2014, Jana met with URS representatives and suggested the company should explore a sale.

On April 23, a board committee ordered management to review proposals from some private equity suitors and Aecom – the only strategic partner that had shown interest.

On May 21, Burke, who had previously requested the opportunity to speak directly to URS’ board members, got the go-ahead from Koffel.

He had one week to prepare and flew straight from a Hawaiian vacation to San Francisco to present to the board May 28. There were four new board members appointed by Jana, and they were very engaged, Burke said. Still, while it was clear Jana was angling for a deal, the board didn’t exactly roll out the red carpet.

“Their board was very, very pointed and very aggressive in their questioning about the value and the synergies,” Burke said. “They were very aggressive in suggesting that I should be sharing the synergies with them instead of keeping the synergies for our shareholders.”

Despite the grilling, Burke’s presentation seemed to have the desired effect. The next day, the URS board instructed management to start additional due diligence on Aecom.

On Wednesday, July 9, Burke agreed to bump Aecom’s offer by about 50 cents a share and both parties verbally agreed to a deal. Both management teams and their lawyers went to New York to close, with final negotiations taking place while the World Cup final was being played July 13. The deal was announced later that afternoon. That’s when the next stage of the work began.

“We were prepping all day on Sunday leading up to that announcement,” Burke said. “Once the news broke, that’s when you had 100,000 employees that were going to wake up the next morning and say, ‘What does this mean for me?’”

‘Game isn’t over’

Burke said he was able to gain the confidence of URS’ rank-and-file employees by immediately reaching out to them. He held conference calls with more than 100 URS team leaders July 12 and 13, and set up an email suggestion box that’s received more than 1,000 messages so far. He also made sure URS executives were well-represented at the upper reaches of the company going forward.

“People saw that it was a combined leadership team,” he said. “It wasn’t a pure takeover.”

For the next few months, Aecom focused on regulatory issues, including getting antitrust clearance from the U.S. and British governments. Burke and other senior executives also went on a road show to raise capital and debt for the transaction.

When the deal officially closed the morning of Oct. 17, Burke and his colleagues celebrated with a brief champagne toast at Aecom’s Century City office. Then it was quickly back to work.

“I reminded our team that the game isn’t over yet,” he said. “We’ve acquired the asset; now we’ve got to go out and make it successful.”

2.

Deal: Leonard Green Buys Advantage Sales & Marketing

Value: $4.2 billion

Close: June 16

West L.A. private equity firm Leonard Green & Partners only needed a short trip down the 405 freeway to find its biggest deal of last year.

Joining forces with London private equity shop CVC Capital Partners, Leonard Green bought a majority stake in Irvine consumer marketing company Advantage Sales & Marketing Inc. for $4.2 billion.

Advantage was previously owned by another British private equity firm, Apax Partners, which put the marketing company up for auction earlier this year. Alan Patricof, who started Apax, is also a founder of Santa Monica VC firm Greycroft Partners.

Advantage primarily works with manufacturers of packaged consumer goods, providing sales and marketing services to help them secure shelf space and distribution at retailers nationwide.

Under Apax’s management, Advantage recently began expanding internationally – which is something its boss said will continue under the new ownership.

“Our next big move will be to take our services and our solutions and build businesses internationally,” Advantage Chief Executive Tanya Domier said in June. “It’s exciting – we’ll start in Europe, and then we’ll be going to China, Brazil and Mexico.”

3.

Deal: PacWest Buys CapitalSource

Value: $3.1 billion

Close: April 7

Century City’s PacWest Bancorp became L.A.’s fourth-largest bank in April, when it completed its acquisition of downtown L.A. lender CapitalSource Inc. The combined bank had assets of $15.7 billion as of Sept. 30.

The cash-and-stock deal was valued at $3.1 billion, making it L.A.’s third biggest in 2014.

Bank executives declined to comment, but Julianna Balicka, an analyst who covers PacWest for New York investment bank Keefe Bruyette & Woods, answered some questions about the deal for the Business Journal.

Question: Investors seemed to love PacWest’s deal for CapitalSource when it was announced. Why was the reception so positive?

Answer: The deal combined PacWest, a best-in-class deposit franchise, with CapitalSource, a national lending platform with strong growth, giving investors a best-of-both-worlds business model. CapitalSource’s loan portfolio has high yields and PacWest’s cost of funds is very low – together it’s a winning combination in terms of potential profitability.

PacWest is keeping CapitalSource as a separate division, run by former CapitalSource Chief Executive Jim Pieczynski. Why?

In my view, this really was a merger of equals. The deal neatly met each side’s operating needs. This was not a cost-savings-driven, competitor-absorption, market-share-gains type of transaction. Therefore, keeping the CapitalSource name, brand and leadership in place is important in continuing to support the success of the national lending platform.

PacWest has aggressively grown through acquisitions, with this one being its biggest deal yet. Do you expect the bank to continue to grow inorganically or might this be its last M&A deal for a while?

CapitalSource’s loan growth is strong, and while additional, deposit-driven deals to augment organic deposit growth would be welcome, they are not necessary for the success of the postmerger business model since organic deposit growth has been good, too. Postdeal, PacWest’s potential target size has increased and as such, there are fewer banks available to buy. So, I would not expect an M&A deal in the near term. That being said, PacWest has a long history of acquisitions, so I would not be surprised to see one, either.

Last year was a big one for bank M&A. Do you expect to see the same level of activity this year or have most of the obvious deals been done?

In California, it seems to me that there are a number of deals getting done among the smaller banks, rather than smaller banks selling to the larger usual-suspect buyer banks. I would expect more of the same in 2015.

4.

Deal: Apple Buys Beats

Value: $3 billion

Close: Aug. 1

The world’s most valuable public company didn’t forget about Dre.

Apple Inc. in Cupertino bought Beats Electronics, a Culver City company most famous for selling the premium headphones that have become an obligatory accessory for professional athletes, for $3 billion.

The deal was a windfall for Beats co-founders, music executive Jimmy Iovine and hip-hop icon Andre Young – better known as Dr. Dre.

Apple has no problem selling premium-priced computers, tablets and smartphones, but the company’s iTunes music business has struggled with the emergence of streaming competitors such as Spotify. While iTunes charges customers to download individual songs or albums that they own forever, Spotify charges a monthly fee for access to a library of millions of songs that can be streamed on demand. The latter model has proved more popular, as music sales on iTunes have slid while streaming services have picked up market share.

Beats had started up its own subscription-based music streaming service, Beats Music, which gave Apple a foothold in the space. However, since the deal was announced, Apple hasn’t said much about its plans for Beats Music, and Beats Music has not been preloaded into Apple’s latest iPhone offerings.

5.

Deal: BreitBurn Buys QR Energy

Value: $2.8 billion

Close: Nov. 19

Before it was Tinseltown, Los Angeles was populated by earnest explorers looking for gold of a different hue. Oil continues to play a major role in L.A.’s economy, and was responsible for the city’s fifth-biggest deal of 2014.

Downtown L.A. oil company BreitBurn Energy Partners acquired a fellow petroleum business, QR Energy in Houston, for $2.8 billion in a cash-and-stock deal that closed in November. That included BreitBurn’s absorption of about $1 billion of QR’s debt. It was the biggest acquisition in BreitBurn’s history.

Both BreitBurn and QR Energy are structured as master limited partnerships, or MLPs – publicly traded partnerships that pay out the vast majority of their profits to shareholders.

BreitBurn and QR Energy are “upstream” MLPs with similar business models, focusing on operating and maintaining wells. BreitBurn relies on acquisitions to grow its revenue, as output from its relatively seasoned wells continues to drop.

But despite closing one of L.A.’s biggest deals, 2014 proved an ugly year for BreitBurn. The price of oil plummeted during the second half of the year, and that, coupled with the debt BreitBurn assumed in the QR deal, which was announced before the price of oil cratered, pushed the company to announce this month that it will cut its distributions to shareholders.

6.

Deal: Alliance Data Systems Buys Conversant

Value: $2.4 billion

Close: Dec. 10

The old methods of acquiring customers with a catchy radio jingle or brightly colored postcard are coming to an end. Now, with nearly all of our Internet behavior captured and analyzed, companies can send low-cost online ads directly to a highly targeted group of likely – not just potential – purchasers. That motivated old-line consumer marketing company Alliance Data Systems Corp. in Plano, Texas, to make a big play for digital marketing firm Conversant Inc. in Westlake Village.

Alliance, which mainly operates loyalty programs and private-label credit cards for retailers, acquired Conversant to form an end-to-end digital marketing company. The deal gives Alliance more advanced digital marketing tools and more direct access to consumers while they’re surfing the Web.

Conversant, which changed its name from ValueClick in February, will be incorporated into Alliance’s Epsilon division, which handles loyalty marketing programs such as direct mail and email promotions to customers already in retailers’ databases.

7.

Deal: Sterlings Sell Clippers to Ballmer

Value: $2 billion

Close: Aug. 12

One L.A. deal that made headlines outside of the typical business circuit was Donald and Shelly Sterling’s shotgun sale of the Los Angeles Clippers to Microsoft billionaire Steve Ballmer. It came soon after Donald Sterling was banned for life from the National Basketball Association following the release of audio recordings in which he made racist comments.

Bob Baradaran, managing partner of Century City law firm Greenberg Glusker – and a lifelong Lakers fan – advised Shelly Sterling, who took charge of the deal process after her husband’s suspension, once she decided to sell the team. She had been a longtime client of Greenberg’s trust and estate practice. Baradaran gave the Business Journal a look behind the scenes of the deal.

Question: When did Shelly decide to sell?
Answer: The Friday before Memorial Day weekend (May 23) was when there was some consensus that the best thing to do would be to put the team up for sale. Once the decision was made to sell the team, rather than to fight what was inevitably going to be a charge from the NBA in connection with Donald Sterling’s statements, I got involved to sell the team.

When did you start hearing from potential buyers?

I started fielding calls Saturday morning at 8 a.m. Steve Ballmer was the first to call. I took 20 to 30 calls from either serious bidders or people connected with serious bidders. From Saturday morning on, I was on two to three hours of sleep each night.

A Dubai-based group with very deep pockets was interested, but you didn’t pay them much attention. Why?

You have to understand who that bidder is. They’ve never owned a team before. It was some wealthy Middle Easterner that liked the idea of owning a basketball team. Contrast that with Steve, who already had bid on two other basketball teams before.

When did Ballmer emerge as the preferred bidder?

It wasn’t until Thursday afternoon that we picked Steve as the bidder that we were going to try to finalize.

From a phone call Saturday to a decision on Thursday – sounds pretty fast.

The only time I’ve seen an M&A deal move that quickly was during the financial crisis when Bear Stearns was taken over, over the weekend.

Ballmer was chief executive of Microsoft and he’s worth north of $20 billion. Were you talking to him directly or mostly to his people?

He did not have an army of advisers. He personally got involved, personally met with me. He was a complete class act.

8.

Deal: RCS Capital Buys Cetera Financial

Value: $1.2 billion

Close: April 29

El Segundo independent broker-dealer Cetera Financial Holdings Inc. wasn’t being shopped around by its private equity owner, Lightyear Capital in New York. But that didn’t stop New York investment bank RCS Capital Corp., which has been on an aggressive shopping spree, from swooping in with an offer Lightyear couldn’t refuse.

At about $1.2 billion, the size of the deal surprised many industry observers, as it was a higher-than-expected price for a player in a broker-dealer industry that has struggled in the face of price competition between dealers and an increased regulatory burden. Independent broker-dealers are specialized financial services companies that buy and sell securities such as mutual funds on behalf of financial advisers who operate as independent contractors.

Cetera could not be reached for comment, but Daniel Seivert, chief executive of Manhattan Beach investment bank Echelon Partners, which does a lot of work in the broker-dealer space, answered some questions about the deal for the Business Journal.

Question: RCS has been aggressive in its acquisitions as of late. What makes the Cetera deal different?
Answer: The broker-dealer acquisitions that RCS made prior to acquiring Cetera were smaller and frankly did not turn many heads in the industry. But the acquisition of Cetera was different for the following reasons: It was a very large firm; it was owned primarily by a private equity firm that was only half way through its traditional seven-year hold period; it was a property that was not for sale; and it made a huge statement when all the broker-dealers they had acquired were added together.

Why was Cetera attractive to RCS?

It was the ideal platform to consolidate all of the other broker-dealer acquisitions. It had and has a very valuable and powerful roster of clients, contractors, employees, vendor partners, proprietary solutions and technology interfaces.

Were you surprised by the deal?

I was surprised that someone would be so aggressive about making acquisitions in the broker-dealer space. It begged the question of what business model would allow RCS to pay higher prices for what many consider to be a challenged business model.

9.

Deal: Disney Buys Maker

Value: $950 million

Close: May 12

When Burbank entertainment giant Walt Disney Co. bought YouTube network Maker Studios in May, it marked Internet video’s coming-of-age moment – as well as one of the biggest exits for a venture capital-backed L.A. startup.

Disney acquired Maker for $500 million plus earn-outs that could total an additional $450 million.

Disney and Maker weren’t the only local companies with an interest in the transaction. Santa Monica venture capital firms Greycroft Partners and Upfront Ventures were among Maker’s first investors, with both firms participating in the network’s December 2010 Series A round.

Maker is a multichannel network that began as a way for independent YouTube video creators to piggyback off each other’s audiences. At the time of the acquisition, Maker said its videos were viewed 5.5 billion times a month.

In what might be a sign of the changing times, Disney Chief Executive Bob Iger said on the company’s May earnings call that Maker’s distribution capability was the main reason Disney was interested in buying the network. Although the Mouse House owns several TV channels, including flagship ABC, the traditional airwaves are apparently no longer enough to attract the young eyeballs the company wants.

10.

Deal: Sanofi Acquires Right to Market MannKind’s Afrezza

Value: $925 million

Close: Sept. 24

Valencia pharmaceutical company MannKind Inc. has spent about 10 years and $2 billion developing Afrezza, an inhalable insulin treatment for diabetics. But when the Food and Drug Administration finally approved the product in June, MannKind had to find a company to help actually sell the thing.

That partner ended up being French pharmaceutical giant Sanofi, which agreed to pay $150 million up front – and up to $775 million down the road, if Afrezza meets certain sales and regulatory targets – for the right to sell and market the drug.

MannKind maintained a 35 percent interest in Afrezza’s profits – or losses – as part of the transaction.

Matthew Pfeffer, MannKind’s chief financial officer, answered some questions about the deal for the Business Journal.

Question: Why was Sanofi the right partner and why was this the right deal?
Answer: Sanofi is the ideal partner for MannKind given their expertise in the diabetes space with insulin, with a complementary product, well-established commercial infrastructure, and proven development experience. We are optimistic that they are the company best suited to make Afrezza the huge commercial success it has the potential to be. This was the right deal because it coupled excellent economics with maximum potential. Remember that there are $925 million in milestone payments, plus a profit-sharing arrangement.

Why was it so important for MannKind to do the manufacturing of Afrezza itself rather than outsource it?

We have a pre-existing manufacturing plant in Danbury, Conn., which we had already built. Many of the manufacturing processes are proprietary and confidential. This helps protect the product even beyond the large number of patents which we also hold.

What is the $150 million upfront payment from Sanofi going to be used for?

We will use it to cover general corporate costs as we wait for Afrezza, which is being launched this quarter, to reach profitability. In addition, in the near term, we plan to invest in other product opportunities based on the technology underlying Afrezza. We see a lot of potentially valuable drugs which could benefit from the advantages of the inhaler technology on which Afrezza is based. Importantly, we want people to know that Afrezza is just the beginning for MannKind. We have a lot of other ideas still to come.

– Compiled by Matt Pressberg