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Friday, Sep 29, 2023



The folks over at Century City-based Mergerstat have worn their fingers down to nubs, trying to count up all the M & A; activity in the United States.

Choppy markets or no, there were so many corporate marriages announced in the first quarter that the aisle carpeting is worn through, as 1,825 deals were planned, with a dollar volume of $144.3 billion.

Compared with the first quarter last year, the number of announced deals is up 45 percent, and the dollar volume is up 73 percent, according to the count of Mergerstat, an arm of Houlihan Lokey Howard & Zukin Inc., a financial services company.

Remember, last year was an all-time record year for M & A; action.

By the way, stock market bulls may be heartened to know that in a merger, the average company sold for a whopping 27 times earnings even higher than the 20 times earnings that the S & P; 500 is trading around.

What this means is that the average publicly held company, should it be acquired, is worth about one-third more to an acquirer than its trading (market) price. Not a bad validation of today’s corporate values.

But why are mergers still so strong?

Scott Adelson, managing director at Houlihan Lokey, attributes a lot of merger activity to “conventional wisdom.”

In the 1970s, “the conventional wisdom was that you had to be a conglomerate, so that you would be diversified against risk,” said Adelson. “But by the 1980s, that idea was dead, and corporations were shedding assets instead.”

By the 1990s, it was up to shareholders to diversify, by buying a mix of stocks.

Today’s conventional wisdom is that survival requires fast growth, and that rapid growth can sometimes only be attained by acquisition. It’s a faster way to achieve economies of scale, marketing heft and access to capital.

The globalization of the world economy plays a role, said Adelson. “We are seeing a fair number of cross-border mergers.” A trans-national marriage is a fast way to penetrate overseas markets, and thereby have troops immediately on the ground, with contacts made. Language barriers are flattened.

Several large industrial segments are consolidating, in response to market economics and government deregulation. Chief among those are banking, communications, utilities and defense contracting, said Adelson.

But mostly, it’s just the season for M & As;, said Adelson.

“Right now, people want to merge. Fifteen years from now, will we all say this was a smart thing to do? I don’t know. But it seems smart now.”

Institutional timidity

In days of yore, if an institutional investor didn’t like a stock, he or she would sell it. This attitude was so prevalent that you would almost hear management say “If you don’t like the way we do business, sell the stock. Good-bye.”

Times have changed, although not as much as some people might like.

The increasing might of institutional shareholders, and their permanence, is part of the reason. Institutions cannot really “just sell stock.” They have large positions that can be slow to unwind and, in a broader sense, they have to remain invested in stocks.

A large pension fund, like the California Public Employees Retirement System, has obligations that extend as far as 75 years into the future (younger spouses of existing pensioners).

And institutional shareholders have a decades-long history of timidity to overcome, before they become lions in corporate boardrooms, proxy fights and annual meetings, according to Robert Apfelberg, managing director at the Woodland Hills-based Commerce Partners Inc., a business reorganization consulting firm, and former board member of California Federal Bank.

“Traditionally, institutional shareholders have not organized, and until recently, it has not been possible to do so legally,” he said.

Former SEC rules, modified in 1995, barred collusion among institutional investors and certain restrictions still apply.

But there is a lot more latitude for institutional shareholders to maneuver today than in the past, said Apfelberg.

Still, some institutional investors have an “inherent” doubt they really know how to run a business better than corporate cheiftains, and besides, most chief executives are “threatening and hostile” when it comes to intrusive shareholders, said Apfelberg.

Such bristling is usually effective at deflecting institutions’ influence, since money managers often have a somewhat intellectual or academic personality type.

And there is a world of difference between scholarly analysis of stocks, and taking out the management of a badly run shop, in an ugly proxy war, said Apfelberg.

But most all, institutional investors today are just not organized, said Apfelberg. “If you want to be effective in life, whether in labor, in war, or whatever, you have to be organized,” he said. “It’s a trend (greater institutional investor activism), but they are not yet really organized.”

Another thought: Just as corporations have boards of directors who oversee (in theory, anyway) management, money managers have boards of trustees, who must believe institutional investor activism is a good thing, said Apfelberg.

In what may seem a bit of corporate radicalism, Apfelberg advocates that major shareholders in publicly traded companies consider establishing shareholder groups, and retaining counsel. Such groups should communicate with corporate boards, perhaps especially the “outside” directors (non-management) who are supposed to be extra-concerned with shareholders’ rights and needs.

Name change

The former Plasma & Materials Technology Inc. has changed its name to Tricon Technology Inc. It’s still based in Chatsworth.

The name change apparently follows relentless snickering in Great Britian, where the acronym “PMT” stands for “pre-menstrual tension,” which is known stateside as PMS.

“You are going to change the name of the company, right?” was a question posed to company officials on a continual basis, as they conducted business on British soil.

Since a recent merger with Electrotech Group Ltd., based in Newport Wales, Great Britian, Tricon Technology has been much more active there.

By the way PMT, or rather Tricon Technology, is a $110 million manufacturer of machines which make high-end silicon chips.

Benjamin Mark Cole is senior reporter for the Los Angeles Business Journal and covers the investment community.

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