aptor p m&a market m m&a shows signs · pdf filem&a shows signs of life raptor...

DISCLOSURE: Raptor Partners LLC is a registered broker-dealer with the U.S. Securities Exchange Commission and a member of the Financial Industry Regulatory Authority. This document is not a “research report”, as such term is defined by applicable laws and regulations. The information in this report has been obtained from third-party sources deemed to be reliable, but is not represented to be complete. This document has been prepared for general information purposes only and does not represent a complete analysis of any specific security, industry or issuer. This information contained in this document does not represent an offer or a solicitation of an offer to buy or sell securities of any form or to participate in any particular trading strategy. This document does not consider the investment objectives or financial situation of any individual or entity. Raptor Partners has provided, may continue to provide, or may seek to provide investment banking services for companies included in this document.

Fall 2009

RAPTOR PARTNERS M&A MARKET MONITOR

M&A SHOWS SIGNS OF LIFE

RAPTOR PARTNERS ADVISORY SERVICES: MERGERS & ACQUISITIONS

CORPORATE SALES & DIVESTITURES CROSS-BORDER TRANSACTIONS

FAIRNESS OPINIONS STRATEGIC ALTERNATIVES

CORPORATE FINANCE CAPITAL STRUCTURE

RESTRUCTURING PRIVATE CAPITAL RAISING

TAKEOVER DEFENSE VALUATIONS

1

Raptor Partners M&A Market Monitor

Fall 2009

M&A Deal Stabilization Continues Global M&A deal volume continued to stabilize in the third quarter of 2009, up 10.8% from the second quarter. The third quarter deal volume marks a 16.8% increase from the four-year bottom that took place in the first quarter of 2009. Third quarter 2009 deal volume remained 32.1% below the previous year comparable period which occurred just prior to the global financial crisis. The overall improvement in the M&A market during the third quarter can be witnessed through the recent announcement of several multi-billion dollar transactions in the Business Services, Consumer Products and Technology sectors. Large transactions in these sectors were nearly unheard of during the first half of the year when CEO’s were busy reorganizing and reducing expenses within their own companies.

Which Sectors Are Fairing Better?

As M&A transactions rebound from the precipitous fall-off that occurred in the first quarter of 2009, we decided to look at the change in activity by sector during the Trailing Twelve Months (“TTM”).

Over the TTM period ended September 30, 2009, the healthcare sector faired the best in terms of both the change in deal volume and the change in aggregate deal value. Deal volume in the healthcare sector declined 22.3%, while the aggregate deal value of healthcare transactions actually increased 64.6% due to a number of large transactions in the pharmaceutical sector. All other sectors exhibited large declines in both deal volume and aggregate deal value. During the third quarter of 2009, multi-billion dollar transactions in the U.S. M&A market were observed in each of the sectors Raptor follows except the Industrial and Materials segment. The return of large M&A activity in these sectors, which had basically come to a halt in the first half of 2009, seems to indicate that CEO’s may be feeling the worst of the global recession is behind us and it is time to begin looking for growth. In addition, stabilization in the credit

and equity markets has improved a strong acquiror’s ability to finance an acquisition through the debt markets or through the use of their own stock.

All major sectors, tracked by Raptor Partners, recorded a transaction of at least $1 Billion in the third quarter of 2009, including the Industrial & Material industry. This sector has been affected by the downturn in M&A activity the worst, with deal volume down 39.6% and deal value down 72.9% during the past year. Demand has begun to stabilize in the industrial sector but visibility into future results still remains somewhat difficult. The lag in industrial and material transactions is common in the early stages of an economic recovery as this sector tends to rebound in the mid to later part of the economic cycle.

Valuation Trends

Median U.S. M&A valuation multiples rose in the third quarter of 2009. The median Enterprise Value/EBITDA multiple increased just over 8% in the third quarter of 2009 relative to the second quarter. The median Enterprise Value/Sales multiple jumped sharply in the third quarter of 2009 as a greater percentage of the transactions, with valuations publicly disclosed, were completed in the healthcare, software and technology space. Transactions in these sectors typically have EV/Sales multiples that are above the group average.

U.S. Target M&A Multiple Trends

Source: Standard & Poor’s CapitalIQ and Raptor Partners

20

40

60

80

100

120

140

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Enterprise Value/Sales Enterprise Value/EBITDA

1.29x Sales 11.4x EBITDA

1.25x Sales 8.6x EBITDA

*Percentage change from TTM September 2008 to TTM September 2009 Source: Standard & Poor’s CapitalIQ

% Change 2009 vs. 2008Industry: Deal Volume Aggregate Value

Healthcare -22.3% 64.6%Consumer Products & Services -32.0% -53.5%Technology & Software -35.0% -39.6%Business Services -35.4% -59.2%Industrial & Materials -39.6% -72.9%

Change In M&A Activity By Sector

Recently Announced Large U.S. M&A Deals Target Acquiror Deal Value SectorAffiliated Computer Svcs Xerox $8.6 B Bus. ServicesPerot Systems Corp. Dell Inc. $3.8 B Bus. ServicesCadbury plc Kraft Foods $20.2 B ConsumerMarvel Entertainment Walt Disney Co. $4.1 B ConsumerP&G Pharma Business Warner Chilcott $3.1 B HealthcareAlcan Food Americas Bemis $1.2 B Industrial/MaterialTANDBERG Cisco $3.0 B Technology

2

Global Yearly M&A Activity U.S. Yearly M&A Activity

Global Quarterly M&A Activity

Source: Standard & Poor’s CapitalIQ




U.S. Quarterly M&A Activity


Fall 2009

38,76335,518

24,92229,588

20,951

0

10,000

20,000

30,000

40,000

50,000

2005 2006 2007 2008 LTM Q3/09

Tran

sact

ions

Ann

ounc

ed

$0

$1,000

$2,000

$3,000

$4,000

$5,000

Aggr

egat

e Va

lue

($ B

illion

s)

Transactions Announced Aggregate Value

8,4679,374

9,9029,329

8,116

5,1206,070 6,0935,498

5,215

8,9698,9859,448

6,8057,0117,305

10,158

0

3,000

6,000

9,000

12,000

15,000

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Tran

sact

ions

Ann

ounc

ed

$0

$400

$800

$1,200

$1,600

$2,000

Aggr

egat

e Va

lue

($ B

illion

s)


7,381

9,573

10,862

8,584

9,989

0

3,000

6,000

9,000

12,000

15,000

2005 2006 2007 2008 LTM Q3/09

Tran

sact

ions

Ann

ounc

ed

$0

$300

$600

$900

$1,200

$1,500

Aggr

egat

e Va

lue

($ B

illion

s)


Transaction Volume Improving

Global M&A transaction volume increased 10.8% during the third quarter of 2009 to 6,093 transactions from 5,498 transactions in the second quarter. The third quarter results marked the second straight quarterly improvement in deal volume, following the four-year bottom reached in the first quarter of 2009. Despite the recent increases, global transaction volume for 2009 remains significantly below 2008 levels. Transaction volume for the first nine months of 2009 was off 39% from the 2008 comparable period. The aggregate value of deals announced in the third quarter of 2009 increased 13.8% over the second quarter but remained sharply below levels reached during the past five years. For the first nine months of 2009, approximately $900 billion worth of M&A transactions were announced, a decrease of 62.4% as compared to the $2.4 trillion of transactions announced during the first nine months of 2008.

Larger Deals Beginning to Rebound Several, high-profile, large deals were announced in the third quarter of 2009 providing potential evidence of increasing confidence among CEO’s. The number of global deals announced with an enterprise value over $1 billion increased nearly 28% in the third quarter of 2009 versus the second quarter and nearly 94% versus the first quarter when large deal activity plummeted. During the third quarter of 2009 several large M&A transactions were completed in sectors that had been relatively quiet on the deal front during the first half of the year. Two transformational acquisitions occurred in the Business Services sector with hardware vendors buying service companies in an effort to find more consistent revenue streams. In late September Xerox Corp. announced an $8.6 Billion acquisition of Affiliated Computer Services in a stock-and-cash deal. Earlier in the month, Dell agreed to a $3.8 billion purchase of Perot Systems in a similar move.

2,060

2,669 2,5262,5812,315

2,5422,5512,766

2,901

2,167 2,2281,952

1,7421,627

2,5872,4772,449

0

800

1,600

2,400

3,200

4,000

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Tran

sact

ions

Ann

ounc

ed

$0

$125

$250

$375

$500

$625

Aggr

egat

e Va

lue

($ B

illion

s)


3

Sector Spotlight

Based on the TTM period ended September 30, 2009, valuation multiples paid for U.S. targets in all major industry sectors, tracked by Raptor Partners, remained below their five year averages. Despite attractive valuations being paid for: (a) businesses with strong competitive advantages; (b) niche product offerings; or (c) strong margins, median statistics remain lower as the U.S. begins to recover from the recession. In the final weeks of the 2009 third quarter, a flurry of M&A announcements took place, such as Kraft Foods’ $20.2 Billion offer for Cadbury, Walt Disney’s $4.1 Billion bid for Marvel Entertainment, Xerox’s $8.6 Billion bid for Affiliated Computer Services and Cisco’s $3.0 Billion bid for TANDBERG. The level of recent activity in some of these cyclical sectors, which were on hold during the earlier part of 2009, is indicative of improved management sentiment that the recession is nearing and end and acquisitive growth can resume.

Healthcare & Life Sciences U.S. Deal Statistics

= Multiples Above TTM Median

Group Median Multiples

Industrial & Material U.S. Deal Statistics



Business Services U.S. Deal Statistics



Consumer Products & Services U.S. Deal Statistics


Technology & Software U.S. Deal Statistics


Source: Standard & Poor’s CapitalIQ & Raptor Partners




Fall 2009

2005 2006 2007 2008 TTM 9/09EV/Sales 1.84x 1.81x 1.85x 1.62x 1.28xEV/EBITDA 11.4x 13.4x 14.7x 13.3x 7.9xVolume 798 902 989 831 688Value ($ Bil.) $117.1 $154.9 $147.5 $76.3 $166.8

2005 2006 2007 2008 TTM 9/09EV/Sales 0.92x 0.91x 0.95x 0.87x 0.69xEV/EBITDA 8.9x 8.5x 9.9x 8.5x 7.0xVolume 1,157 1,531 1,758 1,506 978Value ($ Bil.) $98.7 $154.4 $202.6 $81.4 $31.1

Significant Industrial & Material Transactions:EV/

Date Target Acquiror EV Sales EBITDA9/16/2009 Hi-Shear Technology Corp. Chemring Group plc $0.1 B 5.1x 11.3x7/29/2009 Timken Needle Roller Bearings Bus. JTEKT Corporation $0.3 B 0.5x NA7/1/2009 Metal Container Corp. 4 Plants Ball Corporation $0.6 B NA 7.5x9/28/2009 GenTek Inc. American Securities LLC $0.6 B 1.0x 4.6x8/26/2009 Carlton Forge/Arcturus Mfr. Corp. Precision Castparts Corp. $0.9 B NA NA7/6/2009 SC Ops. of Vought Aircraft Boeing Co. $1.0 B NA NA7/5/2009 Alcan Food Americas Bemis $1.2 B 0.8x 7.2x

Significant Healthcare & Life Sciences Transactions:EV/

Date Target Acquiror EV Sales EBITDA9/27/2009 Aspect Medical Systems Covidien $0.2 B 1.9x NM9/16/2009 Axygen, Inc. Corning Inc. $0.4 B NA NA9/10/2009 Evalve, Inc. Abbott Laboratories $0.4 B NA NA9/3/2009 Sepracor, Inc. Dainippon Sumitomo Pharma $2.4 B 1.8x 7.7x9/3/2009 B•R•A•H•M•S AG Thermo Fisher Scientific $0.5 B 4.5x NA9/2/2009 Visiogen, Inc. Abbott Laboratories $0.4 B NA NA9/2/2009 MDS Analytical Tech/AB Sciex JV Danaher Corp. $1.1 B 1.7x NA8/24/2009 P&G Pharmaceuticals Business Warner Chilcott plc $3.1 B 1.3x NA8/21/2009 Facet Biotech Corp. Biogen Idec Inc. $0.4 B 3.3x NM7/26/2009 Varian Agilent Technologies $1.4 B 1.5x 11.3x7/22/2009 Medarex, Inc. Bristol-Myers Squibb Co. $2.0 B 33.5x NM

2005 2006 2007 2008 TTM 9/09EV/Sales 1.56x 1.57x 1.62x 1.37x 1.39xEV/EBITDA 11.5x 11.4x 12.9x 10.9x 9.0xVolume 1,955 2,053 2,225 1,832 1,297Value ($ Bil.) $163.8 $241.8 $209.6 $112.1 $72.6

Significant Technology & Software Transactions:EV/

Date Target Acquiror EV Sales EBITDA9/30/2009 WildBlue Communications ViaSat Inc. $0.6 B 2.7x 7.5x9/15/2009 Omniture, Inc. Adobe Systems $1.5 B 4.6x 45.4x9/8/2009 Intellon Corporation Atheros Communications $0.2 B 2.5x NM8/26/2009 NYFIX Inc. NYSE Technologies $0.2 B 1.5x NM8/7/2009 SpringSource, Inc. VMware, Inc. $0.4 B NA NA7/27/2009 SPSS Inc. IBM $0.8 B 2.7x 10.3x7/22/2009 Bankrate, Inc. Apax Partners $0.5 B 3.4x 12.8x7/21/2009 FCI USA Hubbell Incorporated $0.4 B 1.6x NA7/7/2009 MSC Software Symphony Tech/Elliot Mgmt $0.2 B 0.8x 9.2x7/6/2009 Data Domain EMC Corp. $2.4 B 8.3x 97.3x


Significant Business Services Transactions:EV/

Date Target Acquiror EV Sales EBITDA9/27/2009 Affiliated Computer Services Xerox Corporation $8.6 B 1.4x 9.0x9/20/2009 Perot Systems Corp. Dell Inc. $3.8 B 1.4x 13.6x9/17/2009 Parsons Brinckerhoff Balfour Beatty plc $0.6 B 0.3x NA8/9/2009 Razorfish VivaKi $0.5 B 1.4x NA7/13/2009 IDS Scheer AG Software AG $0.4 B 1.0x 16.8x7/3/2009 Veolia ES Waste-to-Energy Covanta Holding $0.5 B NA 10.0x6/29/2009 Towers Perrin Watson Wyatt $1.9 B 1.2x NA


Significant Consumer Products & Services Transactions:EV/

Date Target Acquiror EV Sales EBITDA9/25/2009 Sara Lee Body Care/Eur. Detergent Unilever plc $1.9 B 1.7x 10.0x9/24/2009 Simmons Bedding Company Ares Management $0.7 B NA NA8/31/2009 Marvel Entertainment Walt Disney Co. $4.1 B 5.4x 12.1x8/28/2009 Cadbury plc Kraft Foods $20.2 B 2.1x 14.1x8/24/2009 Charlotte Russe Holding Advent International $0.3 B 0.4x 6.6x7/22/2009 Zappos.com Amazon.com $0.8 B 1.3x 23.8x6/24/2009 Tween Brands Dress Barn $0.2 B 0.3x 5.6x

4

Private Equity (“PE”) Activity

U.S. PE acquisition volume increased 4.8% in the third quarter of 2009 from the second quarter. Despite the third quarter increase, U.S. PE volume for the first nine months of 2009 was 37% below the prior year comparable period. The reported aggregate value of U.S. PE transactions announced more than doubled to $5.9 Billion, in the third quarter of 2009, from a four-year low of $2.0 billion in the second quarter. This represents a significant decline from the $15.5 billion of U.S. PE transactions that were announced in the second quarter of 2008. A reduction in the number of senior lenders participating in the market for LBO’s continues to make completion of the transactions more difficult. Buyers and sellers are experiencing a significant increase in the level of due diligence banks are doing prior to funding a transaction in order to ensure any new information that arises is properly vetted.

LBO Leverage Multiples

The LBO market continues to be negatively affected by a decrease in the number of senior lenders operating in the buyout market and the reduced leverage multiples remaining lenders are using. Private equity firms are also reporting difficulty in the ability to secure cash-flow senior debt, which is being replaced by asset-based senior debt. The reduced availability of senior debt has opened opportunities for mezzanine lenders, who raised significant funds in 2008, to step-up for larger portions of the capital structure with increased return expectations. Despite the increased availability of mezzanine funding to bridge the gap between the equity and senior financing, the overall reduction in deal flow has limited the ability to invest the capital. As the following table of LBO Leverage Multiple Trends reveals, total leverage on transactions has declined, with a larger portion of the structure being financed with mezzanine debt.

Lower Middle Market Deals Fairing Better

During the first nine months of 2009, transactions below $100 million continued to fare better than larger transactions. Despite being well off their five-year highs, deals above $1 Billion did make a bit of a comeback in the third quarter of 2009. There were 60 transactions completed above $1 Billion, which was 27.6% higher than in the second quarter and 93.5% higher than in the second quarter, potentially indicating a rebound in large deals.

Public Takeover Premiums Remain High

During the third quarter and nine months ended September 2009, public company acquisition takeover premiums remained at their highest levels in the past five years. Following several years of takeover premiums in the mid-20% range, four-week premiums increased to 31.3% in 2008 and to 45.0% in the first nine months of 2009. Premiums may begin returning to a more normalized level in the coming months as public equity prices continue to rebound significantly from their March lows.

Public Company Takeover Premiums

Source: Standard & Poor’s CapitalIQ and Raptor Partners

Transactions by Deal Size


U.S. Private Equity Activity



Fall 2009

2005 2006 2007 2008 9 Mos. 09One Day Premium 22.2% 21.1% 22.4% 33.6% 37.4%One Week Premium 23.8% 23.6% 23.0% 33.8% 42.2%Four Week Premium 25.7% 26.4% 25.0% 31.3% 45.0%

9-Mos. 9-Mos.2005 2006 2007 2008 2008 2009

Above $1.0 Billion 411 567 748 413 360 138$500 Million - $1.0 Billion 268 401 571 363 309 130$100 Million - $500 Million 1,477 1,826 2,460 1,929 1,601 643Below $100 Million 7,440 10,076 15,788 13,367 10,477 5,446

218

285313

336304

357

283273272 272262

313

146

189 198234

214

0

100

200

300

400

500

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Tran

sact

ions

Ann

ounc

ed

$0

$60

$120

$180

$240

$300

Aggr

egat

e Va

lue

($ B

illion

s)


LBO Leverage Multiple Trends

5.4x

3.6x2.1x

0.4x

0.9x

1.5x

0.0x

2.0x

4.0x

6.0x

8.0x

2007 2008 9 Mos. 2009

Mul

tiple

of E

BITD

A

Senior Leverage Mezzanine Leverage

5.8x

4.5x

3.6x

Source: Standard & Poor’s & Raptor Partners

DISCLOSURE: Raptor Partners LLC is a registered broker-dealer with the U.S. Securities Exchange Commission and a member of the Financial Industry Regulatory Authority. This document is not a “research report”, as such term is defined by applicable laws and regulations. The information in this report has been obtained from third-party sources deemed to be reliable, but is not represented to be complete. This document has been prepared for general information purposes only and does not represent a complete analysis of any specific security, industry or issuer. This information contained in this document does not represent an offer or a solicitation of an offer to buy or sell securities of any form or to participate in any particular trading strategy. This document does not consider the investment objectives or financial situation of any individual or entity. Raptor Partners has provided, may continue to provide, or may seek to provide investment banking services for companies included in this document.

aptor p m&a market m m&a shows signs · pdf filem&a shows signs of life raptor...

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