Biggest Deals of 2017: Arkansas Transactions Soar 50 Percent, Reach $14.7B

by Jan Cottingham  on Monday, Feb. 12, 2018 12:00 am   6 min read

The value of mergers and acquisitions in Arkansas last year soared by 50 percent, to at least $14.7 billion, though the volume of those deals — valued above $9 million — fell by 28 percent, to 66.

And with tax reform putting more cash in company pockets, Marshall McKissack is among the many who predict strong activity in 2018. “We expect it to be a continued boon for the M&A market,” said McKissack, head of the mergers and acquisitions practice of Stephens Inc. in Little Rock.

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Arkansas' biggest deals of 2017 ranked by price, as either a spreadsheet or PDF.

U.S. firms could bring back almost $2 trillion in foreign investments, according to a United Nations report released Feb. 5. The companies with the most cash overseas are in the tech sector. Apple, Microsoft, Cisco, Alphabet and Oracle hold $530 billion alone, the report said, and Apple has said it plans to bring back most of its $252 billion in cash and make investments in the United States. Pharmaceutical and engineering companies are other major holders of cash.

This flood of money is going to go back into capital expenditures, “paying dividends, buying back stock and M&A, so we expect it to be continued support for the M&A market,” McKissack said.

That $14.7 billion in Arkansas deals in 2017 is only the total of the purchases whose values could be determined and that were reported. Values for 14 of the 66 big deals couldn’t be discovered, and companies with interests in Arkansas don’t report all transactions, so the total is undoubtedly higher.

Worldwide, mergers and acquisitions in 2017 totaled $3.6 trillion, down a bit from $3.7 trillion in 2016 but the fourth straight year the total surpassed $3 trillion, according to Thomson Reuters. The number of deals announced in 2017 — 49,448 — set a record.

In the United States, M&A activity last year totaled 13,069 deals worth $1.4 trillion, down from $1.7 trillion in 2016.

The mergers and acquisitions in Arkansas ranged widely, from agribusiness to media to forest products, from the financial sector to technology. Retail also figured prominently on the list of biggest deals, and, as usual, real estate got a lot of play.

$4.2 Billion Tyson Buy
The biggest was the $4.2 billion purchase of AdvancePierre Foods Holdings of Cincinnati by Tyson Foods Inc. of Springdale. Announced in April, it was Tyson’s first acquisition under CEO Tom Hayes, who said the acquisition of the producer of value-added, ready-to-eat foods was a way to achieve growth. “We are focused on driving growth and driving growth fast and profitably,” he said.

It was Tyson’s biggest deal since buying Chicago’s Hillshire Brands for $8.5 billion in 2014.

Tyson bought Original Philly Holdings of Philadelphia, a maker of steak sandwith products, in November for an undisclosed sum.

Hayes told Bloomberg last month that Tyson, the largest U.S. meatpacking company, is still looking for acquisitions.

On Thursday, Tyson said the reduction in the corporate tax rate will save it $300 million, some of which will go toward capital projects, along with one-time bonuses to more than 100,000 employees.

The second-biggest deal hasn’t occurred yet: Sinclair Broadcast Group’s purchase of Tribune Media for $3.9 billion. Sinclair owns KATV in Little Rock along with another 192 TV stations around the country; Tribune Media owns KFSM in Fort Smith and 41 other TV stations. The deal, which prompted criticism because of the vast reach it would give Sinclair, awaits approval by the Federal Communications Commission and the U.S. Justice Department.

Potlatch’s $1.2 billion purchase of Deltic Timber, announced in October, was the third-largest deal, and it means the headquarters of another publicly traded company will depart Arkansas. The new company, PotlatchDeltic, will be based in Spokane, Washington, but will keep Deltic’s El Dorado headquarters as its southern operational base.

Bank Acquisitions
Banks also loom large on the list, occupying three of the top 10 spots.

Home BancShares Inc. of Conway bought Stonegate Bank of Pompano Beach, Florida, in an $820 million deal, propelling Home BancShares beyond $10 billion in assets, to more than $14 billion as of year’s end.

Simmons First National Corp. of Pine Bluff acquired First Texas BHC of Fort Worth, Texas, and its $2 billion-asset subsidiary Southwest Bank in a $462 million deal announced in January. Simmons announced in October that it had closed on that deal and on a transaction announced in December 2016, the $567.5 million purchase of Southwest Bancorp of Stillwater, Oklahoma. The transactions pushed Simmons to more than $14 billion in assets.

Also last year, Simmons paid $25 million for the 188,460-SF, 12-story building that once served as the Little Rock headquarters of Acxiom Corp. of Conway. Simmons will consolidate staff in its new building.

Arvest Bank of Fayetteville announced the purchase of Bear State Financial of Little Rock, the parent company of Bear State Bank, in a $391 million deal that is expected to close this quarter.

In the tech sector, Uniti Group of Little Rock bought Southern Light of Mobile, Alabama, for $700 million. Uniti, a real estate investment trust, resulted from Windstream Holdings’ 2015 spinoff of copper and fiber assets.

Uniti made another big deal last year: a $170 million purchase of Hunt Telecommunications of Metairie, Louisiana.

Walmart Inc. continued its buying spree in 2017, making at least three major acquisitions: Bonobos of New York, a men’s clothing company, for $310 million; Moosejaw of Madison Heights, Wisconsin, a seller of outdoor gear, $51 million; and Modcloth of San Francisco, a women’s fashion retailer, for a price put at between $50 million and $75 million.

Walmart has been positioning itself to go head to head with online retailer Amazon — its 2016 $3.3 billion purchase of Jet.com was a big part of its strategy — and has seen some e-commerce success: For the third quarter, e-commerce net sales at Walmart.com rose by 50 percent compared with the same period a year ago.

Walmart — which stands at No. 3 in e-commerce sales, behind No. 2 Apple and No. 1 Amazon — gives every indication it plans to forge ahead online. Last week, the Bentonville retailer’s technology incubator, Store No. 8, bought Spatialand of Venice, California, a virtual reality startup. Store No. 8 and Spatialand “will develop and explore new products and uses of VR through immersive retail environments that can be incorporated by all facets of Walmart, online and offline,” said Katie Finnegan, a principal with Store No. 8.

Some Surprises
The biggest deals list always holds surprises as news shines light on previously under-the-radar companies and sales, and valuations are obtained that haven’t been widely reported.

One of those companies was QualServ of Fort Smith, which sold to Middleby Corp. of Elgin, Illinois, for $40.2 million. QualServ, which designs and makes equipment for commercial kitchens, has annual revenue of $100 million. Middleby, a publicly traded company that also makes foodservice equipment, reported the sale price in its third-quarter report.

It’s understandable that not much had been reported about QualServ, since it moved its headquarters from Kansas City, Missouri, to Fort Smith only a decade ago.

But Arkansas Business has written about BEI Precision Systems & Space of Maumelle, so its quiet sale in May to private equity firm J.F. Lehman & Co. of New York was an interesting — and previously little noted — development.

And research turned up a likely purchase price — $375 million — for ABC Financial Services of Sherwood, a software and payment processing company for the health and fitness industry that was bought by Thoma Bravo of Chicago, a private equity firm. That was the size of the loan Thoma Bravo took out, according to a Reuters story in November.

December brought news that one of the mainstays on Arkansas Business’ list of largest private companies in Arkansas would be leaving: E-Z Mart, headquartered in Texarkana, Texas, and with 2016 revenue of $786.6 million, was bought by GPM Investments for an undisclosed sum, but one surely in the multimillions of dollars.

The highest profile deals aren’t always the biggest by valuation. In July Arkansans learned of the $5 million-plus purchase of the Arlington Resort Hotel & Spa in Hot Springs by Sky Capital Group LP, led by Al Rajabi, who plans a much-needed multimillion-dollar renovation of the landmark hotel.

And in 2018?

Recent stock market volatility doesn’t overly worry McKissack, Stephens’ M&A chief.

“I think in the short term [volatility] doesn’t have much of an effect,” he said. “I think certainly people take certain cues from the public markets. It can wreak havoc with financing, which can impact M&A. But I think in long-term markets, buyers and sellers don’t like volatility and so it will certainly have an impact over time.”

However, he added, “We’ve been in a very low volatility market for a long time. That’s certainly been pretty helpful to the M&A markets.”

What about the prospect of higher interest rates?

“I think a slow and sort of steady move, the market can absorb that,” he said. “But over time, the more that financing costs or interest rates move higher, it will impact the M&A.

“I think in the short term we still feel bullish about the market. Rates are historically low. There’s a tremendous amount of cash available to invest, and we expect buyers to continue to bid.”

 

 

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