Number of Big Deals Drops in 2009

by Gwen Moritz  on Monday, Jan. 25, 2010 12:00 am  

Even so, the deals that get done this year won't look like those cobbled together in 2007 and earlier, he warned. No one should expect to borrow two-thirds or three-quarters of the purchase price, as was common in the not-too-distant past.

"You saw some transactions that were seven times debt to EBITDA," he said, using the term for operating cash flow before taxes and other expenses, and deals in which well over half of the purchase price was borrowed were common in the middle of the last decade. Those are history. The equity needed to get deals done was starting to creep up by 2008, and now "it just requires more equity to get a transaction done in 2010 than it did in 2005, 2006 and 2007," McKissack said.

Cash-rich private equity investors have, in recent months, found it easier to just write checks for the entire purchase price, he said. - mainly because deals can be done a lot faster that way, but also in hopes of being able to leverage more later. But buyers who aren't sitting on that kind of cash will have to think creatively - possibly by issuing new stock or crafting earn-out agreements with the sellers.

McKissack said he hadn't noticed a particular rush to consolidate in any one industry, but he did note that acquirers of public companies aren't paying the kind of premium over market price that they were during the depths of the stock market swoon.

A year ago, premiums of 50 percent on public company stocks were common, a recognition by buyers that stock prices were artificially low and not necessarily representative of a company's fundamental worth. But as stock prices have rebounded, the premiums offered for public companies have returned closer to the historic average of about 30 percent.

The List
Arkansas Business' annual list of biggest deals includes deals that were announced in 2009, not necessarily those that were closed during the calendar year. For instance, the $28.1 billion sale of Alltel Corp. to Verizon Wireless was officially completed in January 2009, but it led our list of the biggest deals of 2008 because it was announced in June of that year.

Similarly, Windstream's list-topping acquisition in Iowa has not yet closed and is not expected to until mid-2010.

The list is subjective in some ways. Verizon divested former Alltel assets during 2009, but they were not assets in Arkansas, so they are not included on the list. However, we did include Verizon's $200 million sale of former Alltel assets to Atlantic Tele-Network Inc. of Salem, Mass., because that deal forms the foundation of a sizable new subsidiary headquartered in Little Rock, Allied Wireless Communications Corp.

Construction projects, even those valued above our arbitrary cutoff of $9 million, were generally not included on the biggest deals list. Instead, they go on our annual list of the largest commercial construction projects.

However, construction projects associated with the arrival of entirely new industries in the state - Caterpillar Inc. at North Little Rock and Mitsubishi Power Systems Americas Inc. at Fort Smith, for instance - are included on the list of deals, as are bond issues to finance construction projects.

And Kroger Co.'s plan to spend $125 million in Arkansas also made the list, even though most of those dollars will be spent on multiple construction sites.

Windstream and Uncle Sam
Windstream, the wireline telephone and Internet service provider that was spun off from Alltel in one of the biggest deals of 2006, was the heavyweight champ of deal-making in 2009. In addition to the $1.1 billion deal for Iowa Telecommunications, CEO Jeffery Gardner announced three other big acquisitions last year: $643 million for NuVox Inc. of Greenville, S.C.; $330 million for D&E Communications of Ephrata, Pa.; and $141 million for Lexcom Inc. of Lexington, N.C.



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