Mergers, Acquisitions Activity in Arkansas Quickens

Deal-making in Arkansas picked up the pace last year, continuing a trend set in 2010.

And purchases by Wal-Mart Stores Inc. underscored the Bentonville-based retailer's "commitment to social and mobile commerce." Translation: Look out, Amazon.

That interpretation was bolstered by Wal-Mart's announcement last week of its new president and CEO of global e-commerce, Neil Ashe, former president of CBS Interactive.

The biggest deal by far in 2011 was the purchase of Chesapeake Energy Corp.'s Fayetteville Shale assets by Australian conglomerate BHP Billiton Ltd. for $4.75 billion. That topped by $55 million the biggest deal in Arkansas in 2010: Zurich-based ABB Ltd.'s acquisition of Baldor Electric Co. of Fort Smith for $4.2 billion.

(To see the list of biggest deals in 2011, click here. To see the list of Arkansas Finance Development Authority bond issues, click here.)

The 2011 dollar total of mergers and acquisitions also easily surpassed that of 2010. Arkansas Business again examined deals whose worth was reported or estimated to be $9 million or higher. In 2010, the 48 deals whose value could be determined totaled $12.69 billion. In 2011, with only 42 deals valued at $9 million or more, the total was $15.18 billion.

The number of big deals also jumped, from 64 in 2010 to 70 in 2011. These increases came even though Arkansas Business sought to tighten the criteria for "big deals," generally limiting them to announcements of a buyer and a seller.

Previous lists, including last year's, have featured new plants and new construction and plant and other capital expansions. Had those type of deals been a part of this year's list, the value and volume of 2011 "deals" would have been even higher.

The list also indicates M&A trends in Arkansas-based companies or companies with sizable assets in the state. Among the most significant in 2011:

  • Wal-Mart more than doubled its known deal-making year over year, from five in 2010 to 11 last year. In addition, the retail behemoth appeared to focus on streamlining its grocery store business while snapping up technology companies.
  • Energy-related deals feature prominently on the list.
  • Digital and tech companies showed strong activity.
  • Banks also stayed in acquisition mode though not as feverishly as in 2010 (see sidebar).

The picture in Arkansas differed somewhat from M&A activity globally last year.
The first half of 2011 saw strong deal-making action worldwide, but Europe's debt troubles weighed on the second half of the year. Thomson Reuters data show a 7.6 percent increase in M&A volume worldwide last year, to $2.54 trillion, compared with 2010.

In the United States, "M&A activity increased approximately 16 percent to $722 billion in 2011, while the number of transactions only increased about 1 percent to 6,454, driven by pent-up demand for transactions among both sellers of businesses looking for liquidity and buyers looking for growth and scale," said Marshall McKissack, who heads the mergers and acquisitions practice of Stephens Inc. of Little Rock. Stephens, though based in Arkansas, does business far be-yond the state's borders.

Relatively inexpensive debt capital remains abundant for those with good credit, he said. "Valuations in general have in-creased, based on high demand for quality businesses and abundance of capital chasing those deals."

Globally, the energy sector comprised 23 percent of the total value of deals disclosed in 2011, a PricewaterhouseCoopers report said.

Of the top 10 biggest deals in Arkansas, five involve the energy industry. Those include Murphy Oil's previously an-nounced plans to sell two refineries: the Meraux Refinery in Louisiana to Valero Energy Corp. for $625 million and the Superior Refinery in Wisconsin and related assets to Calumet Specialty Products Partners LP for $442 million.

The second-biggest deal in Arkansas last year, the purchase by Windstream of Paetec Holding Corp., a telecommunications provider, for $2.3 billion, was just one of a number of tech-related deals. Others include Acxiom's $74 million sale of Acxiom Information Security Services, a background screening firm, to New York's Sterling Infosystems Inc. and a $10 million investment by the Stephens Groupn LLC, along with other investors, in FireHost Inc. of Dallas, a secure cloud hosting company.

"We are seeing strength across most of the sectors we follow, including food and agriculture, telecommunications, media, consumer, industrial services, energy and transportation and logistics," McKissack said.

The financial services sector has been slower, he said, citing "regulatory uncertainty, access to capital and mark to market accounting."

McKissack noted "a great deal of interest from buyers outside of North America looking to invest, buy and grow in the continent."

What really intrigues, however, is Wal-Mart's activity in 2011, particularly its purchase of high-tech firms involved in e-commerce.

In 2010, four of Wal-Mart's five known acquisitions involved other retailers. But last year, five of the company's deals involved the sale of grocery stores, while its biggest acquisition was the $300 million purchase of Kosmix of Mountain View, Calif., a privately held social media startup.

In addition to Kosmix, Wal-Mart bought OneRiot Inc., of Boulder, Colo., a tech firm focused on mobile and social media advertising, and Grabble, an Australian company providing mobile payment software for online shopping.

Wal-Mart described the founders of Kosmix, Venky Harinarayan and Anand Rajaraman, as "early pioneers of online shopping, whose first company, Junglee, was bought by in 1998."

"The founders and the Kosmix team will operate as part of the newly formed @Wal-
martLabs and continue to be based in Silicon Valley," Wal-Mart said when announcing the purchase.

The company said it planned to expand the @WalmartLabs team and that it would focus on integrating bricks-and-mortar shopping with e-commerce.

Last year, several longtime Arkansas companies were purchased by foreign and out-of-state companies. These international deals included:

  • O.K. Industries of Fort Smith, a privately held poultry company, purchased for $95 million by a Mexican firm, Industrias Bachoco S.A.B. de C.V.
  • Hornbeck Seed Co. Inc. of Dewitt, a private seed development company, acquired for $42.6 million by Bayer Crop-Science AG of Germany.
  • Thompson Industries Inc. of Russellville, a manufacturer of treated wood railroad products, bought for $41 million by Stella-Jones Inc., a Canadian company.
  • Treadway Electric Co. Inc. of Little Rock, a provider of electrical supplies, purchased for an undisclosed price by Stuart C. Irby Co. of Jackson, Miss.