Biggest Deals of 2019 See Values Plummet 85%


Murphy Oil's Kikeh platform in Malaysia was but just one asset sold in a multi-billion dollar deal last year.
Murphy Oil's Kikeh platform in Malaysia was but just one asset sold in a multi-billion dollar deal last year. (Murphy Oil)

The value of big deals in Arkansas plummeted 85% in 2019 compared with the previous year, dropping to $7.9 billion compared with a stratospheric $53.9 billion in 2018.

Their volume, however, was almost identical: Last year saw 93 deals valued or estimated at $9 million or above compared with 94 in 2018.

The figures have to be considered in context. The value of 34 of those 93 deals couldn’t be determined, and some of those mergers and acquisitions likely exceeded $100 million. Two examples: The acquisition by 10 Roads LLC of Salmon Cos. of North Little Rock, a sale that became effective July 1, and Tyson Foods’ purchase of a 40% stake in Grupo Vibra, a Brazilian producer and exporter of poultry products.

Salmon Cos., a contractor for the U.S. Postal Service, was one of Arkansas’ largest private companies. Its combined revenue from the USPS hit $335.3 million in the federal fiscal year that ended in September 2018, according to Husch Blackwell LLP of Washington, D.C., which tracks mail contractors. And Grupo Vibra has 18 production units and more than 4,000 employees. Both probably commanded a high price from their purchasers.

Another bit of context: 2018’s M&A activity was boosted by the Tax Cuts & Jobs Act of 2017, which cut the top corporate income tax rate from 35% to 21%.

Murphy Oil Corp. of El Dorado is responsible for the top two biggest deals involving Arkansas companies or assets last year, its $2.1 billion sale of Malaysian oil assets to PTT Exploration & Production Public Co. and then its turnaround $1.37 billion purchase of deepwater assets from LLOG Exploration Offshore and LLOG BlueWater Holdings.

U.S. Steel’s $700 million investment in Big River Steel of Osceola, announced in October, sits at No. 3 on the list. That sum bought U.S. Steel a 49.9% ownership interest in Big River, and the Pittsburgh company has a call option to buy the remaining 50.1% within the next four years, a step executives said they plan to take.

An electric arc furnace at Big River Steel’s Flex Mill near Osceola. Since the mill opened, it has provided hundreds of jobs and a big boost to the local economy.

U.S. Steel invested $700 million in Big River Steel.

Multifamily Housing Dominates

What’s often most interesting about the annual list of biggest deals in Arkansas are the investments and sales that have gone beneath the radar and the trends the mergers and acquisitions reveal.

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Biggest Deals of 2019

Not widely reported, for example, was the $261 million that the Sterling Group, a private equity firm, invested in Bad Boy Inc. of Batesville, the maker of zero-turn mowers, rotary cutters and accessories. Bad Boy is locked in competition with its Batesville neighbor Intimidator Inc., founded by Robert Foster, who also helped found Bad Boy but who had a falling out with his business partner Phil Pulley. That $261 million will probably come in handy at Bad Boy.

Arkansas banks’ expansion efforts count among the trends. Simmons First’s $434 million stock-swap purchase of the Landrum Co. of Columbia, Missouri, parent company of Landmark Bank, was the fourth-biggest deal in 2019. It was joined on the list by four other financial institutions. They included Farmers & Merchants Bankshares’ acquisition of Mountain Home Bancshares ($80.5 million), and the purchase by First Financial Bank of El Dorado of First National Bank of Wynne ($60.2 million).

Simmons Bank expanded further into the Show-Me State with its acquisition of Landmark Bank.

Simmons First’s $434 million purchase of the Landrum Co., the parent company of Landmark Bank, was the fourth-biggest deal in Arkansas in 2019.

And one of these deals hit particularly close to home: Mitch Bettis’ purchase of Arkansas Business Publishing Group from Oliva Farrell, announced in February. Even the newsroom doesn’t know the price tag, but we’ve included it on the list.

But the biggest deals list would have been short indeed if not for the 23 involving multifamily developments. The largest of these was the $119.2 million sale by Little Rock’s BSR Real Estate Investment Trust of nine properties totaling 1,423 units. The second-largest was BSR REIT’s $104.4 purchase of two apartment complexes in Austin, Texas.

“Multifamily investments are the property type of choice now for all investors,” said Jerry Webster, president of the Webster Corp. of Little Rock and a commercial real estate broker specializing in apartment properties. “I’m talking about pension funds, insurance companies, REITs, whatever.”

Multifamily investments have be-come popular by default, Webster said. “People are nervous about retail. They’re nervous about office, so … safe investments right now are apartments.”

There are two reasons for this, he said: demographics and the fact that it’s easier to finance apartments than other types of property because of the existence of “GSEs,” government-sponsored enterprises like Fannie Mae and Freddie Mac, along with the Federal Housing Administration.

First, the demographics. People are living longer and older people often choose apartment living because they want to travel and don’t want to maintain a house, Webster said.

But the primary driver of apartment demand, he said, is the rejection of home ownership by the “younger generation.” Having observed the housing bust, they don’t view home ownership as necessarily a wise investment, “so, therefore, more of them are opting to live in an apartment instead of a house.”

In addition, “the younger generation, they want to be a lot more mobile than my generation,” Webster said. “They want to be able to pick up and move.”

As for the financing aspect, he said, “It’s easier to finance apartments than it is for any other property type.” Of Fannie Mae, Freddie Mac and the FHA, “Those are — I won’t say guaranteed financing — but if you want financing, those are the first three places you start,” Webster said.

“But if you’re buying a shopping center, you don’t have that luxury. Office building? You don’t have that luxury. You don’t have guaranteed places to go for financing.”

John Bailey, CEO of BSR, at the company’s celebratory entry to the Toronto Stock Exchange last year in the wake of the real estate investment trust’s $135 million initial public offering.

Purchases and sales of multifamily housing dominated the biggest deals list, including several by BSR REIT, headed by John Bailey.

‘Theme Remains Growth’

Worldwide, 2019 was the fourth-biggest year for mergers and acquisitions, according to Refinitiv, a business data provider, with the value of takeovers reaching $3.9 trillion. That was a drop of 3% compared with 2018.

In the United States, deals worth $1.8 trillion were announced last year, up 6% from 2018.

“It was still a very strong M&A market, in North America for sure,” said Marshall McKissack, head of mergers and acquisitions for Stephens Inc. of Little Rock.

Among the busiest sectors were health care, information technology and media — McKissack cited Walt Disney Co.’s $71.3 billion purchase of 21st Century Fox. For Stephens, the industrial sector also “continued to be a good market.”

“The theme remains growth,” he said. “Acquiring and growing through M&A is still very viable. You’ve got access to cheap capital, both debt and equity. Synergies continue to be a big driver of value, so those things have been prevalent for the last three, four, five years and I expect them to be prevalent in 2020 as well.”