Despite the coronavirus pandemic, the value of the biggest deals in Arkansas last year jumped 157%, from $7.9 billion in 2019 to $20.3 billion in 2020, pushed largely by Walmart’s sales of stakes in two subsidiaries, Asda Group and Seiyu.
The volume of big deals — those valued at $10 million or more — dropped a bit, from 85 in 2020 to 92 in 2019, a 7.6% decline.
As always, these figures come with caveats.
First, Arkansas Business has established a new floor for big deals, raising it to $10 million from $9 million. (The value and volume comparisons between 2019 and 2020 have accounted for that change.) That $9 million had been the floor for more than a decade.
But more important is the fact that values couldn’t be determined for 30 of these transactions, some of which are likely big. For example, Fandango, part of NBCUniversal, which in turn is part of media giant Comcast, bought streaming service Vudu from Walmart Inc. Walmart paid $100 million for Vudu in 2010.
Another likely high-dollar deal was Enertech Holdings’ purchase, reported in February 2020, of competitor CMS Wireless of North Little Rock. With 100 employees and annual revenue of $40 million, CMS probably commanded a good price.
And in January 2020, private equity company TPG Growth bought Denali Water Solutions of Russellville, which has $400 million in annual revenue and plans to grow into a billion-dollar company (see Flow for Denali Is Growth Via Acquisitions). Its purchase price likely totaled multimillions of dollars.
Finally, some companies don’t announce their big purchases or sales, sales that could skew yearly value totals.
In compiling the biggest deals list, Arkansas Business usually discovers the values of some deals that weren’t shared when the initial purchase was announced. An example: Montrose Environmental Group Inc. of Irvine, California, paid $198.25 million for CTEH of North Little Rock, the consulting firm that specializes in emergency response, preparedness and recovery. That was included in a Montrose filing with the Securities & Exchange Commission prior to its initial public offering. (For more, see CTEH's John Kind on Keeping COVID-19 Contained.)
J.B. Hunt announced in November that it had bought Mass Movement Inc. of Foxborough, Massachusetts, expanding its final-mile delivery capabilities, though no purchase price was initially released. In its annual report, J.B. Hunt said it had paid $25.5 million for the company.
COVID-19 and Deal-Making
As with so many business sectors, 2020 was poised to be a strong year for the mergers and acquisitions market, and then … COVID-19.
“It was shaping up to be another great year, with all the characteristics of a good M&A market: a lot of capital … and the cost of that capital at a historical low point,” said Marshall McKissack, a managing director at Little Rock’s Stephens Inc. and head of its M&A division. “All that was in place, and then 2020.”
The pandemic and its accompanying uncertainty didn’t just quell deal-making for a time; it also changed the way those deals were negotiated. Face-to-face meetings of company management teams to discuss the potential exchange of millions of dollars became Zoom meetings or Skype meetings.
“It certainly impacted the way deals got done,” McKissack said, noting in particular the tremendous decrease in travel.
The impact was felt most during the second quarter. “I would say by the third quarter the deal market was beginning to adjust, not only to the COVID impact on businesses and getting their arms around that and what that might mean for business, but just the way transactions were able to get done,” he said. “Lots of transactions closed with parties never meeting in person.”
“There was a lot more momentum after Labor Day, and that really crescendoed into the fourth quarter, and I would say continues today,” McKissack said.
And now, he said, interest “in doing transactions is back and better than ever.”
Special purpose acquisition companies, SPACs, are another influence on the mergers and acquisitions market. The money raised in the United States through SPACs so far this year has already exceeded the total in all of 2020, according to SPAC Research, which tracks the market. That fever, however, has appeared to subside recently.
Nevertheless, mergers involving SPACs are taking a bigger share of the M&A market. “They sit between traditional M&A transactions and IPOs,” McKissack said. “It’s definitely having an impact. It’s definitely pushing interest in deal-making and valuation as well.”
McKissack said that deal-making in 2021 had started “fast and furious,” and that transactions in sectors hit hard by the pandemic like energy, leisure, hotels, travel, some consumer products, even the financial services sector were starting to return.
“People have their foot on the gas pedal,” he said. The cost of capital is still relatively cheap by historical standards and “people are looking to deploy it in value-creating ways,” McKissack said.
Two of the top five biggest deals last year involved Walmart. At No. 1 was the Bentonville company’s $8.8 billion sale of its majority ownership in Asda Group, its grocery subsidiary in the United Kingdom, and at No. 3 was its $1.6 billion sale of an 85% stake in Seiyu, Walmart’s supermarket subsidiary in Japan.
In second place was Lockheed Martin’s $5 billion purchase of Aerojet Rocketdyne Holdings. Both companies have facilities in Camden.
At No. 4 was U.S. Steel’s $774 million purchase of the remaining stake of Big River Steel in Osceola. Murphy USA’s acquisition of the QuickChek chain of stores for $645 million was in fifth place.
As usual, deals involving apartment complexes feature prominently on the list, particularly sales and purchases by BSR Real Estate Investment Trust of Little Rock.
And two acquisitions of Little Rock-based car wash companies appear to indicate a consolidation in the car wash industry that’s expected to continue.
Globally and Nationwide
M&A activity worldwide fell 5% to $3.6 trillion in 2020, though it boomed in the second half of the year, posting its strongest second half since records began in 1980. That’s according to Refinitiv, a provider of financial market data.
Deal-making in the United States declined 21% in 2020, to $1.4 trillion, Refinitiv said. But it, too, rebounded in the second half, nearly tripling the total of the first half.