Arkansas Dealmaking Down 17% in ’21

The value of the biggest deals in Arkansas fell 17% last year, to $16.8 billion compared with $20.3 billion in 2020.

But the number of deals worth $10 million or more rose to 95, an increase of 12% compared with the 85 big deals in 2020.

The value of mergers and acquisitions in the state contrasted with global activity, which set a record: $5.9 trillion in 2021, a surge of 64% compared with the pandemic year of 2020.

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► The Biggest Deals of 2021

These big numbers come with big caveats. They measure the deals whose values could be determined. In Arkansas, however, the values of 32 deals estimated to be worth $10 million or more weren’t available, and some of these are likely big.

For example, Mubadala Capital bought K-Mac Holdings Corp. of Fayetteville, which owns and operates more than 300 Taco Bell restaurants in the south-central region of the U.S., from Lee Equity Partners, but it’s listed among the deals whose value couldn’t be determined. A Nov. 18, 2020, article in Barron’s, however, said Lee Equity was seeking offers of roughly $900 million, and a sale in the $1 billion range would be a big boost to the biggest deals total.

In addition, some companies don’t announce their big purchases or sales, and these figures could clearly affect value totals.

The deals in Arkansas in 2021 were all over the board, ranging from forest products, logistics and energy to pet treats, banks and apartment complexes.

Topping the list was Paper Excellence’s $3 billion purchase of Domtar Corp., which has a softwood and fluff pulp plant in Ashdown employing about 500.

At No. 2 was Uber Freight’s buy of Transplace, a $2.25 billion acquisition that included a 150,000-SF regional operations center in Rogers, which opened just last July.

And in third place was the $2.15 billion purchase by Summit Utilities of CenterPoint Energy’s Arkansas and Oklahoma natural gas distribution assets, serving 525,000 customers.

A deal that didn’t get much local coverage when it took place — Avery Dennison Corp.’s $1.45 billion buy of Vestcom from Charlesbank Capital Partners — came in at No. 4. Vestcom, based in Little Rock, produces shelf-edge price labels for retailers like grocery stores.

Bank transactions played a big role — for example, Home BancShares Inc.’s $919 million acquisition of Happy Bancshares of Happy, Texas, and Simmons First National Corp.’s $581 million purchase of Spirit of Texas Bancshares of Conroe, just one of three Simmons banking acquisitions on the list. But the Pine Bluff banking company also made the list for a real estate purchase: its $23.25 million buy of the former Bank OZK headquarters on Chenal Parkway in west Little Rock.

The category with the most transactions was real estate, an unsurprising development in what is considered the hottest real estate market in decades. Preylock Little Rock’s $169.45 acquisition of the 1 million-SF Amazon fulfillment center in North Little Rock hit the list at No. 14.

Apartment complexes in particular were popular. The biggest was the $273.6 million purchase by BSR Real Estate Investment Trust of Little Rock of three apartment complexes in Texas comprising more than 1,000 units. But apartment properties in Arkansas also drew buyers and sellers, like the $74.7 million transaction involving the Chenal Lakes Apartments and the Brightwaters Apartments, both in Little Rock.

‘Safest Investment’

There’s a good reason that multifamily properties are the “commercial property type of choice,” said Jerry Webster, president of Webster Corp. of Little Rock and a commercial real estate broker specializing in apartment properties.

“People are nervous about retail property types,” he said. “People are nervous about office properties. People are nervous about hotel properties. So they say, I’m going to put some money in commercial real estate. What’s the safest investment out there? And the answer to that is multifamily.”

In addition, low interest rates and financing available through entities like Fannie Mae, Freddie Mac and the U.S. Department of Housing & Urban Development contribute to the choice of multifamily housing as investment vehicles.

Interest rates, however, saw a shakeup last week when the Federal Reserve raised its key interest rate by a quarter of a percentage point, although that’s unlikely to affect multifamily dealmaking — at least for a while, Webster said.

“Interest rates are basically at historic lows, as far as multifamily loans are concerned,” he said. “They’ve been at lows for a long time.”

“If current interest rates [rise] half-a-point, there will be no difference at all,” Webster said. “If they go up one point, there will be somebody thinking twice. If they go up two points, brick wall.”

‘Fully Recovered’

Although M&A activity in Arkansas failed to set records, unlike global dealmaking, nevertheless, 2021 was a good year. Marshall McKissack, managing director and head of M&A at Stephens Inc. of Little Rock, attributed the strong activity to four factors.

First, there was pent-up demand for dealmaking because of the COVID-19 pandemic, which had suppressed business activity of all kinds. “The back half of 2020, you kind of saw the resurgence in the M&A market and that really carried over,” he said. “But a lot of it was holdover and pent-up demand.”

Second, businesses demonstrated economic resilience last year. “Many businesses were doing better than most people had feared, and so there were businesses that were ready to trade and buy and sell,” McKissack said.

“Thirdly, there’s still a tremendous amount of capital that was waiting to be deployed.

“And then the fourth thing that I think was a little gas on the fire was the fear of taxes on cap gains going up significantly, so that brought a lot of sellers into the marketplace to get their business sold,” he said. “It didn’t materialize, but it brought a lot of sellers into the market.”

McKissack agreed that merger and acquisition activity had fully recovered from the pandemic. “It definitely has recovered, fully recovered.”

The hot sectors, at least from Stephens’ perspective, were “across the board,” he said. “I don’t think we had a group that didn’t put up a record year.”

That was borne out in the worldwide dealmaking total, which reached a record $5.9 trillion last year, surpassing the previous record, in 2015, by almost $1.5 trillion, according to Refinitiv, a provider of financial markets information. The United States led the surge, with M&A activity reaching $2.6 trillion, up 82% compared with 2020.

“The technology sector continued its ascent as the largest component of M&A, seeing a 71 percent increase to reach a record $1.15trn, more than one-fifth of global transaction value,” Refinitiv said.

Walmart’s $200 million purchase of Zeekit, a virtual fitting room startup, fits that category, as does Spectrum Equity Management’s $163 million investment in Fayetteville’s Zenwork, an accounting software company.

Deals involving special purpose acquisition companies, or SPACs, “continued at a staggering pace, with three times the recorded value of 2020, to account for more than one-tenth of the M&A market,” according to Refinitive.

McKissack expects strong M&A activity to continue this year, although the first couple of months “have been slower than the pace of the fourth quarter. That’s to be expected.”

But the pace has accelerated recently, he said. “The market has really picked back up in March and is robust. I don’t think it’s as robust as it was in the fourth quarter. It’s still a super hot, super good M&A market.”