The latest deal news from around the region DealWire Philadelphia, Q1 2013 Volume IX, Issue I
First Quarter Transaction Volume & Value
Coming off a frenzied pace in the second half of 2012 with dealmakers pushing hard to close transactions before new tax law changes became effective, it is no surprise to see a slight decline in overall deal activity in the first quarter ended March 31, 2013 (Q1-2013). Total transaction volume of 338 deals in Q1-2013 decreased 4% from 353 deals in Q4-2012, representing the third consecutive year where Q1 volume decreased on a quarter-over-quarter basis. However, on a year-over-year basis, Q1-2013 transaction volume increased significantly by 32% from 256 transactions in Q1-2012. While the pieces are in place for deal volume growth in 2013, the year–over-year comparisons will become more difficult to exceed as the year goes on.
Q1 transaction value of $44.8 billion was the highest level seen in the last 18 quarters and only 19% off the Q2 2008 peak of $55.3 billion. Q1 transaction value increased by 41% over $31.8 billion in Q4-2012 and by 129% on a year-over-year basis compared to $19.6 billion in Q1-2012. With the number of transactions decreasing slightly and the dollar value increasing significantly, average transaction size also increased in Q1 compared to Q4-2012. Scroll down to read more about our members' Q1 2013 transactions as well as their new hires and promotions.
The following graphic depicts quarterly aggregate dollar transaction volume and clearly shows Q1-2013 establishing a new quarter high as compared to any period shown (dollars in millions).
The following table presents the detailed quarterly transaction volume and value since 2009 (dollars in billions). M&A and Capital Markets Activity
At 197 deals, M&A volume decreased by 16% from Q4-2012 while capital markets transactions (public offerings, private placements and spin-offs) increased by 18% from 119 transactions in Q4-2012 to 141 in Q1-2013. Q1-2013 marked the first quarter in the last 12 where M&A deal volume as a percentage of total deal volume dropped below 60% for the region.
While many M&A transactions were "pulled" into Q4-2012 in order to avoid the new tax increases in 2013, public offering activity surged in Q1-2013 as the overall stock market performed extremely well. At 72 transactions, public offerings exceeded the last 16 quarter average of 28 transactions by more than 2.5x.
The following stacked bar graph depicts total deal volume by transaction type for the past 12 quarters.
On a year-over-year basis, M&A transactions increased 10% from 179 in Q1-2012 while capital markets transactions increased 83% from 77 in Q1-2012.
At about $7.8 billion, the adjusted total M&A value is 38% less than Q4-2012 levels while capital markets transactions increased 93% to $37 billion. On a year-over-year basis, M&A transaction value increased 4% from $7.5 billion in Q1-2012 while capital markets transactions increased a whopping 206% from $12.1 billion raised in Q1-2012.
Industry Sector Analysis
The following stack graph depicts the number of total transactions in the greater Philadelphia area across industry sectors during the past 12 quarters.
During Q1 the deal count in Utilities, Materials, Consumer, Financials, and Info Tech were all up over Q4-2012, with Consumer registering the biggest gain of 37%. Industrials and Healthcare deal count both decreased, with Industrials decreasing a significant 45% compared to Q4-2012. As seen in past quarters, the top five segments (Info Tech, Financials, Healthcare, Industrials, and Consumer) continue to dominate the region’s activity, comprising 84% of the total transaction count.
Outlier Adjustments
During Q1-2013 there were five outlier M&A deals totaling $31.3 billion of transaction value that were excluded from the overview provided herein. Excluding the outlier transactions brings the Q1 adjusted transaction value to $44.8 billion, as cited herein. These five outliers are: (1) Comcast Corporation acquired the remaining 49% stake in NBCUniversal Media, LLC from General Electric Company ($16.7 bn). (2) Carlyle Partners V, L.P. and Carlyle European Capital Partners III, L.P., fund of The Carlyle Group LP acquired DuPont Performance Coatings (aka Axalta Coating Systems) from E. I. du Pont de Nemours and Company ($5.2 bn). (3) Chicago Bridge & Iron Company N.V. acquired Shaw Group Inc. ($3.2 bn). (4) Walter Investment Management Corp. and Ocwen Loan Servicing, LLC won an auction to acquire mortgage servicing and origination platform assets from Residential Capital, LLC and others ($3 bn). (5) Verint Systems Inc. acquired Comverse Technology Inc. from group of investors and other shareholders ($1.5 bn). Regarding their "outlier" status, note these five outliers averaged $5.9 billion each, whereas the other 197 transactions included in Q1’s normalized metrics averaged $39 million each.
Data Sourced by S&P Capital IQ
Alliance Holdings Alliance Holdings (Eric Lynn, Chris Springer and Kenneth Wanko members) completed one transaction in Q1. See list of deals
Ballard Spahr LLP Ballard Spahr LLP (Craig Circosta, Brian Doerner, Carl Frida, Anuj Goswami, Amit Kakkar, Robert Krauss, Steven Miller and Matt Potalivo members) provided legal advisory for 16 completed transactions in Q1. See list of deals
Blank Rome Blank Rome (Steven Dubow, Thomas McKernan and Matthew Rotenberg members) served as counsel for its clients on 6 completed transactions in Q1. See list of deals
Boathouse Capital Boathouse Capital (Bill Dyer, Steve Gord, Ken Jones, Chong Moua, Andrew Olsen and Colin Raws members) closed one mezzanine transaction in Q1. See list of deals
Boenning & Scattergood, Inc. Boenning & Scattergood, Inc. (Charles Hull and Jim McCormick members) served as investment banker on one closed transaction in Q1. See list of deals
Bryant Park Capital Bryant Park Capital (Joel Magerman and Jonathan Wesner members) acted as exclusive financial advisor on one closed transaction and promoted two firm members in Q1. See list of deals and promotions
CMF Associates CMF Associates (Thomas Bonney, Jamie Brown, Seth Goldblum and Daniel Mahoney members) hired a new director and a new marketing coordinator in Q1. See list of new hires
Drinker Biddle & Reath LLP Drinker Biddle & Reath LLP (Elizabeth Babson, Joshua Bernstein, William Clark, David Denious, Neil Haimm, Daniel Krane, Matthew Meyers and Douglas Raymond members) advised its clients on 15 closed transactions in Q1. See list of deals
Duane Morris LLP Duane Morris LLP (Peter Byrne, John Coogan, Richard Jaffe, Kathleen Shay, Thomas Spencer, Barry Steinman and David Toner members) provided legal advisory to its clients on 2 closed transactions in Q1. See list of deals
Entrepreneur Partners, L.P. Entrepreneur Partners, L.P. (Lori Lombardo, Salem Shuchman, Christine Wojdyla and Jeremy Tartack members) completed one acquisition in Q1. See list of deals
Eureka Growth Capital Eureka Growth Capital (Thomas Calibeo, Jonathan Chou, Christopher Hanssens, Christian Miller and Alexandra Oswald members) closed one transaction in Q1. See list of deals
Fairmount Partners LP Fairmount Partners LP (Bill Burns, Matthew Glazer, Charles Eckert, and Richard Wainwright members) provided M&A advisory services on 3 completed transactions in Q1. See list of deals
Fox Chase Bank Fox Chase Bank (Patrick Beaner, Michael Gubicza and John Haurin members) acted as agent and lender on 2 closed transaction in Q1. See list of deals
Gemino Health Finance Gemino Health Finance (Robert Misener member) provided financing for one closed transactions in Q1. See list of deals
Griffin Financial Group, LLC Griffin Financial Group, LLC (Glenn Bernabeo, John Lee and Kevin Leigh members) provided investment banking advisory on 5 completed transactions in Q1. See list of deals
Inverness Graham Investments Inverness Graham Investments (Jason Amato, Denis Connell, Colin Devore, Ken Graham and Matthew Moran member) completed one transaction and promoted three firm members in Q1. See list of deals and promotions
Janney Capital Markets Janney Capital Markets (Joseph Culley, Steven Higgins, Andrew Kurz, James McNaughton, Joseph Reichert, Brendan Tierney and Brian Van Der Waag members) provided investment banking advisory for its clients closing 28 transactions in Q1. Additionally, the firm promoted two to the position of managing director. See list of deals and promotions
LLR Partners LLR Partners (Christian Bullitt, Gregory Case, Vignesh Chandramouli, Kristy DelMuto, Mitchell Hollin, Cheng Li, Jamie McCarthy, David Steines, Todd Morrissey and Scott Williams members) added a new employee in Q1. See list of new hires
Morgan, Lewis & Bockius, LLP Morgan, Lewis & Bockius, LLP (Louis Ballezzi, Tracy Dowling, David Gerson, Barbara Shander and Kevin Shmelzer members) served as legal counsel on 5 closed transactions in Q1. See list of deals
Penn Mezzanine Penn Mezzanine (Brian Kerr, Darl Petty and Don Rice members) provided mezzanine funding in support of one transaction in Q1. See list of deals
Pine Hill Group Pine Hill Group (Jerry Buckley, Michael Estadt, Chuck Jacobson, Stephen Nardi and Barry Smith members) provided financial due diligence services for its clients on 2 closed deals in Q1. See list of deals
Private Capital Research, LLC Private Capital Research, LLC (Graeme Frazier, T.J. Haas and Joseph Morris members) completed one transaction in Q1. See list of deals
SSG Capital Advisors, LLC SSG Capital Advisors, LLC (Mark Chesen, Michael Goodman, Matthew Karlson, Terry Kohler and J. Scott Victor members) provided special situations investment banking advisory to its clients on 3 closed deals in Q1. The firm also hired a new employee. See list of deals and new hires
Stifel Nicolaus Weisel Stifel Nicolaus Weisel (Patrick Dolan, Lauren Harrington, John Honovich, Robert Kent, David Lazar, Bharat Ramprasad and Meredith Ruble members) provided investment banking services for its clients on 6 completed transactions in Q1. See list of deals
Stradley Ronon Stradley Ronon (Michael Bonner and Christopher Rosenbleeth members) served as legal counselor on 2 completed transactions in Q1. See list of deals
Triumph Group, Inc. Triumph Group, Inc. (Timothy Wilkin member) acquired a business in Q1. See list of deals
For a listing of all historical featured deals please go to the LIBRARY tab. Showcasing ACG Member Deals
Featured Deal: Eureka Growth Capital Acquires Thomson Reuters' West Academic Publishing
Interview with: Christopher Hanssens, Managing Partner of Eureka Growth Capital, about the firm’s acquisition of West Academic Publishing, the former Law School Publishing business unit of Thomson Reuters.
ACG: Please describe West Academic Publishing's business. West Academic Publishing, headquartered in Eagan, MN, provides legal casebooks, textbooks, study guides and other course-related materials in both print and digital media formats for law school faculty and students in the United States. West Academic Publishing has been the leading legal education publisher since its launch of the American Casebook Series in 1908. Today, the Company provides its products under the West Academic, Foundation Press and Gilbert imprints.
ACG: Please give us a little background on the transaction and reasons for the divestiture from Thomson Reuters? In 2012, Thomson Reuters announced its intention to sell the Law School Publishing business unit in order to focus on growing its core subscription-based research and reference products for business professionals. Since January 2011, Thomson Reuters has sold thirteen business units that it considers non-core to its strategy of being the "leading source of intelligent information for businesses and professionals." Two of Eureka’s operating partners, each with extensive education publishing expertise and significant contacts within the industry, facilitated an introduction among Eureka, Thomson Reuters and industry experts. Eureka then structured the transaction in partnership with the management team of West Academic Publishing, Eureka operating partners and industry leaders. By partnering with and co-investing with industry leaders, Eureka was able to provide Thomson Reuters confidence that the transaction would be successfully closed in a timely manner. ACG: Tell me about the due diligence process and outcome. Eureka worked with West Academic Publishing’s management team, industry contacts and other advisory partners to perform an extensive amount of due diligence on the company, industry and management team. As a small business unit within Thomson Reuters, West Academic Publishing had not historically been operated as a stand-alone entity. As a result, significant analysis had to be completed to understand the proforma financial performance of the Company as well as the most effective and efficient future operating structure. Duff & Phelps Alternative Asset Advisory practice assisted Eureka in providing thorough analysis of the stand-alone, proforma historical financials and future information technology needs of the Company. OC&C Strategy Consultants and Eureka operating partners assisted Eureka in identifying industry opportunities and risks as well as the optimal organizational structure and overall strategy for the Company. Other areas of significant diligence included West Academic Publishing’s sustainable competitive advantage, author relationships, free cash flow generation and channel partner relationships. The process itself was very positive and allowed us to identify a number of growth initiatives that we have already begun to implement with the management team; we closed the investment in February 2013. ACG: It has been well publicized that law school enrollment is declining. How did you get comfortable with the overall trends in the industry? There is no question that there is a contrarian aspect to our investment thesis looking at the fact that law school enrollment has been declining; however, our team’s extensive research on the industry made it clear to us that the recovery in the legal economy is lagging the recovery in the broader economy and enrollment trends will correct. That said, we believe West Academic Publishing is well-positioned to take advantage of a number of identified growth opportunities that can drive growth in a prolonged period of enrollment declines, now that our management team can be more entrepreneurially-minded. Eureka’s operating partners have deep expertise in information and education publishing, having worked with companies such as Cengage Learning, McGraw-Hill, Reed Elsevier and Wolters Kluwer. During our diligence process, they worked alongside the Eureka deal team and OC&C Strategy Consultants to thoroughly examine the law school publishing industry. The team researched the historical trends of law school enrollment as well as the drivers of enrollment, including first year application trends, the legal job market and demand for new lawyers, and developed an enrollment forecast to guide our investment strategy. In addition, the team was able to identify several near- and long-term growth opportunities that West Academic Publishing is in a strong position to take advantage of as the market share leader having two of the most well-known and well-respected imprints in the legal education market. ACG: Has Eureka closed other acquisitions in a carve-out transaction such as the West Academic Publishing buyout? Yes. We have successfully closed several corporate carve-outs as we believe these transactions can present compelling opportunities to generate immediate value for shareholders through the creation of independent, stand-alone entities that are provided the resources to capitalize on latent market opportunities. An integral part of our strategy is partnering with teams that become owners through our acquisitions, and we have found that our management team partners in these corporate carve-outs thrive from a renewed sense of empowerment and excitement about their businesses working in a more flexible, entrepreneurial environment. Eureka understands the risks associated with establishing business units as stand-alone entities and our experience at structuring transactions and developing processes to facilitate the transition increases the probability of realizing the upside potential of these transactions.