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2011 Second Quarter Review
M&A Marketplace
C O N T A C T U S
As 2010 came to a close, most dealmakers anticipated resurgence in the merger & acquisition (M&A) marketplace in 2011. Some of the factors attributable to this expected growth include the fact that the economy is growing again, with less market volatility and buyers have regained the ability to finance deals again. At the halfway point in 2011, we have seen increased activity in the M&A marketplace, specifically a significant increase in dollar values. The overall dollar value of activity increased 61% through the first six months of 2011 as compared to the first six months of 2010 (from $323.9 billion in the first half of 2010 to $521.8 billion in the first half of 2011).
However, we are seeing activity that reminds us that some memories may be too short. For example, there has been tremendous activity in the capital markets allowing companies with at least $15 million of trailing twelve month cash flows to fund as much as six times (6x) those cash flows in debt. We have seen a company with ten times (10x) leverage in a senior asset based facility decide not to take advantage of an ability to sell some non-core assets to deleverage the business.
We are working towards several closings with a significant uptick in the last two weeks of potential engagement opportunities for the second half of the year. We are looking forward to having a continued strong pipeline of deal activity and are working hard to ensure our clients’ expectations are in line with the current capital markets. Fortunately, all our clients’ businesses seem to be performing well, so we are encouraging them to remain steady and practical about their decisions.
We believe that good opportunities currently exist for stable businesses interested in selling because of strong demand from strategic buyers and
private equity groups – both of which are sitting on significant levels of cash to deploy for acquisitions.
Although we continue hearing tales of banks being open to lending money again, we are still seeing a tightening in appraisals and borrowing ratios that restrict the credit being issued by lenders. However, we are finding success as we help our clients navigate those quagmires, which has not been easy in most cases. As leverage remains low, valuations in mergers and acquisitions are likely to remain lower than the peaks in 2006 and 2007, but deal activity seems to be picking up as buyers appear to be willing to pay a larger percentage of equity for good businesses.
In light assets businesses, like technology and distribution companies, we continue to see pockets of activity in mergers and acquisitions. We expect this activity to increase through the rest of 2011 as companies continue pulling through inventories and start re-investing in technology investments (e.g., systems, hardware, software and infrastructure) they have been putting off since 2008.
In building products and services businesses, we are seeing some activity, which is certainly an improvement from no activity. Interestingly, the activity has very strong margins – sometimes double or triple the margins from the peaks in 2006 and 2007. We do not expect strong top-line growth in building products and services companies. Instead, we are hoping for some slow, consistent growth as housing inventories slowly move downward, creating some need for new housing starts. If so, we believe building product and service companies will focus on trying to hold their margins rather than ramp up to flood the markets again causing downward pricing pressures.
M&A News
F I R M O V E R V I E W
Mazzone & Associates is a middle market mergers and acquisitions advisory firm experienced in delivering successful results to our clients. Our dynamic professionals provide direction, access to capital markets and the intellectual horsepower to drive our clients’ objectives forward with proven expertise and integrity. We successfully navigate each transaction with our specialized processes and focused service. We measure success by exceeding our clients’ objectives and delivering optimal bottom line results. Mazzone & Associates provides comprehensive transactional services for middle market companies, private equity groups and individuals buying and selling companies, raising capital and structuring debt. Our firm is relationship focused. We appreciate that our assignments are “life events” for our clients – particularly for management teams, entrepreneurs and family-owned businesses who have substantial portions of their net wealth at risk in their business. Mazzone & Associates has experience working on over 300 transactions valued in excess of $50 billion across a broad range of industries. Yet, our focus remains the single most important advantage we provide to our clients. Let us help plan your route to maximum value.
Page 2 U.S. Middle Market Watch
Page 3-4 2Q Middle Market Transactions
Page 5 U.S. Deal Activity & Average Multiples by Industry Group
Eight PiEdmont CEntEr, SuitE 5103525 PiEdmont road, nEatlanta, ga 30305
tElEPhonE - (404) 931-8545Fax - (404) 574-5738
www.globalmna.Com
dominiC mazzonE(404) [email protected]
matt ConnElly(404) [email protected]
mikE bloom(404) [email protected]
mazzonE & aSSoCiatES, inC.
M A N A G I N G D I R E C T O R S
2011 Second Quarter Review
M&A Marketplace
U.S. Middle Market Watch
Recent Trends
Interest Rates and Deal Volume Quarterly M&A Activity and Multiples
Middle market ($0-$250 million) deal volume accounts for 82% of total dealvolume and has increased by 22% since July 2010.
Trailing Twelve Month Deal Activity by Transaction Size
Although interest rates are at all-time lows, liquidity/access to capital, though improving, continues to negatively impact the M&A market.
Deal volume decreased slightly in 2011 with multiples remaining stable and markedly higher than the trough in 1Q 2009.
$s in billions Deal Volume
U.S. Mid-Market M&A by Target Industry
4.3%5.2% 15.9%
18.4%
2.9%
8.2%27.0%
15.3%
2.8%
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Healthcare
Financials
Information Technology
Utilities
Source: Capital IQ
2nd Quarter 2011
Source: Merger Stat Review and Flashwire Monthly
0
2,000
4,000
6,000
8,000
10,000
12,000
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Total Dollar ValueNumber of Deals
* YTD activity through June 30, 2011, annualizedSource: Merger Stat Review and Flashwire Monthly
0
2,000
4,000
6,000
8,000
10,000
12,000
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 TTM as of6-30-11
1 Year LIBOR
Fed Funds
Number of Deals
Source: Merger Stat Review and Flashwire Monthly, the Wall Street Journal and MoneyCafe.com
Deal Volume
2,105 1,561 1,521 1,715 1,835 1,994 2,313 2,280 2,350 2,415 2,458 2,3510.0
2.0
4.0
6.0
8.0
10.0
12.0
0
500
1,000
1,500
2,000
2,500
3,000
3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Number of DealsAvg. EV / EBITDA
Deal Volume Multiple
Source: Merger Stat Review and Flashwire Monthly
-
400
800
1,200
1,600
2,000
2,400
2,800
Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11
$0M - $50M $50M - $250M$250M - $1,000M 1,000+Deal Volume
Source: Merger Stat Review and Flashwire Monthly
Deal Size Jun-30-2011 Jun-30-2010 Change
More than $1,000 185 118 57%$500 to $1,000 174 98 78%$250 to $500 255 161 58%$100 to $250 391 309 27%$50 to $100 367 279 32%$25 to $50 369 343 8%$10 to $25 421 480 -12%Less than $10 826 1,168 -29%Undisclosed 6,586 5,509 20%Total 9,574 8,465 13%
12 Months Ended
Number of Deals
$s in 000s
Merger & Acquisition Activity
2011 Second Quarter Review
M&A Marketplace
2Q 2011 Announced/Closed Transactions
For deals with total enterprise value between $50 and $250 million
Date Target Buyers/Investors Size
26-Apr SchoolNet, Inc. Pearson plc (LSE:PSON) $ 230.0
23-May Exterran Holdings, Compression & Processing Assets Exterran Partners, L.P. (NasdaqGS:EXLP) 228.0
18-May USM Services Holdings, Inc. EMCOR Group Inc. (NYSE:EME) 225.0
2-May Wheeler Bros., Inc. VSE Corp. (NasdaqGS:VSEC) 220.0
28-Apr KGen Hinds LLC Entergy Mississippi, Inc. 206.0
1-Jun OF Air Holdings Corporation Air Methods Corp. (NasdaqGS:AIRM) 200.0
27-May Philadelphia Gear Corporation Timken Industrial Services, LLC 200.0
29-Jun Sensis Corporation Saab AB (OM:SAAB B) 195.0
7-Apr National Surgical Care, Inc. AmSurg Corp. (NasdaqGS:AMSG) 173.5
20-Jun Ned Davis Research Inc. Euromoney Institutional Investor plc (LSE:ERM) 173.0
31-May Atlanta Hockey Club, LLC True North Sports & Entertainment Ltd. 170.0
28-Apr Shopzilla, Inc. Symphony Technology Group 165.0
31-May Lunda Construction Company Tutor Perini Corporation (NYSE:TPC) 163.5 3-May Amcor Limited, Glass Tubing Business Nipro Corporation (TSE:8086) 161.0
1-Jun Marlborough Campus Limited Partnership Hines Global REIT Properties LP 160.9
10-May Equitrac Corporation Nuance Communications, Inc. (NasdaqGS:NUAN) 157.0
18-May Chicago Tube & Iron Company Olympic Steel Inc. (NasdaqGS:ZEUS) 156.0
19-May Weasler Engineering, Inc. Actuant Corporation (NYSE:ATU) 153.0
19-May Sanuk U.S.A. LLC and C & C Partners Ltd. Deckers Outdoor Corp. (NasdaqGS:DECK) 149.8
10-Apr Tasty Baking Co. Flowers Bakeries, LLC 149.7
22-Apr Coining Holding Company Ametek Inc. (NYSE:AME) 148.0
17-May Nobel Learning Communities Inc. (NasdaqGM:NLCI) Leeds Equity Partners 147.9
2-Jun High Performance Technologies, Inc. Dynamics Research Corp. (NasdaqGM:DRCO) 143.0
16-May J&B Software Inc. and Regulus Group, LLC Cerberus Capital Management, L.P. 137.0
12-Apr ARGUS Software, Inc. Altus Group Limited (TSX:AIF) 130.0
29-Apr EC Source Services, LLC MasTec, Inc. (NYSE:MTZ) 129.8
28-Apr Coradiant, Inc. BMC Software Inc. (NasdaqGS:BMC) 125.0
15-Apr Beacon Hospice, Inc. Amedisys Inc. (NasdaqGS:AMED) 125.0
11-May East Bluebell Bill Barrett Corp. (NYSE:BBG) 120.0
20-Apr Smoothstone IP Communications, Inc. West Corporation 120.0
2-May Continuous Computing Corporation RadiSys Corporation (NasdaqGS:RSYS) 119.9
12-May DEI Holdings, Inc. (OTCPK:DEIX) Charlesbank Capital Partners, LLC 114.0
1-Jun Frontier-Kemper Constructors, Inc. Tutor Perini Corporation (NYSE:TPC) 113.0
21-Jun iFrogz Inc. ZAGG Incorporated (NasdaqGM:ZAGG) 108.9 21-Apr OpenFeint Inc. GREE International, Inc. 104.0
1-Apr Encore Discovery Solutions, Inc. EPIQ Systems, Inc. (NasdaqGS:EPIQ) 100.0
16-May Omnium LLC Northern Trust Corporation (NasdaqGS:NTRS) 100.0 17-May Ambassadors International Inc., Substantially All The Anschutz Corporation 96.8
25-May Renaissance Food Group, LLC Calavo Growers Inc. (NasdaqGS:CVGW) 95.6
28-Jun OneNeck IT Services, Corporation TDS Hosted & Managed Services, LLC 95.0
12-Apr US Radiosurgery, LLC Alliance Oncology, LLC 91.0
29-May H20 Plus, LLC POLA Orbis Holdings, Inc. (TSE:4927) 91.0
($s in millions)
2011 Second Quarter Review
M&A Marketplace
2Q 2011 Announced/Closed Transactions
For deals with total enterprise value between $50 and $250 million
Date Target Buyers/Investors Size
30-Apr Outsource Partners International, Inc. Exlservice Holdings, Inc. (NasdaqGS:EXLS) $ 91.0
20-Apr Chemring Detection Systems, Inc. Chemring Group plc (LSE:CHG) 90.0
22-Jun Portico Systems, Inc. McKesson Health Solutions LLC 90.0
1-Jun Hewlett-Packard Company, Visual Collaboration Polycom, Inc. (NasdaqGS:PLCM) 89.0
23-May SeaSpine, Inc. Integra LifeSciences Holdings Corp (NasdaqGS:IART) 89.0
5-May Aidells Sausage Company, Inc. Sara Lee Corp. (NYSE:SLE) 87.0 6-May Novacap Investments, Inc. 86.8
5-Apr Orchid Cellmark Inc. (NasdaqGM:ORCH) Laboratory Corp. of America Holdings (NYSE:LH) 84.0
1-Apr Mode Transportation Hub Group Inc. (NasdaqGS:HUBG) 83.4
20-Apr Brooks Automation Inc., Semiconductor Equipment Contract Manufacturing Operations
Celestica Inc. (TSX:CLS) 82.0
27-Apr Bloodhound Technologies, Inc. Verisk Analytics, Inc. (NasdaqGS:VRSK) 82.0
23-Jun SeraCare Life Sciences, Inc. (NasdaqCM:SRLS) MSMB Capital Management LLC 82.0
1-Apr Anderson Companies, Inc. Tutor Perini Corporation (NYSE:TPC) 80.8 18-Apr Bell and Howell, LLC Versa Capital Mgmt, Inc.; Access Value Investors LLC 80.0
27-Apr Rules-Based Medicine, Inc. Myriad Genetics Inc. (NasdaqGS:MYGN) 80.0
14-Jun The Care Pavilion Of Walnut Park Plaza Inc Grubb & Ellis Healthcare REIT II, Inc. 75.0
16-Jun IC RailMarine Terminal Company, Inc. Raven Energy, LLC 73.0
12-May Black Diamond Performance Reporting, LLC Advent Software, Inc. (NasdaqGS:ADVS) 73.0
2-May Chemical Market Associates, Inc. IHS Inc. (NYSE:IHS) 73.0
11-May Harvest Technologies Corporation Terumo Medical Corporation 70.0
21-Apr Greystripe, Inc. ValueClick Media, Inc. 70.0
16-May HearUSA Inc., Substantially All Assets William Demant Holding A/S (CPSE:WDH) 70.0
18-May BridgeCo Inc. Standard Microsystems Corp. (NasdaqGS:SMSC) 68.9
7-Apr Jingle Networks, Inc. Marchex, Inc. (NasdaqGS:MCHX) 68.0
5-Apr Forrest City Grocery Company Core-Mark Holding Company, Inc. (NasdaqGS:CORE) 66.0
4-Apr Abunda Nutrition, Inc. Evolva Holding SA. (SWX:EVE) 63.8
1-Jun Neighborhood Diabetes Shoppe, Inc. Insulet Corporation (NasdaqGM:PODD) 62.4
13-Apr Solantic Corporation Welsh, Carson, Anderson & Stowe 62.0
11-Apr Tatto, Inc. Ozura World Ltd. 60.0
17-Jun Nesher Pharmaceuticals Inc. And DrugTech Zydus Pharmaceuticals (USA) Inc. 60.0
26-May MerchantCircle, Inc. Reply! Inc. 60.0
23-May AWR Corporation National Instruments Corporation (NasdaqGS:NATI) 58.0 12-May Home Loan Center, Inc. Discover Bank 55.9
8-Jun Vitro America, LLC, Super Sky International, Inc., VVP Finance Corporation
American Glass Enterprises, LLC 55.1
20-May The Topline Corporation Steven Madden, Ltd. (NasdaqGS:SHOO) 55.0
7-Apr BeamOne, LLC Synergy Health plc (LSE:SYR) 55.0
2-Apr Graphic Packaging International, Inc. 53.5
28-Jun Contessa Premium Foods, Inc. Sun Capital Partners, Inc. 51.0
16-Jun C&D Technologies, Inc. (OTCPK:CHHP) Angelo, Gordon & Co. 50.7
10-Jun Goodyear Tire & Rubber Co., Global Wire Business Hyosung Corp. (KOSE:A004800) 50.0
($s in millions)
2011 Second Quarter Review
M&A Marketplace
U.S. Deal Activity & Average Multiples By Industry Group
Source: Capital IQPlease note: • Significant outliers were removed where indicated • Data was not available for all transactions to compute the average multiples
Consumer Healthcare
2007 2008* 2009 2010 2Q 2011* 2007 2008 2009 2010 2Q 2011EV / EBITDA Multiple 16.1x 16.9x 10.9x 13.8x 14.3x EV / EBITDA Multiple 24.5x 25.8x 15.2x 20.5x 19.9x EV / Revenue Multiple 1.7x 3.8x 2.1x 2.1x 2.9x EV / Revenue Multiple 6.2x 4.6x 4.5x 5.6x 4.7x Number of Transactions 3,335 2,805 2,274 2,790 1,389 Number of Transactions 1,195 1,080 931 1,231 594
2nd Quarter 2011 Closing (Date) 2nd Quarter 2011 Closing (Date)Conopco acquired Alberto-Culver (NYSE: ACV) (5/10) Danaher (NYSE: DHR) acquired Beckman Coulter (NYSE: BEC) (6/29)DSW (NYSE: DSW) acquired Retail Ventures (NYSE: RVI) (5/26)
Energy Industrials
2007 2008 2009* 2010 2Q 2011 2007 2008 2009 2010 2Q 2011EV / EBITDA Multiple 13.0x 12.0x 15.1x 9.8x 17.8x EV / EBITDA Multiple 13.6x 16.3x 10.7x 12.5x 10.5x EV / Revenue Multiple 4.5x 5.8x 6.3x 7.2x 4.7x EV / Revenue Multiple 1.7x 1.5x 1.2x 2.2x 1.4x Number of Transactions 624 560 486 740 334 Number of Transactions 2,663 2,429 1,778 2,265 1,109
2nd Quarter 2011 Closing (Date) 2nd Quarter 2011 Closing (Date)Ensco plc (NYSE: ESV) acquired Pride International (NYSE: PDE) (5/31)
eBay (NasdaqGS: EBAY) acquired GSI Commerce (NasdaqGS: GSIC) (6/17)
*Please note that 2009 does not include the 2020 Energy acquisition of New Generation Biofuels
Financials Information Technology
2007 2008 2009* 2010 2Q 2011 2007 2008 2009 2010 2Q 2011EV / EBITDA Multiple 17.1x 17.5x 15.1x 12.7x 14.2x EV / EBITDA Multiple 22.2x 28.0x 17.0x 18.9x 18.0x EV / Revenue Multiple 5.4x 6.7x 5.2x 7.5x 9.3x EV / Revenue Multiple 3.0x 3.1x 4.2x 7.4x 4.1x Number of Transactions 1,769 1,933 2,054 3,369 1,658 Number of Transactions 2,616 2,274 1,779 2,331 1,099
2nd Quarter 2011 Closing (Date) 2nd Quarter 2011 Closing (Date)CVS Caremark (NYSE: CVS) acquired Medicare Part D (4/29) CenturyTel (NYSE: CTL) acquired Qwest Communications (NYSE: Q) (4/1)
Materials Transportation
2007 2008* 2009 2010 2Q 2011 2007 2008 2009 2010 2Q 2011EV / EBITDA Multiple 10.9x 12.8x 7.1x 10.8x 10.4x EV / EBITDA Multiple 10.6x 16.8x 12.1x 12.5x 8.7x EV / Revenue Multiple 1.3x 5.1x 6.1x 5.7x 1.6x EV / Revenue Multiple 1.8x 1.2x 0.7x 0.8x 1.4x Number of Transactions 859 777 595 726 340 Number of Transactions 281 246 158 192 106
2nd Quarter 2011 Closing (Date) 2nd Quarter 2011 Closing (Date)Southwest Airlines (NYSE: LUV) acquired AirTran Holdings (NYSE: AAI) (5/2)
Arch Coal (NYSE: ACI) acquired International Coal Group (NYSE: ICO) (6/14) Clayton, Dubilier & Rice acquired Emergency Medical Services (NYSE: EMS) (5/25)*Please note that 2008 does not include the UFP Technologies Inc. acquisition of Stephenson & Lawyer, Inc.
ProLogis (NYSE: PLD) acquired AMB Property (NYSE: AMB) (6/3)
*Please note that 2009 does not include the Advenir acquisition of Apartment Investment & Management (NYSE:AIV)
*Please note that 2008 does not include the Lamar Advertising of Penn acquisition of Vista Media Group; and 2011 does not include the Fortune Food Service acquisition of Tokyo Teryaki
Endo Pharmaceuticals Holdings (NasdaqGS: ENDP) acquired American Medical Systems Holdings (NasdaqGS: AMMD) (6/17)
Verizon Communications (NYSE, Nasdaq: VZ) acquired Terremark Worldwide (Nasdaq: TMRK) (4/7)
Alpha Natural Resources (NYSE: ANR) acquired all outstanding shares of Massey Energy (NYSE: MEE) (6/1)
