Acquisitions involving New Jersey companies sagged in 2010, continuing a four-year-long downward trend that was offset only by two megadeals in 2009.
The top 30 completed deals with New Jersey-based targets or acquirers, according to data compiled by Thomson Reuters Financial, represented a total value of $14.8 billion — a fraction of last year’s $127.1 billion figure.
More significantly, when two 2009 deals by Pfizer and Merck amounting to $110.1 billion are discounted, the $17 billion subtotal for all other 2009 transactions still trumps the 2010 grand total.
And except for 2009, when the Merck and Pfizer deals spiked the total, the total value of the top 30 mergers and acquisitions has withered with each successive year since 2007.
Through early 2010, even cash-rich companies in a position to acquire other companies at a discount were stymied by the potential targets’ reluctance to sell. And sellers’ hesitance was flanked by buyers’ concerns about target companies’ financial health.
“Companies that sold last year were either forced to sell or they were being sold [by a parent company] to avert larger losses,” says Nicholas San Filippo, a business transactions partner at Lowenstein Sandler in Roseland. “It wouldn’t make sense to sell at a depressed level … if you can weather the storm.”
The No. 1 deal in 2010, at $3.4 billion, was Summit-based Celgene Corp.’s acquisition of Abraxis BioScience Inc. of Los Angeles. It allowed Celgene, a biopharmaceutical company, to add Abraxane — a chemotherapy treatment for metastatic breast cancer — to its drug lineup. The transaction accounted for 23 percent of the 2010 grand total.
In last year’s second-largest deal, Tyco International Ltd. of West Windsor paid $2 billion for Broadview Security of Irving, Texas — formerly Brink’s Inc. — to bolster its position in the residential security market.
Two other deals eclipsed the $1 billion mark: Corn Product International of Westchester, Ill., acquired Bridgewater’s National Starch for $1.3 billion, and Thomas H. Lee Partners, a Boston private equity firm, acquired inVentiv Health Inc. of Somerset for $1.1 billion.
Transaction size decreased again in 2010: Just four deals involving New Jersey companies reached the $1 billion mark, compared with seven in 2009, nine in 2008 and 20 in 2007.
One silver lining was that all the top 30 deals in 2010 were valued at more than $80 million; in 2009, the bottom-three deals fell well below that mark.
Pharmaceuticals, health-care and related fields accounted for nearly a third of the top 30. Nine deals involved such companies and spanned the list, from two appearances in the top five — the Abraxis deal and the $730 million acquisition of United BioSource Corp. of Chevy Chase, Md., by Medco Health Solutions of Franklin Lakes, the No. 5 deal — to the 29th spot, Verisk Analytics Inc. of Jersey City’s acquisition of Crowe Paradis Services Corp. of North Reading, Mass., for $90 million.
Health care, including the pharmaceutical industry, accounted for 18 of the top 30 deals in 2009, nine of the top 30 in 2008 and eight in 2007.
The health care industry’s impressive showing in the 2009 list could be explained by those companies’ better weathering of the economy, says Ronald Janis, a partner at Day Pitney in Parsippany. Drug companies in particular had more access to cash and a higher expectation of future earnings than in other industries, linkable to the sustained need for pharmaceutical products, says Janis, chair of the firm’s mergers, acquisitions and joint ventures practice group.
Five transactions in 2010 occurred in technology, the most valuable of which was the acquisition of Cobalt Group Inc. of Seattle by Automatic Data Processing Inc. of Roseland for $400 million, the ninth-largest deal.
The energy industry accounted for four deals, all of which ranked in the top 13 and were worth $350 million or more. Ranking highest in the No. 7 spot was the $525 million acquisition of Kelson Holdings’ Cottonwood natural gas plant in Deweyville, Texas, by NRG Energy of Princeton.
Another four deals — including the Broadview and inVentiv acquisitions – were in the consumer products and services sector.
Three other transactions occurred in industrial fields: two in the financial sector and one each in consumer staples, materials and telecommunications.
The M&A climate appeared to liven up as the year wore on: While six deals were announced in the first quarter, the second and third quarters each accounted for nine of the top 30 transactions, meaning a total of 18 transactions were announced between April 1 and Sept. 30. Nine of the 10 largest deals were announced in that time frame.
There were six deal announcements in the fourth quarter, four of which came in December. The late-year cluster seems to indicate a strong finish, though those four deals occupied spot Nos. 24, 28, 29 and 30.
New Jersey-based firms were noticeably few among legal advisers in the top 30 deals, as has been true in prior years. Only two made appearances among deals in which a legal adviser was reported by ThomsonReuters Financial.
Lowenstein Sandler helped represent Intelligroup Inc. of Princeton in its $174 million acquisition by Mobius Subsidiary Corp. of Irvine, Calif. (No. 21 on the list).
McCarter & English of Newark was active in three deals, advising Sensor Technologies Inc. in its acquisition by Mantech Intl. Corp. (No. 17) and Verisk Analytics Inc. in its acquisitions of 3E Co. (No. 24) and Crowe Paradis Services Corp. (No. 29).
For the second consecutive year, Skadden, Arps, Slate, Meagher & Flom was the most involved firm, advising parties in seven of the top 30 deals. Simpson Thacher & Bartlett had its hand in five transactions.
Though the same could be said a year ago, there are reasons for optimism in 2011, according to those with an eye on New Jersey’s M&A climate.
San Filippo says this year is likely to see action by larger corporations that hoarded cash during the recession and now are more willing to spend it, along with a recovery in the credit market, and increases in companies’ cash flows.
Significant small- and middle-market M&A activity might have to wait until 2012, when the gap between buyers’ valuations and sellers’ asking prices is more likely to close, he says.
The tight credit market contributed to the stagnant M&A climate in recent years, says Steven Skolnick, also a Lowenstein partner. Improving equity markets should “prompt banks to open the purse strings” in 2011, he says.
Janis agrees there are reasons for optimism in 2011: More M&A activity is likely because of a healthier stock market and a more open credit market, particularly increased lending to big business that can demonstrate a track record of profits.
“In a year, we should be talking about bigger deals and … more activity,” he says. “I think there will be an increase in 2011, but it won’t be an avalanche.”
David Garber of Princeton Legal Search Group says the environment for M&A attorneys — after bottoming out in 2009 — has “absolutely improved” since the middle of last year, though not back to 2006 or 2007 levels as yet.
M&A practices’ workflow has increased, and hiring now is following at firms of all sizes, though there is an “increased sensitivity” to clients who want more efficient — and less costly — legal teams, Garber says.
“The way deals are staffed with lawyers [is] more streamlined now because of pressure from the clients,” Garber says. “They don’t want six attorneys on a deal where three will do.”
The economy also provided a different sort of work for transactional attorneys: As M&A work lagged, there was a greatly increased need for so-called “business divorce” work, San Filippo says.
In 2009, the firm began its Business Divorce Group, which San Filippo co-chairs, as more and more company ownerships looked to split up, he says.
Editor’s Note: This article as originally published stated in error that Lowenstein Sandler was the only N.J.-based firm to serve as an adviser among the to 30 M&As, leaving out McCarter & English’s three deals, which are now included above and in the attached chart. The Law Journal regrets the error.