New Jersey’s mergers-and-acquisitions market drooped in 2013, an indication that the rebound from the recession is still shaky.
The Law Journal‘s annual survey in conjunction with ThomsonReuters Financial valued the top 30 deals last year involving New Jersey-based targets or acquirers at $47.1 billion—a 7.2 percent decline from $50.8 billion in 2012 and the lowest total since 2010, when the top 30 deals added up to $14.8 billion.
There have been “fits and starts, but the M&A market has not come roaring back yet,” says Stephen Arcano, head of the mergers and acquisitions group at New York’s Skadden, Arps, Slate, Meagher & Flom.
Compared with what Arcano characterizes as “restrained growth” in the U.S. market, most key New Jersey metrics were less than encouraging:
• Median transaction value was $493 million—18.4 percent lower than 2012 ($604 million), though higher than 2011 ($384 million).
• Just six transactions eclipsed the $1 billion mark, compared with 10 in 2012 and nine in 2011.
• Five transactions fell below the $250 million mark, while every deal met or eclipsed that mark in 2012 and 2011.
Still, the picture is far less bleak than in 2010, when just four deals cleared $1 billion and nearly half of the top 30 were worth less than $250 million.
One bright spot was that the three richest deals totaled $33.4 billion, compared with a $23.3 billion total in 2012.
All three came in health-care and pharmaceuticals, which once again dominated the field. They accounted for 13 of the top 30 deals, after ceding ground to other industries in 2012 and 2011.
That was the highest number since 2009 (18) and up from seven in 2012, 12 in 2011, and nine in 2010.
In the No. 1 deal, Zoetis Inc. of Florham Park, which makes animal health products such as veterinary vaccines, separated from parent company Pfizer Inc. of New York, exchanging Pfizer stock for all shares of Zoetis stock—a deal valued at $13.3 billion.
No. 2 is the first of two acquisitions by Valeant Pharmaceuticals—a Canadian company with its U.S. headquarters in Bridgewater—which picked up New York-based Bausch & Lomb Inc. for $11.6 billion, allowing it to break into the eye-care market.
Valeant also, after outbidding German company Merz Pharmaceuticals, acquired skin-care specialty company Obagi Medical Products Inc. of Long Beach, Calif., for $403 million, allowing it to bolster its presence in the dermatology market (20th-ranked deal).
The No. 3 deal was the $8.5 billion acquisition of Rockaway-based Warner Chilcott by Actavis, an Irish company with U.S. headquarters in Parsippany. The deal increased Actavis’ share of the specialty pharmaceuticals market.
After the top three, there was a steep falloff in valuation, with four deals at or near the $1 billion mark.
In the richest deal from the energy and power industry (No. 4 overall), Direct Energy Business of Philadelphia bought Hess Corp.’s Woodbridge-based Energy Marketing subsidiary, which provides gas and electric power, for $1.2 billion.
Two deals (Nos. 5 and 6) were worth about $1 billion each. Roper Industries Inc. of Sarasota, Fla., a medical imaging and technology company, acquired Managed Health Care Associates of Florham Park, which provides services to health-care providers such as long-term care facilities. And Johnson & Johnson of New Brunswick acquired Aragon Pharmaceuticals Inc. of San Diego, which develops drugs to treat prostate and other cancers.
At No. 7 was another deal from the energy industry: Short Hills-based private equity firm Energy Capital Partners’ $941 million acquisition of EnergySolutions Inc. of Salt Lake City, which operates nuclear power plants and provides other services.
Absent from New Jersey’s M&A list in the past two years has been the tens-of-billions-of-dollar deals that make their way into the national rankings—such as Pfizer’s $64.4 billion acquisition of Wyeth, and Merck & Co. Inc.’s $45.7 billion pickup of Schering-Plough Corp., both in 2011.
That should change in 2014. Though the deal didn’t close before the end of the year, Verizon Communications Inc. in September agreed to buy Vodafone’s 45 percent stake in Basking Ridge-based Verizon Wireless for $130 billion. A Verizon shareholder vote is scheduled later this month.
Another good omen: Market activity gained momentum as the year wore on, as 12 of the 30 deals closed in the fourth quarter, six of them among the top 12, and two-thirds of the list had closing dates in the second half of the year.
As for which law firms got most of the work, little changed.
Skadden had the lion’s share of the top 30 deals with six; Latham & Watkins and Davis Polk & Wardwell each had five; and Kirkland & Ellis, Cleary Gottlieb Steen & Hamilton and Fried, Frank, Harris, Shriver & Jacobson each advised on four deals.
Five other firms each worked on three transactions: Greenberg Traurig; Ropes & Gray; Stikeman Elliot; Sullivan & Cromwell; and White & Case.
Sarkis Jebejian, an M&A partner at Kirkland, which advised on $12 billion worth of deals in December alone, says he sees reason for optimism.
“We actually saw a lot of activity this year and we continue to see a healthy pipeline—really, deals across a whole range of sizes” and industries, including health-care, aerospace and software, Jebejian says.
“From our perspective, the market continued to be reasonably good,” says Skadden’s Arcano. “We kept busy.”
As for the future, he says, conditions for resurgence remain, such as cheap credit, stable equity markets, good corporate earnings and rising stock prices.
Executive confidence remains an issue. “Today you’ve got to believe that you can buy that asset at that price and still create value,” he says.
As usual, expectations should be kept in check, he says, adding, “Sometimes it’s neither the beginning of the greatest period in history nor the end of the world.” •