Overview

Schulte Roth & Zabel regularly conducts studies on private equity buyer acquisitions of U.S. public companies with enterprise values in the $100 million to $500 million range (“middle market” deals) and greater than $500 million (“large market” deals) to monitor market practice and deal trends reflected by these transactions. During the period from January 2010 to Dec. 31, 2012, there were a total of 40 middle market deals and 50 large market deals that met these parameters.

…continue reading: Large and Middle Market PE/Public Target Deals: 2012 Review

Schulte Roth & Zabel is pleased to present Distressed Investing M&A, published in association with mergermarket and Debtwire. Based on a series of interviews with investment bankers, private equity practitioners and hedge fund investors in the US, this report examines the market for distressed assets at home and abroad.

Economic uncertainty brought on by the looming US “fiscal cliff” have placed companies in difficult situations where many are forced to sell assets and restructure operations and debt in order to avoid a court mandated sale further down the line. The value gained and time saved by selling assets prior to in-court restructuring and liquidation is signaled by the respondents’ shift toward dealmaking early and out-of-court.

Outside of the US, the eurozone crisis and macroeconomic concerns in the emerging markets are having a similar effect. While some are waiting for a solution to the sovereign debt crisis, distressed investors are geared to take advantage of attractively-priced assets within the region. Hyperinflation remains a concern for the markets in Latin America and India, while economic growth has slowed in Brazil and China. Both are likely to create distressed opportunities over the next 12 months.

Respondents cite the energy sector as likely to be the most active for distressed M&A in the next year. Low natural gas prices in the US are hitting the bottom line and companies are feeling the strain. Additionally, inflation concerns in Asia may expose manufacturing companies, who respondents describe as “losing the battle” against prices.

In addition to the above findings, this report provides insight into pricing, litigation, club deals, and various other issues concerning the distressed M&A community. We hope you find this study informative and useful, and as always we welcome your feedback.

…continue reading: 2012 Distressed Investing M&A Report

Schulte Roth & Zabel is pleased to present the 2012 edition of Shareholder Activism Insight, published in association with mergermarket. Based on a series of interviews with corporate executives and activist investors, this report highlights emerging trends in shareholder activism, as well as insights into the changing corporate landscape investors and executives will face in the coming years.

Corporate executives should expect to see increasing opposition from shareholders during next spring’s proxy season, according to the 78% majority of overall respondents. Using poor financial performance and the need for management or operational change as motivation, hedge funds, pensions and unions will continue the growth of shareholder activism. A significant increase in shareholder proposals will result, according to 84% of respondents.

The financial services sector is expected to see the greatest amount of shareholder activism as investors look to repair the still recovering industry after the crash of 2008. Distant runners-up, the industrials and chemicals, technology, and energy sectors are also expected to see more disputes with investors.

Half of respondents believe an active dialogue between shareholders and management can be the most effective defense tactic against activism. When a company prefers to be more active in preventing shareholder disputes, respondents cite offensive litigation, poison pills and staggered board elections as the likely defense tools.

…continue reading: 2012 Shareholder Activism Insight Report

Overview

We regularly conduct studies on private equity buyer acquisitions of U.S. public companies with equity values greater than $500 million (“large market” deals) to monitor market practice reflected by these high-profile transactions. Recognizing the importance of M&A activity in the $100 million to $500 million target equity value range (“middle market” deals), we are commencing a new deal study that identifies “market practice” involving private equity buyer acquisitions of U.S. public companies in the middle market. We also compare our findings for middle market deals to our findings for large market deals. During the period from January 2010 to June 30, 2012, there were a total of 36 middle market deals and 43 large market deals that met our parameters.

Part One

Key Observations: Market Practice and Trends in the Middle Market

• 1. Activity in the middle market is down year over year. Only 5 deals were signed in 1H 2012 compared to 11 in 1H 2011, a decrease of 55%. Mean equity values of deals in 1H 2012 rose 21% when compared to 1H 2011. The year started with no activity — all of the 1H 2012 deals were signed in the second quarter. (See Chart 1.)

…continue reading: Middle Market Private Equity Buyer/Public Target M&A Deal Study

The large private equity buyer/public company segment of the U.S. M&A market (all cash deals over $500 million) was significantly affected in the first half of 2012 by troubles in the U.S., European and global economies. Only six trans­actions within our deal parameters were executed. Five of them had key deal terms generally consistent with our prior observations; the remaining transaction, Insight Ven­ture Partners/Quest Software, had certain key deal terms (“go-shop” period, target break-up fee and buyer reverse termination fee) that were outliers. Accordingly, for certain of our observations below, we have expressed the data including and excluding Insight Venture Partners/Quest Software (“Quest Software”). [1]

1. Fewer deals were completed in 1H 2012 and average deal size decreased. The decline in deal activity that began in Q1 2011 continued in 1H 2012. In 1H 2012, deal activity was down 33% compared to 1H 2011, and down 25% compared to 2H 2011. On an annualized basis, deal activity in the segment surveyed decreased 29% in 2012 compared to 2011. Equity values were also lower. For 1H 2012, in the deals within our survey, mean equity value fell 21% when compared to 1H 2011 and 54% when com­pared to 2H 2011. (See Chart 1 below.)

…continue reading: Private Equity/Public Target Deals: Mid-Year Update

Survey Methodology

We conducted our survey as follows:

• We reviewed the treatment of certain key deal terms in all private equity buyer/public company target cash merger transactions involving consideration of at least $500 million in enterprise value [1] entered into during 2010 and 2011, which totaled 37 transactions.
• We then compared the treatment of such deal terms in the 20 transactions entered into between Jan. 1, 2010 and Dec. 31, 2010, which we refer to as the “2010 Transactions,” with the treatment of the same key deal terms in the 17 transactions entered into between Jan. 1, 2011 and Dec. 31, 2011, which we refer to as the “2011 Transactions.”

Key Observations

As widely reported, 2011 was a tumultuous year characterized by economic uncertainty. The European sovereign debt crisis and the downgrade to the U.S. credit rating caused significant volatility in the U.S. debt and equity markets. The large private equity buyer/public company segment of the U.S. M&A market was not immune to these factors. Deal activity was down overall relative to 2010 and the deals that were completed in 2011 took longer to complete.

…continue reading: Private Equity Buyer/Public Target M&A Deal Study