The Deal Economy

The Deal Economy

Trends by Janet Leiser | Senior Editor

The market for acquisitions and mergers is hot. Not just nationally or globally. Tampa Bay companies are deeply involved.

A national survey by Thomson Financial and the Association for Corporate Growth shows executives in the merger and acquisition industry expect another good year to follow last year's record-setting $3.8 trillion in global M&A activity.

There were great times close to home, too.

Last year, Florida's Gulf Coast companies reported $12.4 billion in 149 deals between Naples and Tampa, according to Joshua B. Kantor, a Hyde Park Capital Partners senior analyst who used the Capital IQ database.

In Tampa Bay, there were 128 deals valued at $11.9 billion, up more than threefold from 86 deals at $3.8 billion in 2005. Average deal value was $283.3 million, compared to $115 million the previous year. The area includes Hillsborough, Pinellas, Manatee, Sarasota and Pasco counties.

"There are a lot of opportunities here," says Penny Hulbert, president of ACG Tampa Bay and principal of Links Financial LLC. "Keep in mind, everyone wants to come to Florida. We have a strong market and it continues to get stronger."

In the Naples-Fort Myers area, figures weren't as rosy.

M&A shrunk there in 2006 to $483.9 million from $716 million the previous year. But Kantor says figures might be skewed by big deals the previous year.

For instance, Tampa Bay's 2006 figures include two big acquisitions: The $5.8 billion merger of Sarasota-based Global Signal Inc. and Crown Castle International Corp., and the $3.5 billion deal by Outback Steakhouse's founders to take Tampa-based OSI Restaurant Partners Inc. private.

Without those deals, valued at $9.3 billion, Tampa Bay's M&A activity would have dropped to $2.6 billion.

In addition, statistics don't include acquisitions by private companies that usually don't disclose financial data, Kantor says.

Most of the deals on the Gulf Coast involve small- to medium-sized companies, which also make up most of the business community, says Hulbert.

Kantor's figures back that up.

Last year, the Global Signal and Outback deals were the only Tampa Bay ones for more than $1 billion, he says. There were two deals for more than $500 million, and four between $499 million and $100 million. Thirty-four were for $99 million or less, and 86 didn't disclose the sale price.

Goldilocks economy

Professionals cite several reasons for increased M&A activity.

Walter Hardenstine, president of Renaissance Executive Forums, Tampa Bays, says: "There's a lot of money out there. That leads to a lot of opportunity, not only does that lead to M&A activity. There are angel investments, venture capital."

And there is the desire to find the right place for all that money. "People are looking for good investments," he says.

"There are people making a living off buying small companies, finding that diamond in the rough," Hardenstine says.

Private equity firms are increasingly a major player in the U.S. market, according to PricewaterhouseCoopers. Those firms contributed to 35% of all M&A activity in the nation last year, compared to 23% in 2005.

Lots of liquidity is only one factor spurring M&A activity, according to PricewaterhouseCoopers. In predicting record activity in 2007, partner Greg Peterson writes: "Large equity firms continue to have ample amounts of capital that needs to be put to work in the coming year."

The financial services firm also cites a "Goldilocks economy that's moving neither too fast nor too slow," moderating interest rates and record low default rates.

And, as Hardenstine and Hulbert point out, there are always companies that want to buy a competitor to increase market presence or to strengthen a strategic position.

New trend?

Many dealmakers that acquire Florida businesses come from other states, especially up North, Hulbert says. In the past, those transplants used attorneys, accountants, business brokers and bankers they knew and trusted elsewhere.

That's now changing, she says.

"We've started to see more of a trend that that's not the case," she says. "More and more local people are involved in the deals."

Two industries appear to be particularly hot locally for mergers and acquisitions - IT services and health care/life sciences, she says.

Nationally, this year is expected to be a sellers' market with owners obtaining fairly high multiples.

National M&A Deals by Region

Far West 1,726

Southeast 1,590

Mideast 1,480

Great Lakes 1,041

Southwest 863

New England 605

Plains 400

Rocky Mountain 371

Total 8,076

Source: Mercer Capital. Figures are for 2005.

Review summary

Trend. Merger and acquisition activity are expected to remain strong in 2007. Look for a sellers' market.

Industry. Finance

Key. Lots of liquidity, moderating interest rates and companies that plan to grow or strengthen a strategic position are among the factors spurring M&A activity.

M&A Deals

There were 128 Tampa Bay M&A deals valued at $11.9 billion in 2006, up more than threefold from 86 deals valued at $3.8 billion a year earlier. Two big deals - the $5.8 billion merger with Sarasota-based Global Signal Inc. and the $3.5 billion privatization of OSI Restaurant Partners Inc.- account for $9.3 billion.

Top Five Fort Myers-Naples Deals in 2006

Target Buyer Deal Value

1. United Heritage Bankshares of Florida Inc., Naples Marshall & IIsley Corp. $217.7 million

2. Old Florida Bankshares Inc., Fort Myers Bank of Florida Corp. $78.2 million

3. ACME Communications Inc., Fort Myers Sun Broadcasting Inc. $45 milion

4. Royal Palm Bancorp Inc., Naples Mercantile Bancorp Inc. $42.7 million

5. Congress Jewelers, Bonita Springs Finlay Fine Jewelry Corp. $16 million

Source: Hyde Park Capital

Top Five Tampa Bay-Sarasota-Manatee Deals in 2006

Target Buyer Deal Value

1. Global Signal Inc., Sarasota Crown Castle International Corp. $5.8 billion

2. OSA Restaurant Partners Inc., Tampa Outback founders/Catterton Partners/Bain Capital $3.9 billion

3. Emdeon Practice Services Inc., Tampa Sage Software Inc. $565.5 million

4. Maritrans Inc., Tampa Overseas Shipping Group Inc. $508.8 million

5. Checkers Drive-in Restaurants Inc. Wellspring Capital Management $209.3 million

Source: Hyde Park Capital

M&A Activity*

Area '04 # Deals '04 Total Value '05 # Deals '05 Total Value '06 # Deals '06 Total Value

Tampa Bay MSA** 73 $5.6 billion 86 $3.8 billion 128 $11.9 billion

Fort Myers-Naples*** 19 $3 billion 24 $716 million 21 $483.9 million

Source: Hyde Park Capital Partners and Capital IQ.

*Many private deals are not reported and therefore not included. **Includes Sarasota-Manatee counties as well as Hillsborough, Pinellas and Pasco. ***Fifth Third Banccorp paid $2.3 billion for Naples-based First National Bankshares of Florida Inc.