Have we entered a time of the dying deal?
It may seem that way with Fiat Chrysler withdrawing its $35 billion merger with Renault, EQT Infrastructure bailing on its $2.3 billion buyout of Vocus and, closer to home, LyondellBasell walking away from its purchase of Braskem (see item below).
That’s not really the case, according to a report last week in Axios. The news and information website said there have been 439 global deals pulled so far this year valued at nearly $187 billion, less than the 484 deals valued at $376 billion at the same time last year. That represents around a 50% drop in dollar volume while announced year-to-date global M&A is off around 21%. “In other words, the lower kill rate isn’t a proportionate function of fewer births,” the report said.
It’s not that company managers don’t want to engage in M&A. Almost half (49%) of the 400 CEOs KPMG recently surveyed said they have a “high M&A appetite” and are likely to undertake acquisitions this year, up from 36% in 2018.
What’s driving their desire to do deals? According to the survey, company chiefs want to reduce costs through synergies and economies of scale (41%) and believe that transactions help them transform faster than growth (40%). They also want to acquire new digital technologies and eliminate competitors (38%); see favorable valuations and low interest rates and want to diversify their businesses (36%); and aim to boost market share (34%).
Interestingly, strategy alliances – not M&A – are the preferred deal method for U.S. CEOs with 38% preferring them versus 21% who want M&A, followed by 19% who want organic growth, according to KPMG.
“Amid constant disruption and change, proactive leaders are executing agile, multi-faceted growth strategies that include M&A, alliances with third parties, investment in emerging markets and accelerating innovation and collaboration within their organizations,” KPMG U.S. chairman and CEO Lynne Doughtie said as part of the report.
Meanwhile, legal dealmakers in Texas are sweating before summer has even begun trying to eek out some transactions. Last week we found 13 transactions valued at $2.87 billion, versus 10 deals worth $4.46 billion the previous week and 13 transactions valued at $14.5 billion at the same time last year.
Seventeen firms and 55 Texas lawyers were involved in the activity. There were 11 M&A/private equity/venture capital deals valued at $1.57 billion and two capital markets transactions worth $1.3 billion (although one of them is pending).
M&A/PRIVATE EQUITY/VENTURE CAPITAL
Jones Day, NRF work on Total’s $800M purchase of Toshiba LNG
Jones Day said June 3 it represented Total unit Total Gas & Power Asia Private Ltd. on its purchase of all of the outstanding shares of Toshiba America LNG Corp. from Toshiba America Inc. for $800 million.
The team includes the assumption of all liquefied natural gas-related agreements from Toshiba Energy Systems & Solutions Corp. and dismissing that unit’s responsibility to receive LNG from Toshiba America LNG.
Partner Jeff Schlegel and associate David Stringer in Houston led the deal team. Norton Rose Fulbright partner John Mauel, also in Houston, represented Toshiba.
The deal helps Tokyo-based Toshiba exit what some view as a financial boondoggle to commit to LNG purchases for two decades after it surprisingly entered the LNG business in 2013, the Houston Chronicle reported.
Total said June 1 that the deal includes 20-year tolling agreement for 2.2 million tonnes per year of LNG from Freeport LNG train 3 located south of Houston and the corresponding gas transportation agreements on the pipelines feeding the terminal.
Train 3 is expected to start commercial operations by the second quarter of next year.
“The takeover of Toshiba’s LNG portfolio is in line with Total’s strategy to become a major LNG portfolio player,” Philippe Sauquet, Total’s president of gas, renewables and power, said in a statement.
Sauquet said adding the LNG to its positions in the U.S., in particular Cameron LNG, will help optimize supplies and operations and make Total one of the top U.S. LNG exporters by 2020 at 7 million tonnes per year.
Regulators and partners have to approve the deal, which is expected to close by year-end.
Total claims to be the second-largest private global LNG player with an overall LNG portfolio of around 40 million tonnes per year by 2020 and a worldwide market share of 10%.
With 21.8 million tonnes of LNG sold last year, Total has stakes in liquefaction plants in the U.S., Qatar, Nigeria, Russia, Norway, Oman, Egypt, the United Arab Emirates, Australia, Angola and Yemen that sell LNG into global markets.
Baker Botts counsels B&N committee on $683M sale to Elliott
Baker Botts said June 7 it represented Barnes & Noble Inc.’s special committee on the company’s sale to billionaire Paul Singer’s Elliott Advisors (UK) Ltd. for $6.50 per share, or $476 million.
Including debt, the deal gives the company an enterprise value of $683 million. The premium on the equity amounts to around 9% over the stock’s previous day closing, 40% on the day before The Wall Street Journal reported on a potential deal.
The Baker Botts team was mostly made up of lawyers in New York and Washington, D.C., but included partners Mollie Duckworth in Austin, Travis Wofford in Houston and associates Rachel Ratcliffe and Michael Portillo in Austin.
Specialists included Houston associate Malory Weir on finance and Houston partner Rob Fowler and Dallas associate Marian Fielding on employee benefits.
Evercore was the committee’s financial advisor. Paul, Weiss, Rifkind, Wharton & Garrison counseled B&N, whose board used Guggenheim Securities as its financial advisor.
Elliott tapped Debevoise & Plimpton as its legal advisor and Credit Suisse Securities as its financial advisor.
Baker Botts said the transaction is the culmination of an extensive strategic alternative review conducted by the committee of the company’s board announced in October of last year.
The deal has to clear regulators and stockholders and is expected to close in the third quarter.
B&N was thought to have been in talks to be acquired by Leonard Riggio, the book retailer’s chairman along with other investors. Its stock was trading above the offer price on Friday, leading The Journal to suggest that some investors believe there could be another bidder.
Book distributor Readerlink may be working up a bid, possibly with a financial investor, the newspaper reported Monday. If B&N accepts a bid from another company before midnight Thursday, it will have to pay Elliott a $4 million break-up fee, which will rise to $17.5 million after that.
The chain has struggled to compete against lower-priced book sellers like Amazon, whose share of new books purchased online recently was 77%, according to book research firm the Codex Group. It’s closed more than 150 stores over the last 10 years, leaving it with 627, The New York Times reported.
Last year Elliott bought British bookseller Waterstones, whose CEO James Daunt will manage both companies.
DLA Piper advises FloSports on $47M capital raise
FloSports, an Austin-based live sports streaming service, raised $47 million in funding led by current investor Discovery Inc.
Other current investors also participated, including Causeway Media Partners, Fertitta Capital and DCM Ventures. Fertitta Capital is led by Lorenzo Fertitta, the cousin of Houston Rockets owner/billionaire Tilman Fertitta.
Strategic investors included World Wrestling Entertainment Inc. and Bertelsmann unit Bertelsmann Digital Media Investments.
FloSports senior VP and general counsel Paul Hurdlow told The Texas Lawbook he represented the company along with DLA Piper, including partner John Gilluly, counsel Anna Denton and associate Boston Schwarz.
FloSports concentrates on sports that aren’t covered regularly or in any depth by traditional media, particularly track and field and wrestling but also soccer, basketball, volleyball, rodeo, bowling, softball, cycling, cheerleading, weightlifting and ballroom dance.
FloSports CEO and co-founder Mark Floreani said in a statement that the new funding will allow the company to further enrich underserved sports communities by broadening its coverage and expanding into new verticals.
The company claims its number of subscribers and annual recurring sales have both grown by more than 50% year-over-year and that net subscriber growth through the first quarter was greater than all subscriber growth last year.
FloSports also said that in the past year it’s increased the number of premium minutes watched by subscribers by 120%.
Bruce Campbell, Discovery’s chief development, distribution and legal officer, said FloSports aligns with Discovery’s global direct-to-consumer strategy and provides it with opportunities to apply learnings to its own products in the OTT, or over-the-top, market. FloSports has been involved in the OTT market since its 2006 inception.
FloSports plans to use the proceeds from the Series C funding toward continued investment in rights in middle- and long-tail partnerships.
Causeway managing director Mark Wan said it’s the third investment in FloSports by its fund.
Last year FloSports inked more than 250 new or extended rights deals and entered into over 55 new or extended rights deals in the first quarter. That includes the Colonial Athletic Association, for which FloSports will serve as the primary media partner to provide live and on-demand coverage of more than 300 games annually.
The platform, which charges $150 for an annual subscription, also shows live events from Concacaf, the International Volleyball Federation, United World Wrestling, the Western Collegiate Hockey Association, Germany’s Federal Basketball League and Discovery’s Eurosport.
HuntonAK aids Rockets on Clutch sale to Harris Blitzer Sports for $30M
Harris Blitzer Sports & Entertainment agreed to buy a majority stake in Clutch Gaming from the Houston Rockets, valuing the company at a reported $30 million.
HBS&E, which owns the Philadelphia 76ers and New Jersey Devils, is controlled by private equity executives Josh Harris of Apollo Global Management and David Blitzer of the Blackstone Group.
Steve Scheinthal, top legal counsel for Houston Rockets owner Tilman Fertitta and his Landry’s entertainment empire, said he and Landry’s deputy general counsel Dash Kohlhausen worked on the deal in-house with help from Hunton Andrews Kurth partner Mark Young.
Harris Blitzer plans to merge Clutch with Dignitas, a gaming franchise it acquired in 2016, Bloomberg reported. The Rockets are keeping a minority stake.
Wittliff Cutter, Dwyer Murphy Calvert work on LiveOak’s $8M funding
Liveoak Technologies, an enterprise cloud platform provider based in Austin and New York City, announced that it raised $8 million in funding to accelerate product development and global expansion.
S3 Ventures led the round with participation from Seven Peaks Ventures, Wild Basin Investments, State Farm Ventures, Northwestern Mutual Future Ventures and Broadhaven Capital Partners.
Wittliff Cutter partner John Saba advised Liveoak. Dwyer Murphy Calvert partner Drew Calvert and associate Audra May counseled S3.
Dwyer Murphy Calvert also recently handled S3’s investment in out-of-home TV business Atmosphere, a spin-out of Chive Media (partners Billy Murphy and Mary-Wommack Tatum). The $10 investment was made with Capstar Capital.
Charlie Plauche, a partner at S3, and Tom Gonser, a partner at Seven Peaks and founder of DocuSign, are joining Liveoak’s board.
Liveoak’s enterprise cloud platform enables company representatives to connect, engage and complete work with customers in a seamless way.
The company offers modern conferencing, patented collaboration, live e-signature and efficient data/identification capture combined with bank-grade security and a complete “system-of-audit.”
The company was founded in 2015 and is led by CEO Tim Ramza.
Plauche said enterprises are conducting business virtually at a record-breaking clip and are in dire need of services that can easily address complex digital transactions, which Liveoak can deliver in an all-in-one solution that streamlines time-intensive, disjointed, manual processes.
Egan Nelson counsels Liongard on $4.5M raise
Liongard, an automated system discovery and documentation software company in Houston, raised $4.5 million in Series A funding.
TDF Ventures led the round with participation from existing investors Integr8d Capital, Gestalt Theory Venture Partners, Richard Yoo (the founder of Rackspace Managed Hosting) and others.
Egan Nelson counseled Liongard with a team led by partner Brian Alford.
The company plans to use the financing to accelerate development of its Roar platform while expanding capabilities in onboarding and account management to provide support for its managed service providers, or MSPs.
“Our true goal is to support MSPs across the entire client journey – automating onboarding, documentation and insight that speeds up issue resolution, unleashing teams to operate at 10X,” Liongard CEO Joe Alapat said in a statement.
Jim Pastoriza led the investment from TDF Ventures, a Washington, D.C., and Silicon Valley firm currently investing from its $150 million Fund IV. The firm focuses on seed and Series A stage start-ups in software, infrastructure and services.
The company was founded by Alapat and Vincent Tran, two former MSP owners who sold their previous organizations and set out to empower other MSPs to protect customer IT environments at scale.
V&E, Kelly Hart advise on Gravity’s Pyote’s water asset purchase
Clearlake Capital-backed Gravity Oilfield Services said it acquired certain water disposal assets of Pyote Water Systems, which focuses on the Midland and Delaware Basins. Terms weren’t disclosed.
Vinson & Elkins represented Gravity, including Bryan Loocke, Matt Strock, Mike LeFevre and Aaron Carpenter.
Kelly Hart partner Bill Kerr and associate Taylor Spalla in Austin counseled Pyote.
V&E previously advised Clearlake-backed water midstream outfit Oilfield Services Inc. on its acquisition of Rockies provider McKenzie Energy Partners for an undisclosed sum.
WSGR advises Hypergiant on fundraise from Sumitomo, Perot Jain
Artificial intelligence services provider Hypergiant Industries said it raised an undisclosed amount of funding from Sumitomo and Perot Jain, the venture arm of Perot Industries.
Other investors in the round included Align Capital; Tom Meredith, former CFO of Dell; and Steve Adler, the mayor of Austin.
Wilson Sonsini Goodrich & Rosati partner Scott Craig and associate Paul Van Middlesworth in Austin counseled Hypergiant.
Founded by Dallas serial entrepreneur Ben Lamm, Hypergiant develops artificial intelligence-based solutions for customers, which have included Schlumberger, General Electric, Bosch, Royal Dutch Shell, Chesapeake Energy and the Department of Homeland Security.
The company has partnerships with Microsoft, Adobe, SAP, Booz Allen Hamilton and Nvidia.
The company claims to be on pace as one of the fastest technology companies to reach $100 million in realized revenue.
The industrial artificial intelligence sector is expected to generate $13 trillion in global economic activity by 2030, according to consulting firm McKinsey.
Lamm previously founded e-learning software business Simply Interactive, which he sold to Agile Interactive in 2010; creative studio Chaotic Moon, which he sold to Accenture in 2015; game developer Team Chaos, which he sold to Zynga in 2016; and chatbot software provider Conversable, which he sold to LivePerson Inc. last fall.
Sidley, Latham work on Stonepeak JV with West Texas Gas
Sidley Austin said it represented Stonepeak Infrastructure Partners on its joint venture with West Texas Gas Inc., which invested in the Whistler pipeline project alongside WhiteWater Midstream and MPLX.
The team was led by partner Tim Chandler and included tax partner Zackary Pullin and associates Kayleigh McNelis and Adam Decker, all of Houston.
Latham & Watkins assisted WhiteWater Midstream, which is backed by First Infrastructure Capital. The corporate deal team was co-led by Houston partner Thomas Brandt with help from Houston associates Michael Sellner and Rebecca Kendall.
Houston partner Bryant Lee with associate Michael Rowe provided advice on tax matters.
MPLX, WhiteWater and the joint venture between Stonepeak and West Texas Gas announced June 5 that they reached a final investment decision to move forward with the design and construction of the Whistler pipeline after having secured sufficient firm transportation agreements with shippers.
The majority of available capacity on the planned pipeline has been subscribed and committed by long-term transportation agreements. WhiteWater Midstream and MPLX expect that the remaining capacity will be fully subscribed in the coming months.
The Pipeline is being designed to transport 2 billion cubic feet per day of natural gas through 475 miles of 42-inch pipeline from Waha, Texas, to the Agua Dulce area in South Texas.
Supply for the pipeline would be sourced from several upstream connections in the Permian Basin, including direct connections to plants in the Midland Basin through a 50 mile, 30-inch pipeline lateral and a direct connection to the 1.4 billion cubic feet per day Agua Blanca Pipeline, a joint venture between WhiteWater, MPLX and Targa.
The Agua Blanca crosses through the center of the Delaware Basin, including portions of Culberson, Loving, Pecos, Reeves, Winkler and Ward counties.
MPLX president Michael J. Hennigan said Whistler is expected to provide reliable residue gas transportation out of the Permian Basin, which is vital to its growing gas processing position and producers in the region.
WhiteWater CEO Christer Rundlof said Whistler will tie directly into the most attractive markets in South Texas, including the growing LNG and Mexican markets.
The Whistler is expected to be in service in the third quarter of 2021 if it clears regulators and others.
Polsinelli aids Centerbridge’s Pei Wei on sale to Lorne Goldberg’s PWD
PWD Acquisition said it acquired the parent of Irving-based Pei Wei Asian Diner from affiliates of Centerbridge Partners for an undisclosed sum.
Polsinelli advised Centerbridge and Pei Wei with a team led by an attorney in its Washington, D.C., office. The only Dallas lawyer involved was shareholder Joyce Mazero on the franchising side.
Weil Gotshal & Manges also provided outside legal advice to Centerbridge/Pei Wei. Greenberg Glusker Fields Claman & Machtinger was PWD’s legal advisor.
Centerbridge tapped BofA Merrill Lynch as its financial advisor while PWD chose Brookwood Associates.
PWD is owned and managed by Lorne Goldberg, who also owns and operates the quick service Asian restaurant concepts Pick Up Stix, Leeann Chin and Mandarin Express with 165 stores in 23 states.
Pei Wei, a fast casual Asian restaurant concept, operates 167 company-owned stores and 26 franchised locations in 19 states and South Korea with 4,000 employees.
In 2017, Pei Wei relocated its headquarters from Scottsdale to North Texas in a move that coincided with a split from its former parent company P.F. Chang’s China Bistro.
As part of the move, Pei Wei won $500,000 in incentives from the Texas Enterprise Fund and a $75,000 incentive package from the city of Irving. The city also agreed to pay $750 for every job the company created over the course of five years up to 100 jobs.
Shearman represents SchoolAdmin on Quad recap
GulfStar Group announced June 5 that it advised Austin-based SchoolAdmin on its majority recapitalization by Quad Partners, a transaction that closed Feb. 11.
Shearman & Sterling counseled SchoolAdmin, including Matt Lyons, Brian Dillavou, Matt Wade and Montana Ware. Kramer Levin Naftalis & Frankel provided legal counsel to Quad.
Roshan Gummattira led the deal from GulfStar assisted by VP Charlie Craig and associate Sarah Wilson.
SchoolAdmin claims to be a market leader in admissions, enrollment and billing technology for K-12 schools with more than 400 customers.
Led by CEO Nate Little, the company said it’s driven to improve a school’s ability to recruit, admit, enroll and retain students through easy-to-use, feature-rich solutions.
Quad Partners invests in and builds education companies. The equity for the investment will come from Quad Partners V, which raised $229 million in capital commitments last year.
Founded in 2000 by Lincoln Frank and Daniel Neuwirth, the firm has managed $800 million over its history in more than 60 education companies, either as platforms or add-on acquisitions.
CAPITAL MARKETS
Baker McKenzie advises Oncor Electric on $1.3B notes offering
Baker McKenzie said it advised Oncor Electric Delivery Co. on a $1.3 billion notes offering.
The lead attorney was Crews Lott, who was supported by Aaron Scow, Michael Keskonis, Jamie Nix and Becca Chang.
The offering, which closed May 23, included $500 million of its 2.75% senior secured notes due 2024 and $500 million of its 3.80% senior secured notes due 2049 and its add-on offering of $300 million of its 3.70% senior secured notes due 2028.
Baker McKenzie previously advised Oncor Electric Delivery on a $1.118 billion issue that closed Jan. 30. That involved an AB exchange offer of $350 million of its 3.70% senior secured notes due 2028; $318.3 million of its 5.75% senior secured notes due 2029; and $450 million of its 4.10% senior secured notes due 2048. It was the same team except for Becca Chang, who didn’t participate.
Latham aids dealer manager on Magnolia Oil & Gas issue
Latham & Watkins said it’s representing the dealer manager, Deutsche Bank Securities, on Magnolia Oil & Gas Corp.’s exchange offer and consent solicitation relating to its outstanding warrants.
The Houston-based corporate team was led by partners Michael Chambers and John Greer with associates Ryan Lynch, Madeleine Neet and Ashlyn Royall. Houston partner Tim Fenn pitched in on tax matters along with associate Michael Rowe and Houston partner Joel Mack weighed in on environmental issues.
If warrant holders exchange all the securities, Magnolia would issue just under 9.2 million new Class A shares. Holders of nearly 26.5 million warrants already have agreed to the exchange, which is set to run through July 5.
The move is aimed at simplifying the company’s capital structure and reduce the potential dilutive impact of the warrants.
UPDATE/OTHER
Last week Anadarko Petroleum signed an engineering, procurement and construction, or EPC, agreement with the contractor consortium CCS JV, which is made up of Saipem, McDermott and Chiyoda, for its Mozambique liquefied natural gas project.
The lead of the JV, Saipem, said its portion of the contract will amount to $6 billion while McDermott said its initial portion will be around $2 billion.
Work will begin after Anadarko makes a final investment decision, which is expected later this month.
King & Spalding represented Anadarko on the agreement as well as on other contracts. The team included partners Scott Greer and Rob Garner, counsel Lisa Smith and associates Kaleb Walker and Nicholas Nahum.
McDermott said that CCS’s project scope included onshore ENC for all components of two onshore LNG trains with a capacity of 12.88 million tonnes per year plus the associated utilities and infrastructure. The joint venture previously provided front-end engineering design services for the development.
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Alas, no merger is in store for petrochemical companies LyondellBasell and Odebrecht unit Braskem, which called off the deal last week after a year of discussions. Houston-based LyondellBasell didn’t give a reason but said the deal was compelling because of the companies’ complementary strengths, product portfolios and operational footprints.
LyondellBasell CEO Bob Patel said the company will remain focused on advancing its disciplined, value-driven growth strategy and will expedite its share buyback program, which allows for the repurchase of up to 37 million of its outstanding shares.
Odebrecht has been trying to unload Braskem, which has been valued at about $13 billion, after it was involved in a widespread corruption scandal in Brazil that also included Odebrecht and its other main shareholder, Brazil’s state-controlled oil company Petrobras.
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In other deal news, Bloomberg reported last week that publicly traded Capital Senior Living Corp. of Dallas has rebuffed multiple takeout offers from TPG. TPG and Capital Senior Living CFO Carey Hendrickson declined comment. Its general counsel, David Brickman, didn’t respond to a request for comment.
The company, which is led by CEO Kimberly Lody, serves more than 12,000 residents at 128 independent-living, assisted-living and memory-care communities in 23 states.
TPG closed its third opportunistic real estate fund in March at $3.7 billion. The firm previously invested in Assisted Living Concepts Inc., changed its name to Enlivant, made acquisitions and then sold a 49% stake in its 183 senior-housing communities to Sabra Health Care REIT in 2017 for $371 million, valuing the portfolio at $1.62 billion.
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Finally, could Dallas-based AT&T spin off DirecTV? That’s what UBS analyst John Hodulik suggested in a report out last week.
An AT&T spokeswoman wouldn’t comment on the report.
Hodulik said DirecTV is the weakest piece of the AT&T puzzle and its sale could help cut debt (to the tune of $25 billion), would yield tax benefits (given the cost basis of the asset) and boost AT&T’s stock price, thus narrowing its valuation gap with Verizon.
The analyst thinks Dish would make a likely buyer, as the combination of the two similar companies would create substantial synergies. He said AT&T could start with selling part of DirecTV to Dish, much like it did when it sold 53% of its Yellow Pages business to Cerberus Capital in 2012 (AT&T sold its remaining interest in 2017).