Exclusive: M&A in Texas Hits 10-Year High During H1 2014 – Updated

© 2014 The Texas Lawbook.

By Mark Curriden – (July 7) – Merger mania has hit Texas and it appears as if it is going to stay for a while.
Texas-based companies were involved in at least 255 mergers, acquisitions, joint ventures and divestitures during the first half of 2014 – a 30 percent increase over the first six months of 2013, according to Mergermarket, an independent global M&A research firm that produced the data exclusively for The Texas Lawbook.
The 255 deals are the most of any two consecutive quarters over the past decade and it surpasses the total amount of M&A in 2009.
Corporate lawyers and investment bankers in Texas say they have never been busier and they predict the second half of 2014 may be even better.
“The M&A boom is definitely back and it looks like it has legs that could be sustained for a while,” says Ken Menges, the managing partner of Akin Gump Straus Hauer & Feld’s Dallas office. “The pipeline of new deals not yet announced appears to be quite robust.”

While deal count has skyrocketed, the value of the 255 transactions was $45.5 billion – down from $65 billion for 196 deals during the first half of 2013, according to Mergermarket. But the 2013 numbers were skewed due to the inclusion of the $20 billion deal that took Round Rock-based Dell Inc. private.
The 255 deals only include M&A targets that are based in Texas, meaning that transactions by three of the most active energy companies in the region – Aubrey McClendon’s American Energy Partners, Chesapeake Energy and Devon Energy – are not included because they are based in Oklahoma. Nearly all of those deals are handled by corporate lawyers in Dallas or Houston.
In addition, transactions in which Texas companies acquire non-Texas businesses – for example, AT&T’s announced acquisition of DirecTV for $65 billion – are not included. Neither are mergers and acquisitions between private companies that are not made public.
“This is the most sustained recovery on M&A that we’ve seen since before the recession,” says Scott Cohen, a corporate partner at Jones Day in Dallas. “I like what I see, but I always want more and I’m always afraid it will end.”

Cohen says the surge “crosses virtually all industries,” including energy, food, healthcare, chemicals and technology. One of the more high profile non-energy deals came in January when the private equity firm Apollo Global Management purchased Irving-based Chuck E. Cheese for $1.3 billion.
Menges points out that the Affordable Care Act, aka Obamacare, has created a resurgence in deal-making among healthcare companies seeking to add services offering new types of medical devices or offer uses of new technologies.
“The credit markets are wide open and financing is readily available,” says Andrew Calder, a partner at Kirkland & Ellis in Houston. “It is an exciting time. It feels like 2006 again.”

While most business sectors have witnessed increased M&A activity, this is still Texas, where oil and gas reign.
“Our healthcare group is swamped, our consumer products and food folks are very active, and, of course, energy deals are going crazy,” says Rick Lacher, managing director of investment banking for Houlihan Lokey in Dallas. “People are simply more bullish on the economy, money is readily available and that makes for a good M&A market.”
About 75 percent of the 255 public deals were in the energy sector.
“Our transactional lawyers have been busier than we’ve seen in recent memory,” says Keith Fullenweider, who leads the M&A and private equity practice at Vinson & Elkins in Houston. “A lot of things seem to be going right at the same time.”

Fullenweider points out that public markets are demanding “purer plays” among energy firms, which is forcing many oil and gas companies to sell non-core assets that do not fit within their strategic plans.
As an example, Fullenweider points to Canada-based Encana Corp., which sold $1.8 billion in natural gas assets in Wyoming to Fort-Worth-based TPG Capital on March 31, only to use that cash five weeks later to purchase $3.1 billion in Eagle Ford shale assets from Freeport-McMoRan.
At the same time, private equity firms have become even more aggressive in snatching up assets viewed as strong long-term investments.
“2013 was a record fundraising year for private equity firms, diversified funds and mega-funds and now those firms are searching for places to invest,” says Chris Rowley, an M&A partner at V&E in Dallas.
“We are also seeing a lot of new energy deals that are private and are not included in the Mergermarket data,” says Rowley. “For example, we have seen private equity funds also backing private energy management teams with equity lines of credit to help them grow organically.”
Robin Fredrickson, an oil and gas partner at Latham & Watkins, says her practice group “has been killing it” handling all the joint ventures – an increasing number of them private, she says – involving private equity firms or foreign-based energy companies.

“Last year, we saw deal-making among the upstream E&P companies slow down and the midstream pipeline and oil services companies significantly increase,” says Fredrickson. “The midstream companies are still dealing and the upstream companies are back, too.”
Menges says the increasing strength of the IPO market has provided an additional punch.
“When the IPO market improves, the M&A market increases, and when the M&A market increases, the IPO market improves even more,” says Menges.
Chad Watt, an M&A expert at Mergermarket, says that corporate lawyers and investment bankers are the huge financial winners in the M&A surge.
Mergermarket data shows that V&E was involved in 35 of the 255 deals, while Jones Day (23), Latham (22) and Kirkland (20) followed.
Goldman Sachs, Evercore Partners and JPMorgan took the top financial advisory spots, though boutiques such as Houlihan Lokey and Tudor, Pickering, Holt were the financial advisors in a growing number of deals.
Menges offers a warning.
“I worry that there is now an M&A fever or an exuberance similar to the pre-Lehman collapse days,” he says. “The good news is that most of today’s investors have the scars and experiences from those days and they have become a lot more diligent in their deal-making.”

© 2014 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.

If you see any inaccuracy in any article in The Texas Lawbook, please contact us. Our goal is content that is 100% true and accurate. Thank you.