Any list of the five most important deals so far this year requires someone’s subjectivity. So, here we go again, turning to a handful of Texas attorneys who worked on the most transactions in the period to weigh in on exactly that.
Some of them picked their own, of course (we allowed them to). Others picked deals they did not work on but they deemed significant –– and said something about deal flow.
On a market-wide basis, Sidley partner Sara Garcia Duran says that deal activity is down significantly overall, driven in large part by heightened market uncertainty and tightening — and more expensive —debt conditions (see our story “H1 2023 M&A: ‘Meh’ Numbers Worth More than a Shrug”). But there are still some deals that are making it past the finish line.
“Strategics with cash on the balance sheet are in a good position to buy right now, though there is an increased focus on price discipline that we didn’t see in 2021, for example,” she says. “What I call the ‘no brainer’ deals, which are the ones with obvious strategic or technological importance, are finding a way to get done as are the smaller deals, which don’t require new debt.”
Without further ado, in no particular order, are the deals they picked.
July 13: ExxonMobil’s $4.9B purchase of pipeline operator Denbury
Oil giant ExxonMobil Corp. agreed to acquire Denbury Inc., a developer of carbon capture, utilization and storage solutions and enhanced oil recovery, for $4.9 billion in stock.
The deal, which had been rumored since October, makes sense for Exxon as Denbury’s 1,300 miles of CO2 pipeline would have been difficult, costly and time-consuming for it to replicate across the high emitters along the Gulf Coast, analysts at Capital One Securities wrote in a note.
For Denbury, it makes industrial sense to be part of a larger company that can execute and accelerate the timeline, according to Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co.
The transaction marks one of the first significant public M&A deals where carbon capture and storage assets make up the bulk of the value – about $2.8 billion, according to analysis by Enverus Intelligence Research.
Steve Gill, the Vinson & Elkins partner who led from Denbury’s side, notes that the deal, along with the Oneok-Magellan and the Chevron-PDC transactions, have been studied in C-suites within the midstream, upstream and energy transition sectors.
“It’s difficult to not draw an inference that they have caused people to sharpen pencils around M&A strategy,” he says.
Davis Polk counseled ExxonMobil led by partners Louis Goldberg, Oliver Smith and Shanu Bajaj in New York. ExxonMobil’s general counsel is Craig Morford while Jim Matthews is GC at Denbury and a former V&E partner.
May 14: Oneok’s $18.8B acquisition of Magellan Midstream
In one of the top five largest transactions in the country in the first half, Tulsa natural gas transmission giant Oneok agreed to acquire crosstown energy infrastructure rival Magellan Midstream for $18.8 billion.
The acquisition notably boosts Oneok’s scale and potentially signals more deals to come, according to Truist Securities analyst Neal Dingmann.
“We view the deal as largely positive given the relatively low valuation versus recent deals and the potential earnings growth profile of the assets all while maintaining largely solid financial,” the analyst wrote in a note to clients.
Oneok branching out into the oil business should also deliver significant cost savings, added Dingmann, who thinks that the complementary nature of the assets could result in the company hitting at least $200 million of operational synergies once the two become fully integrated.
Like the Chevron-PDC deal, buyers are once again willing to consider premiums to get deals done, according to Sean Wheeler, a partner at Kirkland & Ellis who led the Oneok deal. (The transaction included a more than 20% premium at the time of announcement.)
“This is a change of pace after two-plus years of low or no premium deals in the energy sector,” he says. “Companies are once again looking for growth through acquisitions.”
The Latham & Watkins team advising Magellan was led by Houston partners Ryan Maierson and Kevin Richardson.
June 26: Vista sells Apptio to IBM for $4.6B
Confirming a Wall Street Journal report, IBM reached an agreement with Austin-based Vista Equity Partners to purchase Apptio Inc. for $4.6 billion.
The deal represented Big Blue’s largest acquisition since it bought Red Hat in 2019 for a $34 billion (including debt) – and more than a doubling of Vista’s money in five years.
Bellevue, Wash.-based Apptio is a developer of financial and operational IT management and optimization software. More simply put, it helps business executives manage their software investments, particularly cloud costs, at a time when companies are cutting their technology budgets amidst challenging macro conditions.
The purchase is expected to accelerate the advancement of IBM’s IT automation capabilities with such well-heeled Apptio clients/partnerships as Amazon Web Services, Microsoft Azure, Google Cloud Platform, Salesforce, ServiceNow, Oracle and SAP.
Software is key to IBM’s story, according to a recent BofA Securities report, but the firm estimates that Apptio is only expected to contribute 2 percent sales growth to software segment in 2024 and about 1 percent to the overall company.
Paul Weiss was outside counsel to IBM led by corporate partners Steven Williams, Laura Turano and Scott Barshay in New York while Kirkland represented Austin-based Vista led in part by corporate partner Brittany Sakowitz in Houston and Austin.
Sakowitz also assisted Apptio on its purchase of Cloudwiry Inc. in Austin this past December for an undisclosed sum. And Kirkland also advised Vista on its $1.94 billion purchase of Apptio led by partners out of New York, Boston and the Bay area.
March 20: Sempra Infrastructure’s launch of the Port Arthur LNG Phase 1 project in Texas and a sale of an interest to KKR
One significant event was Sempra Infrastructure’s launch of the Port Arthur LNG Phase 1 in Texas in March, a project with capital expenditures estimated at $13 billion.
The transaction entailed a joint venture between Sempra and ConocoPhillips, the sale of an interest to KKR (between 25 percent to 49 percent) and $6.8 billion in non-recourse debt financing.
The Sempra press release was short on specifics, but a SEC filing reveals that KKR would fund its equity share of pre-closing development costs in excess of $439 million. KKR already owns a 20 percent equity stake in Sempra Infrastructure, so it was natural that the private equity firm would want to buy in.
The project featured gobs of law firms, including Baker Botts for Sempra (led by in part by partner Jason Bennett) and Latham & Watkins for ConocoPhillips (led in part by partner Ravi Purohit). Simpson Thacher M&A partners Breen Haire and Shamus Crosby handled the acquisition for KKR. And Sempra Infrastructure Chief Legal Officer Carolyn Benton Aiman oversaw it all in-house.
May 22: Idex’s acquisition of Iridian Spectral Technologies for $122M
The first half saw megadeals slowing down in favor of more middle-market and smaller sized transactions, and those are the deals propping up M&A activity, according to Sidley partner Sara Garcia Duran.
“There are plenty of deals in the pharma/life sciences, technology, industrial, energy and insurance/financial services sectors, in particular, still successfully closing,” she said.
She worked on one, Idex’s acquisition of Iridian Spectral Technologies for C$150 million ($112 million). Idex CEO and president Eric Ashleman said the addition boosts the company’s offerings in its core markets and allows it to expand into new ones.
“[The deal is] a perfect example of the kinds of strategic M&A transactions that have been successful for corporate buyers” Sidley’s Duran said.
Duran has worked on other Idex deals, including its purchase of Muon Group from European PE firm Robeson Capital last year for €700 million ($771.8 million) and Airtech Group in 2021 for $470 million. There are bound to be more to come.