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  February 24, 2012
Top Stories
Canadian Shift: Fortis Buys CH Energy for $1.5B

CH Energy Group announced this week that it has entered into a definitive merger agreement with Fortis Inc., Canada’s largest investor-owned distribution utility company. Under the terms of the deal, Fortis will acquire CH Energy Group for $1.5B, including the assumption of approximately $500M of debt. In the all-cash transaction, common shareholders of CH Energy Group will receive $65 for each share of parent company Central Hudson Gas & Electric Corporation’s stock. The offer represents an approximate 10.5% premium above CH Energy Group’s closing stock price on February 17, 2012.  The price is also approximately 10.4Xs its 2011 EBITDA. The transaction is expected to close Q1 of 2013, subject to regulatory approvals and other customary closing conditions.

European Materials: Carlisle Cos. Buys Hertalan Holding
for $50M

Carlisle Cos. Inc., will acquire Hertalan Holding B.V., in a deal valued at $50M. Hertalan is a manufacturer of rubber roofing membranes and industrial components, with annual sales of approximately $33M. Hertalan operates facilities in Kampen, the Netherlands, and Baia Mare, Romania—with 130 employees. Under the terms of the deal, Hertalan’s operations now serve as part of Carlisle’s construction-materials segment, as the new division will complement the Germany-based PDT single-ply roofing business it acquired in August. The transaction is subject to customary closing conditions, including regulatory approval.

Mideast Outlook: UAE's Abraaj Capital to Acquire Aureos

Abraaj Capital announced at the beginning of the week that the firm will acquire specialist fund Aureos Capital.  The acquisition is the latest bid by the Middle East's largest PE firm to expand its geographical footprint. Aureos Capital Limited is based in the U.K. with approximately $1.3B in assets under management—providing expansion and buy-out capital to small and medium-sized businesses across Asia, Africa and Latin America. Aureos is active in more than 50 emerging markets with 17 regional funds. Financial terms of the deal were not disclosed.

Courting a Deal: Grubb & Ellis in Bankruptcy

Grubb & Ellis, which filed for bankruptcy, has agreed to sell almost all its assets to BGC Partners, Inc. This week the company listed its $150M in assets and $167M in debt in a Chapter 11 filing. The company had approximately 12,000 sale and lease transactions last year and manages over 250M square feet of property.  According to the filing, Grubb & Ellis failed to find a buyer outside the bankruptcy process. BGC Partners also agreed to provide a loan of as much as $4.8M to the real estate company to keep it operating during the bankruptcy process. Among Grubb & Ellis’s largest unsecured creditors is U.S. Bank N.A. Corporate Trust Services—trustee for holders of $32.1M in 7.95% convertible senior notes due in 2015. The company has asked the court to set a March 9, 2012, deadline for preliminary bids in the formal auction, tentatively scheduled for March 21.

Breaking the Mold: Key Plastics Sells

Key Plastics, L.L.C., a global supplier of automotive components, announced the completion of its sale of a portion of its European operations.  The management buy-out—effective February 16—has resulted in the newly formed Innovative Components Technologies GmbH.  Under the terms of the deal, the new German Company is owner and operator of the following facilities: Wachtersbach, Germany; Lennestadt, Germany; Kierspe, Germany; Tachov, Czech Republic; and Borja, Spain. Key also retains operations in 12 European locations, as well as its locations in the United States, China, Japan and Mexico. Key's core businesses include the engineering and production of automotive handles, bezels and clusters, mechanisms and air registers, highly decorated trim components, and select precision-molded engine compartment products.

Pipeline Professional

Need a Senior Lender in the healthcare sector?  Try reaching out to Norman Smith. Smith is a Vice President at CIT Healthcare LLC. His bank offers comprehensive financing solutions and advisory services to companies across the healthcare industry by providing: cash-flow loans for acquisitions and refinancing, asset-based loans, M&A advisory services, real estate debt bridge financing, capital lines of credit, and arranging and syndicating multi-lender facilities.  CIT’s key subsectors include: long-term care facilities, home care and hospice, hospitals and health systems, physician practice management, outpatient facilities, pharmaceutical and medical technology, and healthcare information technology.  You can reach Smith here on our M&A Advisor network.

 

Metrics Meter

M&A acquisition activity among hospitals and provider systems experienced an upswing in 2011, with the number of M&A deals rising 3.4% to 92 transactions, up from 89 deals in 2010, according to Modern Healthcare's 18th Annual M&A Report.  The total number of all hospitals on both sides of the transaction, however, fell 6.6% to 212 hospitals in 2011, down from 227 in the previous year's tally, in part because of fewer large multistate deals.

 

Healthcare for Healthy Deals

Roger's Corner
by Roger Aguinaldo

Well, folks, here we are halfway through Q1 of this New Year and, as you might guess, last year’s metrics are rolling in.  Before we get to those, though, as we reported in our February 10, 2012 Metrics Meter, there were $227.4B worth of M&A deals in healthcare, representing an 11% increase from the previous year 2010.  Those numbers are important because the sector is one of a few that experienced an increase in 2011.

As reported by ThomsonReuters, we are facing some serious headwinds as we enter 2012. “As of February 2, 2012, global-announced M&A has totaled US$ 120B, down 62% in deal value and 36% in deal count from the same period in 2011, and the lowest levels since 2003 when announced M&A totaled just US$ 89B.”

Some of the drag is, as one might expect, a result of what is happening across the pond. “European year-to-date M&A totaled just US$ 22.1B, down 67 % from 2011 and the lowest year-to-date levels since 1996.”

At least for the start of the year, it is one step forward and one step back—notice, though, only one step back.  According to ThomsonReuters, “Global Debt Capital Markets activity accounted for 73% of all deal activity across all capital markets asset classes in January (of this year), the highest levels since January 2003 when levels reached 80%.  Despite positive gains against other asset classes, debt capital markets activity has fallen 13% from levels seen a year ago.”

In keeping with Brazil’s anticipated flurry of deal activity this year, ThomsonReuters reports, “Petrobras’ February 1st  US$7.2B debt offering represents the largest ever for a Brazil-based company. The issue represents the 6th largest on record by a BRIC issuer. Including its January 2011$5.9B offering, Petrobras now owns two of the top three all-time Brazilian debt issues.”

So there is some global context.

Returning to healthcare’s bright spot, 2011—as measured in financing dollars—was the sector’s fourth biggest year in the past decade, with only a slight decrease in the number of deals announced in 2010 (3%), for a total of 980 for 2011, down from 1007 transactions in 2010.

Of the 13 healthcare sub-sectors, the highest growth rates in deal activity from 2010 to 2011 were in: rehabilitation, laboratories/MRI/dialysis, managed care, medical devices and long-term care. According to Irving Levin Associates, Inc., “Managed care and long-term care also saw positive growth trends in deal volume, led only by physician medical groups, behavioral health.”

NewImage

Source: Irving Levin Associates, Inc.

Click on picture to view chart

Recently, Sanford B. Steever, Ph.D., editor of The Health Care M&A Report, said in a statement, “In particular, we expect to see strong deal making in the four technology sectors as well as in facility-based service sectors, such as hospitals and long-term care. Despite the rhetoric of repeal, hospitals and other providers will keep pursuing mergers and acquisitions to assemble the component parts for building accountable-care organizations.”

Dealmakers in the sector should be interested in rehabilitation facilities, as these deals posted a gargantuan 465% increase in M&A dollar volume to $1.3B. Why?  Because, despite declining government reimbursements, opportunistic deals are available for companies that are large enough to have their own provider networks which can be filled out when acquiring these facilities.

The lab subsector, which includes MRI and dialysis facilities, reported $5.6B in deals last year—or a 145% increase. These deals were driven by several large acquisitions for dialysis clinics.

For dealmakers and others who cover this sector and its myriad of subsectors, Europe’s debt crisis will likely result in U.S. companies leading the healthcare M&A market this year.

Driving Deals

Deals are being driven in healthcare because the industry’s healthcare providers are working to develop fully integrated services—as cost pressures mount amid economic challenges. Underpinning deals in this sector, here in the U.S. specifically, is the reality of a political year that leaves much uncertain in terms of healthcare reform.
Mark Reiboldt, Director of Financial Advisory Services for Coker Capital Advisors, was recently quoted as he argued that targets may be changing. "(Healthcare organizations) realize the options: they can buy a competing hospital, but that requires hundreds of millions and has to be financed. … So, a lot of [lead organizations] are going back and looking at their strategic plans and realizing that buying a hospital isn't what's needed. Instead it's, 'How can we shore up our physician alignment and physician relations and fill the gaps and spend just a few million?”

Who and Where

U.S. dealmakers should look for healthcare deals by region, and in urban and metropolitan areas. Most deals will likely be based in the Southeast, Northeast, Pacific Northwest and parts of the Midwest. California, for example, is too highly regulated for a lot of deal activity.

Profit and non-profit organizations are also teaming up, as target concentration is the name of the game for cost-conscious dealmakers and their clients.
Private equity sponsors who want to enter this consolidating market need experts—as Reiboldt was also quoted as cautioning, “[This year] everyone involved in these transactions will need to look at the synergistic value of these ventures. You may not make money on a [medical practice's] volume, for instance, but the more aligned the organizations are, the more likely the volume is to get pushed [to the other organization].”

PE Likes Healthcare IT


PE firms interested in this complex sector are drawn to IT deals, as 22% of healthcare IT and pharma mergers and acquisitions in 2011 were financed by PE, venture capital and other investment firms, according to investment bank Berkery Noyes.

Said Jon Krieger, Managing Director at Berkery Noyes, “Private equity firms oversee $3T in global assets and due to the global economic challenges, 30% of that is sitting on the sidelines waiting to be invested. A lot of that money is going into the U.S. healthcare IT market to capitalize on current adoption trends and above-market growth rates. We’re seeing a lot of interest from both strategic and private equity buyers looking to acquire private HIT companies to penetrate the healthcare market. Their ability to leverage existing customer bases, industry knowledge and relationships often enable them to accelerate the growth trajectory of the companies they acquire.”

Middle-market dealmakers will note that automated processes are designed to remove time and cost from a very expensive administrative system. And investors see the potential upswing in the space as they actively look for key targets.

Added Krieger, “Despite weak capital spending by hospitals and health insurers, healthcare IT is the top budget priority for both providers and payers.”

Overall, be it IT or facilities, this sector is likely to remain a healthy one for middle-market professionals, especially in the context of Europe’s slowdown.

CELEBRATING 14 YEARS


The M&A Advisor was founded in 1998 to offer insight and intelligence on middle-market activities. In 2002, the first M&A Advisor Awards were presented to the year’s top professionals in M&A, financing and turnarounds.

Since that time, The M&A Advisor Awards have become synonymous with excellence in dealmaking. Each year we recognize the leading transactions by innovative firms and individuals whose acumen is exemplary.

In the year ahead, we are continuing the tradition of honoring the accomplishments and the contributions of the industry’s leading firms and professionals with the following annual awards programs:

M&A Advisor 40 Under 40 Regional Recognition Awards
May-June 2012 - New York, NY; Chicago, IL;
Los Angeles, CA
The 2nd Annual ACG New York Champion's Awards
June 2012 - New York, NY
M&A Advisor International M&A Awards
October 2012 New York, NY
M&A Advisor Awards
December 2012 New York, NY
 

   
    M&A Advisor Sweet Spot™

     First Call For Nominations: 3rd
      Annual 40 Under 40 Regional       Recognition  Awards
      Nomination Deadline - March 9

      The 2nd Annual ACG New York
      Champion's Awards - Nomination       Deadline -  March 30

      Upcoming Event LeapGrowth:
      Achieving Growth in Challenging
       Times - February 29




Q&A

Larry Aschebrook

Peaking Early

Is it possible to peak too soon?  In Larry Aschebrook’s case, the answer to that question is a resounding yes or no, depending on which career one is referring to. 

Under 40 and a nominee for our 40 Under 40 Awards, Aschebrook is CEO and Founder of Gentry Financial Corporation.  He began his career in the financial industry by raising capital for private companies. 

But before we get to his current success, his firm and what drives him, folks should know Aschebrook is already on his second career.  To be precise, he is already on his second successful career. 

Aschebrook started off as a collegiate administrator for college campuses, raising money and building sports facilities, working successfully for eight years.  A seemingly perfect job for a guy who began playing football at age five.  That was until he realized, because of his age, he was not likely to advance to the next level in his then-chosen profession for another 10 years.  For an aggressive athlete who had been on the football field as a young boy all the way through his college years, the prospect of waiting was not to be—as hard work was instilled in Aschebrook from very early on.

In his early years, until the age of 15, Aschebrook lived on the western slope of Colorado on his family’s large cattle ranch.  After age 15, until college, he grew up in north central rural Wisconsin—again working on another family farm.  The hours on a farm—like the hours in finance—are early and long.  The seasons and other conditions are heedless to any notions of respite; just one reason, perhaps, why Aschebrook earned his MBA from the W.P. Carey School of Business at Arizona State University, working his contacts he had developed in his first career to build Gentry Capital.

Another explanation for his success: fear.  As Aschebrook says in his own words, “I am more driven by the fear of not succeeding versus the thrill of the win, which I think drives most successful people.”

Aschebrook—has leveraged that drive—and now serves as the managing member of Gentry, overseeing all aspects of the firm’s business practices. He also is a successful businessman in his own right—owning multiple businesses. Should any of those successes fail to impress, bear in mind that Aschebrook founded his firm during the headwinds of the financial crisis, during which time he acquired a small wealth management firm—from which investment banking engagements began percolating. 

Today, the firm has several verticals besides its investment bank and M&A advisory work, including its broker-dealer arm and venture capital wing.

With just a slight hint of embracement and discernible modesty in his tone, Aschebrook says, “At the risk of sounding way too romantic, I founded the firm to make investments in technologies that would last for years to come.” Green technologies, that is.
 
Like his investments in green technologies, Aschebrook intends to grow his firm organically and through acquisitions, following the William Blair and JP Morgan early investment banking models. 

His early mornings, if he is working out of his head office in Chicago—the firm now has another location in New York—begin with his walk from the north end of Michigan Avenue to North Michigan Avenue.

To understand more about his success, we caught up with Aschebrook by phone with these questions. 

M.A.: How do you measure success in each of the verticals your firm serves?

L.A.: Each has their own metrics.  For investment banking (Gentry Capital Advisors), we have succeeded when we have successfully assisted small and midcap businesses by completing engagements, exceeding expectations, and executing transactions.  For our VC firm (Gentry Venture Partners), we provide growth capital to disruptive clean energy technology companies while benchmarking our LP’s with an above-average risk-adjusted rate of return.   In our wealth management division (Gentry Private Wealth Management), we pride ourselves on client retention, performance versus growth of assets under management.

M.A.: What is your average investment or fund size?

L.A.: Our Clean Energy Fund, Gentry Venture Partners, targets $6-$10M per investment. Our investment bank, Gentry Capital Advisors, has successfully acted as placement agent on transactions ranging from $10-$75M.

M.A.: When searching for growth, what do you look for in a company?

L.A.: Strong management team, differentiating technology and clear execution strategy.  

M.A.: When surveying the clean energy market, what are some variables that most matter in this complex investment environment?

L.A.: Investing in clean energy technology is very complex. Our approach simplifies the complexity. We look for the “best in class” companies in all areas of the clean energy supply chain. With so much of the typical success in clean energy reliant on government subsidy, we focus on the technologies that work without the support of the government.  All of our clean technology companies have a possibility of getting to grid parody without subsidy. Finally, we invest in disruptive technology companies with enormous market potential.

M.A.: Is there a particular technology in the clean energy space that you folks are funding that you are really excited about and why? 

L.A.: We are fortunate to have great portfolio companies that are led by outstanding CEO’s. So it’s almost impossible to single one out. I will say that Glori Energy could make the most immediate impact on our everyday life as oil consumers. Glori is a “Green” oil company. Conventional oilfield technology typically extracts only one-third of all discovered oil, leaving significant crude underground. Glori Energy’s technology, the AERO™ (Activated Environment for Recovery of Oil) System, may extract an additional 30-45 percent beyond that obtained from traditional processes. This is the key to Glori’s ability to extract substantial crude oil from wells at low cost. With oil remaining part of the energy mix for the foreseeable future, Glori’s technology increases production from mature fields without having to drill a single new well. Glori is getting tomorrow’s oil from yesterday’s wells, allowing us to become less dependent on foreign oil.

M.A.: You mentioned personal attention as a key service your firm provides on the wealth management side.  What is one unique aspect your firm provides to your clients in the way of personal service? 

L.A.: We meet face to face with each client every quarter. Our wealth managers are all fee based, meaning they don’t earn a commission. We are an independent advisor with no allegiances to certain funds, fund managers, or custodians. This way our wealth managers provide the clients with advice without conflicts of interest. We make more money when the client makes more money. We believe that all firms should manage money this way. Eliminate the conflict of interest, do what is best for the client, and keep up with clients’ needs and investment interest with in-person meetings. We like to say we sit on the same side of the table as our clients.

M.A.: What do you like most about M&A work?

L.A.: Helping businesses achieve their goals. Whether that includes a sale, an acquisition, restructuring, IPO, capital raise, or advisory, the satisfaction comes from making a difference and getting the assignment across the finish line. Our tag line for the firm is “Invest, Advise, Achieve.”

M.A.: When working with your PE partners, what is one trend that has changed the structure of investments today?

L.A.: Thinking globally is a must. Cross-border transactions are happening more frequently than ever. We truly do live in a global business environment. The past few years have seen greater volatility in global currency markets. With business transactions not only transcending borders but continents, it is important to understand the currency risks and political risks involved in global investments.

M.A.: Please tell us a little about the Gentry team.

L.A.: The Gentry team is made up of talented people that all take a personal interest in the business, in our clients, and in one another. Our business is more than a job for the Gentry Team; it is the place where we all work together to achieve something great and long-lasting.

M.A.:  Thanks, Larry.  And best of luck to you as a 40 Under 40 Awards nominee!


The M&A Alerts is published bi-monthly by The M&A Advisor
Roger Aguinaldo, CEO and Founder
Phone: 718.997.7900 • info@maadvisor.com

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