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Medical and real estate sector deals dominate fourth quarter

Fourth-quarter mergers and acquisitions were dominated by medical and real estate sector deals, but overall activity slowed from the third quarter of 2011.

According to data compiled by Bloomberg Financial exclusively for The Daily Record, 30 deals closed in the last three months of the year, compared with 38 during the third quarter and 57 in the fourth quarter of 2010.

Nine of this quarter’s deals were acquisitions of property and four were in the medical, pharmaceutical or biotechnology field. Only three deals involved private equity, the same number as the previous quarter but two-thirds less than in the first half of the year.

The mergers and acquisitions include completed deals in which Maryland companies were the buyers, sellers or targets. The deal count included those that had reported transaction amounts and also tabulated property transactions by real estate investment trusts.

For deals where the sale amount was reported, volume in the fourth quarter totaled $2.4 billion. This compares to $4.2 billion reported in the first quarter of 2011, and $2.8 billion in the final quarter of 2010.

The decrease in Maryland followed a nationwide downward trend that spanned the year. According to a quarterly report released last month by MergerMarket, a subsidiary of the Financial Times Group, the value of deals nationwide decreased by 9.3 percent from the third to fourth quarters. Still, 2011 saw a 14.4 percent increase from the previous year in the total value of deals, according to the report.

Among possible reasons for the decline in the fourth quarter is the uncertainty in the economy in the early part of the year.

“People thought we were in recovery at the beginning of the year, but then the economic outlook worsened with the crisis in Europe and the crisis in America with the debt-ceiling negotiations,” said Richard Clinch, director of economic development at the Jacob France Institute of the University of Baltimore. “With the capital markets being so uncertain during the second and third quarters, the deals now are the ones being looked at then.”

Quarter’s biggest deal

In the quarter’s biggest deal, Astrium SAS, a subsidiary of European aerospace and defense company EADS, acquired Rockville-based satellite communications company Vizada Inc. for $875.84 million in cash. The deal closed on Dec. 19. Other defense sector deals included the $90 million all-cash acquisition of Seabrook-based defense informational technology provider Worldwide Information Network Systems Inc. by Virginia’s ManTech International Corp.

Bethesda-based Lockheed Martin Corp. acquired SIM Industries BV, a Dutch commercial aviation simulation company. Massachusetts-based defense firm Raytheon Co. bolstered its cybersecurity capabilities with the acquisition of Columbia’s Henggeler Computer Consultants. Both deals were for undisclosed amounts.

As the Department of Defense considers more budget cuts, Maryland may see an increase in defense sector deals.

“Mergers and acquisitions are going to be odd in the near future because what drives the Maryland economy is government contracting, and the Department of Defense has already announced it’s going to lower the budget, the question is how much,” Clinch said.

Fewer contracting dollars to dole out means businesses may have an increased interest in merging because “[they] can’t gain market share by growth in a stagnant market. What used to be strategic partnerships often becomes mergers,” he said.

The expected downturn in defense dollars means businesses that typically received contracts will decrease in value and become more attractive to acquire, he said.

The quarter’s second-biggest deal was the creation of Marriott Vacations Group Worldwide Corp., an Orlando-based spinoff of Bethesda’s Marriott International Inc. In November, Marriott Vacations Group was established as a separate, publicly traded entity. All of the company’s outstanding shares when it went public, valued at $581.55 million, went to Marriott International shareholders.

The highest value reported for a medical-sector deal was the $250 million acquisition of TheraCom LLC, the Rockville-based former pharmaceutical arm of CVS Caremark Corp., by Pennsylvania-based pharmaceutical services company, AmerisourceBergen Corp.

In a $93 million deal that closed in November, Illinois-based radiation science and services company Landauer Inc. acquired Owings Mills-based IZI Medical Products, a manufacturer of medical devices used in radiology and radiation therapy. Texas-based diagnostic test manufacturer Vermillion Inc. acquired Correlogic Systems Inc. for $435,000 in cash. Correlogic, which is based in Germantown, manufactures ovarian cancer diagnostic tests.

Biotechnology deals in which the details were not made public include the acquisition of Rockville-based Ariadne Genomics, which specializes in creating software to study genes and proteins, by Amsterdam-based biotechnology company Elsevier.

Operating companies are accounting for more deals than private equity firms, said Ronald Kerdasha Jr., a group senior vice president in the Baltimore office of Cole Taylor Business Capital.

“The dynamic that’s going on now, strategic buyers have a greater upside when they buy another manufacturing business because they can realize synergies and cost-saving measures in pretty short order,” he said.

One such strategic move is the acquisition of Bethesda-based Intelliworks Inc., which specializes in software and services to maintain the relationship between students and universities, by Cincinnati-based Hobsons, a university and college recruitment specialist and subsidiary of British media conglomerate the Daily Mail and General Trust.

Facebook and WhoGlue

Social media giant Facebook Inc., whose initial public offering filed Feb. 1 could value the company at between $75 billion and $100 billion, bought WhoGlue Inc., a Baltimore company that develops social networking software for private groups, such as alumni associations. The details of the November acquisition were not disclosed, but WhoGlue maintained some assets and has reorganized as WhoGlue LLC. The first interaction between the two companies had been less amicable, when WhoGlue sued Facebook in 2009 for patent infringement. The suit was resolved in 2010.

In an equally synergistic deal, Silver Spring’s Discovery Communications Inc. acquired independent British production company Betty for an undisclosed amount. Betty is the company behind shows such as “Freaky Eaters,” which features people with unusual eating habits and explores the psychological and nutritional issues associated with their diets.

Vistaprint NV, the marketing and promotional material company that started as a business card manufacturer, ventured into the online platform with its $117.5 million purchase of Webs Inc. Webs, which is based in Silver Spring, is a website-building service that helps small businesses design their own pages through templates. More than 40 million users have launched their own pages since the company started in 2001. The deal was paid for with $100 million in cash and $17.5 million in restricted shares.

Real estate investment trusts, which had been very active in the first three quarters of 2011, continued snapping up properties, including an 89.9 percent controlling interest in Montrose Crossing by Rockville’s Federal Realty Investment Trust. The deal for Montrose Crossing, a 357,000-square-foot shopping center also in Rockville, is valued at the $127 million.

Bethesda-based LaSalle Hotel Properties, a hotel REIT, acquired The Villa Florence Hotel in San Francisco for $67.2 million in cash. RLJ Lodging Trust, also a Bethesda-based hotel REIT, acquired the 176-room Courtyard by Marriott Charleston Historic District hotel from Noble Investment Group for $42 million.

Omega Healthcare Investors Inc. of Hunt Valley acquired three unnamed nursing homes in Maryland and West Virginia in a deal valued at $44 million. The company paid for the deal with $14 million in cash and will take on $30 million in liabilities.