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Maryland mergers and acquisitions surge in 1Q

Bucking a national trend, Maryland mergers and acquisitions rose almost 25 percent in the first quarter of 2012 compared with the last quarter of 2011, with the increase largely driven by the biotechnology, pharmaceutical and medical sector.

Abba David Poliakoff, a partner at Gordon Feinblatt LLC, says economic uncertainties caused many companies to conserve cash and resources.

According to data compiled by Bloomberg Financial exclusively for The Daily Record, 55 deals closed in the first three months of the year, compared with 45 during the fourth quarter of 2011 and 68 in the first quarter of 2011.

The mergers and acquisitions include completed deals in which Maryland companies were the buyers, sellers or targets. The count includes those that had reported transaction amounts and also tabulated property transactions by real estate investment firms. Bloomberg revised its data methodology from the previous quarter to provide The Daily Record with more comprehensive information.

The largest acquisition in the first quarter was Chicago-based Exelon Corp.’s $10.2 billion takeover of Constellation Energy Group, which was Baltimore’s last Fortune 500 Company. That deal cleared its final regulatory hurdle in March, when it received approval by the Federal Energy Regulatory Commission. It had been in the works for nearly a year.

Bloomberg bases its value for a stock offer such as the Exelon-Constellation deal on a 20-day average of the stock price prior to the deal’s announcement date, and also includes the debt assumption in the value. Bloomberg’s calculation method results in a higher deal value than the $7.9 billion figure The Daily Record had previously reported.

The Exelon-Constellation transaction increased the volume of first quarter deals in which the value was disclosed to $13.1 billion. That compares with $2.8 billion in the final quarter of 2011 and $4.3 billion in the first quarter of 2011.

“The banks are lending, so that’s a different story than it was six months ago,” said Bill Wiley, a principal with Wiley & Associates Inc., a Towson-based mergers and acquisitions firm. “From our perspective, the economy is not looking too bad.”

Wiley said his firm has seen an increase in activity from both companies looking to buy and companies looking for capital.

“It’s kind of a two-prong thing. We’ve got three [Maryland-based] companies that have enough cash to acquire and then we’re looking for four companies to find financing for further expansion,” he said.

National, foreign trends

Nationally, 2,499 deals closed in the first quarter, a 7 percent decrease from 2,685 in the last quarter of 2011 and a 1 percent decrease from 2,532 deals in the first quarter of last year.

The energy, mining and utilities sector deals dominated the beginning of the year, accounting for 26.3 percent, or $29.8 billion, of transactions, according to a quarterly report released this month by MergerMarket, a subsidiary of the Financial Times Group. The second and third most active areas were the industrials and chemicals sectors and the pharmaceutical, medical and biotechnology sector, respectively, according to the report.

Globally, there was also a decline.

“All the literature tells you that this last quarter has been the lowest for mergers and acquisitions in any quarter since three years ago in 2009, and that’s not only a function here in the U.S., but it’s also in Europe. In fact in Europe it’s even more depressed,” said Abba David Poliakoff, a partner at Baltimore-based law firm Gordon Feinblatt LLC.

The decrease in mergers and acquisitions can potentially be chalked up to uncertainty in the economy, which is causing companies to conserve their cash and resources, said Poliakoff, whose practice includes mergers and acquisitions. Companies that are involved in deals are looking to fill a niche.

“They are making increasingly smaller acquisitions, where a company tries to fill out a particular market space that it feels it can accomplish by an acquisition,” he said.

Such strategic moves included Constellation’s $22.5 million acquisition of Oklahoma-based retail natural gas company ONEOK Energy Marketing Co. The acquisition brought Constellation customers in Wyoming for the first time, as well as increased its customer base in six other states in the middle of the country.

Beltsville-based Vocus, a cloud-based marketing and public relations software firm, added another niche to its business with the $99.06 million acquisition of North Carolina-based iContact Corp., an email marketing software company.

Private equity’s role

The state’s busiest sector was biotechnology, pharmaceuticals and medical care. Fifteen deals closed in this sector in the first three months of the year, including the second largest deal where the value was disclosed.

California-based biotechnology firm Amgen Inc. acquired Rockville-based Micromet Inc. in a $901.8 million transaction. The California company paid $11 per outstanding share of common stock for Micromet, which specializes in cancer treatments.

St. Louis-based Sigma-Aldrich Corp., a supplier of chemicals to research laboratories, acquired Rockville-based BioReliance Holdings Inc. Sigma-Aldrich paid New York-based Avista Capital Partners $350 million in cash for the deal.

BioReliance, a contract research provider for biomedical and pharmaceutical companies, has labs and sales operations in the U.S., the United Kingdom, Japan and India, and employs more than 650 people worldwide.

Maryland increased its position in healthcare internationally when Rockville-based OriGene Technologies Inc., a biotechnology company specializing in gene-based diagnostics tests and treatments, acquired Beijing Zhongshan Golden Bridge Biotechnology Co. Ltd. OriGene acquired the Beijing-based maker of cancer diagnostic products for an undisclosed amount.

Private equity continued to play a role in first-quarter deals. Though it accounted for 14 deals — the same number as the last quarter of 2011 and only two deals fewer than the first quarter of 2011 — the volume of the deals surged.

There was $867.5 million in private equity involved in deals that closed this quarter, compared to $376.8 million in the last three months of 2011 and $377.4 million in the corresponding quarter of 2011.

“There’s a lot of private equity money,” said Mark Rohde, senior vice president for strategic advisors at Columbia-based JBP Partners. “Financial buyers are increasing, but a lot of what they do in their approach is not mass market but trying to find out who the strategic and financial partners are in that state.”

More deals coming?

Rohde, whose firm’s activity is in sync with Maryland’s trend of increases in deals, said he is seeing strong activity among companies that do government contracting, such as cyber and intelligence technology.

Bethesda-based defense contractor Lockheed Martin Corp. acquired Utah-based Procerus Technologies LLC for an undisclosed amount. Procerus is a maker of autopilot systems, particularly for unmanned vehicles.

Virginia-based ASI Government Inc., a consulting firm for the public sector, acquired Maryland-based Frontline Solutions Corp., also for an undisclosed amount. Founded in 2006, Frontline provides intelligence analysis and information technology services to the federal government.

With several tax cuts set to expire at the end of the year, including one for long-term capital gains, Rohde said an increase in deals may also be coming.

“It’s really the uncertainty of taxes that may make people consider ‘Is now a good time to sell?’” he said, noting a similar push that happened in late 2010, before Congress extended the tax rate.

Other areas of the market also showed strong activity, with eight property deals, seven technology sector deals and six real estate deals closing during first quarter.

The biggest disclosed real estate deal was the $396.2 million acquisition of New York’s Park Central Hotel LLC by Bethesda-based real estate investment trust LaSalle Hotel Properties. LaSalle also bought the Hotel Palomar in Washington, D.C. for $143.8 million.

Marriot International boosted its properties as well, buying the Clock Tower Building in New York City for $165 million. The iconic Madison Avenue structure will become of the company’s EDITION hotels, a brand created in partnership with developer Ian Schrager.

Eight deals occurred in the communications sector, including Silver Spring-based Discovery Communications Inc. and Hunt Valley-based Sinclair Broadcast Group Inc. increasing their holdings.

Discovery, which last quarter bought British production company Betty for an undisclosed amount, continued its international activity by acquiring a 20 percent stake in Televista SA, a French television company specializing in programming for women.

Sinclair doled out $200 million to New York City-based Cerberus Capital Management L.P. for the purchase of Four Points Media, a group of seven television stations. Three of the stations are in Florida, two are in Utah, one is in Massachusetts and one is in Texas.

Sinclair began operating the stations in October, while the companies waited for the Federal Communications Commission to approve the deal.