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A drop in 2nd quarter mergers and acquisitions

While mergers and acquisitions in Maryland fell 31 percent from the previous quarter and 40 percent from the corresponding period last year, one local company has continued to make nine-figure deals.

Hunt Valley-based Sinclair Broadcast Group Inc. acquired Irvine, Calif.-based Freedom Communications’ television division for $385 million. The acquisition includes eight stations and gives Sinclair ownership of two television stations each in the West Palm Beach, Fla., and Albany, N.Y., markets.

Before the recession hit about five years ago, private equity firms were buying television stations at high rates and effectively priced Sinclair out of the market, said David B. Amy, executive vice president and chief financial officer for the company. About a year and a half ago, the private equity firms started taking their television assets to market, he said.

“We said we would wait for better pricing, and, sure enough, better pricing came along,” said Amy, noting that Freedom is owned primarily by private equity firms and had wanted between $400 million and $500 million for the stations.

“We bring a lot of operating strengths to these stations that the private equity guys simply don’t have, so when we buy them we’re really able to improve their bottom line performance,” Amy said.

The company is “always looking,” and is focused on adding NBC-, CBS-, ABC- and Fox-affiliated stations — the country’s top four broadcast networks— to its portfolio, he said.

The Freedom deal closed only months after Sinclair doled out $200 million to New York City-based Cerberus Capital Management LP for the purchase of Four Points Media, a group of seven television stations. With more than 60 television stations, Sinclair is one of the country’s largest broadcasting groups and owns Fox-affiliated

Channel 45 and CW-affiliated Channel 54 in the Baltimore market.

According to data compiled by Bloomberg Financial exclusively for The Daily Record, 38 deals involving Maryland companies closed in the second quarter of the year, compared with 55 during the first quarter of 2012 and 63 in the second quarter of 2011.

The mergers and acquisitions include completed deals in which Maryland companies were the buyers, sellers or targets. The second quarter’s deals were worth $802 million, compared with $13.1 billion in deals that closed in the first quarter and $3.8 billion in the corresponding quarter of 2011.

Deal count tends to provide a better comparison than deal value, because not every company makes the sale terms public. In the first quarter of 2012, the $10.2 billion takeover of Baltimore’s Constellation Energy Group by Chicago-based Exelon Corp. skewed the numbers. Deal count is also subject to how various organizations define mergers and acquisitions and the search capabilities of their systems.

“The downward tick in M&A activity, I don’t think it has any relation to lack of capital, because there’s plenty of capital out there,” said Larry A. Davis, partner and founder of Aronson Capital Partners, a Rockville-based merger and acquisition advisor to companies that work with the federal government. “I think it’s more just concern and discipline around business fundamentals.

“The primary driver for that has been the uncertainty of the federal budget. … There’s a lot of uncertainty of where these companies are going in terms of revenue.”

Still, cyber, health care information technology, military intelligence and big data continue to see activity, Davis said.

“The idea is there is a substantial amount of cost in the health care system that can be eliminated by eliminating excessive fraud, waste, abuse and overuse,” he said.

“IT is one of the keys to doing that by being able to better analyze data. … The whole concept of big data — the ability to analyze massive amount of data — lends itself to solving some of the health care challenges.”

CodeRyte Inc., a 130-employee health IT firm based in Bethesda, was acquired by St. Paul, Minn.-based 3M Health Information Systems for an undisclosed amount.

The acquisition will allow 3M to use CodeRyte’s natural language processing technology — a form of artificial intelligence that allows computers to understand human language — in its new 3M 360 Encompass System. That system aims to increase efficiencies between multiple ways of documenting and coding healthcare information.

In the same sector, Somerset, N.J.-based health care information technology company Medical Transcription Billing Corp. acquired Medical Management LLC of La Plata.

The acquisition is the third for the New Jersey company this year and is “part of a larger trend of consolidation within the revenue cycle management and technology segments of the health care industry,” Stephen Snyder, the company’s president, said in a statement at the time of the deal.

There were a total of six deals that closed in the biotechnology, pharmaceuticals and medical care sector in which Maryland companies were involved as buyers, sellers or targets.

RLJ Lodging Trust, a Bethesda-based real estate investment trust, was the most active of Maryland’s firms, closing three deals in the second quarter for a total of $182.7 million in new properties.

At the end of May, the firm closed a $64.5 million deal to acquire the 187-room Residence Inn Bethesda Downtown and an $82 million deal for the 226-room Courtyard New York Manhattan/Upper East Side. At the end of June, RLJ Lodging Trust acquired the 278-room Hilton Garden Inn San Francisco/Oakland Bay Bridge for $36.2 million.

Despite RLJ Lodging’s doings, real estate investment trusts have not been very active in the early part of the year, said Michael Salinsky, a Cleveland-based senior REIT analyst at RBC Capital Markets.

“There hasn’t really been a whole lot of M&A activity in the space. … We’ve seen a pick-up on the lodging side a little bit more, as of late,” he said.

The slowdown is likely caused by hesitation to sell as many hoped the economy was on a course for recovery, he said.

“It was really just a function of not seeing a whole lot of product on the market. The REITs have access to capital and REIT valuations are high,” Salinsky said. “As concerns about the economy resurface, I think you’ll see more and more selling.”

Pebblebrook Hotel Trust of Bethesda also increased its holdings, paying $30 million for the 108-room Hotel Milano in San Francisco. Bethesda-based The Meridian Group Inc. closed on a $49 million deal for One Ballston Plaza. The 143,000-square-foot office building is located in Arlington, Va.

On the sell side, Corporate Office Properties Trust of Columbia sold two buildings in Rockville, known as the Rockville Corporate Center, for $48.7 million. The 222,000 square feet of office space were fully leased at the time, but the sale is part of the company’s “Strategic Reallocation Plan,” which went into effect in April 2011 and is a concerted effort to shed “non-strategic assets,” according to a statement by the company.

So far, COPT has sold $193.5 million in properties under the plan, with $116.9 million of that sold this year.

Concern about the sun-setting capital gains tax cut also goes hand-in-hand with a desire to close deals, said Stuart Smith, a managing director in M&T Bank’s Investment Banking Group who works with mergers and acquisitions.

“We’re working on some transactions right now, where people are saying to me, ‘We need to be done by year end,’” said Smith, adding that he and his team have seen the most activity among real estate, financial and information technology companies.

Smith, whose team looks at data provided by S&P Capital IQ, said that 61 deals closed in the second quarter in which Maryland companies were the target. That compares with 52 in the first quarter.

In addition to the uncertainty that lies ahead with the capital gains tax, deals will continue to increase as baby boomers retire and, in some cases, sell their companies, he said.

That, paired with business owners who have weathered a recession and don’t want to do it again, should mean more activity as the year continues and companies that are in an upswing “[take] advantage of strength.

“You never know where the top is — and it’s always great to try to sell at the top — but if you miss the top, you might really miss,” Smith said.

DEALS OF NOTE

India Globalization Capital Inc. buys Iron Ore Mine for $4.4 million

In the quarter’s only international deal involving a Maryland company, materials and infrastructure firm India Globalization Capital Inc. of Bethesda acquired an iron ore mine site in Inner Mongolia for $4.4 million. The site is adjacent to the firm’s three existing mines in the area.

Regency Furniture Inc. buys Marlo Furniture for an undisclosed amount

Waldorf-based Regency Furniture acquired Marlo Furniture, which had stores in Laurel, Forestville, Rockville and Alexandria, Va. Regency has seven stores in Maryland, Virginia and Washington. With estimated sales of $97 million, Regency was 57th for 2011 on an annual report of the top 100 highest-grossing U.S. furniture retailers. Marlo, with estimated annual sales of $38.6 million, was 100th, according to the report by Furniture/Today, an industry news site.

Sandy Spring Bancorp Inc. buys CommerceFirst Bancorp Inc. for $24.77 million

Sandy Spring Bancorp of Olney acquired CommerceFirst Bancorp of Annapolis, and its subsidiary, CommerceFirst Bank, in a $24.77 million stock and cash deal. The acquisition will add approximately $205 million in total assets, $181 million in gross loans and $180 million in total deposits, before purchase accounting adjustments, to Sandy Spring’s books. Sandy Spring has 43 offices in Maryland and Virginia. CommerceFirst Bank operates five full-service branches in Anne Arundel, Howard and Prince George’s counties.

Sinclair Broadcast Group buys Freedom Communications’ TV division for $385 million

Months after dishing out $200 million for Four Point Media, a group of seven television stations, Sinclair bought the television arm of Irvine, Calif.-based Freedom Communications for $385 million. The acquisition includes eight stations and gives Sinclair a duopoly in the West Palm Beach, Fla., and Albany, N.Y., markets.

 

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