Prosecutor Details Duties, Crime in County

Romankow describes challenges of law enforcement in speech to men's club.

November 10, 2010
By Ken Tarbous

Union County has more than 2,000 gang members, county Prosecutor Theodore J. Romankow told the Old Guard of Summit during the club's meeting Tuesday morning at New Providence Municipal Center.

The western part of the county, including New Providence, Summit and Berkeley Heights, has much less of a problem than Plainfield, which is home to 800 gang members and Elizabeth, where at least 600 live, Romankow said.

"We know there are a lot of gang members we don't know about," Romankow said. "Elizabeth has many more gang members than has been documented."

Romankow and his staff of attorneys, detectives and analysts have been actively combating gang activity and the related drug distribution and homicides that go with it. As part of its ongoing efforts, the Union County Prosecutor's Office has won 350 convictions of major drug dealers, Romankow said.

Besides gang activity, the prosecutor spoke passionately about his background as an attorney, his experience fighting crime and putting away criminals, and his office's responsibilities.

In its push to tackle the homicide problem in Union County - there have been 23 this year, up from last year's 13. Romankow said that he has strengthened the prosecutor's homicide task force has been strengthened to include seven attorneys and 16 detectives.

In addition to investigating murders and other homicides, Romankow's office also is responsible for investigating child abuse. The prosecutor described in graphic detail the physical and sexual abuse children suffer at the hands of abusers.

Last year alone, 400 new files on the abuse of children age 12 and under were opened, and there were more than 650 reports of sex crimes and abuse of children 13 and over in Union County, he said.

"It's incredible what these people do. I tell people, 'If you don't believe in the devil, come to my office for about a week,' " Romankow said. "It's incredible what they do to these kids."

But Romankow, who oversees all of the police officers in the county, said there is more to his job than just convicting bad guys.

His has more than 260 employees in his office, which has an annual budget of $28 million, and he leads 68 assistant prosecutors, 75 detectives and other staff in helping keep the streets safe.

Last year, the Prosecutor's Office reviewed approximately 7,000 cases that resulted in an estimated 1,500 indictments, 1,500 plea deals, and 1,500 downgrades of charges that were handled by municipal courts, the prosecutor said.

"My job isn't just to prosecute these," he said. "We have other areas where we can do some good as well."

In his position, Romankow has championed an initiative to make the legal system more humane in its treatment of people with mental illnesses.

His efforts helped lead to the establishment of a mental health court in the county, and now the recidivism rate for offenders with mental illnesses has been reduced to just 25 to 30 percent, way below the national average of 90 percent, Romankow said.

"I am to the right of Attila the Hun when it comes to punishment. I just think there are some things that just should not be forgiven," he said. "But when it comes to mental illness…we need to do something."

He said it wasn't only the right thing to do but that it could save taxpayers the $65,000 per year it costs to keep people with mental illnesses in jail.

During his talk, Romankow told the audience his career as a crime fighter almost didn't happen. In 2002, he was considering retirement after a long career in private law practice when then Gov. Jim McGreevey offered him the job. Romankow felt he could be effective in pursuit of justice. And he said he enjoys the work.

"This is actually fun, and they pay me," he said.

Romankow spoke at the 3,605th meeting of the Old Guard of Summit, which celebrates its 80th anniversary next week. The club bills itself as a "retired men's organization" for men over 50, and it draws its membership from New Providence Summit, Chatham, Berkeley Heights and other surrounding communities.

The club holds weekly meetings on Tuesday mornings at New Providence Municipal Center, where featured speakers talk about relevant issues of the day. This week's meeting was attended by 112 members. The club boats an active roster of 150 members, with the rolls totaling nearly 350 men, according to Membership Chairman John McCloskey.

"We're doing a lot to replenish the membership, because in the past guys have been dying and moving on," McCloskey said.

Next week's Old Guard meeting features retired New York City police officer Richard L. Cowan, a club member who will speak on "Wasteland and Beyond: Anatomy of Undercover Cops."

For more information on the Old Guard of Summit, go to summitoldguard.homestead.com or contact McCloskey at (908) 233-0236.

Thoms Concedes Support for Park Sale Led to Defeat

But outgoing mayor says agreeing to sell the Oakwood Park to Union County was the right decision for the borough.

November 4, 2010
By Ken Tarbous

Incumbent Mayor John Thoms, who failed in his bid for re-election to a second term, acknowledged Tuesday night that he lost the mayoral race because he backed the proposed sale of Oakwood Park to Union County.

"I made the decision to support the park because it was in the best long-term interest of the borough of New Providence," Thoms told NewProvidence.Patch.com. "At that time, I did not think of the political consequences, and if I had to do it all over again I still think it's the best long-term decision for the borough of New Providence."

Councilman J. Brooke Hern defeated Thoms by a nearly 2-to-1 margin. That was about the same as the losing margin for the non-binding ballot question on whether to sell Oakwood Park to the county for $1 and a commitment by county freeholders to make $3.5 million worth of improvements to ball fields and other facilities in the park.

Resident Sherry Zabel said the mayor's misstep in casting the deciding vote in favor of the park deal cost him the election.

"I think John Thoms didn't lose to Brooke Hern, he lost to Oakwood Park," Zabel said. "I think he made a mistake. Maybe he should have brought it to a town vote."

Shortly after 9 p.m. Tuesday, Thoms, who was elected four years ago as a Republican but failed in his bid for re-election to a second term as an independent, thanked the nearly 50 family members and friends gathered at the William Paca Club. Thoms also congratulated his opponent, Hern, on the victory.

"We've got some significant challenges in New Providence," Thoms said in his concession speech. "I wish our new mayor well. Let's get behind our new mayor, our new council because we've got some tough times coming up ahead."

Thoms' supporters said the outgoing mayor was handicapped by the decision of the borough's Republican Committee to endorse another candidate this past spring. When that candidate, former Mayor Al Morgan, lost in the June primary to Hern, Thoms decided to run as an independent.

"I'm very disappointed. John worked very hard as mayor. Unfortunately we had to run off the [Republican Party] line," said Bob Dougherty, an advisor to Thoms and a former New Providence GOP chair.

Thoms' supporters, while praising the man and the job he has done as mayor, lamented the actions of the party establishment in a town with an all-Republican council.

"As long as he got one vote he was a winner, because the bureaucrats cut him off as a governing mayor," said 82-year-old lifelong borough resident Nicholas Perillo. "He should have been No. 1 on the ballot. He had to run as an independent. He's been a great mayor."

A decorated Vietnam veteran, Thoms reflected on his years as elected official in the borough.

"I worked hard for the residents of New Providence not only as a mayor but as a councilman going on seven years of service to the town, probably in the worst economic crisis we've had since the Great Depression," said Thoms, who served three years on the borough council before his election to mayor. "I did the best I could in coming up with innovative ways in dealing with the challenges we had."

New A&P Draws Raves. Parking Lot? Not So Much.

Residents, town official concerned about safety at growing Village Shopping Center

November 4, 2010

By Ken Tarbous

Many residents are thrilled to have the new A&P Fresh supermarket in the Village Shopping Center, but for some residents, navigating around the parking lot is proving to be a difficult task.

Residents say they love the downtown location and have even been able to find parking spots. But the spots they're finding in the busy area are giving them longer walks to the store than they were used to when the Acme market was in the shopping center. Residents with small children, however, say they're struggling to deal with narrow driving lanes and a lack of traffic signs, among other concerns.

"I think it's a mess. I think it's dangerous for people. It's dangerous for the cars," said Erin Skotarczak, a mother of three who has lived in the borough for a little more than a year. "There are so many ways to get in and out of that lot. I just don't think there's any rhyme or reason to that lot. It's just very dangerous."

Adding to the confusing flow of traffic are the multiple parking lots behind McGrath's Hardware, M&M Liquors, Colorado Snow & Skate, and adjacent to Ferdinand Jewelers that feed into the Village Shopping Center. Drivers often use the South Street entrances and exits for those lots to access the center's lot.

Also fueling residents' frustration is the noticeable absence of corrals to catch carts left behind by shoppers. And in recent months, contractors' vehicles and garbage containers have crowded spaces near the free-standing building that houses Braunschweiger Jewelers. Smashburger, a Colorado-based restaurant chain, will open in the building this winter, bringing additional traffic into the parking lot. This Monday, an Allstate Insurance office will open its doors in the shopping center.

Councilman J. Brooke Hern said that spaces will be harder to get as time goes by and that the lot's configuration needs to be addressed to improve safety as more tenants move in.

"The parking situation is obviously bad. There is not really much that can be done to turn back the clock and achieve what would have been the right result, which would have been not to build that building [housing Braunschweiger Jewelers] in the center," said Hern, who is the Republican candidate for mayor in this year's election. "It really is a situation, I think, the town is just going to be living with, and it's going to get worse if and when those empty stores get filled."

For his part, the owner of the Village Shopping Center, Larry Paragano, is actively pursuing solutions to the traffic flow and safety problems, according to the center's property manager.

"We're going to tweak the flow of traffic from in front of the Investors Bank down through the cleaners. We're going to make that one way. We're going to put up a stop sign to impede some of the traffic," said Bill Woods, chief operating officer of Hazelwood Management Inc., which runs the Village Shopping Center for Paragano. "The actual traffic flow is now going to be refined. We didn't know what it was going to be until the A&P was open. We now see how the traffic is flowing. It's still a work in progress."

The owner will ask the borough Planning Board on Nov. 9 for explicit permission to add stop signs, make lanes one ways, add cart corrals, and perform other adjustments to the lot. Rather than go ahead with the work immediately, Woods said, the owner wants to avoid any bureaucratic hassles during or after the work.

In 2005, the borough changed its parking ordinance at the request of business owners, easing the number of parking spaces required per square foot at each store. In 2007 and 2008, when Paragano received approvals to expand the supermarket space and put up the "outbuilding" where Braunschweiger Jewelers is located, the town gave the center two variances to allow for fewer parking spaces.

Some downtown business owners say part of the parking problem is that the downtown district has reached its limit for land available parking, with little space for further expansion.

But Woods said he doesn't believe shoppers will have a problem finding places to park. He pointed out that approximately 130 of the center's 350 parking spots are behind the stores, accessible through two walkways, one next to Aladdin Cleaners and the other between Village Pet Center and the A&P.

Shoppers who have been frequenting the new supermarket agree there are plenty of spaces available.

"I am pleasantly surprised with how easy it has been to get a spot," said resident Ali Solomon. "Obviously, this might be temporary as new businesses file in, but for now no complaints."

Whether there are enough parking spaces to meet demand in peak parking periods, such as Christmas shopping season, is still being debated.

"I live in town and am in the new grocery store a least three times a week, and I have yet to have to circle to find a spot," said resident Kate Forbes. "I am sure it will get even busier as the new stores open, but it is great to see downtown thrive."

Mayor John Thoms, who has been in contact with Woods over safety concerns at the lot, said professional parking studies by the borough and Paragano found that the current number of parking space, including those behind the buildings, were found to adequate.

"Can people park right in front of the store like when they used to go to the old Acme, run into the place and then come right out and leave? No, they can't do that anymore because this is a popular shopping center now," said Thoms, who was elected mayor as a Republican but is running for re-election this year as an independent. "So they're going to park a little further away, but it's all within the confines of the center. So, far it's working."

The Village Shopping Center and its parking issues have a long history. The center was built in the early 1960s, and fell into what residents and business people call a state of disrepair over a 20-year period that culminated with the Acme supermarket leaving the center in summer of 2006. Paragano then began plans for his $6 million renovation of the center.

There also has been a long, ongoing dispute over the tangle of access to the parking lots behind buildings on South Street and Springfield Avenue and which customers use those lots. There has been an unofficial arrangement between the nearly dozen property owners along South and Springfield and Paragano to allow people to park in any lot regardless of where they shop. But under that arrangement the costs to maintain lots, clear snow, and meet other expenses are unfairly borne more by some businesses rather than others, owners in the area say.

Bill Ferdinand, the chairman of the New Providence Business and Professional Association's Downtown Improvement District and the co-owner of Ferdinand Jewelers on South Street, said an effort to form a single, consolidated parking lot fell apart a few years ago and that talks on reaching a formal, cooperative parking agreement have stalled.

Part of the difficulty in getting all sides to agree have been issues relating to two businesses, Feathers Hair Specialists and Avenue Deli on Springfield Avenue, that do not have their own parking lots and concerns over the large number of customers of Springfield Avenue and South Street businesses parking in the Village Shopping Center lot.

"What I would like to do, at some point, is possibly work something out with all the landlords and people on South Street," said Ferdinand said, who helped run the Downtown Improvement District's parking study. "Whatever is good for the town is going to be good for us."

Woods said the shopping center's owner would like to resolve the parking issues to the benefit of all the businesses in the area.

"We want to get a cooperative solution for all this downtown," Woods said. "We haven't seen any progress made since 2007, but now that the center is getting repopulated quickly [with new businesses] we're looking to have a solution that works for everybody downtown."

Meanwhile, business owners are celebrating a reinvigorated downtown shopping district which has been enjoying a renaissance of sorts since the renovation and in the brief time the new supermarket has been open.

"This shopping center's a huge upgrade. It's a huge part of the downtown, " said Bill Braunschweiger, owner of Braunschweiger Jewelers, who sees the need for adjustments in the parking lot. "This is as good as the place has looked since it was basically brand new in the mid-'60s, and it was a long time coming. It was truly an eyesore."

Middle-Market M&A Rebounds at Low End

Prices are rising, and deal volume is getting closer to precrisis levels.  Is this a true recovery or a blip on the M&A screen?

By Ken Tarbous

September 3, 2010

Ridgemont Equity Partners, a Charlotte, N.C., financial sponsor, has been an active buyer of companies worth $10 million to $100 million this summer and it has plenty of company.

Last month, Mill Road Capital of Greenwich, Conn., completed a $91 million acquisition of Rubio's Restaurants Inc. of Carlsbad, Calif., and Austin Ventures snapped up YRC Logistics, a Kansas unit of YRC Worldwide, for $38.7 million.

Dealmaking has picked up from a year ago and it is expected to remain lively at least for the rest of this year. Sponsors are allocating more money to lower-middle-market businesses, and improved debt markets are allowing buyers to borrow more. Also, some market players cite concerns about potential changes in federal tax policy as a reason for the pickup in the pace of transactions.

According to Thomson Reuters, there were 72 deals worth $4.8 billion in the lower middle market last month, compared with 65 deals worth $3.7 billion in August 2009. (These mergers and acquisitions generally involve companies worth $10 million to $250 million.)

Private-equity firms have $400 billion of capital on hand to invest, according to Deloitte Corporate Finance LLC, and more than 75% of the firms that have raised funds this year are targeting middle-market companies.

"We've got improved debt markets, you've got an inventory of deals that has built up during the economic downturn that people couldn't really sell, and you've got an improving economy that's incentivizing people to take that inventory out to the market," said Travis Hain, a partner at Ridgemont. "And finally, you've got potential tax incentives, depending on one's views on capital gains, and obviously there's a predominant view that capital gains is going up."

His firm, which Bank of America Corp. spun off last month, invests in basic industries, consumer and retail, energy, financial services, health care, and telecommunications, media and technology. This week, it announced it had bought a majority interest in the data network provider Unite Private Networks, and last week it said it had sold its interest in the fiber-optic broadband provider Fibertech Networks.

To some degree, the pickup in activity may be exaggerated by the sharp decline in M&A transactions that took place during the credit crisis; while the debt market conditions have improved, there is a cap on how much a sponsor firm can borrow. Others say the activity is being propelled by the simple fact private-equity funds get paid to put money to work.

In the second quarter, according to Thomson Reuters, there were 257 U.S. deals worth $17.7 billion involving companies with enterprise values of between $10 million and $250 million. A year earlier there were 199 such deals worth $10.7 billion.

GF Data Resources, which collects data from more than 150 private-equity firms on transactions valued between $10 million and $250 million, reported a similar pattern among the financial sponsors it covers. In the second quarter, these sponsors closed 26 deals in the lower middle market, versus 16 in the first quarter and 15 in the second quarter of last year.

Private-equity sponsors and M&A bankers say that even though this year's volume does not match that of the heady days of 2005 to 2007 (a three-year period when, by some industry estimates, buyouts totaled more than $1.6 trillion), there are "record or near record" numbers of companies up for sale now, and those companies have a goal of closing deals this quarter or the next.

"If even a fraction of these deals get done, it will be a very interesting couple months," said Justin Abelow, a managing director of the financial sponsors coverage group in the New York office of Houlihan Lokey. "I think one of the things that's going to happen is that there'll be a tension between getting some of these deals done as M&A deals and just doing dividend recaps of one sort or another, particularly where people think they are not going to get their prices."

Hain says the backlog and the rush to market have a positive side.

"The good news for everybody is that this inventory of deals that built up over two or three years, they're all quality companies," he said. "The first companies that come out in this environment are the best companies. We're tending to see better companies, and there are some companies that, in certain circumstances, you can afford to pay higher prices for, depending on what a buyer thinks that you can add to the equation as a buyer and investor."

Valuations are returning to what dealmakers call more realistic levels. The multiples paid for companies in the lower middle market are on the rise, according to GF Data. The average multiple climbed from 5.1 times EBITDA in the third quarter of last year to 5.2 in each of the following two quarters to 5.6 in the second quarter of this year. Companies sold in the second quarter of last year fetched an average of 6.7 times EBITDA.

Hain says improved conditions in the debt markets have provided an impetus for deals this year. "The debt markets are facilitating transactions very actively, whereas the debt markets were a real impediment to deals last year."

In addition, the equity and debt structure of the deals has been stabilizing. Debt as a percentage of the average deal's capital structure increased to 42.4% in the first half of this year, versus 28.2% for all of last year, according to GF Data.

The equity percentage dropped from 59.0% last year to 53.3% in the first half of this year, but that's still "a high number by any kind of historical standard, so it shows that the overhang of equity capital that is still to be invested that has been raised by these private-equity sponsors, that there's a lot of pressure to deploy that capital," said Graeme Frazier, principal and co-founder of GF Data.

Market participants, citing proprietary data, pitch count and new assignments, say there might not be enough middle-market bankers and private-equity professionals to handle the plethora of deals in the market, and processes may be truncated as a result.

"This is as busy as that market has ever been, after a time of relative inactivity, and there may not be as many people in all parts of that market as there used to be, but there is much more activity," said one market participant, who asked not to be identified. "I think people are trying to push a lot of water through a relatively narrow pipe, and I think that pipe is near a bursting point."

Scoping the Tech Horizon

Small deals maintain momentum and observers wonder whether large caps are set to ramp up

By Ken Tarbous

March 5, 2010

For 23 years, Jeff Bistrong has found backers for telecom and technology companies on Boston's famed Route 128 and beyond, but the investment banker says he has more assignments now than at just about any other time in his career, including Wall Street's legendary dot-com era.

Nevertheless, the Harris Williams & Co. investment banker pointed out that not all bankers focused on the tech industry are in a similar situation.

"Is that because the market as a whole is broadly ramping up right now? The answer is no," said Bistrong, who mostly advises middle-market tech businesses.

The reason Bistrong is busy has more to do with the size of the companies that are looking to do deals these days. Last year, tech merger and acquisition activity fell more than 50%, according to a Dealogic study, and 84% of the work involved transactions worth $500 million or less — the type that keeps smaller firms like Harris Williams busy. The decline in the number and size of transactions prompted some bulge-bracket firms to branch out into smaller deals, but other large firms shrugged off business below a certain size (and a certain amount of fee income).

This year the average deal size may rise because the market expects some tech giants to make strategic acquisitions. Also, divestitures of lines no longer considered central to their owners will likely spur some activity in the industry. Another factor that may buoy M&A activity: a change in venture capitalists' expectations. Owners of a private company may sell it to another industry participant, instead of conducting an initial public offering.

"If last year was the year of hibernation, I think where we are at this very moment in time is the cave door has been opened, and people are walking out in front of the cave, but cautiously," said Drew Lipsher, a partner at Greycroft Partners, an early-stage digital media venture capital fund founded by Alan Patricof, an early funder of companies like Apple Inc. and America Online. "They're being cautious, and I think they're being judicious and … prudent."

Harris Williams, which opened an office in London late last year, has doubled its tech M&A team in the past 12 months, and it continues to recruit bankers for its West Coast operations. And it's not alone — other investment banks anticipate closing more deals this year, and they have added professionals to their tech teams.

Citadel Securities, the investment banking and M&A advisory arm that the Chicago hedge fund operator Citadel Investment Group opened last year, added Gopal Garuda and John Rhine as co-heads of technology investment banking in September. Last month JPMorgan Chase put Anwar Zakkour in charge of its technology M&A team.

Before joining Citadel, Garuda and Rhine worked at Bank of America Merrill Lynch, where they worked on AMD's $4.4 billion spinoff of Global Foundries in 2008.

"You have an alignment of increased appetite to put equity capital to work, increased leverage available in the market and increased valuations and cash positions on the part of corporates," said Bistrong, who is 48. "All that, we believe, combines to support material improvements in [tech] M&A volume in the first quarter of 2010 and probably ongoing improvements throughout the year."

For all the bullishness over tech M&A, no one seems ready to proclaim the market fully open, nor does anyone predict another banner year like 2007, when $193 billion of tech transactions were completed.

Industry participants like Lipsher and Bistrong say much of this year's transactions will be driven by large firms like Oracle, Microsoft, IBM, Hewlett-Packard and Cisco Systems, which have been waiting for market conditions to improve and valuations to return to "sane levels," meaning that sellers and buyers can come to a meeting point on price.

To date there has been one tech IPO this year, but several companies, including GT Solar International Inc., Force10 Networks Inc. and Convio Inc., are getting ready go public. Also, there have been eight high-yield offerings for tech businesses this year. This week the private-equity investor Thoma Bravo announced that its portfolio company Hyland Software, an enterprise content management software vendor, has acquired eWebHealth, a company that hosts medical records, in an all-cash deal. The price was not disclosed, but the fact that the buyer did not have to worry about financing made the deal easier to close.

"From a financing perspective, we were able to do it with internal resources at the company. As a strategic buyer, that obviously allows Hyland to get something done very quickly with a hundred percent financing certainty," said Seth Boro, a principal at Thoma Bravo, which has 10 software and other tech companies in its portfolio. "We're fortunate that most of our portfolio companies generate a lot of cash flow, allowing them to then make acquisitions. Thoma Bravo has a software technology portfolio that generates about $2.5 billion of aggregate revenue and $650 million of aggregate earnings."

Last year 107 tech M&A deals with a total value of $36 billion were completed, versus 195 deals valued at $77 billion in 2008. Almost 50% of last year's value involved deals completed in November and December, and some see that as a signal that activity will pick up this year.

Despite the preponderance of small deals last year, large deals still got done. Cisco bought Starent Networks Corp. in the networking infrastructure subsector for $2.9 billion. Adobe Systems bought the Web analytics powerhouse Omniture Inc. for $1.9 billion, and EMC Corp. bought the data storage firm Data Domain for $2.1 billion.

The 2009 deals included two worth $1 billion or more in the software sector, two worth more than $2 billion for Internet-related companies, and several with values ranging from $1.6 billion to $3.9 billion in information technology services.

This year, market participants expect a mix of tuckins and carveouts. They also expect much of the activity to be tied to digital media, infrastructure software, cloud computing (which uses the Internet and remote servers to store data and applications) and semiconductors.

"Carveouts are going to be a fairly big area of activity. As the economic slowdown hit, a lot of big companies needed to rethink their core businesses and have sought potentially to divest, close down and/or carve themselves up and really focus on their core businesses," said Charles Giancarlo, managing director and co-head of value creation at the private equity firm Silver Lake, which led the group that acquired a $2.1 billion stake in Skype Technologies last year from eBay Inc.

Giancarlo started Cisco's M&A practice in 1995, after it acquired Kalpana, where he had been part of the restart team.

So far this year, three tech M&A deals worth more than $1 billion each have been completed: Xerox Corp.'s $6.4 billion acquisition of Affiliated Computer Services Inc.; Oracle Corp.'s $7.3 billion buy of Sun Microsystems Inc., and United Technologies Corp.'s $1.8 billion acquisition of GE Security Inc.

On Feb. 9, Micron Technology Inc. announced it will acquire mobile data storage maker Numonyx Holdings BV from Francisco Partners, Intel, STMicroelectronics NV for $1.27 billion in stock.

M&A this year is helping to change the look of certain aspects of the tech industry. For example, distinctions have blurred between hardware, software and services companies as they have broadened their offerings through strategic acquisitions.

"Companies are going to continue to augment and diversify their capabilities to address broader end market opportunities. You have seen successful examples of this across a number of vendors, where they have built multi-capability platforms," said Ian MacLeod, a partner and head of global software and services investment banking at Qatalyst Partners LP, which was founded by the tech banker Frank Quattrone. "For example, would you call IBM a hardware company? Hardware is a minority of their business. … Their revenues and profits are largely driven from services and software today."

Though transaction volume is expected to rise this year, the majority of deals are expected to be valued at $500 million or less. That has some participants wondering if the larger firms that have branched out into smaller deals will continue to advise these companies, since boutiques have more flexible fee structures and are probably more willing to rush out for $50 million carveouts and $5 million financings.

But Mike Wyatt, head of West Coast tech M&A at Morgan Stanley, says it remains committed to a wide range of businesses. "In tech, there are a lot of small companies and a lot of start-up companies, so there just are more smaller companies, period."

Participants say small full-service investment banks like Jefferies & Co., Piper Jaffray and RBC Capital Markets, along with boutiques like Qatalyst, Lazard, Evercore Partners and Greenhill & Co., have garnered a chunk of assignments on transactions ranging in size from $50 million to $300 million.

"I have recently been told by some clients that … other firms would not dedicate senior, experienced resources on transactions with total aggregate value below given thresholds," said Rick Juarez, a managing director in the technology investment banking group at Morgan Joseph. "Typically, these thresholds were on transactions that generated $2 million or less in aggregate fees, and when they agree to take them, they often assign juniors [bankers] to the transactions."

But even with such a high percentage of deals worth $500 million or less, the bulge brackets are still getting their share. Morgan Stanley, Goldman Sachs, Barclays Capital, Citigroup and UBS topped the 2009 global tech M&A adviser league tables, according to Thomson Reuters data.

Meanwhile, market participants said that M&A this year could be kicked up if private companies back away from going public.

The market for IPOs, one of the traditional exits for tech firms, has been soft for the past few years. Last year there were 55 global technology IPOs, according to Ernst & Young. The IPOs have been priced at the low end of the transaction scale and have not traded well. Some have been pulled.

"There was this view that somehow the [tech] IPO markets were going to open up, but people have been talking about the tech IPO window for years, and it just hasn't materialized," said Jason Hutchinson, a managing director in Houlihan Lokey's San Francisco office and the head of the firm's technology group.

Nevertheless, participants say that banks are working on a huge IPO pipeline, and that many companies in "shadow" registration are preparing to register officially and go public.

Going public may be the gold standard for many entrepreneurs at tech start-ups, but to venture capitalists, success isn't necessarily defined by taking a company public.

"The bread and butter of nice VC-backed exits is the $50 million to $250 million range," said Kevin McClelland, co-head of software investment banking at JMP Securities. "If you look at a company that perhaps has $15 million to $20 million of invested capital, if you can sell that company for $150 to $200 million, yes, that can be a decent outcome. If a company has raised $100 million, that's not going to be a good outcome. A good outcome for a company that has raised $100 million is a billion-dollar exit."

IPOs Get Done But Many Miss Targets

Many public offerings are not hitting their price targets, but observers say that’s no cause for concern

By Ken Tarbous
April 30, 2010

Seven initial public offerings priced on April 21 — the most in a single trading session since November 2007 — but only three of the companies got the price they wanted.

As Wall Street underwriters see it, the inability to hit targets suggests that investors are challenging what is presented in deal prospectuses, particularly when it comes to valuing a young business.

"The first two months of the year were somewhat cautionary with price sensitivity from institutional investors," said Phil Drury, a managing director in equity capital markets and the head of Americas syndicate at Citigroup.

Specialists with Wall Street syndicate desks are not exactly worried about IPOs that are being completed below their target price range. For starters, getting any new company into the public markets is a big accomplishment after the new-issues drought of 2008 and 2009.

Nevertheless, only about half the deals that have come to market this year — 34 in all — have priced within or above their target range. Market participants say the companies that have gone public include small-cap businesses that are involved in life sciences or technology and need the money from an IPO to fund their cash-hungry businesses.

Dealmakers expect larger businesses from a wider range of industries to go public in the third and fourth quarters, and that may improve investor appetite and ensure that businesses sell their stock at or above their targets.

"The remainder of 2010 will be strong for IPOs, both because buyers seem to be interested in solid offerings, as well as the fact that the IPO backlog has more mature companies than usual," said Peter Falvey, co-head of technology investment banking at Morgan Keegan. "Without a decent IPO market, companies have tended to stay private longer and therefore are now more mature and arguably better positioned to execute higher-quality IPOs."

The three April 21 issues that hit their price targets were the software company SPS Commerce, the biotech company Codexis and the software maker DynaVox.

SPS had expected to sell 3.3 million shares for $11 to $13 each. It sold 4.1 million shares at $12 each, raising $49.2 million. Codexis, whose target range was $13 to $15 a share, sold 6 million shares (as it had expected) at $13 each. Its IPO raised $78 million.

DynaVox, whose target range was $15 to $17 a share, sold 9.4 million shares at $15 each. The offering raised $140.6 million.

The other four IPOs that day did not fare as well.

THL Credit, an investment firm taken public by Thomas H. Lee Partners, had planned to sell 13.7 million shares at $15 each. Instead, it sold 15.3 million shares at $13 each and raised only $199 million. Alimera Sciences, a biotech firm, priced 6.5 million shares (or 500,000 more than it had planned to sell) at $11, well below its target range of $15 to $17. The IPO brought in $71.5 million.

Global Geophysics, a gas and oil services company, expected to sell 11.5 million shares for $15 to $17 each. It sold 7.5 million at $12, raising $90 million. Mitel Networks, a communications company, expected to sell 12.1 million shares with a price range of $18 to $20. It sold only 10.5 million at $15 each, raising $147 million.

"It's definitely deal specific," Drury said. "Overall we think appetite is strong. Investors are working through their valuations on a name-by-name basis."

Bankers said people should not make much about the fact that seven deals came to market on a single day; most bankers chalked it up to coincidence. Typically, underwriters like to sell new issues on a Tuesday or Wednesday, because they like to interact with investors a day before the actual pricing. Also, deals set to set to price on a Thursday could hit snags that force them to wait until the following week, bankers said.

As of April 27, 34 IPO issues have made it to market in the U.S. this year, generating proceeds of $4.7 billion, versus 52 first-time equity issues that raised $16.7 billion in all of last year, according to Thomson Reuters. In 2008, 31 IPOs raised $26.7 billion.

Syndicate pros say it may be too early to proclaim a turnaround for the IPO market, even if broader equity indexes like the Dow Jones industrial average, the Standard & Poor's 500 and the Russell Small Cap have bounced back.

"It is difficult to know how long the IPO market will stay open. The IPO window tends to become more open or closed based on the overall health of the equity markets," said Falvey.

Nevertheless, the seven issues in a single day last week clearly raises hopes on Wall Street and in boardrooms that the IPO market has reopened, providing an important source of liquidity for venture capital firms and private-equity sponsors.

"We're operating in an environment currently where valuations have recovered and institutional investors are seeking returns through new issues," said Drury. "That's a meaningful turnaround from where we were 12 months ago."

Symetra Financial Corp., a Bellevue, Wash., financial services company took in $364.8 million in proceeds in its IPO, which was the largest so far this year as of April 27. Primerica, a financial services company spun off by Citigroup, had the second-largest, raising $320.4 million, followed by Generac Holdings, a Wisconsin generator company backed by private equity, with $243.8 million.

San Diego REIT Excel Trust brought in $210 million of proceeds in the largest issue to price last week.

Bankers say the traditional IPOs in the range of $500 million to $1 billion could make a return; many large offerings are expected to come from private-equity sponsors seeking to sell off companies in their portfolios. Large deals may benefit from the return of institutional investors like pension funds and endowments.

"The class of IPOs currently in registration, along with the recent acceleration of filings, provides a better look into the health of the market in the latter part of the summer and the rest of the year," said Brad Miller, global co-head of equity syndicate at Deutsche Bank. "The dialogue around some of the larger deals, such as the sponsor-related IPOs that may come in the third quarter and beyond, will be the real bellwether with respect to the depth of investor appetite and how well these deals are received and trade in the aftermarket."

This year, IPO registrations have jumped. At the end of first quarter, 80 companies had registrations on file with the Securities and Exchange Commission, according to Ernst & Young. They are seeking $11.4 billion, but 26 companies planned to raise $100 million or less.

A quarter earlier, 54 registrations were on file, with companies seeking $10.3 billion. On March 31 of last year, there were 44 registrations on file for $11.7 billion.

"In the tech sector, we're seeing many in the venture capital community and at various corporates now looking to access the capital markets," said Pete Chapman, co-head of Americas equity capital markets at Bank of America Merrill Lynch. "Generally speaking, the market has been extremely receptive to tech offerings given the propensity of strong visible cash flows, low leverage and solid growth."

Post-CIT Edgeview Takes Shape

New owners hope that being out from under a struggling parent will help the boutique attract both employees and customers

By Ken Tarbous
April 23, 2010

Just weeks after four bankers purchased their firm from CIT Group, dealmakers at Edgeview Partners say their independence will help them focus more closely on advising clients and they'll be adding staff.

The atmosphere in Edgeview's Charlotte offices has changed since the "reacquisition," said Bill Morrissett, a co-founder of the middle-market firm and one of its new owners. "A real sense of passion, a sense of mission" that filled the offices in the pre-CIT days has returned.

Morrissett said that Edgeview's professional staff totals in the mid-20s and should reach 30 by yearend as his firm brings on analysts fresh out of college and associates out of business school. As the M&A market strengthens and the firm grows, senior hires will be made, he said.

(In 2007, the firm had between 45 and 50 bankers; the credit crisis forced it to cut staff, and some professionals left on their own.)

Since the reacquisition was announced April 5, Edgeview has received five invitations to compete for business. That may suggest the market views the boutique differently now that it is independent.

Within a year after purchasing Edgeview in July 2007, CIT was swamped by the credit crisis. Last year, the specialty lender landed in bankruptcy court — producing the largest prepackaged court workout in U.S. corporate history.

Bringing Edgeview under the CIT umbrella was the brainchild of Jeffrey Peek, then the lender's chief executive. Initially, the synergies were evident; Edgeview would put together deals, and CIT would help finance them. That got tougher when CIT's own balance sheet deteriorated.

"It became extraordinarily problematic for us to try to conduct our business with clients with that [CIT's credit problems] as the backdrop," said Morrissett, who reacquired Edgeview along with David Patterson, another co-founder; Ted Garner, who joined Edgeview as a partner in 2002; and John Tye, who joined in 2003. (The price was not made public.)

CIT has emerged from bankruptcy, and former Merrill Lynch CEO John Thain now runs it. Even before the bankruptcy process was started in November 2009, Edgeview wanted to spring itself from the lending company.

"We simply felt that we needed to separate ourselves from CIT, not because of any broad generalities surrounding CIT, but very specifically because of the issues CIT itself was facing and how that was impacting and was likely to continue to impact our business," Morrissett, who had left Edgeview last fall, said in a telephone interview with IDD this week.

Edgeview's bankers built relationships with individual bankers at CIT, especially the leverage finance professionals, he said, and he believes the individuals will likely work with one another again on future transactions.

The boutique has ambitious plans for the future, but they are tempered by a cautious view of the state of the marketplace, given the M&A activity levels of the past several years. In 2006, the value of U.S. deals with enterprise value of $300 million or less totaled $153 billion, according to Thomson Reuters. The value of such activity fell 2.6% in 2007, to $149 billion. It fell another 20.8% in 2008, to $118 billion, and 41.5% last year, to $69 billion.

A large percentage of Edgeview assignments involve advising firms that are up for sale. It is targeting aerospace and defense, building products, business services and energy services companies. Its bankers also advise firms in areas such as applied technology and transportation and logistics.

Edgeview has no immediate plans to grow beyond its Charlotte office, but Morrissett leaves open the possibility of other locations eventually.

The boutique traces its roots back to Bowles Hollowell Connor, where the partners worked in the 1990s on a broad range of "generalist" mergers and acquisitions. First Union purchased Bowles Hollowell in 1998, and Edgeview was founded three years later.

Raynard Benvenuti, managing director at Greenbriar Equity Group, said Morrissett's return is a good sign for the firm. "As long as Bill Morrissett and the people I know are there, I would depend upon that team, and I have confidence in them." In 2006, Benvenuti was the CEO of Stellex Aerostructures, then a Carlyle Group company, when Edgeview advised Carlyle on Stellex's sale to GKN PLC.

Edgeview also earned praise from private-equity professionals for its ability to get high valuations for companies it is selling. In some cases, firms purchasing companies advised by Edgeview brought it on as an adviser for subsequent deals.

"They have always done such a good job selling companies. They got such good values that we always had a hard time buying something from them. It's easier to engage them to sell things for you than to buy from them," said Sam Shimer, a partner at JHW Greentree Capital, which hired Edgeview to advise on the sale of its portfolio company Jan-Pro Holdings to a group led by Webster Capital.

Shimer and other market participants said the association with CIT was immaterial for Edgeview clients, since CIT's ability to finance deals wasn't that much of a concern for the boutique's sell-side clients.

"CIT never got involved in financing any of the transactions that Edgeview was involved with for us," said Shimer. "So there was no benefit of that relationship. There was nothing incremental to us from CIT."

Edgeview had its most successful year in 2006, when it closed nearly 25 transactions with $2.5 billion of aggregate enterprise value. According to former employees, morale inside the boutique began to sink within six months after CIT purchased the business. When credit conditions worsened and CIT's financial health became more precarious, some would-be clients were wary of engaging Edgeview for advisory work, the former employees said, because they worried that problems at CIT could scotch potential deals.

"Frankly, given some of CIT's economic travails in the last year, that may have made me hesitant to use them," said one market participant who has engaged Edgeview for advisory work in the past and asked not to be named. "You're not going to want to kick off a sale process — it's a six- to 12-month process, soup to nuts — you have a hard time going with a group that might be part of a parent that's economically unstable."

A Decade Later, Chicago Corp. Reopens

Investment Dealers' Digest

Executives at the new Chicago Corp. see a sweet spot in the M&A advisory market: middle-market firms in the Midwest

By Ken Tarbous
April 16, 2010

Investment bankers have brought Chicago Corp. back to life in response to forecasts that the Midwest in general, and the Windy City in particular, will be a good source of deals involving middle-market companies.

The original Chicago Corp., which took Waste Management public, was co-founded in 1965 by Bob Podesta, who left four years later to become assistant secretary of the Commerce Department in the Nixon administration.

Now the new version’s employees, including veterans of the old Chicago Corp., plan to build a full-service investment bank with research, sales and trading to serve institutional investors. They say they can establish a foothold in the market for advising companies worth $100 million or less, because dealmakers at many large firms do not focus on middle-market businesses. They are using their Chicago address as a selling point for clients in the Midwest.

It operated for just over three decades and underwrote municipal bonds, corporate bonds and initial public offerings until ABN Amro bought it in 1997. The Dutch banking giant moved the firm to New York soon afterward. A year after the purchase, ABN Amro abandoned the Chicago Corp. name. The new version was started in February.

Last year dealmakers completed 260 mergers and acquisitions worth $56.5 billion involving middle-market companies in the United States.

“What … was really going to be an important need that had to be filled was providing the kind of advice that those companies are entitled to that they can’t get simply because of their size,” said Fred Floberg, a managing director and co-founder of the new Chicago Corp.

Brent Gledhill, global head of corporate finance at William Blair & Co., advises on the sales and purchases of middle-market and large-cap companies. “On the M&A front, the sub-$50 million deal value world is probably underbanked as a sector,” he said. “There is a very under served niche of smaller companies that exist across the U.S., not just the Midwest, that will support the new firms and small boutiques.”

The market that has caught the attention of Chicago Corp., William Blair, Robert W. Baird & Co., Brown Gibbons Lang, Houlihan Lokey and Greenhill & Co. and other firms is known as the Big Ten — a reference to the athletic conference based there — includes Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, Pennsylvania and Wisconsin. Dealmakers say these states are rich with small-cap companies, many family-owned, in a broad range of industries such manufacturing, health care, business services, financial services, transportation and warehousing.

“What marks this economy is its diversity. There are great universities that feed in entrepreneurial ideas: University of Chicago, Northwestern-Kellogg and DePaul and IIT [the Illinois Institute of Technology], which is strong in terms of business incubation,” said John Challenger, chief executive of Chicago placement consulting firm Challenger, Gray & Christmas Inc.

The new Chicago Corp. has 12 senior advisers and nine managing directors, including Phil Clarke III, the son of one of the original firm’s founders. It said it plans more hiring; last month it landed its first sell-side assignment and brought on its first financial consulting client. (The firm would not identify either client.)

Chicago Corp. will also offer M&A and restructuring advice. It will focus on public and private companies in industries like distribution and manufacturing, health care, technology, energy, environmental science and financial services.

Before resuscitating Chicago Corp., Clarke, Floberg, Stanley Cutter, Robert Gold, Rick Heyke, Bill Lear and Mike Zook were managing directors at Focus LLC, a Chicago firm specializing in financial consulting and M&A advisory services for middle-market companies. The executives said they got the idea of reviving Chicago Corp. while they were at Focus.

Clarke said the idea of bringing back Chicago Corp. produced a wave of nostalgia; dealmakers from the first version had stayed in touch after ABN Amro shuttered it, and they had at least one reunion.

Chicago Corp. is also drawing executives from elsewhere, including Thomas Denison, the founder and president of Denison Partners LLC, a provider of corporate finance advice to middle-market businesses, and Keith Walz, who was previously managing partner of Kinsale Capital Partners, a private-equity firm focused on middle-market companies.

In its original form, The Chicago Corp. raised money through sales of debt and equity for public and private companies and municipal governments.

The bank completed the sale of $10 million of subordinated debt for Sun Electric Corp. and placed 100,000 shares of common stock at $48.75 for multi-industry manufacturer Textron Corp., among its assignments in the 1960s.

John Guequierre, CEO of the modular home manufacturer Pleasant Street Homes LLC, remembers the original Chicago Corp. well and says the latest version will be well received. In the 1990s, when he was the president of another modular home company, Schult Homes Corp., Guequierre hired Chicago Corp. to help him raise money through a secondary offering. That was the first of several assignments he gave Chicago Corp.

“We were not a large company and would have been a mismatch for one of the large investment banking houses,” Guequierre said. “They have an expertise in a whole range of mid-market transactions, and they’ve got a really good understanding of the kind of business environment that those of us in midsize businesses have. There is an important market for that kind of service.”

IDD's 2010 "40 Under 40" - Scott Warrender

By Ken Tarbous
March 19, 2010

The lessons Scott Warrender has learned in the boxing ring have served him well in his career.

The managing director and sector head for oilfield services and downstream refining and marketing at Bank of America Merrill Lynch posted a winning record as an amateur boxer.

He once trained at the famed Gleason’s Gym in Brooklyn, and he fought in the prestigious Golden Gloves tournament.

“Investment banking, from my perspective, is very much a marathon and not a sprint,” Warrender said. “It takes significant effort over an extended

period of time, both during early career development and in building client

elationships at a senior level. That is why I think many people decide not to stick it through to the endgame.

“I think boxing was very much the same way. I saw a lot of folks who got into it, and before they possessed the requisite skills, they wanted to get into the ring to see what they could do. When the end result was inevitably bad, they quickly moved on to other pursuits.”

In late 2002, he answered the call to help B of A establish an oilfield services and refining and marketing franchise in Houston. He called on employees and resources from elsewhere in the Charlotte company to help in this effort, and he hired professionals from outside the company.

In the years it took to build the Houston operation, B of A was an unknown entity in that industry, and he and his team had to fight the notion that his company was nothing more than a lender.

In addition to the usual start-up and buildout concerns, Warrender had to form and nourish relationships in Houston’s well-established and tight-knit energy community.

When he took over the coverage of the oilfield services and refining and marketing sectors, B of A had never been the book runner for a single capital markets transaction or provided

advisory services within either sector.

Warrender and his team established a foothold in markets such as investment grade, high-yield and convertible debt, equities and IPOs. Also, the group provides M&A advice for buyers and sellers.

He gives credit to his colleagues and supervisors and says they had the patience to stand and fight to win the mandates that have helped the franchise grow.



Title: managing director, sector head for oil field services and refining and marketing
Company: Bank of America Merrill Lynch
Age: 36
Time with Company: 8 years

IDD's 2010 "40 Under 40" - Gopal Garuda

By Ken Tarbous
March 19, 2010

Gopal Garuda isn't the type of person who waits for things to happen.

In his first two months at Citadel Securities, he completed Advanced Micro Devices' $500 million high-yield bond offering and $1 billion tender offer for outstanding 5.75% convertible notes. The offerings were part of Citadel's first underwriting transaction as an investment bank.

During his studies at Harvard University, Garuda heard about the legend of Ken Griffin, the founder of Citadel Investment Group, who traded convertibles out of his dorm room during his freshman year at the school.

Garuda, 33, has known many successes as well. At Harvard, he earned two degrees — a bachelor's in economics and a master's in statistics — and wrote a widely cited Harvard International Review article on the International Monetary Fund.

He grew up in the affluent Cleveland suburbs where he watched his father run an independent financial planning practice advising high-net-worth individuals. Garuda started his Wall Street career in 1998 as an equity derivatives trader at Merrill Lynch, but in 2000 he decided to go to Silicon Valley to become a technology banker.

He quickly acclimated to the change in lifestyle and temperature (not to mention the more laid-back atmosphere) in California, where he has taken up long-distance running.

He spent 10 years at Merrill and B of A Merrill, but it didn't take any arm-twisting to get Garuda to join Citadel in September. "It was an easy decision to join Citadel Securities. I have tremendous respect and admiration for the organization. It attracts people who are smart and innovative and who know how to find opportunity in a dislocated market. We have assembled a great team from many of the most respected investment banks on Wall Street."

Title: managing director and co-head of technology investment banking
Company: Citadel Securities
Age: 33
Time with Company: 7 months

IDD's 2010 "40 Under 40" - Noah Bulkin

By Ken Tarbous
March 19, 2010


Noah Bulkin considered taking up law and went as far as interning at Linklaters' Brussels office before enrolling at Oxford University.

But all it took was one visit to Merrill Lynch's London office to get him hooked on investment banking. The 33-year-old Bulkin continues to make deals as head of mergers and acquisitions for EMEA real estate, gaming and leisure at Bank of America Merrill Lynch.

He was appointed to that post last year, and over the past 18 months he has been assuming more responsibility for the firm's U.K. M&A operations across all sectors, a job that has made use of his broad skill set.

Bulkin, who spent the first 11 years of his life in New York, thrives on competition and loves making deals — the more challenging and complex, the better.

He counts himself among the professionals who have made lifestyle sacrifices for his work. Bulkin spent more than a year helping Electricite de France (EDF) with its pursuit and eventual $23.2 billion acquisition of nuclear power giant British Energy and then arranged a deal to sell a minority stake in the company to Centrica plc for $3.5 billion.

The purchase of British Energy involved the U.K. government as both a shareholder and an energy policymaker. Bulkin says the cross-border transaction and its complex structure changed the way energy deals are made in Europe.

"For me, the thrill of a contested M&A situation and the ability to participate in really transforming a business ... are really the things I probably get the biggest buzz from," Bulkin said.

Title: head of real estate, gaming & lodging M&A for EMEA
Company: Bank of America Merrill Lynch
Age: 33
Time with Company: 11 years

Health Care Deal of the Year: Pfizer Buys Wyeth

Pfizer and Wyeth overcame more than their fair share of challenges to bring a groundbreaking deal to fruition.

By Ken Tarbous
January 29, 2010

As it turns out, Pfizer’s $68 billion acquisition of Wyeth is the deal that almost wasn’t.

Wyeth was shy during the courtship. There was debate about the price of this mammoth transaction, and — most importantly — credit markets were chaotic when dealmakers were crafting the terms.

But when the hefty deal was unveiled in January of last year, it showed the world that Wall Street was still open for business. That earns the purchase the title of Health Care Deal of the Year.

Long before Jeffrey Kindler, the chief executive of Pfizer, met in June 2008 with his Wyeth counterpart, Bernard Poussot, each of the pharmaceutical giants had been looking at new strategies for achieving their goals.

“Pfizer went through a very thoughtful process to understand their strategic options. There was a very thoughtful front-end period, from which this transaction ultimately evolved,” says Ken Hitchner, global co-head of health care investment banking at Goldman Sachs.

Pfizer paid 66% of the price in cash and 34% in stock. Bankers say Wyeth’s top managers saw that the target’s various businesses would dovetail nicely with its own.

“Management’s bold vision not only redefined Pfizer from an operational standpoint by diversifying their presence in vaccines, biologicals, consumer health and nutrition, but also financially — from a tax standpoint, a dividend standpoint and with their shareholder base,” says Drew Burch, head of health care mergers and acquisitions at Barclays Capital.

With Goldman Sachs, Barclays, Bank of America Merrill Lynch, Citigroup and JPMorgan Chase as advisers, Pfizer diligently pursued Wyeth. However, the severe market dislocation and the Lehman Brothers bankruptcy roiled the credit markets, complicating efforts to complete the transaction.

“The thing that differentiates it is that this deal was negotiated while the financial world was falling apart,” says Paul J. Taubman, co-head of institutional securities at Morgan Stanley. “There were no clear metrics to use, since the world was changing so fast. To be able to achieve a full valuation and deal certainty and have the economics hold up so well a year after it was agreed, that’s what is so differentiating.”

Wyeth, with Morgan Stanley and Evercore Partners as advisers, was steadfast in its view that a deal would need to produce long-term value for its own shareholders.

“One of the central questions was how Pfizer would finance the purchase price. Even in good markets, a deal this size can be difficult to finance,” said Clinton Gartin, head of the health care banking at Morgan Stanley.

The behemoth deal required a $22.5 billion bridge loan and included a $4.5 billion reverse termination fee tied to Pfizer’s credit ratings. Both were salient points of the deal.

“The transaction was groundbreaking at almost every level. It was a critical strategic initiative and an important opportunity for Pfizer from an M&A and a strategic perspective. It was complex and had tremendous scale, and the financing was, in its own right, transformational by virtue of its size in the context of unprecedented market turmoil,” says Wylie Collins, a managing director in debt capital markets at Bank of America Merrill Lynch. “On all deals as complex and large as this, the M&A and financing are inextricably linked, so it is very important for all components of a transaction to work. This was even more important given the historic market environment under which the deal was consummated.”

Media Deal of the Year: Disney Buys Marvel

A marriage between the entertainment titans Disney and Marvel has proved a smash hit with the investment community.

The bankers involved in Walt Disney & Co.'s acquisition of Marvel Entertainment, the publisher of comic books featuring superheroes like Spider-Man and Iron Man, had deal books and fairness opinions with titles like "How Mickey and Spidey Got Hitched." The parties in the transaction were given character names — Disney was referred to as "Daredevil," while Marvel was called "Maverick" — and many of the young associates on the deal will probably remember this (in the words of one banker involved) as their "coolest" assignment.

But this deal was about more than the coolness factor. Disney got 5,000 or so Marvel characters, who can be brought to life on film and in theme parks. The thousands of characters involved in this purchase, including the ones in the boardroom, make this IDD's Media Deal of the Year.

Disney had had its eye on Marvel for a while, but it came as a surprise to Isaac Perlmutter, Marvel's chief executive, when Robert Iger, Disney's president and CEO (who was behind the entertainment giant's $6.3 billion purchase of Pixar in 2006), called in June to discuss a possible deal.

"Disney is a content company, a creative company — probably the best in the world — and has a strong understanding of intellectual property. Marvel also has a deep culture with a sensitivity to Hollywood interpretations, and the company's convictions about its characters and storylines are almost religion," says Jeff Kaplan, global head of M&A at Bank of America Merrill Lynch, which acted as the sole adviser to Marvel and has a longstanding relationship with its senior management.

Both Perlmutter and Marvel's board believed in the long-term value of the sale, and they wanted to retain an interest in the company and maintain some creative control over the content, so the transaction, worth $4.3 billion, was structured as a combination of stock (40%) and cash (60%). Perlmutter will oversee Marvel operations within the Disney kingdom.

"Marvel had presence in the boys space, but what it lacked was a big consumer presence," says Andy Gordon, head of global media investment banking at Goldman Sachs, which served as financial adviser to Disney. "As Marvel is at its core a content company, the deal is consistent as part of Disney's strategy to provide high-quality content. Most people felt this was a perfect combination."

Investors certainly saw the possibilities in a Marvel-Disney marriage. Disney shares closed at $26.84 on the last day of trading before the deal was announced, but at midday yesterday they were changing hands at $28.77.

Primary Dealership Just One Step for MF Global

MF Global, spun off from a hedge fund manager, has growth plans that include leveraging its status as a Treasury securities dealer.

By Ken Tarbous
January 15, 2010

MF Global aspires to be more than just a broker-dealer and clearing house. Spun off in an IPO three years ago by hedge fund manager Man Financial, the futures and options brokerage has plans to compete with Wall Street banks.

Well along in the application process to become a U.S. primary dealer, MF Global this month completed the relocation of its corporate domicile from Bermuda — a locale fraught with negative associations for many in the financial world — to Delaware. It's a move the company acknowledges was, in part, "reputational," but some market participants see an attempt to placate the Federal Reserve.

"We believe this move to Delaware will help MF in the process to become a primary dealer," Roger Freeman, an analyst at Barclays Capital, said in a report.

While foreign entities are allowed into the elite club of primary dealers that deal directly with the Fed trading in Treasury securities, Bermuda is seen as a domicile with light corporate governance and the Fed must consider its public image when it approves new primary dealers.

"The Fed is cognizant of their own reputational risk. If they allow a dealer who shouldn't become a dealer, that might have an impact on their own reputation," says a market participant involved in his bank's primary dealer operations who did not want to be named.

MF Global's quest to become a primary dealer is not a done deal, and the company declined to discuss its application.

Motivation for becoming a primary dealer goes beyond making money on Treasury transactions.

Prestige and the attendant growth in client and counterparty bases play a large role in deciding to push to become a primary dealer, and that likely has been a factor in MF Global's thinking, market participants say.

"Some institutions will only deal with primary dealers. If nothing else, they feel like the primary dealers are more scrutinized by the Fed. Whether or not that's true, it's the perception," says one market participant who declined to be named.

The New York Fed, for its part, reiterated this week that the primary-dealer designation is not an endorsement. Indeed, Lehman Brothers and Bear Stearns were primary dealers.

Meanwhile, the road to becoming a primary dealer may have gotten tougher in recent days.

The New York Fed announced this week a "more formal" set of rules and requirements for primary dealers. With these new rules primary dealer firms have to hold at least $150 million in net capital, up from $50 million.

Treasury volume is expected to be up next year as the U.S. government finances a record deficit, making the role of primary dealers all the more lucrative in that the business area can draw in new clients and help leverage relationships with existing clients, particularly in fixed income.

"When you are a primary dealer, you see some flows you wouldn't otherwise see, particularly in repos. There are certain advantages in becoming a primary dealer. That's where the moneymaking opportunity is. You can see who is buying. The flow, that's where you can take advantage of market," says a market participant who was involved in his bank's primary dealer operations and did not want to be named.

MF Global has not stood by and waited for that primary-dealer status to build up its presence in fixed income.

Since last year MF has been building its high-grade corporate and high-yield business areas as part of its expansion in the fixed income, Niamh Alexander, equity analyst Keefe, Bruyette & Woods who tracks MF Global.

Geographically, Asia remains a growth area where the brokerage has added sales and trading professionals, Alexander says. But there have been notable changes within the ranks of management and high-profile roles.

In October 2008, former Chicago Board of Trade chief executive officer Bernard Dan, who joined MF Global in June 2008 as president and North America chief operating officer, was named CEO. In April 2008, Randy MacDonald, who filled several roles at TD Ameritrade Holding from 2000-2007, joined as chief financial officer.

Robert Lyons joined in September as COO for North America after spending more than 20 years at Bear Stearns, serving as COO in the global equities division, among other roles. And in October, James O'Sullivan was hired as MF Global's chief economist, coming from a similar role at UBS.

Aside from Treasuries and corporate debt, MF Global has also stepped up its presence in the important government agency debt business.

Late last year, MF Global received accreditation as a Federal Home Loan Bank underwriter and reallowance dealer.

FHLB discount note issuance totaled nearly $1.5 trillion in 2009 and overnight issuance averaged about $23 billion per day.

Those new business relationships could be leveraged in other business areas, including what one analyst who declined to be named named says may be an expansion into investment banking at a time when the number of major Wall Street firms has been whittled down by the credit crisis.

With all the plans to grow beyond its roots, MF Global has encountered some difficulties with regulators in recent years. In December, for example, Commodity Futures Trading Commission regulators fined MF Global $10 million for risk-management practices related to a rogue futures trader's actions in 2008.

And, as is the case with any buildout on Wall Street, firms with ambitions need to spend money to attract talent. MF Global has spent more on compensation and expenses, while taking in lower revenue because of declines in futures trading volume across the industry, something that has caught the attention of rating agencies.

In November, Moody's Investor Service downgraded MF Global's outlook from stable to negative, maintaining its issuer rating at Baa2, still an investment-grade rating, according to Alexander Yavosky, vice president and senior financial institutions group analyst at Moody's.

A number of issues factor into rating agency analysts' thinking and one of them was the issue of compensation and expenses.

In addition, MF Global has a highly levered balance sheet, a way of maintaining revenue in a low interest rate environment that increases risk for creditors, Yavosky says.

MF Global is not alone in its efforts to become a primary dealer. Other firms vying for the role include Scotia Capital, Societe Generale, and TD Securities, according to market sources.

Like MF Global, these companies may be looking to use the primary dealer status as a stepping stone to becoming a full service bulge-bracket firm like Bank of America Merrill Lynch or JPMorgan Chase.