M&A Exits & IPOs Tick Down; IPO Returns Positive

The numbers shows a steady drop in the use of the M&A exit approach as we head into the final period of this year. There were 85 completed M&A exits through Sept. 20, according to Buyouts publisher Thomson Reuters. We counted 101 M&A exits during the second quarter and 126 in the first quarter.

For the latest period, the 34 transactions with reported financial terms combined for $10.3 billion. The tally is well below the comparable quarter a year earlier when 107 M&A exits were done and those with disclosed valuation combined for $20.3 billion. Last year was paced by half a dozen transactions with values above the $1 billion-mark. Those six deals alone exceeded the disclosed value of the exits so far in the third quarter of 2012.

The most recent period contained only two closed exits with values above the billion-dollar mark.

Top Deals

The latest period’s top M&A exit was Campbell Soup Co.’s purchase of Wm Bolthouse Farms Inc. from Madison Dearborn LLC for $1.55 billion. The acquisition of the food and beverage company closed on Aug. 6, after a seven-year hold. According to sister publication peHUB,Madison Dearborn paid $1.2 billion for the business in 2005, and was expected to make a 2.4x return from the exit.

The only other large M&A exit to close was the Aug. 23 sale of Sunquest Information Systems Inc. to Roper Industries Inc. for $1.415 billion. Sunquest is a provider of diagnostic and laboratory information solutions services and software. It was owned by Huntsman Gay Global Capital LLC (since a recapitalization in 2010) and Vista Equity Partners (since 2007).

The industry groupings associated with the 85 completed M&A exits through Sept. 20 are diverse. None of the 12 categories pulled away from the pack. The materials sector as well as the media & entertainment category led with 13 representatives a piece. High technology and industrials followed with a dozen each.

Materials also grabbed the largest share of the disclosed valuation, at $2.13 billion, and it was followed closely by high technology at $2.04 billion. Media and entertainment ranked fourth, based on valuation, at $1.08 billion followed by industrials at $857.3 billion. The only sub-category to insert itself in the top five based on valuation is consumer staples. The five M&A exits in this business area combined and ranked third at about $1.59 billion. Bolthouse Farms is one of the consumer staples exits for the latest quarter.

Riverside Co. and Blackstone Group LP tied for having the most M&A exits during the latest quarter, according to Thomson Reuters data. Riverside had five completed M&A exits, including the sale of Global Claims Services Inc. to Windjammer Capital Investors LLC and the sale of its Health & Safety Institute to an undisclosed acquirer.

Blackstone Group closed on four M&A exits, including the sale of an 86 percent interest in Le Plaza Basel AG by its Hospitality Real Estate subsidiary to Credit Suisse Group AG’s CS Real Estate Fund Hospitality.

IPO Slow Down

The use of initial public offerings by U.S. sponsors has slowed down as well. The first quarter got off to a quick start, with 15 portfolio companies going public. Nine were completed during the second quarter. The third quarter through Sept. 20 had eight IPOs by LBO-backed companies.

The IPO market chilled after Facebook Inc. went public on June 20. The stock has seen its market price fall from its $45 a share high on its first day as a public company to an all-time low of $17.55 on Sept. 4. Shares of the social networking company closed on Sept. 20 at $22.59. Facebook has buyout and venture capital backers including Goldman, Sachs & Co., Greylock Partners, Kleiner Perkins Caufield & Byers, Accel Partners, Elevation Partners and Andreessen Horowitz.

While the number of portfolio companies going public may be down, those that braved current conditions have done well. The total returns since going public (for the eight that held IPOs) have been pretty impressive so far.

Every portfolio company that went public during the third quarter is trading up from their IPO prices. The pack is led by Five Below Inc., which went public on July 19. Its shares exchange hands on Nasdaq under the ticker “FIVE.” The Philadelphia-based company sold about 9.6 million shares at an IPO price of $17 each and the stock soared to as high as $29.43 on the first day. The retailer targets the teen and pre-teen market with various merchandise including fashion and iPhone accessories, as well as books and DVDs. It had a post offer value of $941.9 million and its backers include Advent International Corp., LLR Partners Inc. and Blue 9 Capital LLC. Five Below’s shares ended Sept. 20 priced at $34.35, which is more than double the IPO price.

Globus Medical Inc., which held its IPO on Aug. 3, is the LBO-backed company that registered the largest post-offer value ($1.08 billion) among the businesses that went public during the quarter. Shares of the Audubon, Pa.-based company trades on the New York Stock Exchange under the “GMED” symbol. The maker of spinal implants reported a valuation is backed by Goldman Sachs, SunAmerica Ventures and Clarus Ventures LLC. Globus Medical sold 8.3 million shares for $12 each and closed at $16.72 on Sept. 20, representing a return of 39.3 percent.

Besides the positive returns of each of the portfolio companies that went public during the third quarter, other LBO-backed companies are on tap to pursue IPOs. One of these is Apollo Global Management LLC– and Graham Partners–backed Berry Plastics Group Inc. The maker of plastic packaging products in March filed its plans to raise as much as $500 million through an IPO. At press time, the Evansville, Ind.-based company’s proposed 29.4 million shares offering was expected to price at a range of $16 to $18 a share. Berry Plastics was seeking to list its shares under the ticker “BERY” on the New York Stock Exchange.