April 2007: BIG DEAL$ of the Year
The winning strategy
Mergers and acquisitions once again dominate the year’s
deals.
By Brent Bullock
Mergers and acquisitions once again dominated the deal
landscape in Oregon, with 104 making the 2006 Big Deals list.
Though that was a slight fall-off from the 108 in 2005, and
deals worth more than $50 million also experienced a small
drop, 2006 saw the continued strategic expansion of Oregon
companies.
PacifiCorp was the biggest deal for the second time in
seven years. Its $10.9 billion sale in 1999 to Scottish Power,
then the second-largest utility in the United Kingdom, marked
the first foreign acquisition of a U.S. utility and set a
record for the largest transaction in Oregon history. But the
once highly strategic combination became less of a good fit as
time passed. Seeing the prospect of nearly doubling its size in
one fell swoop, Mid-American Energy Holdings, a subsidiary of
the Warren Buffet-led Berkshire Hathaway, seized on Scottish
Power’s desire to sell by purchasing the bulk of
PacifiCorp for $9.4 billion.
While no other deal approached the size of the PacifiCorp
sale, 2006 still had its share of significant transactions.
These included a number of strategic acquisitions in the
manufacturing sector. The largest was specialty metals
manufacturer Precision Castparts’ $540 million
acquisition of Special Metals, a leading manufacturer of
high-performance, nickel-based alloys and super alloys. The
transaction enhanced Precision Castparts’ internal supply
of raw materials and helped diversify its sales profile. Its
acquisition of Shur-Lok, a leading manufacturer of highly
engineered critical aerospace fasteners, for $113 million not
only expanded Precision Castparts’ product line for
commercial aircraft customers, but also increased its reach
into other markets and applications. Greenbrier Companies also
made multiple acquisitions, the largest of which exceeded
$227 million.
True to the diversity of the Oregon
economy, no single industry dominated the list. Medford-based
Lithia Motors continued to be the pacesetter, as it added to
its auto-dealership empire; it acquired eight dealerships in
2006, for a total of more than 40 acquisitions since 2003.
Outdoor apparel and footwear giant Columbia Sportswear
continued to use acquisitions to expand its product lines and
brands, adding Seattle-based outdoor apparel company Pacific
Trail and outdoor footwear manufacturer Montrail to previous
acquisitions of Mountain Hardware and the Sorel footwear
brand.
Telecommunications and Internet service-provider Integra
Telecom used its $247 million acquisition of Electric Lightwave
and its 2,200-route-mile fiber optic network to become one of
the largest and most cash profitable competitive local exchange
carriers in the West. Umpqua Holdings, recognized as one of
Oregon’s most innovative financial services companies,
continued to grow with its $252 million acquisition of Western
Sierra Bancorp, further expanding its operations in the
Northern California market.
Another trend likely to continue is the increasing influence
of private equity and hedge-fund investment. The recent flood
of cash into those areas has increased competition to find good
deals, helping to drive up prices as well as the number of
deals getting done.
Some of this money has found its way to Oregon, and
private-equity investors are likely to play a more substantial
role in local merger and acquisition activity over the next few
years. The UK private-equity firm Lion Capital’s
acquisition of Salem-based Kettle Foods, and ESCO’s sale
of its integrated manufacturing group to California-based
Platinum Equity were just two examples of what the future may
hold.
While the market for initial public offerings has seen
improvement nationally, Oregon struck out for the second year
in a row. There is little question Sarbanes-Oxley and other
changes to the legal landscape have taken their toll. These and
other factors probably influenced decision-makers at what
many had considered three of Oregon’s most likely IPO
candidates, Clarity Visual Systems, Qsent and Unicru, to step
off the treadmill and sell in 2006.
But the lack of an IPO alternative has not doused the spirits
of venture capitalists, angels and other private investors who
continue to put capital to work in Oregon. As this year’s
Big Deals list shows, these investments were made in a diverse
range of software, hardware, semiconductor, fuel cell and other
businesses with strong management teams and significant market
opportunities — companies likely to be the fuel for
future merger and acquisition activity and potentially the
return of an IPO market in Oregon.
Brent Bullock is a partner
in the Portland office of Perkins Coie LLP, the research
partner for Big Deals of the Year, where he is co-chair of the
firm’s Corporate Governance and Transactions
Group.
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