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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