The value of mergers and acquisitions last year reached a record high worldwide and in the United States, but Arkansas was a different story.
The known value of big deals in the state — those worth $9 million or more — fell 53 percent in 2015 compared with 2014, to $8.8 billion compared with $16.6 billion. And the volume fell 13 percent, to 84 compared with 97.
The numbers, however, call for three caveats: Arkansas Business was unable to determine the value of almost half of the big deals, it’s unlikely that M&A researchers capture every transaction, and the way we have defined “big deals” has changed over the years as methodologies evolved.
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That aside, the trend is clear: Deal-making in Arkansas came nowhere close to the historic level of deal-making seen worldwide and in the United States as a whole. Worldwide, M&A activity last year totaled $4.7 trillion, 42 percent higher than 2014 and the highest since records began in 1980, according to business information company Thomson Reuters.
That growth was fueled by a soaring number of mega-deals, those valued at $10 billion or more, which accounted for 41 percent of the M&A value.
In the United States, mergers and acquisitions rose 64 percent in 2015 compared with 2014, to $2.3 trillion in value.
At the Top of the List
In Arkansas, the top deal was Windstream’s $3.4 billion spinoff of fiber, copper and other assets into a real estate investment trust, Communications Sales & Leasing Inc. At No. 4 — $575 million — was Windstream’s sale of its data center business to TierPoint LLC of St. Louis, a privately held data center services company. The actions aligned with Windstream’s stated goal of reducing debt.
The No. 2 deal in the state was one that was little noticed: meat processor JBS USA Pork’s purchase of Cargill Pork LLC of Russellville for $1.5 billion. That sale included two meat-processing plants, one in Ottumwa, Iowa, and the other in Beardstown, Illinois. It also included five feed mills — two in Missouri and one each in Arkansas, Iowa and Texas — and four hog farms — two in Arkansas and one each in Oklahoma and Texas.
And at No. 3 was Bank of the Ozarks’ purchase of Community & Southern Holdings of Atlanta, parent company of Community & Southern Bank, for almost $800 million. The deal was the single biggest acquisition by an Arkansas bank in terms of both purchase price and assets acquired. The BOZ-C&S deal was just one of a string of purchases by Arkansas lenders last year.
Merger Mania
What powered corporate merger mania worldwide last year is what powered M&A in 2014: lots of available capital, cheap financing courtesy of low interest rates and the desire to grow, said Marshall McKissack, who heads the mergers and acquisitions practice of Stephens Inc. of Little Rock.
Another factor helping drive M&A activity: tax “inversions,” in which companies based in the U.S. relocate to another country to reduce their tax burdens.
“That certainly was one of the big reasons that propelled the market to a record year,” McKissack said. “There were a lot of those transactions and they tended to be the bigger transactions in 2015.”
Among them was the $191.5 billion merger of Pfizer, based in the U.S., with the Irish company Allergan. Announced in November, it was the largest merger by value last year and the largest ever in the health care sector.
Globally, mergers and acquisitions broke records last year in five categories: health care, technology, consumer products, industrials and retail.
In the technology sector in Arkansas, Acxiom joined Windstream on the biggest deals list with the $190 million sale of Acxiom’s IT infrastructure management business to Charlesbank Capital Partners.
The sale highlights Acxiom’s shift away from information technology services, Acxiom CEO Scott Howe said last May.
“In the last three years, we have taken a number of steps to tighten our strategic direction,” Howe said. “This transaction represents the next phase in our journey to focus Acxiom on growing its core marketing and data services business, and extending its leadership in onboarding and connectivity.”
Because Stephens Inc. has worked with Windstream and Acxiom over the years, McKissack said, he couldn’t comment on their actions. Generally, however, companies are “very focused on their core strengths and continuing to build capability and their core strategies, which I think you could say of both Windstream and Acxiom,” he said.
“But if it doesn’t fit or if there’s a better use for the capital, I think you see them divest, and that’s certainly been a trend broadly over the last couple of years.”
Natural Resources
Among the bigger transactions last year was Canfor Corp.’s $93.5 million purchase of Anthony Forest Products Co. of El Dorado, one of a number of acquisitions by Canadian companies of sawmills and lumber manufacturers in Arkansas and other Southern states. Another was the $29 million acquisition by Interfor Corp. of Vancouver, British Columbia, of the Price Cos.’ sawmill in Monticello.
The purchase by Canadian forest products companies of assets in the American South has been driven by a mountain pine beetle epidemic that has killed millions of cubic yards of pine trees in British Columbia. Milder winters and warmer summers have meant higher survival rates for the pest.
And Murphy USA of El Dorado sold Hereford Renewable Energy, an ethanol production plant in Hereford, Texas, to Green Plains Inc. of Omaha, Nebraska, for $93.8 million.
Looking Ahead
McKissack expects 2016 to be another good year for M&A activity, but notes “a tremendous amount of uncertainty and volatility in the marketplace.”
“There are a lot of things on the horizon,” he said. “A potential rising rate environment in the U.S. has people concerned. All the noise out of China and currency, oil and commodities [issues] have certainly led to some volatility and fluctuation.”
Although the uncertainty “may cause valuations to subside a little bit, there’s still a tremendous need to grow,” McKissack said. Continued abundant liquidity, relatively cheap financing and the ever-present need to buy and sell “are still out there in ‘16, but it may have some ups and downs.”
“The energy sector where you have companies that are well capitalized and those that are not, I think you could see consolidation, especially if oil or other commodities stay on the low end of where they’ve been over the last couple of years,” he said. “I think that could continue to fuel mergers and acquisitions in those sectors.”
And, of course, 2016 is a presidential election year.
“It’s all going to center around policy regulation and taxes,” McKissack said, “and to the extent those things change upwards or downwards, that will certainly have a bearing on the M&A market.”