Flurry of deals signals recovery

As corporate wallets grow, mergers and acquisitions and public offerings take off again.

Corporate dealmakers are back in business. Big-time.

Investment bankers in Minnesota and nationally orchestrated more buyouts and initial public offerings in 2010 than they have since capital markets tanked in 2008.

With stock market values rising and big banks, saved by the federal bailout of 2008-09, finally starting to increase their lending, the mergers-and-acquisition numbers should continue to rebound in 2011.

"The deal market came back and normalized in 2010. The last quarter was a busier quarter than we'd had for a couple of years,'' said Matthew Knopf, head of the M&A practice at Dorsey & Whitney. "There are strategic buyers in medical devices and health care technology. A lot of companies that had been thinking about putting themselves up for sale ... scrambled to get on the market."

Notable developments in the last couple of weeks include:

•Michigan-based Perrigo Co. announced that it will buy New Hope-based Paddock Laboratories Inc., a home-grown maker of generic drugs, in a deal valued at a whopping $540 million in cash.

•Boston Scientific announced plans to acquire Atritech Inc., a Plymouth-based company that has developed a device to treat patients with atrial fibrillation who are at risk for ischemic stroke. The deal could mean up to $275 million for Atritech shareholders through 2015.

•Shares of up-and-down investment banker Piper Jaffray jumped about 16 percent as it reported its best quarter since 2007. That's owed to a surging public and corporate finance businesses in the United States as well as a booming underwriting business in Hong Kong and Shanghai, China, home to more than a dozen alternative-energy and other companies for which Piper helped raise capital in 2010.

Minnesota-affiliated investment firms closed 298 mergers and acquisitions in 2010. That compares with 152 in 2009 and 230 in 2008, according to Dealogic and Star Tribune research. Nationally, there were 9,833 deals last year, compared with 7,350 in 2009 and 8,734 in 2008.

"The month of December and the fourth quarter were all-time records for us," said Glenn Gurtcheff, a 20-year Twin Cities investment banker who runs the Minneapolis office of Harris Williams & Co. "Of the 60-plus deals we closed, 19 were in December.''

Gurtcheff said much of the fourth-quarter activity started out as tax-driven in anticipation of a 2011 rise in federal long-term capital gains taxes. But the fact that the Bush-era tax cuts were extended by President Obama and Congress took away much of that impetus.

"Instead, the biggest factors driving end-of-year activity were the significantly improved operating performances of both sellers and buyers," he said.

One of the biggest deals for Harris Williams was the $840 million sale of Kentucky-based Griffin Industries, a family-owned animal-rendering and biodiesel oil business, to fast-growing Darling International.

"That doubled Darling's business and would never had occurred if Darling had any doubts," Gurtcheff said. Texas-based Darling has extensive operations in the Midwest including Minnesota.

Chip Fisher, a principal at Minneapolis-based Greene Holcomb & Fisher, which tends to focus on transactions of less than $250 million, nevertheless, represented Paddock Laboratories on its $540 million acquisition by Perrigo.

"We've been as busy as we've ever been during the last quarter of 2010 and into 2011," Fisher said. "This could be our best year in terms transactions.''

The majority of his firm's deals are done by strategic industries and about 35 or 40 percent might be financial deals done by private equity buyers. "The credit markets are opening up to help them finance [leveraged buyout] deals,'' Fisher said. "That's a real plus for the private equity people.''

The deals are popping nationally in food, energy, medical technology and elsewhere -- excluding commercial real estate, where values remain depressed amid a glut of office and retail space.

But generally the outlook is optimistic thanks to the low interest rates, huge piles of cash in corporate treasuries, and big companies that want to acquire earnings through acquisitions in an environment of modest revenue growth. Meanwhile, there is pressure from investors in hedge funds to sell some of their old holdings to generate returns. Some of those same outfits are starting to raise fresh capital from affluent investors and institutions as they look for promising companies that need expansion capital.

So are happy days here again?

"We don't expect to see a dramatic upswing [in 2011]," Gordon Dyal, global head of M&A at Goldman Sachs told the New York Times this month. "But looking at our backlog, we see continued, steady growth."

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com • Patrick Kennedy • 612-673-7926 • pkennedy@startribune.com

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