LKQ seals Stahlgruber deal

BY Richard Summerfield

American auto parts company LKQ Corporation is to acquire Stahlgruber GmbH from Stahlgruber Otto Gruber AG in a $1.77bn deal, the companies have announced in a statement.

Chicago-based LKQ will fund the deal from planned debt offerings, borrowings under its current credit facility and direct issuance of 8.06 million newly issued LKQ shares to Stahlgruber's owner. The deal is expected to close in the second quarter of 2018.

The acquisition will greatly improve LKQ’s standing in Europe where Stahlgruber is a leading wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories. LKQ will also gain access to Stahlgruber’s extensive sales and manufacturing infrastructure within Europe. Stahlgruber’s facilities include 228 sales centres, six warehouses and an approximately 128,000 square metre advanced logistics centre. The deal is the latest in a string of acquisitions made by LKQ; in 2015, it completed a $1.14bn deal for Rhiag-Inter Auto Parts Italia S.p.A.

“This transformative acquisition solidifies LKQ as a leading Pan-European aftermarket mechanical parts distributor, and further enhances our global diversification strategy,” said Dominick Zarcone, president and chief executive of LKQ. “Stahlgruber has a history of delivering above-market growth and its stellar industry reputation is an ideal fit with our culture; we are extremely proud to welcome the approximately 6600 Stahlgruber employees to the LKQ family. Importantly, we believe that our combined efforts will create tremendous long-term value for our customers and stockholders and growth opportunities for our collective team members.”

John S. Quinn, chief executive and managing director of LKQ Europe, said: “Stahlgruber will create a contiguous footprint and serve as an additional strategic hub for our European operations, allowing for continued improvement in procurement, logistics and infrastructure optimisation. The LKQ Europe management team and I look forward to working with Stahlgruber’s management team and leveraging our combined best practices to maximise the benefits of scale across the continent.”

Heinz Reiner Reiff, chief executive of Stahlgruber, said: “This combination is a natural fit for both LKQ and Stahlgruber. I am very excited about the meaningful benefits that will occur by combining our complementary cultures and industry leading management, which together position Stahlgruber to achieve the continued growth of its European businesses. Our acceptance of LKQ shares as part of the consideration emphasises our belief in the value of this combination.”

The automotive parts sector has seen considerable activity recently, which may have spurred LKQ into action. In September, the firm’s largest rival, Genuine Parts, entered a definitive agreement to acquire the Alliance Automotive Group for $2bn.

News: LKQ to buy German car parts retailer Stahlgruber in $1.8 billion deal

Dealmaking deluge due – Deloitte

BY Richard Summerfield

Domestic mergers and acquisitions (M&A) activity in the US is expected to pick up in 2018, following a fairly subdued 2017, according to a new report from Deloitte.

Deal activity in 2017 has been largely stymied by economic, political and regulatory uncertainty, as well as market volatility, and unrealistic valuations. However, according to respondents to Deloitte’s fifth M&A trends survey, many of these fears will begin to diminish moving forward, resulting in increased dealmaking activity and increased deal values.

Both in the number of deals and the size of transactions, Deloitte expects 2018 to be a bumper year for M&A. Of the 1000 US corporate dealmakers and private equity firms surveyed for ‘The State of the Deal: M&A Trends 2018’ report, around 68 percent of corporate executives and 76 percent of private equity leaders expect to see an increase in deal volume over the next 12 months. Additionally, most respondents believe deal size will either increase or stay the same in 2018, compared with deals brokered in 2017.

Technology-based dealmaking was recognised as the biggest potential driver of corporate M&A transactions, rising from 6 percent in the spring 2016 survey to 20 percent in this survey.

"There are strong signals that corporations and private equity firms are targeting bigger deals and anticipating brisker activity in 2018," said Russell Thomson, managing partner of Deloitte's US M&A services practice. "The appetite for technologies like machine learning, robotics, artificial intelligence and advanced analytics is large and growing. We're seeing some organisations buy smaller tech companies to enable strategic growth and others — typically companies well outside of the tech sector — actively looking to converge their businesses with tech companies to achieve marked transformation."

Away from the tech space, expanding customer bases in existing markets, and expanding and diversifying products and services, are set to be leading drivers of M&A deals. Among other positive factors, the Deloitte report notes that cash reserves are up significantly for potential acquirers, and that the primary intended use of that cash is for acquisitions.

Divestitures should also be a major focus in 2018. Seventy percent of survey respondents noted that their company plans to divest businesses next year. This rush of unit shedding will be driven by financing needs and strategy shifts.

Report: The state of the deal: M&A trends 2018

Time has come for Meredith

BY Richard Summerfield

After a number of failed attempts to complete a deal for the company, American media conglomerate Meredith Corporation has announced that it is to acquire Time Inc. in an all cash deal worth $2.8bn, including the assumption of debt and net of cash acquired.

Under the terms of the deal, Meredith will pay around $18.50 per Time share to acquire the company. The $18.50 per share price represents a 46 percent premium over Meredith’s closing price on 15 November 2017, the day prior to media reports about the transaction, and a 66 percent premium over the company’s 10-day volume weighted average trading price ending on that day.

Meredith had made a number of attempts to acquire Time Inc over the last four years but was unable to complete the deal, until now. Pending the customary closing conditions and regulatory approval, the transaction is expected to complete during the first quarter of 2018.

"We are creating a premier media company serving nearly 200 million American consumers across industry-leading digital, television, print, video, mobile, and social platforms positioned for growth," said Meredith chairman and chief executive Stephen M. Lacy. "We are adding the rich content-creation capabilities of some of the media industry’s strongest national brands to a powerful local television business that is generating record earnings, offering advertisers and marketers unparalleled reach to American adults. We are also creating a powerful digital media business with 170 million monthly unique visitors in the US and over 10 billion annual video views, enhancing Meredith’s leadership position in reaching millennials."

John Fahey, chairman of Time, said, "Time Inc.’s board of directors has unanimously determined that this all-cash transaction, and the immediate, certain value it provides, is in the best interests of the company and its shareholders. On behalf of the entire board, I thank Rich Battista for his strong and exemplary leadership. We also thank the management team and all Time Inc. employees, who together have made significant progress transforming one of the world’s most iconic and historically significant publishing companies into a leading multiplatform media enterprise."

The deal will be partly financed by a $650m investment by Koch Equity Development. Meredith will also be using $3.55bn in financing commitments obtained from a variety of lenders, the company said in a statement.

News: Meredith to buy U.S. publisher Time in Koch-backed deal

Global deal activity set to increase in 2018

BY Richard Summerfield

Merger and acquisition activity will increase in 2018 as global dealmakers recover their appetite for investments, according to Baker McKenzie’s 'Global Transactions Forecast 2018'.

As economic and political concerns subside, global M&A activity is expected to climb to around $3.2 trillion next year, with an increase in both M&A and IPO activity. The momentum created in the second half of 2017, as economic growth began to pick up in certain key markets, will roll over into 2018.

M&A activity in the consumer goods and finance industries will continue to generate the highest total deal values in 2018, the report suggests. The pharmaceutical and healthcare and technology and telecom sectors are also expected to rebound from a disappointing 2017 in which M&A activity is on course to slip to $2.5 trillion from $2.8 trillion last year.

“After a few soft patches in 2017 we have a more optimistic outlook for the global economy and dealmaking in 2018, as long as the brakes are not put any further on global free trade. We see an uplift in both M&A and IPO activity as dealmakers and investors gain greater confidence in the business prospects of acquisition targets and newly-listed businesses,” said Paul Rawlinson, global chair of Baker McKenzie. “However it’s not a done deal, with the threat of a Hard Brexit and a NAFTA collapse both still very real. Business will need to continue to make the case for liberal trade and investment frameworks.”

Global head of M&A at Baker McKenzie, Michael DeFranco, said, “2017 played out as we predicted and there have been a number of positive developments in the global economy that have led to the forecast for global M&A values in 2018 to be increased from our previous forecast of US$3 trillion to US$3.2 trillion. This would represent the 3rd highest yearly deal value since 2001 and the 2nd highest since the financial crisis in 2008.”

China's predicted GDP growth for 2018 has been revised from 5.9 to 6.2 percent.  The European GDP growth forecast has also been revised for 2018, up to 1.9 percent from 1.6 percent.

Beyond 2018, the report predicts that M&A values will drop to $2.9 trillion in 2019 and $2.4 trillion in 2020.

Report: Global Transactions Forecast 2018

Broadcom proposes Qualcomm acquisition in $130bn transaction

BY Fraser Tennant

In what would be the biggest tech deal ever seen, Broadcom Limited has announced a proposal to acquire fellow semiconductor company Qualcomm Incorporated in a deal valued at $130bn.

The acquisition would see Broadcom acquire all of the outstanding shares of Qualcomm for a per share consideration of $70.00 in cash and stock ($60.00 in cash and $10.00 per share in Broadcom shares). Broadcom's proposal represents a 28 percent premium over the closing price of Qualcomm common stock on 2 November 2017.

"Broadcom's proposal is compelling for stockholders and stakeholders in both companies,” said Hock Tan, president and chief executive of Broadcom. “Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company.”

Broadcom has also stated that its proposal to acquire Qualcomm stands whether the pending acquisition of NXP Semiconductors by Qualcomm (the currently disclosed terms of $110 per share) is completed or terminated. Many commentators believe there is a serious possibility that Qualcomm's NXP acquisition will collapse in the wake of a Qualcomm-Broadcom deal.

Unanimously approved by Broadcom’s board of directors, the combination of Broadcom and Qualcomm will lead to a strong, global company with an impressive portfolio of technologies and products, according to Thomas Krause, Broadcom’s chief financial officer. “Given the complementary nature of our products, we are confident that any regulatory requirements necessary to complete a combination with Qualcomm will be met in a timely manner,” he said. “We look forward to engaging immediately in discussions with Qualcomm so that we can sign a definitive agreement and complete this transaction expeditiously."

Broadcom has stated its expectation that the proposed transaction would be completed within approximately 12 months following the signing of a definitive agreement.

Moelis & Company LLC, Citi, Deutsche Bank, J.P. Morgan, BofA Merrill Lynch and Morgan Stanley are acting as financial advisers to Broadcom. Wachtell, Lipton, Rosen & Katz and Latham & Watkins LLP are acting as legal counsel.

Mr Tan concluded: “Given the common strengths of our businesses and our shared heritage of, and continued focus on, technology innovation, we are confident we can quickly realise the benefits of this complementary transaction for all stakeholders. Importantly, we believe that Qualcomm and Broadcom employees will benefit from substantial opportunities for growth and development as part of a larger company."

News: Broadcom offers $103 billion for Qualcomm, sets up takeover battle