"You're seeing a lot of activity," says Jim Cassel, a founder and president of Capitalink, a 5-year-old Coral Gables investment banking firm.
In the first quarter of 2004, the value of deals involving Florida companies as buyers or sellers was $4.1 billion, according to FactSet Mergerstat, a California research firm. That's up 24% from $3.3 billion in the first quarter of 2003.
"Interest rates have been very helpful," says Cassel, adding that money will remain cheap enough to encourage deals even if the Federal Reserve continues to nudge rates upward. "I think that 25, 50, 75 or even 100 basis points wouldn't make a difference."
The low rates have enabled companies to pay in cash, which sellers prefer these days to stock. In the late 1990s, many companies relied on stock as the prime currency in deal-making, but many sellers got burned after stock prices plummeted.
Today, sellers "want cash that they can put to work," says Luis A. de Armas, chairman of the corporate transactions group at Miami's Shutts & Bowen law firm.
Although the banking industry has the highest profile in M&A activity -- BB&T's acquisition of Republic Bancshares tops the list in Florida -- other industries are also doing deals. J.C. Penney's sale of its Largo-based Eckerd Drug Store unit to CVS and Jean Coutu Group for a combined $4.5 billion is one of several big retail deals. Healthcare is another sector showing signs of consolidation.
One soft spot for U.S. companies is the international market. The weak U.S. dollar makes overseas acquisitions an expensive proposition in most cases.
What is particularly interesting is the range of deals getting done in Florida. Mergers and acquisitions are occurring in different regions and encompass a variety of industries and circumstances. Following are a few:
THE REIT STUFF
CNL Hospitality / KSL Recreation
When Orlando's CNL Hospitality acquired KSL Recreation of La Quinta, Calif., it became the owner of some of the most well-known hotels in the U.S.: The 780-room Grand Wailea Resort & Spa in Maui, the 738-room Arizona Biltmore and the 692-room Doral Golf Resort & Spa in Miami, to name a few.
CNL, a real estate investment trust, or REIT, paid $1.4 billion in cash and assumed KSL's long-term debt of $794 million for a total of $2.2 billion. The deal was the largest involving a Florida company for the first quarter of 2004 and the largest deal in CNL Hospitality's history.
Big deals are nothing new for CNL Hospitality. In July 2003, the company acquired a Memphis-based hotel REIT in a deal valued at $701 million in cash and debt assumption. CNL Hospitality owns 136 hotels and resorts with 32,500 rooms in 37 states, the District of Columbia and Canada. Its portfolio is valued at $6 billion, making it the nation's second-largest hotel REIT.
CNL Hospitality is an affiliate of CNL Financial Group, also headquartered in Orlando. Although the hospitality REIT has been publicly traded through a network of broker-dealers since 1997, it has not been listed on a stock exchange. That will change with the REIT's recent filing of a registration statement for a public offering and its announcement of plans to apply for listing on the New York Stock Exchange.
GLOBAL EXCHANGE
World Fuel Services/Tramp Oil
Miami's World Fuel Services, a reseller of aviation and marine fuel products, didn't let the weak U.S. dollar prevent it from buying the U.K.-based marine fuel reseller Tramp Holdings Ltd., a holding company for Tramp Oil. World Fuel Services paid $83 million in cash for Tramp, which has 11 offices and operates in 10 countries.
World Fuel began as a seller of aviation fuel and moved into the marine fuel business in 1995, with the acquisition of Trans-Tec, a group of companies with operations in the United Kingdom, Costa Rica, Singapore and the U.S.
The Tramp deal expands the marine fuel operation and is the largest in World Fuel's history. In part, it was triggered by the pending retirement of Tramp Oil's CEO, says Luis A. de Armas, the Miami attorney with Shutts & Bowen who represented World Fuel. The aviation and marine fuel resale business remains very fragmented, making it ripe for more consolidation.
De Armas concedes that the weak U.S. dollar, which was trading at about $1.70 for a British pound when the deal closed in early April, is typically an incentive for international companies to acquire those in the U.S. But de Armas says that the currency exchange rate won't prevent U.S. companies from taking advantage of good opportunities, even if they cost a bit more. In World Fuel's case, de Armas asserts that the currency issue was mitigated by the fact the company paid only a 7.5% premium over the $77 million book value of Tramp.
"Paying in cash allowed us to get a better price," says de Armas.
ODD COUPLE?
Roto-Rooter / Vitas Healthcare
Cincinnati-based Roto-Rooter paid $406 million in cash to acquire 63% of Vitas' stock. Vitas, which was founded in 1978, operates 25 hospices in eight states.
If the combination of Roto-Rooter and Miami's Vitas seems odd, it's because there's more to Roto-Rooter than meets the eye. Chemed, the original name of the holding company that bought the Roto-Rooter plumbing service in 1996, changed its name to Roto-Rooter to take advantage of the name recognition. For decades, however, Chemed had been investing in a variety of healthcare businesses, including home healthcare and pharmacy services for nursing homes.
Roto-Rooter already had acquired a 37% stake in Vitas in the 1990s. The acquisition of the remaining shares had less to do with economic conditions and more to do with the retirement plans of Vitas' founder, Hugh Westbrook, says David Williams, vice president and CFO of Roto-Rooter.
The Vitas subsidiary will remain based in Miami.
This spring, Roto-Rooter's shareholders voted to change the company's name back to Chemed.
CAROLINA CONNECTION
BB&T / Republic Bancshares
Another large Florida bank, Republic Bancshares, got an out-of-state owner this spring. In April, the St. Petersburg-based bank completed a $388-million cash and stock deal with North Carolina-based BB&T Corp., operator of more than 1,400 offices in the Southeast U.S., Washington, D.C., and Indiana. "We had a tremendous amount of interest," says Republic CEO Bill Klich.
Started in 1973 in Dunedin, Republic grew to seven branches and $170 million in deposits in its first two decades. In 1993, St. Petersburg bond brokerage owner William Hough acquired Republic and began expanding its reach. Over the next five years, Hough took the bank public, added offices around the state and grew it to $2.3 billion in assets. The stumbling block to growth came when the bank moved into marketing high-risk mortgage loans and then pulled out of the business, taking a multimillion-dollar restructuring charge.
The Republic deal gives BB&T 89 Florida branches.
ACQUISITIVE
Fidelity National Financial / Aurum Technology and Sanchez Computer
Fidelity National Financial has been a Florida company only since August 2003, but it is already one of the state's biggest businesses, posting $7.7 billion in revenue in 2003 and ranking eighth on Florida Trend's most recent list of the state's top 150 public companies. Two big deals in the first quarter of 2004 will add to Fidelity National's stature.
In March, it closed a deal to acquire privately held Aurum Technology, a Texas-based provider of IT solutions to credit unions and community banks, in a cash and stock deal valued at $305 million. A month later, Fidelity completed its acquisition of Pennsylvania-based Sanchez Computer in a cash and stock deal valued at $175.8 million. Sanchez develops and markets software for financial institutions and was publicly traded on Nasdaq before the merger.
Fidelity's traditional business has been title insurance, where it operates under five major brands, including Chicago Title and Fidelity National Title. To reinvent itself, in April 2003 the company acquired Jacksonville's Alltel Information Services, a provider of products and services to the financial and real estate communities.
"We have an in-house M&A team. We have been a very acquisitive company for 20 years," says Daniel Kennedy Murphy, senior vice president for finance and investor relations at Fidelity National. A few months after the Alltel deal closed, Fidelity moved its headquarters to Jacksonville from Santa Barbara, Calif.
Murphy says that the strength of the housing market and low interest rates have enabled it to do the recent deals -- and there are more to come. "I would be very surprised if there weren't future acquisitions," he says.