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2010 deal predictions by the column writers at

2010 Deal Predictionsby the column writers at

January, 2010


Executive summary

Executive Summary

  • The column-writing team has taken its best shot at predicting which deals may take place in 2010. Corporate action in the financial, telecoms and technology industries dominates.

  • Many of our views are fleshed out in longer articles available only to subscribers of . . These articles often contain downloadable spreadsheets, PDFs, videos, graphics and links.

  • Expect a brisk market for strategic M&A and capital raising. Here’s why:

    • Exits by private equity and venture capital portfolio companies that were delayed by the financial crisis

    • Scarcity of organic growth opportunities across most industries

    • Still-reasonable valuations

    • A benign capital raising environment in at least the first half of 2010:

      • A receptive bond market for both investment-grade/junk credits

      • A gravity-defying stock market

      • A pick-up in loan market activity

    • Significant improvements in corporate balance sheets

    • Significant reserves of uninvested capital at private equity firms

Telecoms media technology

Telecoms, Media, Technology


Key Stats


  • 2010 revenue estimate:$200M

  • Market value: $1B-$1.5B

  • We think: an IPO of LinkedIn

  • Quick Take: LinkedIn’s employment-networking site has 53 million members.

  • Deal Driver: The key to profitability in Internet services is staying close to the transactions. A new hire is one of the biggest transactions around, so LinkedIn can offer IPO investors a more tangible revenue model than, say, Twitter. New CEO Jeff Weiner has close connections with venture capital and spent his career at Warner Brothers and Yahoo, so he knows something about going public, and managing a public company.

  • This view by: Robert Armstrong. E-mail: [email protected]

  • Sales last fiscal year: $548M

  • Market cap: $2.9B

  • We think: a sale of Allscripts to the likes of Cerner, McKesson or GE

  • Quick Take: Allscripts-Misys Healthcare Solutions is a fast-growing, small-cap leader in healthcare IT, an industry that has organic growth and stands to benefit from the Obama administration's stimulus plan.

  • Deal Driver: With government funds up for grabs and legacy systems showing their age, healthcare IT is in a land-grab phase.Big healthcare IT providers whose strength in hospital systems - Cerner, McKesson and GE - would surely like to own a bigger piece of the fast-growing e-prescribing, doctor’s office and electronic health record markets. Allscripts would provide a toe-hold in each.

  • This view by: Robert Armstrong. E-mail: [email protected]

  • We think: F5 or Riverbed get sold to larger IT or networking rivals

  • Quick Take: F5 Networks andRiverbed Technology are both leaders in niches of the networking industry - application optimization and WAN optimization, respectively.

  • Deal Driver: As IT conglomerates such as HP, Cisco and IBM look to capture a greater proportion of customer wallet, they may dip their toes into networking. Furthermore, larger networking firms Juniper Networks and Brocade Communications Systems may wish to consolidate their market position and differentiate by buying these specialists.

  • This view by: Robert Armstrong. E-mail: [email protected]

  • Sales last fiscal year: F5 Networks $653M. Riverbed: $333M

  • Market caps: F5 Networks $3.5B. Riverbed $1.5B


Telecoms media technology1

Telecoms, Media, Technology


Key Stats


  • Sales: €16B+

  • % of US subs: 12%

  • We think: T Mobile US IPO

  • Quick Take: Deutsche Telekom’s US unit is well behind the big two of Verizon Wireless and AT&T. It doesn’t have scale and while it has growth, it make sense to monetize some of the value by selling part of the company in the market.

  • Deal Driver: Deutsche Telekom undertakes an IPO of its T Mobile US unit. It will be hard to find a buyer for the company. Cable companies and Google mentioned, though they have other uses for their cash. Floating part of the company would generate cash for the parent and create a currency for further US acquisitions in order to bulk up..

  • This view by: Paul Sharma. E-mail: [email protected]

  • We think: a clarification of the Vodafone-Verizon Wireless situation

  • Quick Take: Verizon Wireless is owned 56% by Verizon and 44% by Vodafone. Verizon would like to take control, but finds it hard to reach an agreement with Vodafone. Verizon ensures that VZW doesn’t pay dividends to Vodafone but at some point a deal needs to be done. It may happen in 2010.

  • Deal Driver: Both Vodafone and Verizon would benefit from clarifying their positions on VZW and the share prices of both companies would act positively. Either Verizon should start to pay a dividend - the best solution, as cash could be king - or buy out Vodafone by taking a share of the capital gains tax pain. Buying Direct TV just to add to the VZW debt pile wouldn’t be a positive step.

  • This view by: Paul Sharma. E-mail: [email protected]

  • Sales: $50B+

  • Customers: 89M+

  • Sales: $700M(e)

  • Active users: 350M

  • We think: Facebook IPO

  • Quick Take: Facebook is the world’s largest social networking site. Generally, winner-takes-all on the net.

  • Deal Driver: Web 2.0 valuations could be near the 16x Ev/Ebitda level, which is pretty high. Given the clouded economic outlook and whatever the next new thing is around the corner, Facebook would do well to go to market this year.

  • This view by: Paul Sharma. E-mail: [email protected]


Telecoms media technology2

Telecoms, Media, Technology


Key Stats


  • We think: an IPO of travel reservations firm Amadeus IT Group

  • Quick Take: Private equity firms BC Partners and Cinven bought out the company in 2005 for EUR4.3 billion. The two, which currently own a majority stake (52.7%) in the company, would secure a return on their investment mooted to be in the region of 6 or 7 times their initial investment. The transaction would be the largest IPO in the European market since mid-2008.

  • Deal Driver: In mid-December, Amadeus secured a pre-IPO loan amendment with a group of lenders. Around EUR900 million of proceeds from the IPO are expected to be used to reduce the company’s debt.

  • This view by: Alessandro Pasetti. E-mail: [email protected]

  • Sales: EUR2.9B

  • Projected Subscriber Base by 2010: 34M

  • Key projects: Launched 3G services in December 2009

  • We think: Vietnam’s MobiFone IPO and sale of stake to strategic investor

  • Quick Take: With an 87-million population, East Asia’s second fastest GDP growth rate for 2010 at 5.3%, according to IMF forecasts, Vietnam is one of Asia’s only growth markets for mobile network operators.

  • Deal Driver:.MobiFone is Vietnam’s second-largest operator. Hanoi has been attempting to privatize state-held networks. However, against a backdrop of 2008’s local stock-market implosion and 2009’s financial crisis, MobiFone’s privatization never materialized. Vietnam is also one of the few emerging markets that hasn’t liberalized fully its telecoms sector to foreigners. A 15% strategic stake in MobiFone as part of the IPO would appeal to operators in mature markets such as Singapore’s SingTel, Vodafone, Japan’s NTT DoCoMo and France Telecom.

  • This view by: Jamie Miyazaki. E-mail: [email protected]





Key Stats


  • Assets: TWD1,500B ($45B)*

  • Book value: TWD87B ($2.6B)*

  • * Source: BNP Paribas

  • We think: an MBO of Taiwan-based Nan Shan Life Insurance

  • Quick Take: Nan Shan Life Insurance Company, the Taiwan subsidiary of AIG, is the island’s largest insurer by book value and third largest by market share, with over four million customers and average annual profits of TWD5.7 billion in 1999-2007, followed by a loss of TWD46 billion in 2008.

  • Deal Driver: An MBO may be the best way for AIG to sell Nan Shan. Management lost the bidding earlier this year when AIG chose to sell it for $2.15 billion to Hong Kong’s Primus Financial and China Strategic Holdings consortium. The result: demonstrations in the street by Nan Shan agents worried about their pension funds, and much negative press about the Hong Kong consortium. The consortium tried to mend fences by bringing in a formal rival, local bidder China Life. Regulators have signaled disapproval.

  • This view by: Gregory J. Millman. E-mail: [email protected]

  • Return on assets: 12 months ended June 30 2009: 63.2%*

  • Shareholder value destroyed: 537 billion Kazakh tenge ($3.6 billion)*

  • * Source: CapIQ

  • We think: a sale of Kazakhstan’s Alliance bank to the Chinese or Koreans

  • Quick Take: Kazakhstan’s fourth largest bank by assets in 2008, Alliance defaulted on its debts in 2009. The bank failed to recapitalize and in December Samruk-Kazyna, the state welfare fund, purchased all outstanding shares.

  • Deal Driver: The state welfare fund is not in the banking business and will probably sell as soon as possible. Rumors in Kazakhstan’s banking industry say that Chinese have been looking for opportunities.

  • This view by: Gregory J. Millman. E-mail: [email protected]





Key Stats


  • Transaction Size: Y281.3B

  • Operating Profit 12-months ending March 2007: Y5.2B (7.8% operating profit margin)

  • We think: a distressed sale of hotels by Morgan Stanley Properties Japan

  • Quick Take: Morgan Stanley Properties Japan paid $2.3 billion for 13 All Nippon Airways’ hotels in April 2007 at the top of the last real estate cycle for an estimated 2.7% cap rate. Transaction loan-to-value was above 90%, according to people familiar with the deal.

  • Deal Driver: Cash-flows on commercial real estate have retreated, while cap rates have blown out, pressuring property valuations. Buyers could include Orix, Japan’s largest non-bank financial firm; domestic real asset managers, such as Kenedix Realty; foreign buyout shops, like Carlyle or Lone Star, and regional funds, like GIC, which has previously purchased hotels from Morgan Stanley Japan.

  • This view by: Jamie Miyazaki. E-mail: [email protected]

  • We think: a merger of Singapore’s First Reit with Parkway Life

  • Quick Take: First Reit focused on ASEAN region hospitals looks too small. Lowly gearing would make it a good merger candidate with larger healthcare Reit Parkway Life, although a deep discount to net asset value would make a bid easier.

  • Deal Driver: Despite deleveraging and refinancing debt during 2009 the S-Reit sector hasn’t seen successful consolidation. As Reits revert to acquisition-fueled growth in 2010, expect to see small S-Reits and those with weak sponsors become targets.

  • This view by: Jamie Miyazaki. E-mail: [email protected]

  • Discount to NAV: -6%

  • Market cap: $171 million

  • We think: an IPO of the U.K.’s Jupiter Asset Management

  • Quick Take: Jupiter Asset Management is one of the largest U.K. unlisted money managers. It was spun off by Commerzbank in 2007 to management (who retain a majority stake) and private equity. The GBP740 million deal has GBP425 million of debt.

  • Deal Driver: As markets improve, Jupiter’s management and investors could realize some of their investment and reduce the firm’s debt of around GBP360 million. Net debt is substantially lower due to a strong cash position.

  • This view by: Joe Ortiz. E-mail: [email protected]

  • Assets: GBP20B





Key Stats


  • We think: First Niagara Financial Group acquires – or gets acquired

  • Quick Take: First Niagara has applied for bank holding company status with the Federal Reserve, which would allow it to own commercial banks as well as thrifts . It has repaid TARP and the CEO has expressed his intention to cut deals. Might his bank be consumed instead?

  • Deal Driver: With the shake-up in the banking landscape, the Buffalo-based First Niagara has made major forays into Pennsylvania with the purchase of National City’s branches and troubled lender Harleysville National Corp. According to Keefe, Bruyette & Woods, it has the ability to tap the capital markets again. That said, it may make sense for a super regional, like US Bancorp or M&T Bank Corp, to pay a premium and consolidate by buying First Niagara.

  • This view by: Lisa Lee. E-mail: [email protected]

  • Branches: 253

  • Assets: $20B

  • Assets: GBP144.1B

  • Market Cap: GBP1.4B

  • We think: partnership in the U.S. by U.K.’s Aberdeen Asset Management

  • Quick Take: Aberdeen Asset Management, Britain’s largest independent asset manager, last year extended its multi-manager business with a buy from Credit Suisse and has recently made a small acquisition from RBS. Frustrated in its attempt to buy Delaware Investments from Lincoln National last year, Aberdeen is expected to revisit its attempt to expand in the U.S.

  • Deal Driver: Aberdeen has a strong presence in Asia and Europe but by its own admission needs to increase distribution capability in the U.S. Aberdeen could take advantage if banking groups unload asset managers which are no longer core or if sub-scale managers put themselves up for sale. Putnam Investments and Janus Capital have been mentioned as firms which could attract attention but debt constraints and shareholder dilution concerns suggest a partnership may be more likely.

  • This view by: Joe Ortiz. E-mail: [email protected]





Key Stats


  • We think: a Cold Stone IPO or sale to Tim Hortons

  • Quick Take: Cold Stone is one of the most successful ice-cream concepts launched in the U.S. over the last two decades. Kahala Corp. bought the concept in 2007 when it had over $1.1 billion in sales. Now, with more than 1400 locations worldwide, the company has struck a successful partnership with Tim Hortons, the Canadian coffee chain, opening more than 65 co-branded stores.

  • Deal Driver: Kahala is likely to take the company public while there’s still growth left in the business. An alternative would be a sale to Tim Hortons, which, with its $5.2 billion market cap and insignificant debt, could easily digest Cold Stone.

  • This view by: Sameer Bhatia. E-mail: [email protected]

  • Sales: $1.1B+

  • Stores: 1,400+

  • Sales: $6.9B

  • Distribution Points: 15,000+

  • We think: an IPO of Dunkin’ Brands or sale to McDonald’s

  • Quick Take: Dunkin’ Brands, owner of Dunkin’ Donuts and Baskin Robbins, is the 2nd largest coffee chain in the world by sales. The company was taken private by Bain, Carlyle and Thomas H. Lee in 2006. The owners have ramped up the franchise model with the goal of adding 1,000 Dunkin Donuts outlets annually in the next few years.

  • Deal Driver: Recent moves to strengthen the executive team by adding General Counsel, Global Customer, Marketing, HR and Communications officers suggest that Dunkin’s owners are planning an IPO this year. There are rumors of interest from McDonald’s, which may allow the quick service giant to add Dunkin’ to its menu.

  • This view by: Sameer Bhatia: E-mail: [email protected]

  • Sales: n/a

  • Distribution Points: ~100

  • We think: an IPO of Pinkberry

  • Quick Take: In less than five years, Pinkberry has established a dominant position in frozen dessert yoghurt. The company raised $28 million in series A funding through Maveron Capital, the VC firm founded by Starbucks’ Howard Schultz.

  • Deal Driver: Its global expansion make it an alluring IPO candidate in the near future.

  • This view by: Sameer Bhatia. E-mail: [email protected]




Key Stats


  • Enterprise Value: $10.6B

  • EV/Ebitda: 13x

  • Sales: $2.8B

  • We think: a takeover of Mead Johnson Nutrition, most likely by Nestle or Danone

  • Quick Take: High 20s operating margin and significant emerging market exposure offer potential and valuable upside to likely suitors Nestle and Danone. Bristol-Myer Squibb’s decision to spin off MJN in 4Q ‘09 paves the way for a sale.

  • Deal Driver: MJN is an attractive buy at a time when valuations in the sector still remain relatively low and food producers may face an uphill struggle to grow organically.

  • This view by: Alessandro Pasetti. E-mail: [email protected]

  • We think: an IPO or sale of UK fashion retailer New Look

  • Quick Take: One of the few European retailers able to buck the trend with upbeat figures and market share gain in the downturn. It was taken private by Permira and Apax, which bought the company in 2004 and unsuccessfully tried to float the business three years later. Founder Tom Singh still retains a 22% stake.

  • Deal Driver: An IPO is a likely option with stable equity markets but trade buyers as well as private equity firms may line up to acquire the company. New Look’s resilience combined with relatively low valuations and limited visibility in the sector make it an attractive investment to overseas buyers willing to expand their reach in Europe, which also offers a string of distressed assts in the sector.

  • This view by: Alessandro Pasetti. E-mail: [email protected]

  • Ebitda: GBP217.6M

  • Distribution Points: 1000+

  • We think: a private equity investment in Prada SpA

  • Quick Take: The Italian fashion group reportedly has over $1.5 billion in debt and last summer received extensions of its debt payments. It downplayed a recent report that it is in talks to sell a minority stake to Compagnie Financière Richemont SA.

  • Deal Driver: Miuccia Prada and CEO Patrizio Bertelli, 95% owners, have sought to go public in the past. The group has said it turned down private equity approaches last year, but the company needs funding and may be amendable to a private equity investment for the right terms and conditions.

  • This view by: Lisa Lee. E-mail: [email protected]

  • Estimated Total Revenue: $1.06B





Key Stats


  • LTM sales: < $1 billion

  • 2009 estimated EBITDA: $190 million

  • 2008 attendance: > 25 million

  • We think: a sale of Six Flags to Blackstone or Apollo

  • Quick Take: The theme park company is entangled in reorganization brawl between senior lenders, bondholders and directors.

  • Deal Driver: Theme parks have been a hunting ground for private equity, with Blackstone’s purchase of Busch Theme Parks and Apollo Global Management’s acquisition of Cedar Fair. Once out of bankruptcy, Six Flags will be a prime target, especially for Blackstone or Apollo.

  • This view by: Lisa Lee. E-mail: [email protected]


Pharma biotech

Pharma, Biotech


Key Stats


  • 2010 revenue estimate:$2.5B

  • Estimated Market Value: $6B-$6.5B

  • We think: an acquisition of Bausch & Lomb.

  • Quick Take: Bausch & Lomb was taken private in 2007 by Warburg Pincus, when its value was depressed by the recall of MoistureLoc lens solution. The recall is mostly behind Bausch and the company could go public at 2.5x earnings, ensuring a nice compound return for Warburg.

  • Deal Driver: Many global pharma firms are doing acquisitions to diversify away from traditional prescription medicines. Eye care has proven popular, with both Abbott and Novartis making significant investments within the last year. Bausch might appeal to Sanofi-Aventis, GlaxoSmithKline, or even Johnson and Johnson.

  • This view by: Robert Armstrong. E-mail: [email protected]

  • We think: an acquisition of Vivus and/or Orexigen.

  • Quick Take: Qnexa has been filed with the FDA, and Contrave should be filed shortly. FDA decision on approval of both is expected this year. Possible market for an efficacious obesity drug with a decent safety profile is over $1 billion.

  • Deal Driver: 2010 is a big year for a new wave of obesity products, which all need big pharma partners to be marketed to primary prescribers. In terms of efficacy, Vivus and Orexigen’s products make them leading contenders for tie-ups. A straight takeover may make more sense and FDA action on the regulatory application(s) will be the trigger. Acquirers may be GSK, AstraZeneca, Bristol-Myers Squibb.

  • This view by: Jacob Plieth. E-mail: [email protected]

  • Market caps: Vivus $822M, Orexigen $316M

  • Key obesity projects: Qnexa (Vivus), Contrave (Orexigen)


Pharma biotech1

Pharma, Biotech


Key Stats


  • Cash raised so far: $218M in equity and $20M in debt

  • We think: an IPO of Portola Pharmaceuticals

  • Quick Take: R&D pipeline includes elinogrel and betrixiban, two potential best-in-class Phase II projects in the cardiovascular field, validated through licensing deals with Novartis and Merck & Co respectively.

  • Deal Driver: After a prolonged drought, suddenly the IPO window for biotech offerings creaked open in late 2009, seeing successful floats not only of large, established firms but also small, risky ones like Movetis. History shows that biotech investor appetite is extremely fickle, so now is the time to seize the moment for a company that has come far since being founded just seven years ago.

  • This view by: Jacob Plieth. E-mail: [email protected]

  • Consensus 2009 sales: $4.4B

  • Market cap: $15B

  • We think: a takeover of Biogen Idec by Lilly or other big pharma with a bio focus.

  • Quick Take: Biogen Idec has a pipeline of biologicals, while its marketed drugs include Avonex, Tysabri (both for multiple sclerosis) and Rituxan (non-Hodgkin’s lymphoma).

  • Deal Driver: The CEO is to retire and Carl Icahn already has two dissidents on its board. Lilly is interested in biologicals, and Icahn earlier orchestrated its acquisition of cancer specialist ImClone Systems. Other potential bidders: AstraZeneca and Sanofi-Aventis, though there will be fewer cost savings for a non-US player.

  • This view by: Jacob Plieth. E-mail: [email protected]





Key Stats


  • 2010 P/E est. 12.0

  • Market cap: $4.3B

  • Enterprise Value $4.1B

  • We think: a merger of Walter Energy with BHP Billiton

  • Quick Take: Walter Energy is a pure met coal play U.S. company with high quality ore and low-cost transportation shipments to Europe and South America. Its 20%+ operating margin and growth prospects as steel demand recovers make this company an interesting commodities play.

  • Deal Driver: The key strategic player in this industry is BHP, which also produces high quality met coal destined for sale to Asian steel mills. The question is whether companies such as BHP would value the competitive cost advantage for shipping met coal to Europe and South America. Another factor is the perceived value of this ingredient in the manufacture of steel, outlook for steel price recoveries and supplies.

  • This view by: Ed Tan. E-mail: [email protected]

  • 2010 P/E est. 11.4

  • Market cap: $18.2B

  • Enterprise Value $29.3B

  • We think: Chesapeake merger with BP, StatoilHydro, Plains E&P or Total

  • Quick Take: Chesapeake Energy has a continuous need for high levels of capital expenditures as it expands investments in natural gas production. After setting up four separate joint-venture investments with BP, StatoilHydro, Plains Exploration & Production and now Total, its next move may be another joint venture with one of its present partners, a new partner or even a merger a la Exxon-XTO.

  • Deal Driver: The rate of natural gas price recovery, the rate of E&P acquisitions and drilling activity and the need for capex funding will be the drivers. A weak medium-term gas price outlook could speed a deal for oil majors who only think in the long-term. Witness: the Exxon-XTO deal.

  • This view by: Ed Tan. E-mail: [email protected]





Key Stats


  • Net debt: EUR1.5B

  • We think: a deconsolidation of Faurecia by PSA Peugeot Citroen SA

  • Quick Take: Faurecia’s debt burden weighs on Peugeot’s balance sheet; it counts for more than 50% of the carmaker’s total net debt. Its contribution to the French group’s earnings generation is minimal. Peugeot’s dilution started at the end of 2009 when Faurecia acquired EMCON Technologies, financed via the issuance of new equity.

  • Deal Driver: Peugeot needs to deconsolidate Faurecia due to its likely acquisition of a 30-50% stake in Mitsubishi this year, a move that could strain its books further. At the end of 2009, Faurecia said it doesn’t plan to issue new equity for future M&A activity, so its deconsolidation could come from Peugeot selling a 10-15% stake. Peugeot has to take action on its vertical structure and Faurecia should go sooner rather than later.

  • This view by: Alessandro Pasetti. E-mail: [email protected]

  • 2010 P/E est. 18.5

  • Market cap: $6B

  • Enterprise Value $9.6B

  • We think: A private equity takeout of Harley Davidson and Italy’s MV Agusta

  • Quick Take: Harley-Davidson’s decline in motorcycle sales and net income while delinquencies grow makes it a good acquisition target. In order to conserve cash, the company has shuttered its Buell brand and is selling its Italian MV Agusta brand. Potential candidates for both Harley and MV Agusta may include private equity or – this is a long shot – a Middle Eastern or Asian sovereign wealth fund.

  • Deal Driver: Thekey factor would be Harley’s ability to maintain adequate liquidity for continuing operations and to control loan delinquencies from sales funding. An acquirer would also need to perceive value in growing this highest-of-profile motorcycle brands. There is growth potential for the two luxury brands among the middle classes of China, India and other rapidly growing economies.

  • This view by: Ed Tan. E-mail: [email protected]


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