Against a backdrop of an active mergers and acquisition scene in 2014, 10 companies stood out.
This group comprises our Most Admired Corporate Dealmakers for 2014. Winners were selected by The Deal's readers, who identified the top deal teams at U.S.-based companies based on transactions carried out during calendar 2013..
That the consumer and retail categories continued to be important ingredients in the broader deal economy is no surprise, considering that consumer spending accounts for 70% of U.S. gross domestic product.
This year's winners within consumer and retail would never be accused of conspicuous consumption, however. They executed only select transactions.
Revlon Inc. (REV - Get Report) , the winner for the consumer category, has made only a couple of acquisitions of note over the past couple of years. The beauty giant's latest was of Colomer Group Spain SL for $660 million in October 2013.
But that transaction gave New York-based Revlon a meaningful boost both in revenue and in new distribution channels,
For the nine months ended Sept. 30, Colomer increased revenue and segment profit at the beauty giant by about $385 million and nearly $89 million respectively. In the fourth quarter of calendar 2013 alone, Colomer added close to $117 million in sales, from the date of the acquisition on Oct. 9, 2013 until Dec. 31. That's a total of $502 million in revenue for the year ended Sept. 30, increasing Revlon's total business by about a third.
The acquisition has also expanded global distribution for Revlon, as more than 60% of Colomer's sales are from outside of the U.S., with key markets being Europe, Africa and the Middle East. And the deal reconstituted the Revlon brand, as Colomer was a licensee of the acquirer.
Adding Colomer was key to Revlon reconnecting with the professional channel, after a period spent focused on selling its products in mass market retailers.
By adding Colomer to its shopping cart, Revlon also expanded its portfolio of brands to include American Crew men's haircare products, as well as the Creative Nail professional nail polish business and the Shellac nail polish brand.
Those nail care businesses fit nicely with Revlon's 2012 acquisition of Pure Ice nail enamel and Bon Bons cosmetics from Bari Cosmetics Ltd., boosting the company's presence in the booming beauty category of nail care.
Investors seem to broadly agree that the purchase has been beneficial to Revlon, gradually bidding up the stock from $26.16 per share the day the Colomer deal was announced on Aug. 5, 2013, to recent a close of $33.56 on Nov. 7, a gain of more than 28%.
In the retail category, Supermarket giant Kroger Co. (KR - Get Report) , another selective shopper, came away with Most Admired Corporate Dealmaker honors. The Cincinnati-based company's notable acquisitions include grabbing Boca Raton, Fla.-based online vitamins retailer Vitacost.com Inc. for $280 million, and picking up Matthews, N.C.-based Harris Teeter Supermarkets Inc. for nearly $2.5 billion.
The acquisition of Vitacost, announced July 2, expanded Kroger's presence in the rapidly growing nutrition and wellness category. But more important, it provided the legacy brick-and-mortar supermarket operator with an e-commerce platform that generated nearly $390 million in sales for the year ended March 31, to more effectively compete in the age of the internet. Kroger's online presence before adding Vitacost was nearly nonexistent.
In snatching Harris Teeter Supermarkets Inc. off the shelf for nearly $2.5 billion, the nation's largest supermarket chain gained a platform to grow in the populous, yet consolidating, Southeast and mid-Atlantic regions.
The acquisition, which was announced on July 9, 2013, and closed on Jan. 28, expanded Kroger's empire by 212 stores and roughly $4.7 billion in sales it had for the fiscal year ended Oct. 1, 2013.
By buying an upscale supermarket chain — Harris Teeter has proven it can profitably compete in the margin-pressured grocery category — Kroger clinched a deal that was immediately accretive, helping both its bottom and top lines.
And Kroger could also learn from Harris Teeter not only about stocking local produce, for which it is famous, but also on how to stock its shelves with quality private label products to better compete with both Trader Joe's Co. and Whole Foods Market Inc. (WFM) .
Considering that Harris Teeter generated above average margins among players in the grocery space, Kroger ended up paying only about 6.25 times the Ebitda it is expected to generate in its most fiscal year, showing that it too knows a good bargain.
For the fiscal year ended Sept. 30, Harris Teeter was estimated to have approximately $5.1 billion in revenue, nearly $400 million in Ebitda and $130 million in net income, according to data provided by Bloomberg.
The other eight winners follow.
TELECOMMUNICATIONS: Survey respondents again gave the top ranking to Verizon Communications Inc. (VZ - Get Report) , which closed the blockbuster $130 billion purchase of the minority stake in joint venture Verizon Wireless in February.
While the 12-figure price tag for Vodafone Group plc's minority stake in Verizon Wireless commands attention, senior vice president of corporate development John Doherty notes that the New York telecom has also made a range of other significant, but less expensive, deals.
"While we had that deal under contract, but we hadn't closed, we had done three smaller deals," he said. The purchases include video streaming company upLynk, content delivery network operator EdgeCast Networks and Intel Corp.'s (INTC - Get Report) OnCue cloud TV business.
Verizon's strategy and business development group includes Doherty, who has specific responsibility for development activity, ranging from acquisitions, divestitures, JVs, partnerships and so forth. Meanwhile, Roy Chestnutt is Verizon's executive vice president of strategy, development and planning. Atish Gude, senior vice president of corporate strategy, and Christine Pantoya, vice president of strategy and development, are also part of the group.
At Verizon Wireless, much of the focus is on spectrum. The senior vice president of wireless business development, Steve Smith, reports to Verizon Wireless CEO Dan Mead, but also runs potential deals through Doherty's group.
Alongside investments in wireless and TV technology, Verizon has divested rural phone lines and phone books in recent years.
"Those deals also helped shape our portfolios and allowed us to position ourselves more deeply in other areas," Doherty said.
Verizon's VC arm has made recent investments in mobile payments group Flint Mobile Inc., advertising technology company Adstage Inc. and location sharing app developer Glympse Inc.
"Ultimately they could lead to acquisitions down the road, hopefully at a lower price than we might pay otherwise," said Doherty, who also serves as and chairman and chief investment officer of Verizon Ventures, adding, "or they can inform us about why we need to make a little bit of a pivot to our strategy."
ENERGY: Devon Energy Corp. (DVN - Get Report) , an Oklahoma City oil and gas explorer, made a big splash in November 2013 when it bought properties in South Texas' Eagle Ford Shale from Blackstone Group LP-backed GeoSouthern Energy for $6 billion, a deal that gave it a high-growth area it had been lacking. "This acquisition enhances our already strong North American portfolio by adding another low-risk, light oil asset that provides outstanding well economics and self-funded growth," CEO John Richels said when announcing the deal.
Since then, Devon has been mostly shedding assets to pay down its debt load. Early this year it sold its Western Canadian oil and gas properties to Canadian Natural Resources Ltd. for $2.8 billion. And in June it sold its remaining noncore properties in the Rockies, onshore Gulf Coast and Midcontinent regions of the U.S. to Linn Energy LLC (LINE) for $2.3 billion. "[Devon] has reinvented itself over the past year," Global Hunter Securities Inc. analyst Sameer Uplenchwar wrote in a report Nov. 5.
Devon is now focused exclusively on five core areas — the Eagle Ford, West Texas' Permian Basin, the Canadian oil sands, Oklahoma's Cana oil play and North Texas' Barnett Shale — and doesn't appear to be interested in more acquisitions. "We have a great portfolio today, with high margin assets and years of visible growth," Richels said on the company's third-quarter conference call Nov. 5. "We are laser focused and we're not taking our foot off the gas."
The company might very well get acquired. In early July, rumors flew that Chevron Corp. was looking to buy Devon for $90 per share, or $36.7 billion. At the time, the stock was trading at around $70 per share. With its stock down almost 13% since then, could it again be a target?
TECHNOLOGY: Cisco Systems Inc. (CSCO - Get Report) completed eight acquisitions in fiscal 2014, totaling $3.18 billion, the largest of which was Sourcefire Inc. for $2.45 billion. That's in addition to acquiring 13 companies for a total of nearly $7 billion in fiscal 2013.
"The combination of good strategy and exceptional leadership inside the business allowed Cisco to aggressively seek out opportunities in the market during a time when the tech M&A landscape seemed to be largely void of meaningful activity," said Hilton Romanski, senior vice president and head of business development at Cisco. "As an example, the steady-step execution of a clear Cisco Mobility strategy has delivered for our customers in a big way. In the span of a quarter, Cisco acquired Cariden, Broadhop, and Intucell — all of which are part of an overall drive to bring more intelligence from the very ends of networks to the IP edge where Cisco can add value and solve customer problems," Romanski added.
Sourcefire, acquired in 2013, is a provider of intelligent cybersecurity solutions. The year before, Cisco bought NDS Group Ltd. for approximately $5.0 billion.
Since 1993, Cisco has made 174 acquisitions, mostly to build out technology, spending approximately $71 billion.
"Our build, buy, partner approach is at the heart of Cisco's innovation culture," said Romanski. "Cisco first led innovation in the hugely disruptive routing arena by building incredibly relevant solutions during the infancy of the Internet. We then expanded into new disruptive markets, such as switching, with pivotal acquisitions of companies like Crescendo, Grand Junction and Granite. Later, Cisco extended into areas where major transitions continue to take place today, such as collaboration, mobility, data center and video with deals like WebEx, Starent, Meraki, Nuova, and NDS."
Starting off this year, Waltham, Mass.-based Thermo completed its acquisition of Life Technologies Corp. for $13.6 billion including $1.5 billion in debt. The acquisition created a new reporting segment for the company called life sciences solutions.
Along with the acquisition, Thermo sold two of its groups — the Cole-Parmer instrument company and certain biosciences business to private equity groups. Cole-Parmer was acquired for $480 million by Chicago-based private equity group GTCR LLC. The group had revenue of $230 million during 2013.
In addition, in March, Thermo sold its media, serum and process liquids products to GE Healthcare for nearly $1.1 billion. The sale stemmed from regulatory concerns following the acquisition of Life Technology. The divisions that were sold to GE healthcare had combined revenue of $250 million.
Thermo Fisher CEO Marc Casper said the company is always looking. "The team has been active and I would expect over time you'd see us do some things" he suggested in response to a question on the company's third-quarter earnings call.
"We just assume that we'll have a good pipeline and if we like the fit of a deal and how it helps our customers and it gives us returns that we want that we will execute against it," Casper said.
Respondents to The Deal's survey noted cite Thermo's strong reputation and ability to make quality deals. Respondents also noted that the company is skilled at strategic and diversifying acquisitions.
CHEMICALS: Huntsman Corp. (HUN - Get Report) worked for more than a year before finally closing its $1.1 billion acquisition of the titanium dioxide assets of Rockwood Holdings Inc. on Oct. 1. Winning regulatory approval for the deal, which creates the world's second-largest producer of the raw ingredient used in making white paint and coatings, has been grueling, but the nod here is a sign that the company's peers appreciate the strategy that Huntsman has laid out.
While large western chemicals firms including Dow Chemical Co. (DOW) and DuPont Co. (DD) are facing down activists and looking for ways to transform their businesses, Huntsman in buying the Rockwood business is taking matters into its own hands. Company executives have said they hope to combine the assets to be acquired with existing units toward a goal of spinning out the expanded business within two years.
Company CEO Peter R. Huntsman called the purchase "a unique opportunity to unlock value" in the pigment sector.
Survey respondents praised Huntsman, which also in 2013 bought Oxid LP and a 20% stake in Nippon Aqua Co. Ltd., for its strong reputation as a dealmaker and its track record of making quality acquisitions. Huntsman beat out agrichemicals specialist Mosaic Co. (MOS) — which in April bought a fertilizer distribution business from Archer Daniels Midland Co. for $350 million — for the segment title.
MANUFACTURING: Though Koch Industries Inc. is perhaps best known in the mainstream media for its work lobbying for the Keystone Pipeline and its owners' efforts promoting conservative causes and political candidates, the privately held industrial conglomerate has won admiration in the financial community for its series of large deals that have diversified the one-time oil refining specialist.
The Wichita, Kan.-based company's major industrial purchase this year was subsidiary Flint Hill Resources LLC's $2.1 billion purchase of propylene maker PetroLogistics LP, though Koch's investment arm was also involved in CVC Capital Partners Group's sale of ink and print consumables supplier Flint Group to a consortium of investors. Koch's Georgia-Pacific Consumer Products LP unit in June added food service paper goods company SPG Holdings LLC for an undisclosed sum.
Over the past decade the company has used a string of large deals to build the second-largest U.S.-based private company, a $115 billion annual-sales giant that trails only Cargill Inc. in that category. The company in the past decade has also acquired pulp and paper giant Georgia-Pacific, polymer and fiber company Invista from DuPont and in 2013 electronic component and wiring manufacturer Molex Inc. in a deal valued at more than $7.2 billion.
Koch beat out lottery and gambling equipment maker Scientific Games Corp. (SGMS) , which in August agreed to acquire rival Bally Technologies Inc. in a $5.07 billion deal, and Textron Inc. (TXT). Industrial conglomerate Textron in December 2013 wagered $1.4 billion on the expansion of its general aviation business by acquiring the parent of Beechcraft Corp., a deal that many observers believe will eventually lead to a spin out of the company's combined Beechcraft-Cessna operation.
FINANCIAL SERVICES: In June 2013, Morgan Stanley (MS - Get Report) , led by CEO James Gorman and global head of M&A, Robert Kindler, wrapped up the purchase of Citigroup Inc.'s (C) remaining 35% stake in their wealth management joint venture for $4.7 billion.
Morgan Stanley reached an agreement with Citi in September 2012 to purchase 14% of Citi's stake in Morgan Stanley Smith Barney for $1.9 billion, valuing the JV at $13.5 billion. The two companies previously did not see eye to eye on valuation — Citi thought it was worth $22 billion and Morgan Stanley valued it at $9 billion — and reportedly brought in Perella Weinberg Partners LP for an appraisal. Citi and Morgan Stanley agreed on the $13.5 billion figure after Perella reportedly set the number somewhere south of $13 billion.
"We believe the deal ended up considerably in Morgan Stanley's favor," said David Trone, director of research and analyst covering banks and brokers at MKM Partners LLC. "They got it for a very economical price."
The deal, he noted, was "key to Morgan Stanley's metamorphosis away from capital intensive trading and toward more annuitized revenue."
The Morgan Stanley Smith Barney joint venture was created in 2009, with Morgan Stanley owning 51% and Citigroup owning 49%.
The business, renamed Morgan Stanley Wealth Management in 2012, is the largest brokerage firm in the world by number of representatives. Morgan Stanley had 16,162 reps as of end-September 2014. In the third quarter of 2014, the wealth management business had net revenues of $3.8 billion and a pre-tax margin of 22%, compared with $3.5 billion and 19% a year ago.
UTILITIES: NRG Energy Inc. (NRG - Get Report) was the first company in the power and utilities space to hit the scene with the highly successful initial public offering of its yieldco vehicle — aptly named NRG Yield Inc.
NRG Yield raised $468 million in July 2013 in an IPO that priced at $22 per share, which was above the proposed $19 to $21 per share range. NRG Yield stock closed on July 22 at $51.77 per share.
The yieldco is a corporate entity designed to mimic the economics of MLPs and REITs, with their tax benefits and their ability to attract additional investors because of their guaranteed distributions to unitholders.
The vehicle grows by either dropping down assets — meaning that projects are put into the yieldco from the parent — or external acquisitions, with some yieldcos growing through a combination of drop-downs and purchases.
In early November, NRG announced that it had sold, or dropped down, a second set of assets to NRG Yield. The assets included the Walnut Creek gas-fired power plant, the Tapestry and the Laredo Ridge wind facilities in a transaction valued at $480 million in cash, plus assumed project debt of $746 million.
NRG's landmark yieldco deal led to a number of other companies in the sector following suit. Canada's TransAlta Renewables Inc., San Francisco's Pattern Energy Group Inc., Britain's Greencoat UK Wind plc and Renewable Infrastructure Group Ltd. quickly took the plunge into the yieldco. In July, NextEra Energy Inc. of Juno Beach, Fla., and Spain's Abengoa SA also launched yieldco spinoffs; both were oversubscribed and at the high end of their expected ranges. On July 18, SunEdison Inc. of St. Peters, Mo., debuted its yieldco, TerraForm Power Inc., at $25 per share, which was the high end of an already raised price range.
"The success of NRG has caused other companies to get into the market and put contracted assets with identifiable growth into a yieldco," said Anthony Ianno, a managing director in Morgan Stanley's power and utilities group. n
— Laura Cooper, Armie Margaret Lee, Amanda Levin, Jenna Loceff, Chris Nolter, Claire Poole and Lou Whiteman contributed to this report.