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Each week, we report instances where the money junky hedge funds, private equity groups and the already big companies swallow another piece of the global economy.
Here are some more of what the BIGS have been gobbling up and how the Bigs keep getting bigger and the rich keep getting richer. It should be noted that when interest rates in the U.S. were floating at near zero, merger and acquisition hit an all-time high in 2021.
Now with rates rising, as we detail in this Trends Journal, M&A activity is slowing down.
And most importantly, a lot of these acquisitions were made with the belief of rising economic growth. Also, as economies go down and interest rates rise, the debt burden from these M&A’s will grow heavier, crashing many of them into bankruptcy and default on debt.
PFIZER CLOSES IN ON PURCHASE OF BLOOD THERAPY COMPANY
Pfizer is nearing agreement on the purchase of Global Blood Therapeutics (GBT), which makes a drug recently approved for treatment of sickle-cell disease and has two more promising candidates in development, The Wall Street Journal reported.
The sickle-cell drug cleared $55 million in first-quarter revenues, GBT said.
GBT had become a takeover target recently, with its share price climbing 33 percent on 5 August to $63.84.
Other suitors are still pursuing a deal, the WSJ said.
However, Pfizer has a $25 billion cash windfall from sales of its COVID vaccine that it plans to spend on purchases and takeovers by 2030.
That initiative is well under way.
Last September, Pfizer bought Trillium Therapeutics, a cancer biotech firm for $2.26 billion. (See “Pfizer Buys Cancer Biotech Firm for $2.26 Billion,” 14 Sep 2022). In March, Pfizer snapped up Arena Pharmaceuticals, with its promising drug to treat inflammatory bowel disease, for $6.7 billion, as we reported in “Pfizer Buys Arena Pharmaceutical for $6.7 Billion” (21 Dec 2021).
In May, Pfizer shelled out $11.6 billion to buy the portion of conglomerate Biohaven Pharmaceutical Holdings it did not already own (“Pfizer to Take the Rest of Biohaven for $11.6 Billion,” 22 May 2022). Recently, Pfizer announced its intent to grab Reviral, which makes oral antiviral drugs, for $525 million, which we noted in “After Record Revenues, Pfizer is On the Hunt” (15 Feb 2022).
CARLYLE GROUP BUYS SWATHS OF BROOKLYN APARTMENT BUILDINGS
Carlyle Group, ranked among the world’s five biggest private equity firms, has assembled a portfolio of more than 130 small apartment buildings across the borough of Brooklyn in New York City, according to The Real Deal (TRD), a news service covering New York City real estate.
In the new fund, Carlyle is collaborating with Greenbrook Partners, another investment management firm, whose tactics have recently drawn criticism.
Last December alone, the two firms bought 45 buildings, more than one a day.
Instead of buying huge buildings worth hundreds of millions of dollars, as most private equity firms typically do, Carlyle has raised a $500-million fund among private investors to pocket smaller buildings, some for as little as $2 million.
The fund is focusing on the popular neighborhoods of Bedford-Stuyvesant, Bushwick, Cobble Hill, and Park Slope in collaboration with Greenbrook.
The partners are buying buildings that limit increases on real-estate taxes to no more than 8 percent annually and are usually not rent-controlled, according to TRD.
Brooklyn is growing in popularity as prices and rents for Manhattan apartments are rising again. Although more affordable than Manhattan, rents for one-bedroom apartments in Brooklyn jumped more than 25 percent in June, year over year.
Greenbrook concentrates on “poorly maintained, undermanaged and undercapitalized assets”—also known as buildings—“in growth-oriented and transitional submarkets.”
The firm has refused to renew leases for long-time residents of a Park Slope building it bought last year, leading U.S. Senate majority leader Chuck Schumer (D-NY) to call Greenbrook “despicable.”
SAUDI ARAMCO BUYS VALVOLINE’S PRODUCTS BUSINESS
Valvoline, the Kentucky company making and selling motor oil, lubricants, and other automotive fluids worldwide, will sell its products business to Saudi Aramco, Saudi Arabia’s national oil company, for about $2.65 billion.
After ridding itself of its product line, the Valvoline company will become strictly an auto service business, continuing to operate and franchise about 1,700 quick-lube shops around the U.S.
Valvoline will use some of the $2.65 billion to expand into services for electric vehicles, it said.
Valvoline also will buy back shares and increase dividends to shareholders, the company added.
In recent years, Saudi Aramco has diversified from oil production, boosting its investments in distribution, marketing, and refining.
Adding the Valvoline brand to its portfolio will help Saudi Aramco expand and deepen its relationships with equipment makers, it said.
AMAZON BUYS ROOMBA FOR $1.7 BILLION
Amazon has agreed to buy iRobot, the company that makes the robotic vacuum cleaner Roomba, for $1.7 billion.
Amazon will pay $61 per iRobot share and will assume iRobot’s debt, The New York Times reported.
The acquisition expands Amazon’s catalog of smart home products with the addition of iRobot’s automated mops and air purifiers.
Amazon already owns Ring doorbells and entry surveillance systems as well as Alexa, the robotic personal assistant.
In this year’s second quarter, iRobot reported $255.4 million in revenue, 30 percent less than a year previous and slightly below the first quarter’s result.
The purchase is Amazon’s fourth largest.
The company bought Whole Foods Markets for $13.7 billion in 2017 and the MGM movie studio for $8.7 billion last year.
More recently, Amazon subsumed One Medical for $3.9 billion, extending its reach into the $4-trillion U.S. health care market, as we reported in “Amazon Takes Over One Medical” (2 Aug 2022).
PRIVATE EQUITY FIRMS BUY AIR FREIGHT COMPANY FOR $3.2 BILLION
A consortium of private equity firms led by Apollo Capital Management will pay $3.2 billion to buy Atlas Air World Holdings, a freight company that moves packages for Amazon and other e-retailers.
While the equity value of the deal is figured at $3.2 billion, Atlas’s all-encompassing enterprise value is closer to $5.2 billion, an Atlas spokesperson said in announcing the sale.
The buyers agreed to pay $102.50 in cash for each Atlas share, 56 percent higher than the stock’s 30-day weighted average before knowledge of the sale became public.
Apollo bought Minneapolis-based Sun Country Airlines in 2018 and holds stakes in Grupo Aeromexico, Mexico’s national airlines, and cargo company Swissport International.
PERMIRA BUYS REORG FOR $1.3 BILLION
Private equity firm Permira will pay $1.3 billion for majority ownership of Reorg, a company providing in-depth data and analysis on bankruptcies, distressed debt, and other kinds of bad loans.
The balance of Reorg will be owned by founder Kent Collins and Reorg’s other employees.
Reorg combines computer power and machine learning, original reporting, and analysis by experienced bankers and lawyers, according to the Financial Times.
Reorg offers “deep insight and powerful analysis of the complex and often opaque credit markets,” Primera partners Daniel Brenhouse and Andrew Young said in a statement announcing the acquisition.
Since central banks began raising interest rates, instances of troubled debt have doubled to 10 percent of loans worldwide, the Financial Times reported.
Reorg’s 25,000 clients can pay as much as $100,000 annually but customers are loyal, Reorg said, in part because its services can replace the work of junior attorneys in a firm, saving not only salary and benefits but also overhead costs.
Reorg’s clients include bankruptcy professionals, hedge funds, investment banks, and law firms.
The company is known for its close coverage of bankruptcy hearings and negotiations between creditors and businesses with troubled loans, the FT said.