Andrews Kurth LLP partner J. David Washburn found himself in unfamiliar territory when he advised unmanned aerial target systems manufacturer Composite Engineering Inc. on its May 8 sale to Kratos Defense & Security Solutions Inc. for $155 million. "I've done a lot of automotive technology deals, but I hadn't done any aerospace before," Washburn says. "It created unique issues for consideration."
Those issues included how to handle all the sensitive data involved in the deal. "The weirdest thing is trying to think through the issues associated with classified contracts," Washburn says. "You don't put those contracts in the data room. You don't have reps and warranties about them. Then you start thinking, 'Are the revenues associated with these contracts? Are they in the financial statements?' Those are things that had never occurred to me before."
Washburn landed the assignment through a recommendation from a client who spoke highly of his negotiating skills to a mutual contact of CEI's owners, Mike and Amy Fournier. "He does a good job running the room, commanding the room without offending anybody," says Keith Jezek, CEO of Oak Brook, Ill.-based vAuto Inc. Washburn was vAuto's lead attorney when it was bought by AutoTrader.com Inc. in October. Jezek knows Jeff Herro, the Fourniers' "right-hand man" at CEI, who passed along Washburn's name to the company's owners. "Keith had a connection with Mike and Amy," Washburn explains. "They were interviewing firms around the country, and I was lucky enough to get the gig."
Washburn says Amy Fournier was relentless in her screening process. "She picked my brain for hours over how I would handle [specific situations]. We talked at length about managing investment bankers, engagement letters. We were in the weeds." The lawyer says CEI interviewed about six investment banks before choosing Irvine, Calif.-based Janes Capital Partners Inc. as its financial adviser.
Brian Karpiel, a director at Janes who worked on the deal, has experience in the aerospace sector. He advised Addison, Ill.-based aerospace component maker CEF Industries Inc. on its $83 million sale to Cleveland counterpart TransDigm Group Inc. in May 2008 while at CIT Group Inc.'s Edgeview Partners LP.
Washburn says one of the key factors in getting the deal through was the compatibility of Mike Fournier and Kratos CEO Eric DeMarco. "It was a personality fit. Mike really liked Eric's entrepreneurial nature. He's smart; he's a motivator of people."
Fournier is eager to build aircraft under DeMarco's leadership. The Kratos CEO spoke with conviction about the Defense Department's shifting military priorities at a May 9 call about the CEI purchase. U.S. air power "in my opinion will need to be supplemented by unmanned combat aerial systems. I am absolutely convinced that they're going to be a significant part of the country's national security strategy," he said.
Along with Washburn, Kay Lynn Brumbaugh, Quentin Faust, Tom Popplewell, Lisa Shelton, Chris Fenelon, Peter Bogdanow, Christine Williford, Katie Kane, Will Becker and Karen Wade at Andrews Kurth represented CEI. Janes' Stephen Perry and Douglas Bartels advised the company along with Karpiel. Paul Hastings LLP's Deyan Spiridonov, Teri O'Brien, Elizabeth Razzano and Melissa Garcia were legal counsel to Kratos, while Jeff McGrath, Chris Oliver, Dominic Aquilina and Stephen Vather at Sagent Advisors LLC provided financial advice.
Putting together the consortium of Wolverine World Wide Inc., Golden Gate Capital and Blum Capital Partners LP to make a bid for Collective Brands Inc. was a risky proposition. Not only did the bidders have to negotiate with their target, but they also had to negotiate with each other. If one member of the group proved more aggressive than its partners in its pursuit of Collective Brands, or if one was more conservative, the consortium and its bid could have fallen apart, a source explains.
But such pitfalls were avoided, and on May 1, the consortium announced an agreement to buy Collective, home of well-known footwear brands including Keds and Stride Rite, for $1.93 billion. The consortium's success was due in part to the fact that its members entered the process as a single group, rather than having teamed up during the auction process. Also, after the deal closes, the group's members will go their separate ways, each taking with them a piece of Collective that operates separately from the others.
Wolverine, known for its work boots, will take on Collective Brands' performance and lifestyle group, consisting of footwear brands Sperry Top-Sider, Saucony, Stride Rite and Keds. The brands will add more than $1 billion in revenue to Rockville, Mich.-based Wolverine and increase its size by nearly 71%. Private equity firms Golden Gate and Blum, meanwhile, will each add Payless ShoeSource to their portfolios, with each firm owning a 50% stake in the company.
A source close to the deal says to expect more transactions in which PE firms not only team with strategics to make acquisitions, but proceed to split up the target upon the deal's closing. Indeed, the unusual structure worked for Collective, a second source notes, as the $21.75 per share offer provided it with more than a 100% premium to its stock price on Aug. 23, the day before it announced a strategic review. That's likely better than it could have done if it had split up the company through spinoffs or divestitures, the source adds.
Upon the transaction's announcement, Wolverine said its share of the acquisition cost was close to $1.36 billion -- a hefty price tag, considering that Collective, then still named Payless ShoeSource Inc., paid $898 million for the same business when it bought Stride Rite Corp. in May 2007. Wolverine will fund its portion of the deal with some $900 million in term loans, a $375 million notes offering and $80 million in cash.
Meanwhile, Golden Gate and Blum Capital, both based in San Francisco, will kick in up to $550 million in equity for their acquisition of discount shoe retailer Payless ShoeSource in addition to the company's Collective Licensing International division.
Providing debt financing commitments to Wolverine are J.P. Morgan Chase Bank NA and Wells Fargo Bank NA. Wells Fargo & Co.'s Wells Fargo Capital Finance is contributing to Blum and Golden Gate a $250 million senior secured asset-based revolving credit facility. Perella Weinberg Partners LP's Andrew Bednar and Zahid Ahmed gave Collective Brands financial advice, while the target received legal counsel from a Sullivan & Cromwell LLP team consisting of Frank Aquila, Audra Cohen, Neal McKnight, Matthew Friestedt, Melissa Sawyer, Ronald Creamer Jr., Henrik Patel and Matthew Brennan.
A Robert W. Baird & Co. team led by Brian McDonagh offered financial advice to Wolverine, while legal advice to the strategic buyer came from a Barnes & Thornburg LLP team led by Tracy Larsen. Golden Gate and Blum took legal counsel from Kirkland & Ellis LLP consisting of Stephen Fraidin, Stephen Oetgen, Mikaal Shoaib, William Sorabella, Jeremy Veit, Chris Torrente, Jay Ptashek, Ashley Gregory and David Nemecek. The in-house team at Golden Gate included Josh Olshansky, Josh Cohen and Neale Attenborough, and the team at Blum Capital included David Chung and Doug Dossey.
Some parts of the M&A world can be pretty small places. Just ask the CEOs of printed circuit board makers Viasystems Group Inc. and DDI Corp.
Viasystems, backed by private equity firms HM Capital Partners LLC and Black Diamond Capital Management LLC, said on April 4 that it agreed to acquire its Anaheim, Calif.-based industry peer for some $282 million in cash. The transaction allows the two technology companies to compete against North America's largest circuit board maker, TTM Technologies Inc.
Viasystems chief executive David Sindelar contacted DDI chief executive Mikel Williams in early 2012 to talk about a possible deal since the two companies share a similar product and customer base. The two sides began deal negotiations in February and signed an agreement on April 3, according to Jones Day partner Scott Cohen, who led a team that includes Katherine Ettredge, Lewis Grimm and Stuart Ogg in representing St. Louis-based Viasystems.
Cohen notes that since the printed circuit board industry is small, all the players know each other and their work.
As a result of Viasystems' solicitation, DDI conducted a very short and targeted sales process run by Jefferies & Co., but did not receive any competing offers, says Cohen, who has been advising on Viasystems' acquisitions since 1997. In 2009, he represented the company in its purchase of Merix Corp., a deal that allowed Viasystems to go public through a backdoor listing.
To help fund the DDI acquisition, Viasystems has raised $550 million in senior notes. The company first received a $300 million bridge loan commitment from Goldman, Sachs & Co., Wells Fargo Securities LLC and Stifel Financial Corp. Viasystems let the bridge loan commitment terminate when the senior notes offering was completed on April 30. The senior secured notes are due in 2019 and have a 7.875% interest rate.
David Chanley, Cole Bader and Joe Corso of Stifel Nicolaus Weisel provided Viasystems with financial advice.
Jefferies' Chris O'Geen, along with Mooreland Partners LLC's Bob McNamara, Anil Malhotra and Jonathan Lejuez gave DDI financial advice. Paul Hastings LLP's John Della Grotta and Jim Herriott provided legal counsel. --Demitri Diakantonis