2008 Q4 - Industry reviews from McGladrey Capital Markets

McGladrey Capital Markets would like to present our latest Quarterly Industry Reviews. Each of our industry teams has prepared this briefing, which highlights key trends, examines M&A activity, provides industry insight and details current mandates that may be of interest to you or your clients within the following sectors linked below:

Aerospace & Defense
Basic Industries
Chemicals
Consumer Products & Services
Energy Services
Engineering, Construction and Building Materials
Food & Beverage
Global Financial Services
Government Services
Healthcare
Media, Entertainment and Gaming
Plastics and Advanced Materials
Technology

Defense Contractors Fear Bailout Fallout

By Dan Beighley
Orange County Business Journal Staff

...Some aren’t expecting many contracts for big ticket items, since many believe the federal budget is swinging from aircraft toward research and development.

“There’s a priority for strategy,” said Hector Cuellar, president of Costa Mesa-based investment bank McGladrey Capital Markets LLC, a unit of Kansas City, Mo.-based H&R Block Inc.

Programs for intelligence, security and information gathering, such as unmanned planes, radar and satellite systems, stand a better chance of getting funding, Cuellar said.

ThalesRaytheonSystems Co., a venture of Waltham, Mass.-based Raytheon Co. and France’s Thales with its U.S. base in Fullerton, recently was awarded a $217 million radar contract.

Eaton could gain contracts to make parts for unmanned planes, such as Los Angeles-based Northrop Grumman Corp.’s X-47B, which is designed to operate from aircraft carriers.

Cuellar said he believes the government won’t likely cut spending, as equipment used in Iraq likely will be replenished for Afghanistan.

“No administration would approve a significant drop,” he said....

2008 Was No-Show Year for Local IPO (from the Orange County Business Journal)

By Dan Beighley
Orange County Business Journal Staff

It was the year that wasn’t for local initial public offerings.

...Accounting costs from the Sarbanes-Oxley Act of 2002 have made going public harder for companies valued at less than $1 billion, said Hector Cuellar, president of Costa Mesa-based investment bank McGladrey Capital Markets LLC, a unit of Kansas City, Mo.-based H&R Block Inc....

McGladrey Capital Markets leads negotiations as Synchronous Aerospace acquires Helicomb International

Costa Mesa, Calif. – January 07, 2009 – Synchronous Aerospace, a portfolio company of Littlejohn & Co, has announced a definitive agreement to acquire Helicomb International. Transaction terms were not disclosed.

McGladrey Capital Markets LLC initiated the transaction, led the negotiations and acted as the exclusive financial advisor to Helicomb. Johnson, Jones, Dornblaser, Coffman & Shorb LLP acted as legal advisor to Helicomb, and Morrison Cohen acted as legal advisor to the buyer.

“The McGladrey Capital Markets team ran an efficient, effective process that achieved a strong valuation with minimal disruption to Helicomb’s business,” says Bob Austin, president and majority shareholder of Helicomb. “The results exceeded my personal expectations, especially given the challenging market conditions.”

About Helicomb International

Founded in 1981 and based in Tulsa, Okla., Helicomb produces commercial and military aircraft structures manufactured from a broad range of composite and metal-bonded materials for leading aerospace manufacturers, Tier 1 suppliers and overhaul service providers.

About Synchronous Aerospace

Synchronous is a Santa Ana, Calif.-based leading provider of flight-critical machined aluminum and hard-metal parts; integrated kits and assemblies; composite, metallic and metal-bonded airframe structures; and systems details to the commercial, fixed- and rotary-wing military, and space markets. The company's products span the entire body of an aircraft, including the wing, airframe, engine and fuselage. From facilities strategically located throughout the United States, Synchronous sells to leading aerospace original equipment manufacturers, Tier I suppliers and key MRO service providers.

About Littlejohn & Co

Littlejohn & Co LLC is a Greenwich, Conn.-based control-oriented private equity firm seeking investment opportunities in the middle-market sector that are undergoing a fundamental change in capital structure, strategy, operations or growth that can benefit from the firm’s operational and strategic approach. The firm’s professionals manage three funds with committed capital of approximately $1.6 billion. The firm is currently investing from Littlejohn Fund III LP, which has $850 million in capital commitments. For more information, visit www.littlejohnllc.com, or Littlejohn can be reached at 203-552-3500.

About McGladrey Capital Markets

McGladrey Capital Markets LLC is a global provider of investment banking services to private and public companies with annual revenues of up to $1 billion. The firm’s services include mergers, acquisitions, divestitures, recapitalizations, capital raising, fairness opinions and restructurings. McGladrey Capital Markets, which offers in-depth expertise in 13 distinct industry sectors, brings together companies, capital and creativity on a national and international scale to help clients achieve their personal and strategic objectives.

McGladrey Capital Markets is affiliated with RSM McGladrey Inc., a professional services firm providing accounting, tax and business consulting. Both firms are indirect subsidiaries of H&R Block Inc. (NYSE: HRB), the world’s preeminent tax services provider. McGladrey Capital Markets is also a member of RSM International, a worldwide network of professional services firms.

McGladrey Capital Markets’ international headquarters are located in Costa Mesa, Calif. It also has offices in Chicago, Boston, Dallas, New York and London. The firm is a member of FINRA and SIPC.

McGladrey Capital Markets continues to close deals amid financial crisis

Costa Mesa, Calif. – December 24, 2008 – Although the frigid financial climate has impacted all facets of M&A deal activity, global middle-market investment bank McGladrey Capital Markets LLC continues to successfully close transactions. Investment bankers at the firm have concluded five middle-market M&A deals within the last twelve days alone. All five had private equity components.

“We expect to close as many deals this December as last December, which seems remarkable under such a stressful lending market,” says Hector J. Cuellar, president. “We did see a slowdown in November, as the financial meltdown took a toll, but the activity has returned this month, and we’re on track to close about as many deals this year as in 2007."

Given today’s financing environment, the recent flurry of closed deal activity is a testament to the firm’s ability to seek out solutions and manage transactions to a close under very difficult conditions. “It’s been a challenge up until the final hour on many transactions this week,” Cuellar says. “But our clients are pleased with the results so far.”

The firm has also signed six sell-side engagement agreements and three buy-side engagement agreements within the month of December so far, signaling continued deal activity in 2009.

M&A isn't the only area where the firm is seeing activity. Demand for restructuring and capital raising services is on the rise. Liquidity concerns have led companies to reach out for the firm’s financing expertise within the past month. "As the credit market becomes tighter, lenders are increasingly looking to trusted, established relationships," Cuellar says. "And that makes having the right investment banking team on your side all that much more important."

Some sectors are slowing: consumer discretionary sectors and cyclical industries aren't expected to see as much deal activity until signs of consumer confidence recover. Industries such as healthcare, technology and defense, however, remain popular targets for deals. “Good deals continue to happen, both for strategic and private equity buyers,” Cuellar says.

McGladrey Capital Markets leads negotiations as Ancor Capital Partners and Merit Capital Partners acquire Tom Cat Bakery

Costa Mesa, Calif. – December 18, 2008 – Tom Cat Bakery, Inc., an artisan bread and sweet goods commercial bakery located in New York, was acquired today by Ancor Capital Partners and Merit Capital Partners. Transaction terms were not disclosed.

McGladrey Capital Markets initiated the transaction, sourced the buyer, led the negotiations and acted as exclusive financial advisor to Tom Cat Bakery. New York-based Lowenstein Sandler PC acted as the legal advisor to Tom Cat Bakery and Hunton & Williams LLP in Dallas served as lead deal counsel for the buyers.

This is the third transaction McGladrey Capital Markets has closed in the past week.

U.S. gas pipeline infrastructure: take-away tug of war (from Oil and Gas Investor)

Rising U.S. gas production has producers and pipeline developers
scrambling for new take-away capacity against a backdrop of dicey financial
markets.

“There has been an unprecedented amount of domestic spending on pipeline infrastructure over the last couple of years, by a factor of six,” says Mike Parham, managing director of Costa Mesa, California-based McGladrey Capital LLC, an investment-banking firm.

“The real pipeline growth areas seem to be in Alaska, the Midcontinent and the Rockies,” he says. “But I don’t want to underestimate even West Texas, New Mexico and some of the Permian Basin. Across the board, the industry spent about $12 billion nationwide this year, compared with about $6 billion last year. And only about $2 billion in 2006.”

How will new projects be funded? “That’s the big question. I think the MLPs are a likely source,” says Parham. “They have to put their money into projects like these and I think they will also raise more capital, although the markets aren’t being very friendly right now. Also, in this market, mezzanine funding is going to play a big role.”

In fact, due to the rattled global financial system, Parham sees institutional money making a flight to safety, as well as private-equity capital that historically wouldn’t touch energy, and hedge funds, all turning to energy and infrastructure-related investments.

Also, pension funds are directly investing in infrastructure for long-term income. “In the past, the cyclicality of the industry spooked a lot of these types of investors,” says Parham. “But now, it is the rest of the market that is spooking them.

“They are seeing that the long-term trend for infrastructure is quite positive. We have an archaic grid and a tremendous need for pipelines. We need an extreme makeover. I can’t find another industry where a dollar should be invested, other than in energy.”