May 2011 - Association for Corporate Growth

THE OFFICIAL PUBLICATION OF
MAY 2011
Leerink Swann’s
James Boylan is
among those
anticipating
healthcare dealflow
will continue to
swell, pushed
along by a set of
diverse drivers
Cocktail
Therapy
THEMIDDLEMARKET.COM
PLUS
Black Swan Indifference
SBIC’s Growing Popularity
InterGrowth Wrap Up

Contents
May 2011 | Volume 46 | Number 05
Cover Story
Cocktail
Therapy
Leerink Swann’s James
Boylan is among those
anticipating healthcare
dealflow will continue to
swell, pushed along by a
set of diverse drivers
24
Cover Photograph by JohnCalabresePhotography.com
The Watercooler
8 Kid Brands suffers deal indigestion; a
reality star becomes an M&A star; PE’s
senior advisors bring benefits beyond
operational oversight; and a new
opportunity for distress, plus tomorrow’s
deals, the Beltway monitor and other
news deal pros are talking about
Outlook
14 Corralling the Black Swans
16 Sizing up the Barriers to Entry
18 Sprint’s Roadmap for Dissent
LBO Watch
20 Another IPO Heyday
22 Tapping into the LP Mindset
InterGrowth Wrap
28 McChrystal Q&A: The Leadership
Doctrine
30 Strategic Power Shift
Features
32 The SBA’s Growing Popularity
The Small Business Administration’s
revitalized SBIC program is drawing
investors of all stripes
34 Guest Article: Recruiting and
Retaining Talent
CMF Associates’ Tom Bonney and
Kathryn Kehoe describe that certain
steps are required before and after a deal
36 People
47 Data
Association for
Corporate Growth
4 Who’s Who
6 Letter to Members
40 The Pulse
42 Community Commentary
May 2011
MERGERS & ACQUISITIONS

Inside Word
Every year, InterGrowth seems to provide a pretty accurate gauge of the middle
market. By the time this issue reaches readers’ mailboxes, it will have
been almost exactly one year since the “flash crash” had InterGrowth attendees
in Miami in a state of shock, underscoring the uncertainty that was still
embedded in the deal market at the time. Within months, M&A activity would
pick up, and the market would close with one of the more impressive fourth quarters
in recent memory.
Fast forward to March, and the deal pros that made it out to San Diego seemed
completely at ease -- moreso than at any point since I arrived at Mergers & Acquisitions
in late 2007. Lenders I spoke to were confident that world events would not
spook the credit markets, while deal pros gave off a sense of harried contentment
that seemed to reflect an abundance of dealflow.
As Brian McDonagh, managing director and co-head of Robert W. Baird said
during the state of market panel, “Every day, we’re seeing a major strategic transaction
take place, certainly every Monday.”
For those in M&A, there is probably no better way to start the week. Our Inter-
Growth coverage begins on page 30.
Also in this issued, we covered the frenzied healthcare market for the May cover
story that starts on page 24. Dealmakers, by and large, are bullish on the space,
which is reflected in the activity and the valuations, but you have to wonder whether
the demographic trends are overshadowing some of the potholes.
Also this month, Danielle Fugazy covered the strides made by the SBA to attract
investors to its SBIC program. The story, found on page 32, details that the SBA’s
efforts appear to be paying dividends. Also, Tamika Cody explored the various
barriers to entry dealmakers chase after, highlighting that some barriers may not
provide the fortification buyers may hope for.
Ken MacFadyen
Editor
Mergers & Acquisitions | TheMiddleMarket.com
May 2011 Volume 46, Number 05
Editor
Senior Reporter
Senior Reporter
Contributing Editors
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MERGERS & ACQUISITIONS May 2011

WHO’S WHO
ACG Board 0f Directors
Chairman*
Michael A. Carr
Partner, BAC Investments, LLC
ACG Los Angeles
Term expires 2011
Vice Chairman*
Andrew W. Rice
Senior Vice President, The Jordan Company
ACG Chicago
Term expires 2011
President & Chief Executive Officer*
Gary A. LaBranche, CAE
ACG Headquarters
Chairman of Finance*
Cliff Braly
Partner, Deloitte Tax LLP
ACG Dallas/Fort Worth
Term expires 2011
Secretary
Tom Walton
Managing Director, Hanley, Hammill, Thomas
ACG Wisconsin
Term expires 2011
Chairman of InterGrowth 2011
Jack Helms
Chairman, Lazard Middle Market
ACG Minnesota
Term expires 2011
Chairman of InterGrowth 2012
Doug Tatum
CEO, The Co-Investment Partnership LLC
ACG Atlanta
Term expires 2012
Immediate Past Chairman
Dennis J. White
Partner, Verrill Dana, LLP
ACG Boston
Term expires 2011
Chapter Representative Directors
Tracy Albert*
Managing Director, Houlihan Lokey Howard & Zukin
ACG Orange County
Term expires 2011
Dan Amadori
President, Lamerac Financial Corp.
ACG Toronto
Term expires 2011
Spencer J. Brown
President, Spencer J. Brown & Associates
ACG Portland
Term expires 2012
Vanessa Brown Claiborne
President, Chaffe & Associates
ACG Louisiana
Term expires 2012
Richard P. Jaffe*
Partner, Duane Morris, LLP
ACG Philadelphia
Term expires 2012
John Kerschen
Managing Director, The Charter Group
ACG Western Michigan
Term expires 2012
Charles Morton
Partner, Venable LLP
ACG Maryland
Term expires 2011
Wendy Neal*
Director, International Commodity Alliance, Ltd.
ACG Cleveland
Term expires 2011
Clifford R. Pearl
Of Counsel, Hensley Kim & Holzer LLC
ACG Denver
Term expires 2011
Ashley Rountree
Managing Director, C.W. Downer & Company
ACG France
Term expires 2012
Tom Tullidge
Managing Director, Cary Street Partners
ACG Richmond
Term expires 2012
Directors At Large
Les Alexander
Managing Director, Fairway Capital
ACG Louisiana
Term expires 2011
Erik Dykema
Principal, Lineage Capital LLC
ACG Boston
Term expires 2012
Ed Fisher
Managing Partner, SouthPointe Ventures
ACG Atlanta
Term expires 2012
Michael Gibbons
President, Brown Gibbons Lang & Co.
ACG Cleveland
Term expires 2011
Patti Gillenwater
CEO, Elinvar
ACG Raleigh Durham
Term expires 2013
Penny Hulbert
Managing Director, Links Financial
ACG Tampa Bay
Term expires 2012
Stuart Johnson
Partner, Barnes & Thornburg, LLP
ACG Atlanta
Term expires 2011
Cory Mims
Managing Director, ICV Capital Partners
ACG New York
Term expires 2013
Stephen V. Prostor
Director, Citi Private Bank
ACG New York
Term expires 2013
* Member of the Executive Committee
ACG Honorary Directors
Robert G. Coffey
Alan B. Gelband
ACG Chapters
ACG 101 Corridor
acg.org/101
ACG Arizona
acg.org/arizona
ACG Atlanta
acg.org/atlanta
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acg.org/austria
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acgboston.org
ACG Calgary
acg.org/calgary
ACG Central Texas
acg.org/centraltexas
ACG Charlotte
acg.org/charlotte
ACG Chicago
acgchicago.com
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acg.org/china
ACG Cincinnati
acg.org/cincinnati
ACG Cleveland
acg.org/cleveland
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ACG Connecticut
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ACG Dallas/Fort Worth
acg.org/dallas
ACG Denver
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ACG France
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ACG Houston
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ACG Indiana
acg.org/indiana
ACG Kansas City
acg.org/kc
ACG External Affairs/Media Manager
Greg Fine, gfine@acg.org
Matt Switzer, mswitzer@acg.org
ACG Sponsorship Director
Kris Wolcott, kwolcott@acg.org, 312-673-4981
Contributors
Gary A. LaBranche, Michael A. Carr, Tom Gage, Robert W. Stewart
ACG Kentucky
acg.org/kentucky
ACG Los Angeles
acgla.org
ACG Louisiana
acg.org/louisiana
ACG Maryland
acg.org/maryland
ACG Minnesota
acg.org/minnesota
ACG National Capital
acgcapital.org
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Association for Corporate Growth
71 S. Wacker Drive, Suite 2760
Chicago, IL 60606
ACG Membership: 877-358-2220
www.acg.org
MERGERS & ACQUISITIONS May 2011

LETTER TO MEMBERS
An Open Forum
In the wake of another successful InterGrowth, ACG introduces a platform to foster the sharing
of members’ ‘growth stories’
GARY A. LaBRANCHE and MICHAEL A. CARR
We would be remiss without opening
our monthly letter with a
thank you to everyone who made
InterGrowth 2011 such a success. The event
was the largest InterGrowth ever, and the
feedback attendees have been providing has
been very positive. Check out this month’s
“Few fully understand the important
role of each stakeholder in driving
middle-market growth.”
Pulse column on page 40 for just a capture of
what some attendees learned and benefited
from at this year’s event.
ACG Launches Middle-Market Private
Capital Leadership Forum (The Forum) to
Tell the “Growth Stories” of the Middle-
Market
ACG has responded to member requests
and is moving forward in becoming a more
active and visible voice for the middle market
dealmaking and corporate growth community.
Middle-market investors, lenders, advisors,
and corporate leaders quietly go about
their business every day. As a result, middlemarket
companies grow, add jobs, serve
customers and contribute to their communities.
But few know or fully understand the
important role of each stakeholder in driving
middle-market growth. Unfortunately, negative
views of our industry have prevailed and
there is an absence of positive stories describing
how members of the ACG community
build and grow middle-market companies.
To advance the positive story of middlemarket
private capital investment, ACG has
created the Middle-Market Private Capital
Leadership Forum
(The Forum). The
Forum will support
projects and
research designed
to tell the story of
how privately-held middle-market companies
grow jobs, add to the tax base, enhance prosperity
for employees and entrepreneurs, and
power our economy. The Forum is organized
to communicate how private capital delivers
public good.
We encourage you to visit www.middlemarketgrowth.org,
learn more about what
The Forum is doing and how you can add your
voice to the story.
If you have questions regarding the Forum
or would like additional information, please
contact Greg Fine, ACG vice president of marketing
and communications at 312-957-4277
or gfine@acg.org.
Keeping Limited Partners Happy—a
Joint White Paper from Grant Thornton
and ACG
Last but not least, we’d like to draw your
attention to a new joint white paper released
by Grant Thornton and ACG regarding limited
partners (LPs) current and future expectations.
With LPs remaining somewhat cautious
about investing, many private equity firms are
faced with the prospect of not being able to
raise a new fund in 2011 or, for some, ever
again. Visit www.acg.org and click on the
banner on the left hand side of the page to
download it for free!
Gary A. LaBranche, CAE
President & CEO
President & CEO
Michael A. Carr
Chairman
MERGERS & ACQUISITIONS May 2011

Watercooler
Kid Brands Suffers Deal Indigestion
The 2008 acquisition of LaJobi is producing
headaches that take the form of a customs
investigation
The 2008 acquisition of LaJobi has come back to haunt
Kid Brands, Inc., which is now the subject of an ongoing
investigation. Kid Brands said in March
it had fired both the subsidiary’s managing director of
operations and its president, Larry Bivona, who was part
of the group that sold LaJobi to Kid Brands nearly three
years ago. The firings were precipitated after the board of
directors found misconduct related to the customs duty
paid on products imported from China -- putting the
company in violation of anti-dumping regulations.
Kid Brands, formerly known as Russ Berrie & Co.,
originally acquired LaJobi for $47 million -- a deal that
occurred alongside the $16 million acquisition of CocaLo
Inc.
Larry Bivona and his brother Joe Bivona had founded the
infant furniture business in 1994. Upon the sale to Kid Brands,
Joe Bivona retired, while Larry Bivona structured a three-year
employment contract to stay on at LaJobi post close. An earnout
agreement was also included, which could have produced
another $15 million in proceeds for the sellers. Kid Brands,
however, cited that it does not intend to make any earnout payment
in light of the discovered malfeasance.
The board, after it was made aware of potential issues, retained
Skadden Arps to conduct the probe. Among the findings,
LaJobi had applied
incorrect import duties on
S H U T T E R -
STOCK: 56158117
Attempts to skirt import duties costs Kid Brands
certain wooden furniture
imported from Chinese
vendors, as certain employees
allegedly misidentified
the manufacturers
and shippers of products.
The ongoing investigation
also focuses on staffing
practices in LaJobi’s business
in Asia.
Kid Brands expects to pay an additional $7 million related
to customs duty and could be assessed a penalty that matches
the amount owed.
Escape Reality
Bethenny Frankel unloads her Skinnygirl
cocktail business after two years of building
the brand as a reality TV star
The first week of March saw dealmaker Lynn Tilton
make her debut as a reality star; less than three weeks
later, Bethenny Frankel, best known for her time on reality
show The Real Housewives of New York City, crossed into
M&A. She sold her Skinnygirl line of low-calorie cocktails to
POLITE CONVERSATION
“What I would do differently is I just would never
have mentioned it to Warren, and just made my own
investment and left it alone.”
—David Sokol, the disgraced Berkshire Hathaway vet, who resigned amid scrutiny
into his personal investment in Lubrizol. Speaking to CNBC, Sokol revealed
that his investment in Lubrizol followed meetings with bankers representing
the company, but preceded Berkshire Hathaway’s acquisition of Lubrizol.
Fortune Brands’ Beam Global.
Frankel launched the company just two
years ago, bringing in Skyy Vodka veteran
David Kanbar as a co-investor. Terms of
the deal were not disclosed.
The brand, of course, has benefitted
from Frankel’s exposure on the reality show
circuit. In 2005, she was a contestant on
the short-lived and little watched Apprentice
spinoff featuring Martha Stewart. Two
years later, she was
included in the cast
of “Real Housewives
Bethenny Frankel, dealmaker
of New York City,” where the Skinnygirl
brand has played a bit role. In 2009, it
was Frankel’s promotional efforts for the
brand that led to a falling out with BFF
Jill Zarin, who took issue with the Skinnygirl
signage at a charity event.
MERGERS & ACQUISITIONS May 2011

Leaning on Operating Execs
for Dealflow
Providence Equity’s acquisition of SRA
underscores the value some senior advisors
can provide
In the quest for operational capabilities, the PE industry has
turned en masse to former business executives. In a competitive
environment, it turns out these executives are also
proving themselves useful when it comes to dealsourcing.
Providence Equity Partners’ late March acquisition of SRA
International, for instance, came roughly a year after the firm
tapped Renato DePentima as a senior advisor. DePentima, of
course, had previously served as president and chief executive
officer of SRA, retiring in 2007.
The deal, announced in the first week of April, valued SRA
at $1.88 billion. Providence agreed to a go-shop provision, but
negotiated matching rights should any topping offers emerge.
According to analysts at Lazard, however, the enlistment of De-
Pentima gives Providence an edge and his presence will likely
serve as the “primary impediment” squelching outside interest.
Others too have called on their senior advisors to multitask.
When New Mountain Capital acquired Covidien’s Mallinckrodt
Baker specialty chemicals business last year, the deal came a
year after former Rohm & Haas chairman and CEO Raj Gupta
was brought in as a senior
advisor. Gupta, coincidentally,
is a boardmember
at former
Covidien parent Tyco
International.Advent
International is another
firm that has at times
leaned their operating
partners to channel
dealflow. Jenny Ming,
Advent’s Jenny Ming among those who
have multi-tasked into dealsourcing
the former Old Navy
president, was able to
walk the firm through
the Charlotte Russe opportunity,
which translated into an investment in 2009, less
than a year into Ming’s tenure at Advent.
The Next, Great Distress
Opportunity
Fundamental Advisors raises its second
PE fund to target the muni market
Dealmakers love a dislocation. And it was only a matter
of time before investors began looking for ways to
capitalize on the oft-predicted muni crisis.
Laurence Gottlieb, less than three years after
raising his debut fund, is back in the market seeking
$750 million for Fundamental Partners II,
LP -- his second private equity vehicle targeting
opportunities in distressed municipal bonds.
Gottlieb, who sits as chairman and CEO of
Fundamental Advisors, launched the firm in
2007 with Dana Fusaris, a managing director and
co-founder.
Gottlieb previously headed Citigroup’s municipal
distressed and special situations prop
desk, while Fusaris had been a portfolio director
at Madison Capital Management. Daniel Gilman, Gottlieb’s
former co-head at Citi, also signed on as a managing director.
The new fund suggests Fundamental has already committed
the bulk of its 2007-vintage first vehicle. The firm’s website
discloses just one deal, the acquisition of minor league franchise
The Memphis Redbirds. The team was acquired after Fundamental
bought up the muni bonds issued to build the team’s
stadium, AutoZone Park.
The new fund comes as
clouds continue to loom
over the muni bond segment.
Meredith Whitney
sounded the alarms in a
report late last year and an
ensuing interview on “60
Minutes,” in which she
forecast that the defaults
in the space would reach
the hundreds of billions of
dollars.
Meredith Whitney among those pumping muni distress
May 2011
MERGERS & ACQUISITIONS

Watercooler
TOMORROW’S DEALS
Hachette Sale Sets Up New
Strategy for Lagardere
The France-based media group is expected
to pursue sports representation assets
Expect to see Lagardere SCA make waves within the sports
representation industry, thanks to the sale of its international
magazines business to Hearst Corp.
The French media group, in the last week of March, agreed
to deal handing over its Hachette portfolio, featuring 102 magazine
titles, to New York-based media
conglomerate Hearst. The move,
observers say, will allow Lagardere to
put the €651 million ($918 million)
in proceeds toward acquisitions to
bolster its growing sports division.
Lagardere Unlimited, launched
last May with the goal of expanding
the publishing company into the
sports marketing arena, is gaining
traction as a formidable competitor to Forstmann Little & Co.’s
IMG Worldwide Inc.
In June, Lagardere acquired Louisville, Ken.-based Blue
Entertainment Sports Television (BEST), which represents
Philadelphia Eagles quarterback Michael Vick, for undisclosed
terms. Media reports now indicate that Cleveland-based IMG
could be next.
Forstmann acquired IMG for $750 million in November
2004.
Some marketwatchers, however, believe Lagardere is more
likely to sweep up smaller, sport specific assets.
“So much of its business is international,” says a source in
the sports marketing industry, referring to IMG’s size and global
reach. “A more likely target [for Lagardere] is a younger firm
that has promising young clients and prowess in
the recruiting world.”
The source pointed to Australia’s SFX Sports
Group Pty Ltd. as a possible target.
The sector has seen limited deal activity. Wasserman
Media Group is among those that have
been active buyers, acquiring a number of SFX
properties in 2006, including its football, rugby
and marketing and events divisions. Wasserman,
in March, was also rumored to be close to a deal
for SFX Golf, according to reports.
Meanwhile, Lagardere expects to complete its transaction
with Hearst over the next couple of months. Initial discussions
began in late 2010. — ANTHONY NOTO
Constellation Exploring
Strategic Alternatives
The Canadian software developer hired Bank
of America Merrill Lynch and BMO Capital
Markets to manage a potential process
Constellation Software Inc. is evaluating strategic options
as a means to raise shareholder value, hiring investment
advisers Bank of America Merrill Lynch and BMO Capital
Markets to assist the process.
Details of the review, including a timeline and whether it is
seeking a capital raise or a sale of assets, were not disclosed.
Constellation, which develops customized software for private
and public sector entities, has been particularly active pursuing
M&A over the past year. In January, the Toronto-based company
purchased certain software assets of John Deere Agri Services Inc.
from Moline, Ill.-based agricultural giant Deere & Co. In October,
Constellation acquired the Health–Clinical business of GFI
Solutions Group Inc. and also bought utility software provider
Cogsdale.
Including a handful of other deals, the company spent $114.2
million on acquisitions throughout 2010, a 53% increase over
the previous 12 months.
According to analysts, the company’s diversified end markets
better lends itself to financial buyers. Constellation, while public,
is still controlled by private equity investors Birch Hill Equity
Partners and OMERs, which took the company public in 2006.
TD Newcrest, in a research note found on Thomson One
Analytics, cited: “Constellation management has done an outstanding
job of finding and executing on M&A opportunities.
As a result, the company now serves over 40 different verticals.
However, given the diverse nature of Constellation’s business,
potential synergies for strategic buyers are not obvious to us.”
Total revenue for 2010 grew 44% to $631 million, year over
year. — ANTHONY NOTO
10 MERGERS & ACQUISITIONS May 2011

Watercooler
BELTWAY MONITOR
New Bill Aims to Void Dodd-Frank
Registration Requirements
Riverside Co.’s Pam Hendrickson spoke in
front of the House Committee on Financial
Services to help make the case for PE
Private equity’s eleventh-hour efforts in Washington are
starting to gain some traction, as sponsors seek to push
off registration requirements. Virginia Congressman
Robert Hurt introduced a bill, “The
Small Business Capital Access and Job Preservation
Act,” that seeks to extend to private equity the same
exemption venture capital firms receive under Title
IV of the Dodd-Frank act.
In the bill, private equity funds would be spared
from both registration and reporting requirements,
although the legislation does call for the Securities
and Exchange Commission to come up with a
“definition” of private equity to determine exactly
which firms would gain exemption. Also, firms
would be required to maintain records and provide the SEC
with reports documenting “fund size, governance, investment
strategy, risk and other factors.”
Hurt, in a statement during the March subcommittee hearing,
noted that the registration requirements for private equity,
as they currently stand, “do not make the financial system more
stable or less risky,” but rather “impose an undue burden on
small and mid-sized” firms.
The Riverside Co.’s Pam Hendrickson spoke in front of the
Subcommittee on the same day, and reiterated many of the familiar
gripes sponsors have made about the new law. She stayed
true to the theme that registration, while diverting resources,
will do little to “accomplish the [Dodd-Frank] Act’s stated purpose
of helping identify and reduce systemic risk.”
While it remains to be seen how far Congressman Hurt’s
bill will go, the drafting of the
legislation is a sign that sponsors
are at least being heard.
At press time, on the evening
of April 8, came word that the
filing date for private fund
registration had been extended
six months -- perhaps a
more poignant sign legislators
are listening and likely a relief
for sponsors unprepared for
the original July deadline.
Hurt’s bill was introduced alongside a new slate of repeal
legislation unveiled on the same day seeking to tweak to Dodd
Frank act. Among the other legislative proposals were a bill to
amend the definitions of “a major swap participant,” a bill to
repeal section 939G of the Dodd-Frank act dealing with certain
rating agency exemptions, and legislation to repeal certain disclosure
requirements of the Consumer Protection Act.
PE found an advocate in Congressman Robert Hurt
FTC, DOJ Provide Clarity on
Healthcare Antitrust
Following the CMS’s new rules on accountable
care organizations, antitrust regulators
created a “safety zone” for qualified
ACOs, but offered no leeway for M&A in the
sector
It has been more than a year since the Patient Protection and
Affordable Care Act was signed into law. While the sweeping
healthcare reform bill has driven M&A and encouraged
scale as a way to squeeze efficiencies out of the system, one lingering
unknown relates to how the antitrust regulators will view
the consolidation that ensues among healthcare providers.
The Federal Trade Commission and the Department of Justice
provided some clarity in late March, issuing a joint statement
detailing how the agencies intend to enforce antitrust law
for Accountable Care Organizations (ACOs).
While the guidance from the FTC and DOJ bodes well for
participants in ACOs, a proposed “safety zone” and the expedited
review do little for buyers and sellers in the healthcare space.
The policy statement explicitly said that merger transactions,
including deals that meet the criteria of the new “competitor
collaboration guidelines,” will continue to be evaluated under
the agencies’ horizontal merger guidelines, which were updated
last year.
The FTC and DOJ are soliciting comments about the proposal
until May 31 of this year.
12 MERGERS & ACQUISITIONS May 2011

Motorola/Nokia Deal Delayed
Chinese regulators have extended the
review period of Motorola’s asset sale
China’s antitrust regulator extended its review of Motorola
Solutions’ sale of its network-equipment business
to Nokia Siemens Networks. The deal was originally
announced in July and expected to close in December 2010.
“This is ‘Phase Three.’ The third review,’” a Motorola spokesman
said.
Schaumberg, Ill.-based Motorola is dependent on the $1.2
billion deal with Nokia Siemens -- a joint venture between
Nokia Corp. and Siemens AG – in order to move ahead with its
planned restructuring. It must now wait another 60 days before
China’s Anti-Monopoly Bureau of the Ministry of Commerce
(Mofcom) makes a decision on whether or not to approve the
transaction.
Chinese rival Huawei Technologies sued to block the deal
in January and a month later won an injunction on allegations
that the sale would illegally transfer intellectual property used in
certain Motorola products.
It’s also worth noting that legislators in the US have applied
more scrutiny to Chinese telecom companies, including Huawei
and ZTE. Reportedly, the two have been excluded from
certain contracts due to national security concerns.
“It’s going to be interesting to see how this plays out,” said
tech analyst Rob Enderle of San Jose, Calif.-based Enderle
Group. “The bureaucracy in China is unique in its difficulty.”
May 2011 MERGERS & ACQUISITIONS 13

Outlook
“
”
Dealmakers aren’t necessarily inured to black
swan events, but following the tragic tsunami
in Japan and uprisings in the Middle
East, the M&A market has proven itself to be resilient
in the face of the unexpected.
Even the affected regions continue to witness a
steady supply of deal flow. Japan’s Oji Paper Co., for
instance, recently acquired Lombard Investments’
stake in Thai packaging manufacturer P.Pack & Print
Public Co. The deal was announced on March 28,
just two weeks after the 8.9 magnitude earthquake
and ensuing tsunami devastated much of the country.
On the same day, Japan’s Ikuyo Co. sold its USi Tennessee-based
hard coating business to Cooper-Standard
and Japanese microchip test maker Advantest
Corp. agreed to buy Singapore rival Verigy in a $1.1
billion deal. The Carlyle Group, not to be outdone,
acquired Japan’s Tsubaki Nakashima Co., a maker of
industrial steel balls, and also launched a new fund
targeting Sub-Sahara Africa.
Closer to home, in the domestic middle market,
dealflow continued unabated. “We have seen absolutely
zero reticence on the part of buyers,” describes
Rob Parker, a co-founder and managing director with
Birmingham, Mich.-based investment bank Quarton
Partners. He cites one deal the firm is currently working
on in which roughly 10% of the target company’s
sales come from Japan. “It’s a topic that is discussed,”
he says, but adds he has yet to see any suitors turned
off by the exposure.
Even the lender universe — normally the more
temperamental constituency in M&A -- is overlooking
the recent rash of events. Two lenders Mergers &
Acquisitions spoke to recently express the same sentiment
as Parker. If a specific credit isn’t impacted, they
aren’t going to be spooked by risks that can’t be forecast
or predicted.
One might assume that the string of bad news
would at least slow down what has been a strong recovery
for the deal market. Indeed, the earthquake in
Japan and the unrest in the Middle East will surely
be felt in a number of specific sectors -- from the automotive
and tech industries to the energy, luxury
retail, food and defense sectors, among others. But
again, the impact appears muted. For instance, in the
face of renewed nuclear fears, Russia’s state-owned
JSC Atomredmetzoloto (ARMZ) merely revised the
terms of its acquisition for uranium miner Mantra
Resources, trimming the purchase price from A$1.16
billion to A$1.02 billion. As part of the revised agreement,
ARMZ also waived its material adverse change
clause.
But the robust pace of M&A activity may actually
belie dealmakers’ revised approach in ever-uncertain
times, especially for a market that has only become
more global and interconnected over the past decade.
In 2006, it was Hurricane Katrina; the next year saw
coup d’états in Thailand and Fiji and by 2007, the
first cracks started to emerge in the global financial
markets. Since then, dealmakers have had to absorb
the sovereign debt crisis in Europe, the BP oil spill, a
devastating earthquake in Haiti and the recent developments
in the Middle East and Japan.
José Feliciano, a founding partner of private equity
firm Clearlake Capital Partners, notes that while
black swan events won’t dissuade investors from pursuing
deals, the volatility encourages acquirers to
hedge their bets. For Clearlake, a special situations
firm, that translates into less leverage and more pricing
discipline.
Feliciano, though, says it goes beyond deal terms.
“We’re a lot more focused today on input pricing,”
he describes. He adds that it’s not only an awareness
of commodity volatility, but also a focus on the availability
of input resources.
He cites that a number of manufacturers have
moved operations to Mexico in recent years. Alluding
to the political unrest in the country, he warns, “If
14 MERGERS & ACQUISITIONS May 2011

there isn’t any redundancy, you have to worry about a
hidden supply chain risk.”
Another factor, one that Feliciano says became more
prominent in the wake of the debt crisis, is the credit
profile of a target company’s customer base. In the past,
buyers would key in on customer concentration, and
pay special attention to a target’s largest clients. Today,
Feliciano says, “We’ll spend a lot more time concentrating
on the next nine customers.”
The rapid succession of world-changing events is
in part accentuated by the flow of information that at
times can threaten to overwhelm investors. Feliciano
says the challenge for acquirers today is to “distill the
significant facts and tune out the noise,” adding, “a lot
of noise is out there.”
He points to Clearlake’s recent recapitalization of
Platinum Energy Solutions, a services provider to the
domestic oil and natural gas sector. “If you just read
the headlines or pay attention to natural gas prices,
you would get the idea that it’s not a great place to invest...
once you really drill down and understand the
industry, you distinguish between the misinformation
and relevant facts.”
Parker, meanwhile, adds that deal pros have become
accustomed to taking in and synthesizing information.
And while it may add volatility to the public
markets, buyers and sellers have become less reactive
than they may have been a decade ago. “There is so
much efficiency with information today. If anything
happens on any part of the globe, you’re going to
hear about,” he says. “It may have de-sensitized us a
little bit, but buyers today are more apt to try to get
their arms around something before simply dismissing
it.”
“
”
May 2011 MERGERS & ACQUISITIONS 15

Outlook
“
”
There is usually one characteristic that separates
the ‘must have’ targets from the assets that fail
to seduce buyers. Ask a panel of dealmakers,
and they’ll respond in unison that it’s the barriers to
entry that distinguish the great assets from those that
generate indifference. But as past deals have shown,
perceived barriers can also quickly crumble.
Take The Carlyle Group’s acquisition of Oriental
Trading Company. When the firm acquired the
company for roughly $1 billion in 2006, Sandra
Horbach was quoted by one trade publication as
saying that the company’s brand and its loyal customer
base, said to number 18 million, served as the
company’s high barrier to entry. As it turned out,
however, that outsized customer base, which collectively
received 300 million catalogs a year, became
an albatross when postal rates surged higher
and consumer spending plummeted, especially for
the discretionary items that make up OTC’s product
lines. As the New York Times reported last year,
about a month ahead of the company’s bankruptcy
filing, Oriental Trading was forced to cut back on
its mailings at a time when consumers were already
inclined to spend less.
One deal pro, speaking generally, identifies the
hole in Carlyle’s thinking. When it comes to identifying
barriers and assessing the value they bring, “it’s
not the market share, per se, it’s what you have to do
to earn the contract,” the source describes.
Indeed, recent research from Morningstar details
the more appealing barriers to entry and also singles
out perceived barriers that don’t necessarily hold up.
High switching costs, for instance, represent one
of the more appealing moats Morningstar identified.
This, for example, is what helps to separate a company
like SAP from its competitors.
Cost advantages can also be considered a barrier
to entry, but it has to be driven by something that
can’t easily be mimicked. Lean manufacturing or
a replicable sourcing strategy won’t qualify. But the
substantial buying power of a company like Wal-Mart
does, as few competitors can demand the same kinds
of concessions.
Intangible assets represent another barrier, although
at the same time can present a gray area that
makes it difficult to assign value to the moat. A brand,
for instance, can provide protection, while a faddish
product can prove to be more dangerous.
Footwear, in particular, is one segment where
these lines often blur. Heelys Inc. saw its stock rise
when its roller skating shoes gained popularity with
kids in 2006 and 2007. The company’s patents, especially
after they held up in court, added another
barrier, which prevented competitors from merely
rolling out knockoffs. Heelys intellectual property
was likely why Skechers showed so much interest
in the company in 2007 and the two years that followed.
Believing that Skechers’ unsolicited offers undervalued
the company, Heelys ultimately decided to
remain independent. As of its most recent earnings
call, in March, Heelys was trading below its cash levels.
Its future is bleak enough that certain investors
were suggesting in what was a brutal earnings call
for company management that the company should
consider liquidation.
Buyers will often favor intangible assets centered
around approvals or licenses.Warburg Pincus, for instance,
acquired ambulance services company Rural/
Metro in March for $438.2 million. The company’s
golden ticket takes the form of certificates required
for non-emergency ambulance transportation in certain
counties in Central Florida where the company
operates. The certification positioned Rural/Metro to
forge long-term contracts and arrangements between
municipalities and other companies.
Heather Brilliant, vice president of equity and
credit research at Morningstar, said that she believes
BARRIERS continued on page 46
16 MERGERS & ACQUISITIONS May 2011

Outlook
“
”
Almost as soon as AT&T’s $39 billion acquisition
of Deutsche Telekom’s T-Mobile USA
division was announced, a cavalcade of negative
sentiment dominated the discourse surrounding
the deal. Even T-Mobile USA CEO and president
Philip Humm conceded in a note to employees that
the transaction was “unexpected and may be somewhat
unsettling.” Perhaps the least surprising critic
to emerge was No. 3 domestic carrier Sprint. While
the transaction will surely receive scrutiny from the
various regulatory agencies, what remains to be seen
is how much of an impact rival carriers can have when
they plant a flag in opposition.
“You have to be careful if you are opposing a deal,”
Dechert partner and antitrust practice co-chair Michael
Weiner cites. “If you complain too much, you
run the risk of changing the perception of regulators,
who may conversely take it to mean that it’s actually
‘pro-competitive.’”
To be sure, AT&T and Deutsche Telekom will
make out nicely should the sale be cleared. The former,
so long as the deal goes through in its current
incarnation, will add 33.7 million subscribers, giving
the combined company a roughly 42% domestic
market share. The seller, meanwhile, solves its capacity
crunch issues with a sale that ranged from €6.5
billion to €9.3 billion more than analysts thought the
assets could fetch.
The losers, though, are many. Consumers ostensibly
lose an aggressive competitor in T-Mobile; handset
makers, excluding Apple, are faced with a shrinking
pool of buyers; while companies that play into
the mobile infrastructure, whether its network equipment
providers such as Alcatel Lucent and Ericsson
or tower companies like Crown Castle or SBA Communications,
now face a future tied to an increasingly
concentrated customer base.
Yet, among those affected, Sprint, as of the first
week of April, has been the only corporate dissenter
to weigh in on the merger. In a statement released
shortly after the deal, Sprint’s Vonya McCann, senior
vice president of Government Affairs, warned it
would create “a new Ma Bell duopoly.” Sprint further
claimed that the industry, should the deal go through,
would be “overwhelmingly” dominated by the two
vertically integrated companies, AT&T and Verizon,
“with unprecedented control over the US wireless
post-paid market, as well as the availability and price
of key inputs, such as backhaul and access needed by
other wireless companies to compete.”
It seems easy to dismiss Sprint’s objections as sour
grapes. The company, based on earlier Bloomberg reports,
was left at the altar following negotiations to
merge or forge a strategic agreement with T-Mobile.
And whether Sprint’s public dissent holds water with
regulators remains to be seen.
Weiner notes that regardless of who comes out
against a deal, the review from regulators is going to
be “fact based.”
For its part, AT&T outwardly appears pretty confident
that the facts rest on its side. The company
agreed to a reverse termination fee of $3 billion in
cash, and mapped out a commitment to transfer to
Deutsche Telekom certain wireless AWS spectrum
that it doesn’t use as part of its initial LTE rollout.
Moreover, a roaming agreement with DT, “on terms
favorable to both parties,” would also be included in
the event that AT&T can’t complete the acquisition.
Wayne Watts, AT&T’s general counsel and senior
executive vice president, also oozed confidence on the
company’s conference call following the transaction.
When challenged about the remaining market following
the proposed deal -- ostensibly made up of AT&T,
Verizon and Sprint -- Watts responded unequivocally
18 MERGERS & ACQUISITIONS May 2011

that the very premise of the question was off. “The government will
look at this on a local, market-by-market basis and that’s not a conclusion
we’ve just drawn for our purposes, that’s the way the government
has looked at transactions -- every wireless transaction that we
and other people in the industry have completed.”
And a local reading, he argues, leaves five or more competitors
fighting for customers in 18 of the 20 largest markets, representing
70% of the population. “This is an FCC study, not my analysis,” he
accentuated.
Indeed, when AT&T acquired Cingular in 2004, it had tried to
make a case for a national scope in the application of antitrust law.
Rebuffed at the time, the market-by-market analysis favors AT&T’s
current purposes and probably makes it easier to handicap possible
divestitures.
But while the odds do seem stacked against Sprint, at least based
on historic rulings, corporate dissent has worked in the past. When
Comcast subsumed NBC Universal, competitors were largely quiet
at first, although in December, filings with the Federal Communications
Commission revealed that Viacom, Inc. was working behind
the scenes to address its concerns about the merger. The FCC and
the Department of Justice did clear the transaction, although not
before Comcast made commitments to ensure reasonable access to
its programming for multi-channel distribution and also provided
access to its own distribution systems. The company, for instance,
agreed to provide 10 new independent channels within eight years
on its digital tier.
If Sprint is going to shape the narrative around the AT&T deal,
Weiner cites that the company’s best bet would be to “plant the
seeds” that the industry’s market should be defined on a national
level and then work through a grass roots campaign that encourages
consumer groups to deliver the message.
Weiner, for instance, worked on Google’s planned advertising
deal with Yahoo, which was ultimately abandoned following anti-
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May 2011 MERGERS & ACQUISITIONS 19

LBO Watch
“
”
Allison Transmission is the latest company looking
to tap the equity market to repay debt.
The Indianapolis manufacturer of transmissions
and other auto parts is planning to raise around
$750 million in an initial public offering. Despite the
perception that an IPO represents a healthy payday
for its PE backers, the Allison flotation reflects the
more common trend today in which sponsor-backed
companies channel whatever proceeds they receive
from the IPO to pay down debt.
“Overall, companies are in the mode of deleveraging,”
said Jeff Peskind, chief investment officer with
Phoenix Investment Adviser. “Even though they can
and they have been refinancing debt with longer-dated
maturities, management teams would rather have
less debt on the company than they did pre-crisis.
Their thinking is that less leverage is better.”
Peskind added that private-equity owners of junkrated
companies also face pressure from investors to
return money.
Allison, a former General Motors division, went
private in 2007 in a $5.575 billion buyout by the
Carlyle Group and Onex. The firms contributed a
combined $1.5 billion in equity to the deal and financed
the rest with debt, made up of a term loan B,
11% senior facility, PIK toggle notes and a revolver. A
total of $3.67 billion of the debt remains today.
Allison’s planned offering follows that of its former
parent, GM, which raised $23 billion last year. And
observers wouldn’t be surprised if parts manufacturers
Delphi and IAC follow suit.
“The auto-parts sector took advantage of [an open
equity market] in latter 2009, when the sector began
its recovery,” said Timothy Harrod, a vice president
and senior analyst with Moody’s Investors Service.
Other companies in the sector that have completed
successful IPOs include Dana Holdings and TRW
Automotive.
To be sure, the highlight in the IPO market, year
to date, was the March flotation of HCA, which returned
to the public market after a roughly five-year
stay in private equity hands. Its sponsors, Kohlberg
Kravis Roberts, Bain Capital and Merrill Lynch Global
Private Equity did not recoup any of their investment
in through equity offering, which was used to
repay debt.
While it won’t stop the sponsors from cashing in
at a later date, marketwatchers will usually scrutinize
an IPO in which the proceeds don’t go back to the
business or trim debt.
That’s not to say sponsors aren’t taking chips off the
table; there just isn’t the immediate gratification some
might prefer. Amid the flurry of IPOs, March also
saw Italian restaurant chain Bravo Brio and healthcare
marketing company Accretive Health Solutions
-- both private equity backed -- file for secondary
offerings. Bravo Brio is looking to raise around $80
million, while Accretive Health is aiming for around
$151 million.
But the story remains the inflow of companies that
hope to enter the market while the window remains
open and trim their leverage as much as possible.
GNC, in the last week of March, raised $360 million
in an IPO, while Penthouse publisher Friend-
Finder Networks, also in March, filed for its own IPO,
following previous efforts to do so last year. Heat tracing
equipment maker Thermon also filed to go public
in February, less than a year after Code Hennessy &
Simmons acquired the company.
“This deleveraging theme will continue,” said
Peskind. “Companies that lived through the ’08 crisis
and almost went bankrupt will continue to issue
equity to pay down debt and de-risk their balance
sheets.”
20 MERGERS & ACQUISITIONS May 2011

LBO Watch
“
”
Few would argue that the balance of power in
the limited partner / general partner relationship
has shifted toward LPs. While limiteds will
always pursue the top quartile, GPs throughout the
market have taken pains to ensure their investors are
getting the attention they demand. In recent months,
a handful of GPs have responded by installing former
limited partners and institutional investors on their
teams in an investor relations capacity.
Sheryl Schwartz is a senior managing director at
private equity firm Perseus and works on mezzanine
debt investments, private equity investments and IR.
Prior to joining Perseus in 2010, Schwartz was head
of TIAA-CREF’s alternative investment team, where
she reportedly oversaw more than $10 billion of private
equity fund commitments.
If anyone knows best practices, Schwartz would be
a pretty good candidate. “I see the world differently,”
she describes. “There are three of us [at Perseus] who
have been on the LP side and we bring a different
perspective [than] the people who have always been
on the GP side.”
To wit, Schwartz can relate to recent LP demands
for more information and better details. She debunks a
common misconception on the GP side that limiteds
can be burdened by too much disclosure. “Even if they
can’t get through it all, LPs want to see it,” she cites,
adding that a substantial disconnect exists “between
what LPs want and what GPs think LPs want.”
This, Schwartz says, was a key driver in Perseus’
recruitment. “Even if I don’t know the answer, I can
call one of my relationships and ask their opinion,”
she adds.
And it’s a safe bet too that Perseus didn’t overlook
those relationships either, which undeniably help
open doors.
Perseus isn’t alone. GPs, by and large, are bolstering
their investor relations capabilities amid what has
become a trickier fundraising market. Moreover, the
pay-to-play scandal has incentivized some sponsors,
such as Carlyle Group, to bring their fundraising efforts
in-house. Institutional investors are also facing
pressure, as capital flows allocated to fund of funds
dries up and as pension systems struggle to attract
Wall Street talent on public service salaries. In turn,
more GPs are bringing former limited partners on
board, while more LPs are looking for such a career
change.
In February, Brazos Equity Partners, a Dallas
based private equity firm, added Patrick O’Hara as a
managing director of investor relations. O’Hara will
lead communication efforts with current and future
investors and is heavily involved in fundraising activities
for the firm. He joined Brazos from the Texas
Employees Retirement System, a $22.5 billion public
pension fund, where he has served as director of private
equity for the past three years.
Platinum Equity, which is currently fundraising,
hired Robert Klap earlier this year as a senior executive
in the firm’s London office, where he is involved in
Platinum’s deal origination, investor relations and capital
raising programs. Klap arrives from UBS, where
he managed the private equity fund investments in
the bank’s wealth management group and before that
put in stints overseeing alternative investments for Mn
Services and Shell Asset Management, the roughly
EUR45 billion asset manager that directs investment
activity of the Royal Dutch Shell pension funds.
“Mostly we have seen the transition of LPs to investor
relations and fundraising positions,” observes
Lori Campana, a managing director with placement
agent Monument Group. “It makes sense in today’s
22 MERGERS & ACQUISITIONS May 2011

more challenging fundraising environment to have
someone on the team with that type of experience
and perspective.”
The additions are making a difference. Schwartz’s
input has changed some of the processes at Perseus. For
example, at Schwartz’s suggestion, Perseus has started
doing update calls that include information LPs may
have already received in their quarterly reports.
Schwartz, not that far removed from her time at
TIAA CREF, remembers when she would receive
quarterly reports from nearly 300 different GPs. “It’s
better to assume LPs need to be refreshed,” she cites.
“The GP thinks they are the most important investment
the LP has, but there is just so much information
LPs need to keep track of.”
Meanwhile, Mark Barnhill, a principal with Platinum
who leads the firm’s capital raising and investor
relations programs, adds that Klap’s appointment
underscores the firm’s commitment to align interests
between the GP and LP. “[It] provides them with a lot
of assurance that we understand their perspective and
the things they need to be successful,” Barnhill says.
Barnhill, however, notes that beyond certain IR
duties, Platinum is counting on Klap to be a presence
in the firm’s European office by “helping drive deal
flow and strategic initiatives.”
It’s another task that plays into the relationships
and awareness of best practices that LPs come
equipped with.
And as the industry deals with the prospect of registration
requirements, it never hurts to have a multitasker
on board.
“
”
May 2011 MERGERS & ACQUISITIONS 23

Healthcare
Cocktail
Therapy
When former Teleflex, Inc. chairman and chief executive
Jeff Black spoke at a January JPMorgan Healthcare
Conference, he took pains to convince attendees the
company does indeed belong at a healthcare-focused
symposium. Considering Teleflex had spent the bulk
of its 60-plus-year existence as an automotive parts
supplier, its name is not exactly synonymous with the
medical devices sector. Yet over the past five years, since
its $2 billion acquisition of catheter-based products
maker Arrow International, Teleflex has gradually

Leerink Swann’s
James Boylan
is among those
anticipating
healthcare
dealflow will
continue to
swell, pushed
along by a
set of diverse
drivers
KEN MacFADYEN
Photograph by JohnCalabresePhotography.com

Healthcare
“
”
morphed into a player in the space. The company essentially
traded up. It turned over its industrial businesses
that sell into other, less-appealing end markets,
all while accumulating healthcare assets with better
margins that play into better demographics. Black’s
extreme makeover was effectively capped off at the
end of January, when Benson Smith -- a veteran in
the devices space -- was installed as the company’s
new CEO.
The enthusiasm drawing dealmakers to the space
can be summed up by the three primary drivers --
demographics, dislocation and deadlines. A fourth,
distress, could also be included, but is specific to certain
segments. It is the aging baby boomer generation,
of course, stimulating the end market growth, while
the pressure on the system and the reform meant as
a remedy are creating the dislocation. The deadlines,
dealmakers already know, is the patent cliff that has
been spurring acquisition activity among the pharmaceutical
giants for the past decade. Taken together, it
all translates into a frenzied deal environment attracting
buyers and sellers of all shapes and sizes diving
into the various crosscurrents of opportunity.
“The activity is broad-based,” describes Leerink
Swann’s James Boylan, head of investment banking
at the healthcare-focused boutique. “We continue
to see aggressive and even hostile transactions. We’re
seeing the traditional consolidators, foreign buyers,
and new entrants; the bigger companies are looking
to add new technologies and new products, but we’re
also seeing the weaker players fish through the assets
to add scale.”
If one were to quantify the sector’s eminence, the
$51 billion-plus worth of transactions in the first
quarter of the year, according to Thomson Reuters
data, is building up to a pace not seen since 2007,
when the sector completed over 2,100 deals worth a
combined $257.8 billion. The valuations -- anecdotally
exceeding 10x Ebitda in certain segments -- are
also at the high end of historic levels and expected
to climb.
The breadth and velocity of activity in the space
can be difficult to capture. In one 48-hour stretch in
the second week of April, for instance, more than 25
deals were either completed or announced. Sanofiaventis
completed its exchange offer for Genzyme
Corp., Pfizer sold its Capsugel unit to Kohlberg Kravis
Roberts; Thermo-Fisher Scientific finalized its sales
of Athena Diagnostics and Lancaster Laboratories;
Japan’s Daiichi Sankyo Co. completed the acquisition
of Plexxikon, Inc.; and Health Care REIT wrapped
up its purchase of Genesis HealthCare’s real estate assets.
And these were just the more sizable deals, which
together represented a total value exceeding $25 billion.
In the same 48 hours, Waud Capital expanded
its Acadia Healthcare behavioral health rollup, while
Merck & Co. agreed to acquire opthalmology specialist
Inspire Pharmaceuticals. Also, on the periphery of
the sector, communications company Harris Corp.,
IT and engineering outfit NCI Inc. and packaging
company CCL Industries all cinched new acquisitions
delivering exposure to healthcare.
The deal market may resemble 2007 on paper,
though Boylan sees a few significant differences,
noting that the blockbuster deals have, for the most
part, receded into the background. “People are starting
to look through the patent cliffs, largely because
they’re already upon us,” he says. “The analysts have
no choice but to look beyond them and recast.” And
Big Pharma, Boylan adds, is viewing M&A through
a narrower lens. “They’re more focused on specific
M&A strategies, preferring to go after high-quality
science, particularly in the orphan and specialty disease
categories.”
Merck’s acquisition of Inspire Pharmaceuticals reflects
this more granular focus.
Boylan’s career track, in a lot of ways, mirrors the
trend line in healthcare. He spent over 12 years at
Merrill Lynch, where he worked on more than 80
deals, including Celgene’s $2.9 billion acquisition of
Pharmion, Lifecell’s $1.7 billion sale to Kinetic Concepts,
and Pfizer’s $90 billion merger with Warner
Lambert. He moved to healthcare specialist Leerink
Swann in 2009, shortly after Merrill’s sale to Bank of
America. Leerink’s focus on the small and mid-cap
market coincidentally lines up with the current palate
of buyers today, who are largely pursuing growth and
innovation-oriented assets.
When discussing the opportunity in the sector,
for many buyers, the conversation usually begins and
ends with reform. The anniversary marking the passing
of the Patient Protection and Affordable Care Act
came in went in March, and many are still trying to
digest the impact and navigate through the moving
pieces of the landmark legislation. That’s not to say
that buyers aren’t cognizant of other drivers or that
the recession-resistent appeal of the industry is any
less of a factor. But many investors are focused on the
26 MERGERS & ACQUISITIONS May 2011

overriding theme of the bill that the system has to become more
efficient.
“We just added 32 million insured people, but reform will not
add a single new doctor; that creates a significant dislocation that will
present a huge opportunity for anyone who can solve the problems
that presents,” described Duane Morris partner Mitchell Goldman,
who spoke at the Association for Corporate Growth’s InterGrowth
Conference in March.
Hence, the race for innovation Boylan alluded to.
“Demographics are a big part of the story, but I think once
healthcare spending accounts for 20% of the GDP, you will see an
urgency to figure out how to better coordinate the delivery and payment
systems,” observes Dechert Partner Susan Hendrickson, who
leads the law firm’s corporate and securities healthcare team.
This isn’t lost on companies like Emdeon,
which recently outlined a plan to transform into
a healthcare informatics business -- a strategy
meant to pivot the payment cycle management
company so it faces the opportunity in areas such
as payment integrity. Emdeon, in March, detailed
for analysts a goal of expanding its analytics
business to represent roughly 30% of its total revenues,
up from five percent last year. It will also
build out its payment services offerings, while
its network and applications businesses make up
less of the targeted product mix. Acquisitions,
of course, are going to be part and parcel to the
strategy. The company is said be currently tracking
over 20 targets across all verticals. Last year,
Emdeon acquired Chamberlin Edmonds, and
sealed a number of other buys that fed into its
provider-based ePayment suite and its denial and
recovery services business. It also added strategic
consulting to its payer solutions business.
The quest for efficiency is also driving consolidation
among specialists that allow providers
to outsource services. Providence Equity Partners
backed Virtual Radiologic and soon after added
Nighthawk Radiology to the platform, creating a
giant in the teleradiology space.
“You’re going to see a lot deals premised on
wrenching inefficiencies out of the system,” Hendrickson
adds, pointing to the wave of REIT
acquisitions, allowing healthcare groups to focus on care delivery,
while monetizing their real estate assets in the process.
While reform presents some low hanging fruit for companies and
investors, the industry’s exposure and reliance on state and federal
budgets creates volatility and risk. The fiscal 2012 budget proposal
unveiled by House Budget Chairman Paul Ryan in early April probably
put a lump in the throat of some in the sector, as it advanced
the GOP’s goal to remove funding for and appeal the healthcare
legislation. The proposed budget also sought to retool Medicaid,
by converting the federal program into capped block grants to state
governments and also floated a 2022 deadline, at which point Medicare
would be transitioned into a voucher program.
If anything, the GOP budget underscores the fiscal constraints
that will keep operators in the sector on their toes. Apria Healthcare’s
Chris Karkenny, an executive vice president and chief financial officer
at the Blackstone Group-owned homecare company, also participated
on the healthcare panel at InterGrowth. The conference
occurred before the GOP’s proposed budget was made public, but
Karkenny still tried to drive home to the audience that changes in
funding can have widespread effects.
“It all trickles down,”
he said. “If the government
takes it out of somewhere,
it’s going to impact
the whole marketplace.
You may not be a Medicare
business, but you’re
kidding yourself if you
don’t think those cuts will
be felt in other areas too.”
Investors longer of
tooth probably remember
the string of bankruptcies
among long-term
care providers following
abrupt changes to Medicare
reimbursement rates
in the late Nineties.
Assuming legislation
stays in place, dealmakers
will still find themselves
spinning their wheels as
lawmakers continue to
iron out the kinks.
Curtis Lane, founder
and senior managing director
of merchant bank
MTS Health Partners,
recites an oft-repeated
warning when it comes to reform efforts. “There are going to be
unintended consequences,” he insists.
Take the premise that reform will add 32 million insured individuals.
Lane cites that the uninsured aren’t actually forced to buy
coverage until they need to. “People will choose to pay the penalty of
HEALTHCARE continued on page 46
May 2011 MERGERS & ACQUISITIONS 27

InterGrowth Wrap
“
”
third-generation Army veteran, retired
Four-Star General Stanley McChrystal
was among the architects of a warfare
strategy combining intelligence and
operations. The former commander of
US and international forces in Afghanistan and the
former leader of the Joint Special Operations Command,
McChrystal built his career on a leadership
strategy focused on full disclosure, teamwork and forward
thinking.
Since his resignation, McChrystal has taken his
leadership skills to JetBlue Airways, where he signed
on as a director last November, and to Yale
University, where he is teaching a seminar on
modern leadership and global affairs.
Mergers & Acquisitions caught up with
McChrystal just ahead of InterGrowth to discuss
how leadership skills can be applied in a
boardroom setting and also the rapid evolution
of warfare. The following is an edited version
of the discussion.
Mergers & Acquisitions: Since entering
civilian life, you’ve taken on quite a few
speaking engagements in front of business
leaders. Have you found any common
parallels in running an Army and leading a
business
McChrystal: I certainly wouldn’t sell myself
as a businessman, but I think there are a some
similarities between an Army at war and a business
operating in a competitive environment. I think there
are a number of parallels in terms of the near-term
requirements to be successful in the future. For instance,
you don’t have to show a profit every day or
win every battle, but both organizations share a need
to learn rapidly and respond quickly to change.
There is also a parallel in that you need to have a
long-term strategy in place that prepares you for future
success. It’s easy to focus on the near term and
overlook an end goal, but you constantly have to be
developing people and processes in order to prepare
for long-term requirements. In the case of an Army
in peace, there are also some parallels. You’ll try to
General Stanley McChrystal
project where your next enemy might be and the nature
of the conflict. I’ve seen Armies in the past guess
pretty badly, and it can put them in a bad position
28 MERGERS & ACQUISITIONS May 2011

during the early part of a conflict. I’d imagine that startups have the
same mentality.
Mergers & Acquisitions: I was reading some of your thoughts on
leadership, and some key themes that continually come up revolve
around culture, communication and relationships. These
are the components, you say, to creating change. I imagine it’s
no different than in the board room. Can you talk a bit about how
transparency and inclusion can serve the greater good
McChrystal: Really, a culture of inclusion is the key part. If everybody
is included and they take ownership of a mission or ownership
in the success of the enterprise, than they’ll approach it differently
because they’ll feel like they have a stake in it. It starts with treating
people like people and transparency helps do that. Also, the more everybody
understands about the inner workings of a company or situation,
the better they’ll understand how to prepare and address the
challenges at hand. There isn’t anything worse than keeping people
ignorant and then asking them to produce in isolation.
Since 9-11, you’ve had a number of government agencies and
groups working together. Rather than just saying, “This is the mission
of Agency X, and everyone has to support them,” a better approach
is to position it as a joint mission in which the responsibilities
and credit are spread around. If you have an employee who’s just
paid to perform a function, they’re not going to be completely invested
in it and won’t accept the wider mission of the company.
Mergers & Acquisitions: You recently joined JetBlue’s board of
directors. Any initial thoughts on the processes of corporate decision-making
versus what you may have been used to in the
military
McChrystal: One of the reasons I was happy to join JetBlue is
that there is a culture in place that encapsulates a passion to be different
and better. It’s very powerful and it affects different people in
different ways. As a boardmember, my hope is to bring a perspective
around being mission-focused and help in team building.
Mergers & Acquisitions: Do you see yourself taking on other ventures
McChrystal: I suspect that I will. I like to challenge myself and
do things that aren’t familiar, but at the same time, I don’t want to do
anything where I’m not adding value. That’s my litmus test.
Mergers & Acquisitions: You teach a graduate seminar on
modern leadership at the Jackson Institute for Global Affairs at
Yale. Considering many of these students will graduate into a
workforce in which they’ll be subordinate to multiple layers of
management, why is it important to understand the concept of
leadership before you’re in a position to actually lead
McChrystal: You have to have an appreciation for it. There is no
formula or set of business processes at the end of the day that dictate
how everything should be done. Being a leader is about the relationships
that you have with people and the ability to motivate and
compromise. Even from the bottom up, employees who understand
the role of leadership and are sensitive to and understanding of how
organizations can become stronger, are going to be able to help make
things happen.
Mergers & Acquisitions: Any thoughts on the next generation of
leaders that you’ve come across
McChrystal: My first impression was that there is a tremendous
amount of altruism, and an almost total lack of political partisanship.
I’m not necessarily dealing with a huge swath of people, but I
get the sense that they just want to help and don’t care about ‘right’
or ‘left.’ And most seem to have little interest in how wealthy they
become. The whole experience has been extraordinarily positive.
Mergers & Acquisitions: The title of the class, ‘modern’ leadership
implies that there has been an evolution. Can you talk about
how the idea of leadership has changed over time and where it
has settled today
McChrystal: There clearly has been a change. The enduring principles
of integrity and credibility are timeless, but the environment
has changed. Information flows so much more broadly and rapidly,
so leaders have to be more reactive in what is probably a more volatile
environment. We’re developing generations that are comfortable
with this new environment, and people who are able to quickly discount
the chatter that comes from a million blogs and 24-hour television
should be able to succeed. We can push information out faster
than we can actually digest it or think about it. It’s something we
have to come to grips with. Leaders who are able to operate in this
kind of environment are better equipped to make sound decisions.
Mergers & Acquisitions: Part of your role as the Commander
of US and international forces in Afghanistan was to train Afghan
security forces. You also oversaw international forces from
countries ranging from Sweden to Singapore -- 46 countries in
all. I think our readers would view that as the toughest integration
possible. Any advice on how get all the varying cultures and
people on the same page and targeting the same goal
McChrystal: I would point to a couple things. First, you really
McCHRYSTAL continued on page 47
May 2011 MERGERS & ACQUISITIONS 29

InterGrowth Wrap
“
”
est anyone forget about the power strategic
buyers wield, AT&T’s $39 billion acquisition
of T-Mobile is an encouraging
reminder. The deal also signaled that after
three years spent largely on the sidelines,
Corporate America is finally keen to start chipping
away at its $1.5 trillion cash pile. A panel at ACG’s
40th annual InterGrowth conference in San Diego
confirmed that strategic activity is indeed percolating
at all levels of the M&A market, complementing and
augmenting a rebound that initially started to take
shape last summer.
“Every day we’re seeing a major strategic transaction
take place, certainly every Monday,” noted Brian
Brian McDonagh
McDonagh, managing director and co-head of M&A
at Robert W. Baird. He added that “every factor is in
place” for strategics to maintain a dominant presence
in the deal market for the foreseeable future.
Beyond the cash pile sitting on corporate balance
sheets, McDonagh said strategic activity has climbed
as target earnings have become more predictable and
as better assets have returned to the market. Moreover,
organic growth remains elusive, but confidence
in the C-Suite and among corporate boards is still on
the rise, emboldening companies to turn to M&A as
an alternative.
The panel’s moderator, Lazard Middle Market Co-
CEO Michael McFadden, added, “It’s amazing how
much things have changed after just one year.”
The return of the strategics won’t necessarily usher
in a new era of indiscriminate acquisitions -- perhaps
to the disappointment of some sellers. 3M Corp.’s
Mark Copman, a vice president of corporate development
and M&A at the St. Paul, Minn.
company, says that going into every deal,
he’s acutely aware about “what the press release
will look like”
That translates into more due diligence
into how a deal would fit strategically within
the organization and also attention to
whether a transaction would sit right with
shareholders, who he says “are looking for
earnings growth.”
3M acquired 21 companies last year,
and was among the more active strategic
buyers in the market. Deals included the
$810 million purchase of Arizant, a maker
of specialty blankets; the $943 million
purchase of Cogent Inc., a manufacturer
of fingerprint identification products; and
the $448 million deal to buy precision
grinding technology company Winterthur Technologies
AG.
Copman noted that roughly half of the company’s
acquisitions targeted overseas assets, underscoring
STRATEGIC POWER SHIFT continued on page 47
30 MERGERS & ACQUISITIONS May 2011

InterGrowth Wrap
Keith Hennessey, Stanford University Gary Pinkus, McKinsey & Co. Jack Helms, Lazard Middle Market
Andrew Rice, The Jordan Co.
(L-R) Tracy Albert, Houlihan Lokey; Al Melchiorre, MelCap Partners;
Tom Walton, Hanley, Hammill, Thomas; Phil Worden, BofA Merrill Lynch
May 2011 MERGERS & ACQUISITIONS 31

Feature
“
”
n early March, Levine Leichtman Capital Partners
held a final close of $225 million for a
new fund targeting small-cap companies. The
West Coast firm has never had a problem raising
capital before. It was launched in 1985 by
the husband and wife team of Lauren Leichtman and
Westwood One vet Arthur Levine, and raised its first
institutional fund in the mid 1990s with a $100 million
commitment from CalPERS, its sole investor at
the time. Today, it currently oversees a $1.1 billion
traditional private equity fund; a distressed debt vehicle
that raised in excess of $375 million in 2006;
and the regionally focused California Growth Fund.
Yet for its new vehicle, Levine Leichtman opted to
tap into the government’s coffers and raised an SBIC
fund to complement its other vehicles. As Levine
Leichtman and other new funds suggest, the Small
Business Administration’s SBIC program is no longer
relegated to the dark recesses of the asset class for
those who can’t raise institutional capital and are content
to jump through hoops for funding.
Indeed, at a time when fundraising has significantly
decreased and it’s been harder overall for private equity
firms to raise new funds, the SBA has been stepping
up to the plate. The SBA’s growth capital program,
which invests in mezzanine and growth capital, increased
its lending by 23% in fiscal year 2010, providing
a record $1.59 billion to investors backing small
businesses. Last year also saw the highest volume in
the 50 year history of the SBA’s Small Business Investment
Company (SBIC) debenture program.
“The demand from private equity firms for this
program is high right now,” cites Sean Greene, an associate
administrator for investment and senior adviser
for innovation at the SBA. He notes that companies
like Intel, FedEx and Costco all received early
funding from the SBIC program. “It was created to
help capitalize funds that make investments to small
businesses; the government is making the investments
directly.”
As the administration has fended off accusations
that small business was ignored amid the bailouts --
be it the Troubled Asset Relief Program or the Temporary
Liquidity Guarantee Program -- the SBA has
been quietly putting capital to work directly into
small businesses via the SBIC. “It costs the taxpayers
zero and we are expecting the program to continue to
grow in 2011,” Greene adds.
SBICs are privately-owned and managed investment
firms that are licensed and regulated by the
SBA. SBICs use a combination of funds raised from
traditional limited partners and the SBA to make equity
and mezzanine capital investments in small businesses.
There are currently more than 300 SBICs with
more than $16 billion in capital under management.
(In the 1990s, the SBA has a similar program funding
venture capital investors. However, the program was
losing money and was ultimately shuttered in 2004.)
Beyond Levine Leichtman, many other new faces
have also gravitated to the program. PE shop Perseus
LLC, for instance, is also in the midst of raising an
SBIC-backed mezzanine fund. Sheryl Schwartz, a senior
managing director with the firm, was brought on
recently and is currently working with fellow new arrivals
Randall Kutch and Seth Friedman -- both Met
Life veterans -- to launch the new effort.
“There is demand for mezzanine and limited competition
in the lower end of the market, where the
SBICs play,” Schwartz says, noting that the targeted
market is safely out of the reach of the high yield
market. Meanwhile, SBIC incentives allow for “private
equity-like returns” for the mezz investments,
Schwartz adds, citing that firms can raise up to two
times the amount of capital raised by an SBIC fund
at low interest rates. There is a cap of $150 million,
but even sponsors used to working with larger pools
32 MERGERS & ACQUISITIONS May 2011

of capital are attracted to the prospect of larger returns and more
sizable management fees.
Perseus, on average, writes equity checks of about $50 million.
Its mezz fund, in contrast, will supply companies with about $10
million to $15 million per investment. As part of the SBA guidelines
firms have to invest in companies with a net worth of less than $18
million and an annual income of less than $6 million.
There are a four basic criteria the SBA looks at when deciding
which candidates to back, and in a lot of ways, Uncle Sam can resemble
traditional LPs. To qualify, administrators will scrutinize
an investor group’s track record in analogous investments, certain
benchmarks, its strategy, and the alignment of interests.
Approval from the SBA for an SBIC loan took an average of six
months in 2010, significantly less than the 15 months it took for approval
in 2009. The efficiency, Greene says, was the result of efforts
to streamline the process, a factor that has made the program more
popular for investors. “We do our due diligence on firms, but we
have worked hard to make the process easier for applicants.”
Deerpath Capital Management was among those able to receive
an SBIC license in 2009, albeit 15 months after the firm applied.
Deerpath has deployed more than half of the $250 million raised.
“This was our first SBIC fund and it has served us well,” James
Kirby, president of Deerpath tells Mergers & Acquisitions. “It is important
that the fund’s investment strategy match the requirements
of the SBIC financing.”
Deerpath is just one of many firms that have decided to raise an
SBIC fund. In January 2011, Alpine Investors, closed Alpine Investors
IV, LP and Alpine Investors IV SBIC, a growth mezzanine
debt and equity fund with $260 million of capital. One third of
Alpine’s $260 million of committed capital comes from the SBIC.
Jeri Harman’s Avante Mezzanine Partners also opted to go the SBIC
route when the firm raised its debut fund.
“Our pipeline is very full,” Greene attests. He isn’t necessarily
SBA continued on page 47
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May 2011 MERGERS & ACQUISITIONS 33

Guest Article
“
”
hen meeting with a private equity
client recently about a CFO
search, our client asked “How
can a CFO cost this much when
there is 9% unemployment” On
the surface, a legitimate question. The answer: “We
have a resume glut, not a talent glut.” Today’s business
environment relies more than ever on extraordinary
leadership and human capital to manage through the
infinitesimal number of issues that surface every year.
In a world where tensions in the Middle East can
abruptly disrupt the supply, demand and pricing
equation of a barrel of oil, we see
similar pressure building on the
supply, demand and compensation
equation for top talent.
We are convinced that change
will come with increasing velocity
and private equity executives
need to keep the dynamics of
the marketplace top of mind to
ensure their portfolio companies
can recruit and retain top talent.
Some trends we are seeing in
our financial executive recruiting
business include an uptick in demand
for recruiting services – the
first quarter of 2011 is up 50%
compared with the first quarter
of 2010. In addition, candidates
are taking more calls, listening
to opportunities and going on
more interviews. We talk with candidates every day,
and the interest level of currently employed executives
in pursuing new opportunities is up three times compared
to just six months ago. The grass appears to be
Tom Bonney
getting greener on the other side of the fence.
Finally, the upgrade cycle has started. Many companies
have altered their strategic thinking from the
defensive, cash conservation orientation required
since 2008 to an offensive, growth orientation in
2011. However, many incumbent finance executives
are not operationally focused or growth oriented,
which will force private equity funds to find business
and finance talent with the experience and vision for
growing a business.
These trends have accelerated since the beginning
of the year, and we believe a number of steps will help
private equity executives retain
and recruit A-level talent for
portfolio companies in a tightening
market.
For instance, sponsors should
adjust their mindset. Get your
team out of the foxhole and into
the competitive battlefield again
with a revised strategic and operating
plan appropriate for the
post-crisis environment.
Buyers also have to ask some
important questions. Who are
the critical players that you
must keep Who are the high
potential employees Eliminate
under-performers and toxic individuals
– they will drive away
your ‘A’ players. Faster and better
is constantly being redefined,
and you need to move forward with those who will
keep your business at the top and terminate those
who will drag it down.
To help keep in place the top talent, investors
34 MERGERS & ACQUISITIONS May 2011

should re-establish long-term incentives. Ensure that
your long-term compensation plan provides abovemarket
financial opportunity for outstanding performance.
Consider re-pricing existing options or
making additional option grants for executives who
fought through the financial crisis and are critical as
you re-focus on growth initiatives.
As part of this, it’s important
to understand what market-rate
pay is for the ‘A’ and ‘B +’ players
on your team and ensure you
are at or above market. If not,
someone will remind you what
market compensation is by taking
your talent.
Beyond the compensation,
it’s crucial to pay attention to the
‘little things.’ Many of us had to
cut into the core in 2008 and
2009. Consider what can be restored,
such as the holiday party
and the 401k match.
With a rejuvenated M&A
market, private equity funds
recognize that they may need to
buy a company with “a little hair on it” and make substantive
improvements to achieve desired investment
returns. There are a number of tactics for recruiting
and retaining A-level talent. First and foremost, buyers
should move quickly to fill vacant slots in the management
team of a newly acquired entity. We believe
that the demand-supply equation for talent is shifting
and delaying changes that you need to make now will
put you in a more challenging situation later.
Just as important, don’t let competitors poach
top talent. If you do, you will spend more time later
searching for talent from a smaller candidate pool that
will have increased compensation requirements. To
the extent possible, constantly recruit or work with
an executive search service provider who knows their
marketplace very well and can react quickly to unexpected
departures or opportunistic acquisitions of
human capital.
In many cases, buyers should redefine job duties
and specs. Roles today are different from 2007 and
many of our job descriptions and established processes
are being dragged down by inertia from this
earlier time. Cross-functional work is now a major
Kathryn Kehoe
component of every department head’s role and is absolutely
necessary for an integrated business model.
Cross-functional orientation, by definition, means
lines are blurred, requiring a high degree of collaboration.
Management teams that understand this will
function at a higher level and win in the competitive
environment.
Finally, take care of your
management team. Ensure that
total compensation is at or above
market for your top executives.
Historically, voluntary turnover
spikes after a recession and a
recent Human Capital Institute
survey noted that 35% of people
who are in company leadership
roles would listen to opportunities.
Our recruiters are seeing
empirical evidence in many markets
across the country to this effect.
After several years of limited
transaction volume, private equity
funds are clearly becoming
active sellers of portfolio companies
and buyers of new platforms.
For deals to succeed, there must be heightened
diligence by both the buyers and sellers. That means
fund executives must focus on the day-to-day details
of potential acquisitions. And fund executives must
adapt to changing times and re-energize human capital
initiatives to ensure that their investments provide
the best possible return to investors. The grass is not
necessarily greener on the other side of the fence, but
greener, where watered.
Tom Bonney, founder and managing director of CMF
Associates, formerly led a high-tech advisory, Polaris
Consulting & Information Technologies, and before
that worked at Deloitte & Touche in their accounting
and audit practices in Philadelphia and London.
Kathryn Kehoe, a managing director at CMF Associates,
leads the firm’s organizational design and talent
acquisition services. Prior to joining CMF, she was a
senior vice president of US operations and strategy and
a corporate officer at Langer, Inc. Before that, she served
as a president at HR and organization development advisory
firm Kehoe Associates.
“
”
May 2011 MERGERS & ACQUISITIONS 35

People
Hiring activity was robust in March, with notable moves in
investment banking and among corporates. Facebook, for instance,
recruited Google’s Amin Zoufonoun, leading to speculation
that the company plans to expand on the 10 deals it cinched
last year. Among the investment banks, the defense and government
services space saw the most activity. Morgan Keegan recruited
a Jefferies and Quarterdeck veteran to build out its efforts
in the segment, while Bluestone Capital Partners, formed by former
Quarterdeck president John Allen and Susan Gabay earlier
this year, also bolstered its staff with two new appointments.
Among the lenders, Monroe Capital topped off its new fund
and recent efforts to launch a BDC with the recruitment of Moelis
and UBS veteran Warren Woo, who will oversee a Los Angeles
office for the Chicago firm.
Advent International— The global PE firm
added some operational muscle in March,
naming Christopher Fraser and Bernard
Bourigeaud to its operating partner program.
Fraser, who’ll focus on the industrial sector,
previously served as president and CEO
of Chemical Lime, and also served in C-Suite
roles at OCI Chemical and Rhone-Poulenc,
among other companies.
Bourigeaud, meanwhile, is best known
for launching France-based information technology
company Atos Origin. Three years ago,
Bourigeaud was tapped for a senior advisory
role by Apax Partners.
Angelo, Gordon & Co.— Mark Visser
has joined the firm’s private equity group as a
managing director and will lead its healthcare
investment activities.
Previously, Visser was a partner at Behrman
Capital, which he joined in 1994. There,
he led the firm’s healthcare investing.
Visser has 20 years of experience in
the healthcare sector, investing in companies
ranging from healthcare services to products.
Earlier in his career, he worked for Merrill
Lynch’s investment banking group focusing on
mergers and acquisitions and other corporate
finance transactions.
Barclays Capital— The investment bank
named Josh Connor as head of global transportation
investment banking within the firm’s
global industrials investment banking group.
He will officially join the firm in July and will
be based in New York.
Connor comes from Morgan Stanley,
where he served as a managing director and
head of the transportation and infrastructure
group, and was also a member of the investment
banking management committee and the
board of the Morgan Stanley Foundation.
Bank of America— The firm announced
that Fernando Vicario is the head of corporate
banking for emerging markets, excluding
Asia, according to an internal memo obtained
by sister publication IDD Magazine.
The position is a newly-created role and
reflects the firm’s push into emerging markets
–- a commitment alluded to by BofA’s
president of global banking and markets, Tom
Montag, in its investor day. BofA has recently
made strategic agreements with banking firms
in Turkey and the United Arab Emirates. Also,
it recently was given a license in Brazil to offer
global treasury solutions to multinationals in
the country.
Vicario originally joined Bank of America
in 1995.
Barnard/Montague Capital Advisors—
The San Francisco-based M&A advisory firm
hired David B. Sloan as a partner.
Sloan arrives from Bancroft Partners, an
investment banking firm he formed in 2006 to
focus on West Coast early- to mid-stage companies.
Sloan was previously an executive director
for Rabobank, where he concentrated on
agribusiness M&A. Prior to 2004, he spent a
decade and a half with JPMorgan Chase, with
eight years focused on domestic M&A advisory
and seven spent in Hong Kong focused
on M&A in Asia.
BDO Capital Advisors— Dan Shea is
expanding his role at the advisory shop. An
executive in the firm’s BDO Valuation Advisors
subsidiary, Shea will also join BDO Capital
Advisors as a managing director.
His track record includes stops at Hadley
Partners, as a managing director, and WY
Campbell, where he served in the same capacity
and headed the firm’s Los Angeles office.
Shea also held a senior role at Ernst & Young
Corporate Finance.
Bluestone Capital Partners — The
McLean, Va.-based investment bank specializing
in middle-market aerospace, defense,
internet technology and professional services
companies, announced the hiring of Chris
Taylor and Mike Ivey as senior vice presidents.
Taylor formerly was president of the $250
million technical services business unit of VT
Group Inc., the North American defense and
government services operations of Britain’s
36 MERGERS & ACQUISITIONS May 2011

Babcock International Group plc. He previously
served as VT Group’s vice president of
corporate development with responsibility for
its strategic growth initiatives in the U.S., including
overseeing all merger and acquisition
activity.
Ivey joins Bluestone after serving as a
senior financial executive with leading public
and private equity-backed companies in the
defense and federal services arena. Most recently
he was vice president of finance for Net-
Star-1 Inc., a Lake Capital portfolio company
that provides IT and management consulting
services to the federal government.
BMO Capital Markets— The investment
and corporate banking arm of BMO Financial
Group appointed Dirk Leasure and Les
Gorman co-heads of the financial sponsors
group.
Leasure and Gorman will be responsible
for overseeing and expanding the existing
group of professionals in New York, Chicago
and San Francisco. They will work out of New
York and report to Perry Hoffmeister, head of
US investment and corporate banking.
Leasure has led BMO’s financial sponsors
group since 2009. Before joining BMO
Capital Markets in 2002, he spent eight years
with Goldman Sachs, working with financial
sponsors in their leveraged finance group, including
two years leading that group’s efforts
with financial sponsors in London.
Gorman, meanwhile, joined BMO Capital
Markets in 2010. He previously worked for
12 years at Lehman Brothers, where he was
a managing director. There, he worked in the
office of the chairman, in the firm’s M&A department
and had responsibilities for covering
selected clients in the media and communications
sectors.
The Carlyle Group— The global PE firm
with $97.7 billion of assets under management
established a team to conduct buyout
and growth capital investments in sub-Saharan
Africa. Managing directors Marlon Chigwende
and Danie Jordaan were named as
co-heads of the new effort. Chigwende was formerly
a managing director and head of private
Monroe Capital LLC—
The Chicago lender hired Warren Woo as a partner and managing director,
recruiting the veteran lender from Moelis & Co.,
where he was a founding partner.
Monroe is counting on Woo, who’ll be stationed
in Los Angeles, to lead the firm’s West Coast operations.
Before Moelis, Woo was vice chairman and
a member of the board of directors at UBS Investment
Bank. He also was the global head of financial
sponsors, hedge funds and leveraged finance at
UBS. Earlier stints included stops at Donaldson,
Lufkin & Jenrette and Drexel Burnham Lambert.
Woo, a part owner of the National Hockey
Warren Woo
League’s Nashville Predators, is joining Monroe as
the firm continues to build out its resources. Monroe
raised a $250 million third party fund earlier this
year and also recently filed to float a business development company. In the filing, the
firm disclosed separate plans to raise an SBIC vehicle.
equity in Africa for Standard Chartered Bank,
while Jordaan was an executive committee
member and partner of Ethos Private Equity.
The team also includes managing director
Genevieve Sangudi, most recently a partner
and managing director of Emerging Capital
Partners.
Carlyle’s new team will operate out of offices
in Johannesburg, South Africa, and Lagos,
Nigeria.
Covert & Co.— Kevin Covert, a West
Coast investment banking veteran who cofounded
what is now Montgomery & Co.,
launched his own boutique investment bank.
The eponymous firm will be based in LA.
Covert & Co. currently has 10 employees,
full and part time. By yearend, its founder
expects to have 15 to 20 workers, as well as
offices in the Bay Area and on the East Coast.
Covert, along with Jamie Montgomery
and others, founded Digital Coast Partners in
1999 in Santa Monica, Calif. When it changed
its name to Montgomery & Co. in 2003, Covert
took charge of its technology and media-
Internet groups. He left Montgomery in 2009.
Covert, in his career, also had stops
at Credit Suisse First Boston and Salomon
Brothers.
Among the early hires, Michael
Metzger came aboard as a principal. Metzger
arrived from New Century Capital Partners,
where he was a vice president.
Duff & Phelps Corp.— The advisory firm
named Jacob Silverman leader of its investment
banking segment. Silverman will continue
to oversee corporate development for the
company and will remain on the advisory firm’s
executive committee. Patrick Puzzuoli, now
managing director of finance, succeeds Silverman
as executive vice president and chief
financial officer.
Michael Cochrane, who preceded
Silverman as segment leader for investment
banking, has decided to leave the company to
pursue other interests, the firm said.
Silverman joined Duff & Phelps in March
2004, when he worked with Noah Gottdiener
May 2011 MERGERS & ACQUISITIONS 37

People
to acquire the firm. Previously, he worked for
Stone Ridge Partners LLC, a mergers and acquisitions
advisory firm focused on middlemarket
companies.
Earlier posts for Silverman included stints
as the VP of finance for enterprise software
concern Atomica Corp., and stops at investment
bank Furman Selz and investment firm
Oak Hill Advisors.
Puzzuoli, meanwhile, has been affiliated
with Duff & Phelps and its predecessor firms
for more than seven years, having joined the
firm from Jupiter Media Metrix.
Evercore Partners— Eric Mandl has
agreed to join the firm as a senior managing
director.
Mandl, 36, will work in New York and will
focus on advising companies in the large-cap
technology and software and Internet sectors.
Mandl was most recently global head of
software and enterprise banking at UBS. With
nearly 15 years of experience, Mandl has advised
on deals involving IBM, Hewlett-Packard,
Apple, Dell, Citrix, Symantec, Microsoft
and others.
Facebook— News of Amin Zoufonoun
leaving his post at Google Inc. had the tech
world buzzing in March. A catalyst behind
Google’s buying spree in recent years, Zoufonoun
joined the company in 2003.
Zoufonoun has a law degree from Santa
Clara University and previously served as corporate
counsel at ArrayComm LLC.
At Facebook, he will report to Vaughan
Smith, who currently heads Facebook’s corporate
development efforts. The company
has ramped up its M&A activities, acquiring
10 companies last year, including New Yorkbased
HotPotato, among others.
Greentech Capital Advisors— The firm
hired mergers and acquisitions executive Damien
Sauer as partner.
Sauer previously headed M&A at the
French nuclear group Areva. At Greentech
Capital he will provide M&A and strategic advisory
services to sector-leading companies,
as well as raise expansion capital for private
companies and project developers. He will
work alongside Olav Junttila, also a partner,
and a team of investment bankers.
HSN, Inc.— The multi-channel retailer
named Mitchell Hara as a senior vice president
of corporate strategy and M&A. The newly
created position reports to chief financial officer
Judy Schmeling.
Hara joins the Nasdaq-listed company
from Peter J. Solomon Co., where he was a
managing director. He previously led Citigroup’s
specialty retail practice and also put in
stints with Merrill Lynch & Co., Wasserstein
Perella & Co. and Citibank, NA.
Janney Capital Markets— The Philadelphia-based
brokerage unit of Penn Mutual Life
Insurance named Christopher White as the
new head of its investment banking division.
White arrives from Cowen Group, where he
was most recently the chief operating officer.
He is replacing Andrew Smucker, who is
staying on at the firm as a managing director.
White’s appointment comes as the firm is
looking to build out its middle-market M&A
and sponsor coverage.
White, a Salomon Smith Barney vet, originally
joined Cowen in 1999, soon after Societe
Generale acquired the firm to form SG Cowen
Securities Corp. Throughout his tenure, White
held a number of different positions before
moving on to become COO, where he oversaw
the spinout of Cowen as a public company in
2006. More recently, he oversaw Cowen’s sale
to Ramius LLC in late 2009.
A spokeswoman for Cowen disclosed
that John Holmes will take over for White at
the New York-based investment bank.
Lazard— Senior London-based banker Ken
Costa has left the firm, a spokesman acknowledged
in late March without elaborating.
Costa, 62, is a 30-year City of London
veteran. He was chairman of Lazard International,
hired by Lazard’s chief executive at the
time, the late Bruce Wasserstein. In one
of Costa’s most noteworthy deals, he advised
Mohamed al-Fayed on his sale of London department
store Harrods to Qatar Holding for £2
billion ($3.2 billion).
A native of South Africa, Costa was previously
vice-chairman at UBS Investment Bank.
Separately, Lazard, earlier in March,
brought on Yan Lan as a managing director
and head of Greater China investment banking.
Ms. Yan was formerly a partner in charge
of Gide Loyrette Nouel’s Beijing office.
L2 Capital Partners— Bob Levine
launched the new private equity firm to target
manufacturing, distribution and services deals
in the small market. Levine recently left Milestone
Partners, where he was a co-founder.
According to a press release, L2 will look
to write equity checks of as much as $10 million
and will target transactions $10 million to
$20 million in size.
The firm, which has in excess of $50 million
available at its disposal, notched its first
deal in March when it acquired Landfill Service
Corp. in an undisclosed deal.
Moelis & Co.— Nick Saggese has
joined the firm as a Los Angeles-based senior
adviser, the firm announced in March.
Saggese joins Moelis after more than 25 years
with Skadden, Arps, Slate, Meagher & Flom
LLP, where he most recently was a partner and
co-head of the law firm’s private equity practice.
He represented clients in such corporate
transactions as private equity, mergers and
acquisitions, recapitalizations, securities offerings
and corporate restructurings.
Morgan Keegan & Co.— The Memphis
investment bank named Dan Cornell as a
managing director. The Jefferies & Co. veteran
is joining Morgan Keegan’s security and
defense investment banking group, where he
will initiate its coverage in the aerospace and
government services sectors.
Morgan Keegan’s parent, Regions Financial,
also formed a technology and defense
banking group, tapping David Sozio to lead
the new effort, which will focus on debt capital
solutions.
38 MERGERS & ACQUISITIONS May 2011

Cornell previously headed Jefferies’
Washington, DC office. He previously put in
stints with Quarterdeck Investment Partners,
Legg Mason and Stifel Nicolaus.
MorrisAnderson— The Chicago consultancy
named Edward Bidanset, III, as a
managing director at the firm. A 2008 hire,
Bidanset is expected to help grow the firm’s
Atlanta office, where he will manage client relationships.
Bidanset, prior to joining MorrisAnderson,
was a consultant and principal with crisis
management firm CE Inc. and previously
served in executive roles at Middle Atlantic
Products, Scott Printing Corp. and Cardiovascular
Diagnostics, among other companies.
Nomura— The firm’s head of US investment
banking, Glenn Schiffman, has left the firm
after one year on the job, according to a person
familiar with the matter.
His departure was disclosed in an internal
memo that was circulated by the company
and obtained by sister publication Investment
Dealers’ Digest.
A spokesman for Nomura declined to
comment.
James DeNaut, who joined Nomura
last August from Deutsche Bank, has replaced
Schiffman, according to the person familiar
with the matter.
Schiffman came to Nomura through the
Japanese bank’s acquisition of the overseas
businesses of Lehman Brothers. Prior to becoming
head of US investment banking, he
was head of investment banking in the Asia-
Pacific region.
Piper Jaffray— The Minneapolis investment
bank named Marc Steifman as a managing
director and head of its West Coast tech
group. Steifman, most recently a managing
director with Jefferies, will join the firm in late
June and be based in San Francisco.
Prior to signing on with Jefferies, Steifman
had stops at Bear Stearns and Prudential
Securities. His focus, for the past 16 years, has
primarily concentrated on the electronics and
hardware sector.
Robert W. Baird & Co.— The mid-market
bank named Vinay Ghai as a managing director
in its i-banking team in London, as part of
the firm’s continued expansion in Europe.
He joins Baird from the corporate finance
adviser Hawkpoint. He will work alongside
managing director Nick Sealy and work in the
consumer and industrial sectors.
Ghai spent eight years in the Hawkpoint
corporate advisory team, focusing on the consumer,
leisure, health care and industrial sectors.
Previously he was vice president for European
M&A at Goldman.
Earlier he was a senior associate for European
mergers and acquisitions at Deutsche
Bank.
TA Associates— The Boston growth and
private equity investor named Patrick Sader
as a senior vice president in London.
Sader arrives from Argan Capital Advisors
and also put in a stint with Terra Firma
Capital Advisors. According to a statement,
Sader will concentrate on growth companies
on the continent with an emphasis on Frenchspeaking
regions.
Temasek Holdings— The Singapore investment
giant named Ding Wei as the head
of its China investment team.
Wei was formerly the head at China International
Capital Corp. He is reportedly replacing
Gan Chee Yen, who will stay on with
Temasek as a senior managing director covering
special projects.
Tiger Group— The advisory valuation and
disposition firm brought in Billy Weinstein
and Mark Stein to bolster its Boston office.
Both were founding partners of the Ozer Group
and also spent time at Gordon Brothers.
The firm also announced the acquisition
of The Daley-Hodkin Group, a Melville,
NY-based appraiser of machinery and equipment
and a fully integrated asset disposition
services firm. Joseph Hodkin will retire, while
Morris Hodkin, who serves as president of
Daley-Hodkin, will spearhead the integration.
Tudor, Pickering, Holt & Co.— The energy-focused
investment and merchant banking
firm named John Rice and George Ward
as heads of the new power and utility group.
The pair arrived from Berenson & Co., and will
be joined by fellow Berenson vets Dave Saxena,
Director, Ed Tirello, Senior Advisor and
Jonathan Sherman, Associate.
Rice, prior to joining Berenson, was the
head of the energy investment banking group
at Credit Lyonnais Securities. Before that, he
was in the energy group of Credit Suisse First
Boston and its predecessor firm, Donaldson,
Lufkin & Jenrette. Ward, meanwhile, spent
time at Credit Suisse and CIBC Oppenheimer
before joining Berenson.
The new team will be based in Todor,
Pickering’s New York office.
UBS— Jeffrey Berson has joined investment
bank as a managing director in its technology,
media and telecommunications group,
according to an internal memo sister publication
IDD obtained. He will work in New York
and report to Aryeh Bourkoff, who was recently
appointed head of investment banking in the
Americas. Berson joins the firm from Oppenheimer
& Co., where he was global head of
communications. Before working at Oppenheimer
he spent 14 years covering technology
and telecommunications at CIBC and Barclays
Capital.
Warburg Pincus— The PE firm bolstered its
tech and media segment, bringing on Andrew
Prozes as a senior advisor. Prozes was previously
the CEO of LexisNexis Group.
Wynnchurch Capital— The private equity
firm promoted Michael Teplitsky to vice
president in March.
Based in Wynnchurch’s Chicago office,
Teplitsky joined the firm in 2008. Earlier stints
for Teplitsky included stops at energy-focused
PE shop Lime Rock Partners and investment
bank UBS.
May 2011 MERGERS & ACQUISITIONS 39

THE PULSE
Lessons Learned
With InterGrowth 2011 now in the rearview, attendees share their key takeaways
The breakout sessions were excellent.
It is always great to learn how your peers
and your market
conduct business.
We get better every
year. As far as
networking goes,
after a dozen or
so Intergrowths, I
have learned that
the first year you
are a rookie, the
Terry Fick
second year you
are a player, and
after that you are a
member of the “Club.”
—Terry Fick, managing director,
Westlake Securities, ACG Dallas/Fort Worth
My biggest take away from the conference
came at lunch with Stanley McChrystal.
Stanley was a senior at West Point when I
was a freshman. Although I did not know him
personally, I was impressed after meeting
him at Intergrowth. My sense of his leadership
style is one of inclusion. His comments
at lunch inspired me to continue my own similar
path of leadership in deals. For example,
in getting any deal completed, the management
of the company must be enrolled in
the transaction (whether selling a company
or raising capital). One of the best ways to
make that happen is including them in all
aspects of the process. One risks exposing
“how sausage is made,” but in the end I think
it makes deals happen.
—J.B. Dollison, managing director,
Crutchfield Capital Corporation, ACG Houston
Bring plenty of business cards and don’t
forget to visit the Gaslamp District with
friends and ACG acquaintances. Priceless.
—Steve Cohen,
Devine, Millimet & Branch, ACG Boston
I have been involved with ACG for more
than a decade and have attended seven Inter-
Growths and witnessed
its steady
evolution into the
most important
middle market
dealmaking event.
The beauty of InterGrowth
is that
it offers something
for everyone, from
fascinating keynotes,
to useful
Bill Haynes
breakout sessions,
to a wealth of networking opportunities. With
so many opportunities for learning, socializing
and business development, the most difficult
thing is to decide how to spend your time.
The most valuable lesson I have learned
about making the most of the InterGrowth
experience is to reach out to attendees in
advance of the event and schedule meetings
throughout the conference. Being an exhibitor
is certainly helpful for meeting people circulating
through the attendee lounge. Likewise,
cycling through the hubbub of Capital Connection
is a nice way to catch up with private
equity clients and acquaintances. However, a
targeted, personal pre-conference outreach
to current clients, friends, potential clients
and partners, is an important step for a successful
event. At the most recent InterGrowth,
BackBay Communications arranged a dozen
meetings in advance. Most were only 20-30
minutes, but that was enough time to gather
key information about potential clients’ business
goals and needs and to follow up with
some ideas after the event.
Scheduled meetings are an important
and efficient way to approach InterGrowth.
It is also important, however, to leave time
for spontaneous get-togethers. InterGrowth
attendees have an amazing web of connections,
and I’ve deepened current relationships
and forged new ones through impromptu introductions
over a beer in the hotel bar.
—Bill Haynes, president,
BackBay Communications, ACG Boston
Attending my first ACG Intergrowth meeting
was eye opening. As the President of the
Orlando Chapter I
thought it would
be beneficial to
learn how and why
some of the largest
ACG chapters
are so successful. I
walked away from
the week with
new ideas for our
Steve Castino
chapter, many new
relationships in the
private equity field
and I also had the opportunity to hear two
extremely inspirational and accomplished
speakers in Jim Collins and Stanley McChrystal.
—Steve Castino, shareholder, executive
committee, Vestal & Wiler CPAs, ACG Orlando
40 MERGERS & ACQUISITIONS May 2011

THE PULSE
This was my first ACG-Intergrowth Conference
of my career, and the two biggest takeaways
were (1) old relationships; and (2) new
relationships.
As for old relationships, I’ve worked at
several firms on Wall Street over the years.
It was really terrific to see former colleagues
(most of whom had also moved on to other
firms) who I hadn’t seen in years, as well as
current and former private equity clients. I
seemed to run into an old friend every few
feet in the hotel. It was gratifying to compare
notes on the last few years, and how we had
all survived and intend to reconnect more often
in the future.
As for new relationships, I met several
new corporate and private equity clients with
whom I plan to meet in the near future, possibly
for a live advisory assignment. A couple
approached me after I spoke on a panel, and
asked if we could talk. These potential leads
are very valuable, and something I did not expect
from ACG-Intergrowth. Terrific!
—Randal Stephenson, managing director,
investment banking, Duff & Phelps
Securities, LLC
The lessons learned are many. Plywood
leadership, for example, glues average people
together by true leadership. Also, what sets
successful growth companies apart from mediocre
companies is the humility of the management
team and a ‘never give up’ mentality. And
the key factors that differentiate a great company
from a mediocre company are an ability to
put the right people in the right positions and
disciplined growth. (It’s better to grow by 10%
to 20% per year for 20 years than witness extreme
spikes either way.) Finally, demographic
changes will influence the world.
—Titus Schurink, CFO,
Holland Private Equity, ACG Holland
Appreciated having sessions on familyowned
businesses, a market segment overlooked
in the past, but very important, with
their own set of expectations, needs, goals,
etc. Also, the three keynoters were awesome,
each in their own right.
—Mike Trueblood, director,
Family Business Council, Mihaylo College of
Business and Economics, Cal State Fullerton
On The Agenda
May 3
ACG New York - Emerging Markets Conference
ACG Vancouver - Capital Connection 2011
May 5
ACG Detroit - 3rd Annual Texas Hold ‘Em Tournament
ACG National Capital - 2011 Corporate Growth Awards Gala
May 6
ACG Richmond - Breakfast Series: Higher Ed Panel
May 10
ACG Arizona - Breakfast Series: Featuring Mike & Jamie Entzminger
ACG Kentucky - Breakfast Series: Featuring James P. Campbell
ACG Philadelphia - Networking & Wine Tasting Event
May 11
ACG St. Louis - Mid-America Corporate Growth Conference
May 12
ACG Silicon Valley - Tim Guertin, CEO, Varian Medical
ACG Boston - Cupcakes and Cocktails with the Women’s Executive
Forum
ACG Silicon Valley - Tim Guertin, CEO, Varian Medical
May 13
ACG National Capital - John Rizzo, former General Counsel, CIA
May 17
ACG New York - 7th Annual M&A DealSource & ACG Capital
Connection ®
ACG Chicago - Winners Emerge: The Future of Private Equity
ACG San Diego - Distressed M&A: Using 2nd Lien Financing as
Risk Mitigation
ACG Atlanta - ACG Golf Tournament
May 18
ACG Western Michigan - Agony to Ecstasy: No Sales to Equity Sale
ACG Holland - Luncheon meeting
May 19
ACG Philadelphia - Breakfast Series: Middle Market Lenders Panel
ACG National Capital - Greater D.C. Executive Women’s Event
ACG Boston - Breakfast Series: Sam Kennedy of the Boston Red Sox
May 24
ACG National Capital - Seminar Series: The Sale of a Closely Held
Business
ACG Denver - Corporate Executive Series: Margaret Heffernan
May 2011 MERGERS & ACQUISITIONS 41

COMMUNITY COMMENTARY
Reading Washington
TheWadeGroup’s Robert W. Stewart discusses the regulatory issues in Washington that may
keeping mid-market dealmakers up at night
Robert W. Stewart
While attention in Washington is
riveted on critical budget talks,
military action abroad and the
unfolding nuclear nightmare in Japan, federal
legislators and regulators are quietly considering
several major policy initiatives that
could have a profound effect on the private
equity industry, especially on mid-market
firms.
The most significant policy issues facing
mid-market firms this year – and beyond – fall
into three broad categories:
1. Regulatory issues stemming from the
Dodd-Frank Act enacted last year;
2. Tax issues related to the likely overhaul
of the U.S. corporate tax code in the next
two to three years;
3. Accounting issues stemming from the
Fair Value Measurement proceedings
underway at the Financial Accounting
Standards Board, or FASB.
Dodd-Frank
The most immediate threat facing the
mid-market private equity community is the
proposal by the Securities and Exchange
Commission (mandated by the Dodd-Frank
Act) to require registration and financial reporting
under the Investment Advisers Act
of 1940. The requirement would apply to
advisers to private equity, hedge and liquidity
funds (but not venture capital funds) who
have $150 million or more in assets under
management.
Under the proposed rule, these asset managers
would be required to register with the
SEC and complete Form ADV, which includes
extensive compliance requirements (production
of compliance manuals, employee training,
etc.). Covered investment advisers would
have to file their first Form ADV by July. In
addition, they would be required to annually
complete a new form, Form PF, that would
compel them to provide monthly and quarterly
reports on the net asset value and performance
of each fund under management. The
first such report would be due no earlier than
March 31, 2012.
Members of the private equity community
who have studied the proposals believe they
will impose significant burdens on mid-market
firms without achieving their stated purpose
– to identify and limit risks to the U.S.
economy and financial system. Some believe
the substance of these rules reflects a lack of
understanding of the private equity business
model among some regulators.
Responding to that criticism, Rep. Robert
Hurt (R-VA) recently introduced legislation
that would rescind the Dodd-Frank requirement
reporting and registration requirement
for all private equity fund advisers. The bill,
which has picked up some Democratic support,
is expected to be reported out of the
House Financial Services Committee in early
May and is likely to be approved by the full
House. The bill’s prospects in the Senate remain
uncertain.
Critics argue that determining monthly
and quarterly performance for private equity
funds, which by their nature involve investments
in largely illiquid assets, would cause
a severe financial burden on private equity
firms of all sizes, but especially on smaller
firms. In practice, the rule would require each
firm to value on a monthly basis each company
in which their funds invest, using a variety
of valuation methods sanctioned by the
Financial Accounting Standards Board.
Some in the industry believe that legal
counsel would insist on hiring outside accountants
to certify the legitimacy of the
valuation and the valuation methodology.
For even a small firm, the expense of providing
these monthly fund performance reports
reasonably could reach $500,000 or more. For
larger firms, the cost could top $1 million, according
to estimates.
In addition to the reporting issues raised
by Form PF, certain requirements contained in
Form ADV have drawn criticism
Among these issues are:
Third-party custody of securities – Part
2 of Form ADV requires firms to store their
securities with a third-party “qualified custodian.”
However, securities in companies in
which private equity firms invest are private
and unlisted and cannot be traded in public
markets. Many believe that it makes no sense
to require that they be held in custody by third
parties at considerable expense.
Compliance and disclosure to investors
– Part 2 of Form ADV also contains extensive
compliance and disclosure requirements, including
creation and adoption of a code of
ethics, that will be costly to carry out and
which do not enhance or improve upon any
42 MERGERS & ACQUISITIONS May 2011

COMMUNITY COMMENTARY
of the disclosures required in Limited Partner
Agreements.
Trading practices – Critics argue that
requirements regarding trading practices,
including procedures by which the adviser
satisfies its best execution obligation and
allocates aggregated trades among clients,
make no sense for private equity firms that
do not trade any public securities for their clients’
accounts.
Restrictions on proprietary trading – Others
point out that Requirements regarding
proprietary trading by the adviser and the
personal trading activities of the people the
adviser supervises have no bearing on private
equity firms, which do not engage in trading
public securities for clients.
Portfolio management processes – Portfolio
management processes, including allocation
of investment opportunities among clients
and consistency of portfolio investments
with clients’ investment objectives, make
little sense for private equity firms, opponents
say, as these issues are all covered by Limited
Partner Agreements.
The SEC also has proposed a new rule
that would apply to all investment advisers
with AUM of $1 billion or more that would
institute a new reporting regime related to
incentive-based compensation, which many
believe would include carried interest.
Tax Issues
Equally important is the major tax reform
debate that has already begun – and that may
result in sweeping tax legislation being enacted
by Congress in 2012 or 2013. The two
issues of most importance relate to the tax
treatment of partnerships and other so-called
“pass-through” entities and the deductibility
of interest on loans used to finance portfolio
company acquisitions.
Both President Obama and Treasury Secretary
Geithner are on record as favoring a
decrease in the nominal corporate income tax
rate, which currently stands at 35 percent.
However, both have said that any effort to reduce
the corporate tax rate should be revenue
neutral, suggesting that Congress’ tax writers
will have to find offsetting revenue to make
up for that lost from lowering the overall corporate
rate.
Geithner said as recently as April 5 that
the Administration is preparing a comprehensive
proposal for corporate tax reform in an
effort to kickstart the legislative process in
Congress. According to Reuters, “Given the
country’s fiscal challenges, Geithner said the
proposal would have to be revenue neutral,
so that a cut in the corporate tax rate would
have to be offset by new revenue from the
elimination of special preferences.”
Privately, many in Washington expect that
the effort to find offsetting revenue streams
will focus largely on the tax treatment of the
“pass through” entities, principally partnerships
and S-corporations, largely because the
number of these entities has exploded during
the past ten years. In a “pass-through” entity,
income flows into the partnership or S-Corp
untaxed. Once it is distributed to the partners
of S-Corp owner, it is taxed as individual rates.
Some believe that Congress could move to
impose a corporate tax on partnerships at
the partnership level, before the partnership
income being distributed to partners. Once
distributed, the income would be taxed again
at the individual rate.
Fueling concerns about the issue, Geithner
said during a recent Senate hearing: “Congress
has to revisit this basic question about
whether it makes sense for us as a country to
allow certain businesses to choose whether
they’re treated as a corporation for tax purposes
or not.”
Another possible result of passage of
omnibus corporate tax reform would be to
limit or eliminate the deductibility of interest
paid on debt used to acquire companies.
Such an idea has long been championed by
former Fed Chairman Paul Volcker and was
referenced in terms of home mortgages by
the President’s Commission on Fiscal Responsibility.
If the effort to reduce nominal corporate
tax rates takes hold, and signs suggest that
it will, it could result in imposition of a corporate
tax on partnerships at the partnership
level and the end to deductibility of interest
for acquisitions, both of which would create
major challenges for private equity firms of all
sizes, but especially for the smaller firms.
FASB and IASB
The Financial Accounting Standards
Board, in cooperation with its international
counterpart, the International Accounting
Standards Board, in the next few weeks is
scheduled to release a new set of rules governing
fair value accounting practices. These
rules could have a profound effect on the
small and mid-sized alternative asset management
community.
The new FASB and IASB rules are likely to
require investment fund managers to spend
much more time, energy and money justifying
the valuations they place on their funds and
fund investments (meaning portfolio companies).
Among other things, the rules are expected
to require fund managers to run socalled
“alternative scenarios” under a variety
of valuation methods and justify the method
chosen - all of which most likely will require
additional hours from the firm’s outside financial
auditors.
In addition, four separate regulatory
agencies are dealing with rules attempting
to regulate investments by banks in private
equity funds. Although there is a specific
expectation contained in the Dodd-Frank Act
for Small Business Investment Companies,
these rules must be implemented in a manner
that does not restrict or retard investments in
SBICs. In addition, some have proposed increasing
the limits on the size of companies
in which SBICs may invest, which would open
a broader window of investment for these
specialized firms.
Robert W. Stewart is a senior vice president,
financial services, TheWadeGroup, Inc.
May 2011 MERGERS & ACQUISITIONS 43

COMMUNITY COMMENTARY
Who Killed the Electric Car
Tom Gage, CEO of AC Propulsion, provides customer testimonial for SAP Business ByDesign
Tom Gage
No one as it turns out. Although GM
recalled and crushed its famous EV1
electric car in 2003, electric transportation
is now heading for commercialization.
For two of the lead engineers on the
program that developed the prototype for the
EV1 in 1989, the promise of electric propulsion
was the “call to action” for creating AC
Propulsion, Inc. Driven by a passion for efficiency,
high performance and new technology
(and wary of the slow pace of change in big
companies), Alan Cocconi and Wally Rippel
founded their own company in 1992. Their
goal then was to create electric vehicles that
people actually wanted to drive.
Over the intervening 19 years, AC Propulsion
has experienced the roller coaster ride
that paralleled the developments within the
EV (Electric Vehicle) industry. I joined the
company early on (1996), after extensive and
varied automotive engineering experience
that included an 8-year stretch with Chrysler
in Detroit. Even with the ups and downs, our
company has become a recognized leader in
proprietary EV technology for drive systems
and vehicle integration. Opportunities for
commercialization were limited, until now.
The long journey and lessons we learned.
With just over 100 employees, AC Propulsion
has a strong position in the still small EV market
as the technology supplier for the original
Tesla Roadster, BMW MINI E, Luxgen MPV_E
(Taiwan), and one of the top prizewinners in
the $10 million 2010 Progressive Automotive
X-Prize competition (the MonoTracer E electric
cabin motorcycle).
Today, AC Propulsion stands alone as the
only EV-focused company in the world with
no debt, no cumulative losses, and positive
cash flow. But things weren’t always looking
this way. AC Propulsion has been run largely
as an R&D shop by a dedicated group of engineers
that has not wavered from its conviction
that electric vehicles can be fast, convenient,
and fun to drive. These same engineers
endured periods with no paychecks in the
early years, and thus ran the company with
an eye toward minimal overhead. Even so, at
one point the company was down to only 5
employees. Funding provided by an angel investor
in late 2005 enabled the company to
expand development efforts at a time when
the auto industry was returning its attention
to the advantages and strategic value of electric
propulsion
More recently, the revenue from key commercial
development contracts sustained our
company through the past couple of years,
while the country experienced a deep recession.
Our commercial success and the positive
cash flow that came with it was due more
to the strong technology content of our products
than to smart marketing or savvy strategic
planning. All four of the game-changing
events for AC Propulsion – the Tesla license
in 2004, the angel investment in 2005, and
the BMW MINI E contract in 2008, and the
Luxgen business in 2010 – resulted from engineers
talking to engineers – not from more
conventional marketing and sales initiatives.
Specifically:
1. The Tesla license evolved from the desire of
Martin Eberhard to own a tzero electric sports
car which had been produced as a prototype
by AC Propulsion and outperformed several
European exotics (Porsche, Ferrari, Lamborghini)
in short races. Our company wanted to
build drive systems, not cars - so we loaned
the tzero to Martin and offered to license him
our technology if he could find someone to
build the car. Martin raised the funding to establish
his own company to build high-performance
roadsters – and that company, Tesla
Motors, went on to go public in 2010 with a
market cap in excess of $2 billion.
2. The angel investment stemmed from the
personal interest of a seasoned battery engineer.
Believing that the company’s IP had
tremendous potential, he brought in a series
of his friends as potential investors, one of
whom decided to invest the necessary seed
capital (and pay the back wages).
3. The BMW MINI E contract for a pilot fleet
(500 cars total) resulted from a technical conference
where I was presenting the results of
our V2G research study, along with a demo
car on display. There were BMW engineers
in the audience who took note that we had
functional technology (vs theoretical), and
informed senior management in Munich. The
result was an order that seemed almost impossible
at the time: build 500 drive systems
in 6 months. That got the attention of the entire
global automotive community.
4. Luxgen has become ACP’s largest customer,
and in this case, the business resulted
from a combination of our engineers and
board member’s active pursuit of Luxgen, and
Luxgen’s strategic decision to include EVs as
part of their product portfolio.
As a result of the above events, at the
end of 2010, the Tesla Roadster, MINI E, and
Yulon MPV E represented a significant majority
of new EVs on the road and so ACP could
44 MERGERS & ACQUISITIONS May 2011

COMMUNITY COMMENTARY
honestly claim that upwards of 80% of all EVs
in the world contained our drive system technology.
But few people knew the “backstory”
behind how that all came about.
Going forward, we decided to take control
of our own destiny and adopt a proactive
marketing approach where WE approach our
prospective customers, instead of the other
way around. Our angel investor is keenly interested
in the China market potential and
invested an additional $12 million in 2010
toward a new and bigger factory in Beijing,
but expressed a desire for a financial partner
to further develop the company’s potential. In
mid-2010, we undertook to raise additional
capital – with the understanding that further
R&D efforts would be curtailed until more
funding was in place.
Like the pioneers of social media, AC Propulsion
is now poised at the forefront of a
global emerging market. And, as is sometimes
the case, our company does not fit within
any of the typical investment profiles – too
far along in the growth cycle for the venture
capital funds, too early in the growth cycle
for private equity funds, and not quite right
for certain strategic investors. We concluded
internally that we needed to take a different
approach to raising money, so that we would
not lose our competitive edge in technology.
Our business model also raised questions,
since it centers around providing a key component
of the car on an outsource basis – a
practical approach that enables car companies
to participate in the EV market quickly
and cost-effectively, but one that is contrary
to the traditional method of building key components
in-house. AC Propulsion is now exploring
different financing options with a select
group of strategic investors, designed to
leverage the company’s leading edge in V2G
(Vehicle-to-Grid) technology that provides a
solution and economic benefits for integrating
electric vehicles with the power grid .
From the business management angle, AC
Propulsion’s internal organization is a mix of
mature technology processes and start-up
level infrastructure that was workable for
years while EVs were just a topic of conversation.
The introduction of the Nissan Leaf
and the Chevy Volt in 2011 signaled that EVs
are finally hitting the mainstream. Now that
the commercialization of the EV industry is
becoming a reality, our projected growth demands
require a different approach to how
we conduct our day-to-day business.
So what did we do In mid-2010, we assessed
what was needed to respond to the
changing dynamics within the marketplace:
• Hired an investment banker to help us
explore the capital markets, with intent
to go public within two or three years;
• Developed a plan for expanded marketing
efforts in China and ROW (Rest of World)
designed to go TO the customers rather
than wait for them to find us;
• Lived by the motto that “cash is king,”
watching every dollar spent and
negotiating cash advances with
prospective customers;
• Transformed our existing leadership
model into a split model (one exec
handling inside operational decisions
while I focused on external marketing
and fundraising) ;
• Established contract relationships with
financial and legal professionals, who
identified and resolved certain tax and
legal issues that could have become
high-cost mistakes, and
• Set out to increase production capacity
and upgrade manufacturing processes to
meet projected demand growth.
In hindsight, we should have taken these
same steps years ago. It quickly became clear
that our historical style of intuitive management,
lack of strong command and control
systems from the legacy QuickBooks instance,
and manual processes would no longer
be adequate to deal with the anticipated
hockey-stick EV market or the requirements of
outside investors. Nor would these methods
provide the controls or documentation required
to obtain the ISO and UL certifications
demanded by automotive OEMs.
AC Propulsion reviewed a number of solutions,
looking for an integrated and scalable
ERP system that could handle the expected
growth without crippling the company with a
lengthy, costly implementation process. We
sought the expertise and experience from Tatum
LLC and after considerable review and internal
discussion, we selected SAP Business
ByDesign and began implementation in late
February 2011 under the direction of the Tatum-led
project management team. A fast implementation,
affordable price tag, high level
of functionality in project management and
MRP and the ability to scale to meet expected
growth were among the considerations.
As we approach the “last 5 yards” of the
implementation in the US, AC Propulsion is
already experiencing information benefits
from the collaboration between various functional
departments.
Looking to the future, AC Propulsion is
positioned to supply automakers around the
world with innovative drive system technology.
We are also focused on the enormous
$15 billion market potential within China.
From the perspective of the C-suite, the decisions
made now will determine whether AC
Propulsion remains a small company or joins
the ranks of the tier-one automotive suppliers.
It is no longer enough to have leadingedge
technology; our company must develop
strategic partnering relationships across all
facets of the EV industry – car companies,
battery suppliers, contract manufacturers (to
offset capacity shortages), utility companies,
grid operators and governmental agencies.
As CEO, this requires me to play a dual
rule: from the inside, to enlist collaboration
and encourage continued innovation; from
the outside, to serve as an ambassador for
AC Propulsion.
We recognize that to emerge on top requires
every single person in our company to
run faster and smarter than the competition
– but the prize is to be “the last man standing”
in the design and manufacture of drive
systems (with substantial market share), and
that is where we aim to be by 2015.
May 2011 MERGERS & ACQUISITIONS 45

BARRIERS continued from page 16
the “network effect” represents one of the highest barriers to entry.
This is why Google was willing to pay upwards of $6 billion for
Groupon, but upon being rejected, opted against picking up one of
the company’s many clones for significantly less.
“It is a powerful advantage and it’s very hard to find,” observes
Brilliant.
Indeed, who can forget the ascension of Blu-Ray as the next
generation optical disc format It ultimately came down to a race
between Sony and Pioneer and Toshiba and NEC to build the strongest
network as fast as possible. Sony and Pioneer succeeded, which
made the HD DVD format Toshiba and NEC were pushing effectively
the next generation Betamax.
Among the phantom barriers, size or marketshare probably do
more to lull investors into a sense of comfort than actually provide
protection against competitive threats. And when companies aren’t
scaleable, it can leave them even more exposed when business either
plateaus or plummets. General Motors provides a case study to that
effect.
Technology could be considered another phantom barrier. As
Morningstar identifies in its research, “what one smart engineer can
invent, another can improve upon.”
It was exactly ten years between the launch of the first Palm PDA
and Apple’s introduction of its iPhone. Memories of trying to master
Palm’s “graffiti input zone” probably seem further removed.
ROADMAP FOR DISSENT continued from page 19
trust blowback. It’s no secret that Microsoft, which had previously
attempted a hostile takeover of Yahoo, was opposed to the deal. Coincidentally,
AT&T was also a vocal opponent, as Michael Crowley,
the chief marketing officer of the company’s Yellowpages.com division,
was among the critics to testify at a Senate Judiciary Committee
hearing. Weiner wouldn’t comment on the transaction, but as a New
York Times story at the time identified, momentum turned when
lobbying efforts spread beyond Microsoft and AT&T to groups that
seemingly had no dogs in the fight. For instance, the Times identified
that various farm groups, including the National Association of
Farmer Elected Committees and the National Latino Farmers and
Ranchers Trade Association, were among those who helped form an
unlikely opposition.
John Taylor, a spokesman for Sprint, seems to suggest that the
company’s public opposition is being driven in part to motivate consumer
action. He also instinctively aligns Sprint’s interests with the
consumers, and bills its opposition to the deal as “David vs. Goliath,”
when commenting on the relative muscle each company enlists
in Washington.
“Obviously, the case is going to be decided by the FCC and the
antitrust [regulators] and it’s going to be based on facts and record,”
he says. “But it’s difficult to ignore the public opinion and if you’re
AT&T and T-Mobile, and you’re trying to sell this, it’s hard to argue
that eliminating a low cost carrier is in the public interest.”
Taylor also sounds as confident as his counterparts at AT&T,
identifying that Sprint is not interested in any possible concessions.
“We believe it should be rejected entirely,” he says.
The next test will be whether the consumer groups pick up the
same message over the next 12 months, as legislators and other industry
observers weigh in.
HEALTHCARE continued from page 27
being uninsured until the cost of being sick is more than the cost of
insurance,” he describes. A corollary is that only sick individuals will
seek to buy insurance, causing premiums to climb.
Lane says he has also seen some unintended consequences emerge
as it relates to M&A. He cites the “36-Month Rule,” which applies
to home health agencies that participate in Medicare. A home health
agency is required to wait 36 months following its initial enrollment
in Medicare before it can sell a majority-stake if it intends to
maintain its status in the Medicare program. The clock then resets
following a change-of-control forcing the HHA to wait another 36
months before it can be sold again and maintain its accreditation.
The Centers for Medicare and Medicaid have tweaked the rule to
provide some flexibility, and allows an exemption, for instance, if an
owner dies. Lane, though, says the rule still creates some significant
roadblocks that may seem counter productive to the administration’s
stated goals.
Beyond restricting the scale lawmakers sought to encourage through
reform, Lane observes, “Why would a lender even finance an HHA if
they couldn’t foreclose on a business and sell it to someone else.”
Still, he remains bullish about the sector’s prospects, calling it one
of the few industries in which unit volume growth is inevitable. He
adds the caveat that the growing end market is offset somewhat “by
the headwinds in price,” alluding to the pressures facing federal and
state budgets. “Pricing is going to be more erratic, because it’s the
one area the government can actually control.” He adds that buyers
would be wise to keep leverage multiples in check.
Leerink’s Boylan is perhaps more optimistic. He describes that he
is running across more examples in which the “winning bidders paid
significant premiums over the next highest bids,” a sign that companies
are assuming a ‘must buy’ urgency amid the altered universe.
He adds that while he has run across processes in which books are
sent out to 50 or more possible suitors, the tendency increasingly is
to run a narrower process -- a sign that the winners amid the frenzied
environment are becoming easier to identify.
“The biggest threat to dealflow,” Boylan identifies, “is if the transactions
we’re seeing today, don’t pan out.”
46 MERGERS & ACQUISITIONS May 2011

McCHRYSTAL continued from page 29
have to establish relationships -- personal relationships -- and you
have to build trust. Until you do that, you won’t be able to gain any
traction. From there you have show reliability and guidance. You
need to provide a firm direction, but at the same time maintain some
flexibility because you’re dealing with such a diverse group -- it’s not
just the varying cultural backgrounds, but you also have different
military capabilities and varying numbers in terms of the size of the
force. And you can’t be judgmental. It’s your job to take all of the
pieces available and use them in a way that best maximizes the resources
and serves the end goal.
In the case of the Afghan forces, we were trying to help them
build out their security infrastructure, which had been torn asunder.
The effort was challenged not only by the insurgency, but also by an
immature government. You had your day-to-day operations and in
the background still had to work toward the long-term development
of the forces; you had to focus on both at once.
What we tried to do was partner with the them and work side by
side, so our forces could benefit from their passion and cultural expertise,
and they would benefit from the professionalism of the coalition
and technology. It had to feel like an equal partnership in order
to work. You don’t deny the differences, but you have to find a way
to integrate the elements other forces can provide and ensure that
you’re using the maximum capabilities. And when we put American
regiments in the North, they were put under foreign forces. You have
to show that kind of faith.
Mergers & Acquisitions: In terms of investing, I imagine a lot of
our readers would want to get your take on the defense budget
and the possible cuts. Are there any insights you can provide
McChrystal: Not really. I personally support the need for reductions
to the budget, but there is a trade-off at some point, which
means you have to accept certain risks in some areas. But the crown
jewel of the military is the quality of people, and something that sets
the US apart is the country’s efforts to support them and take care
of their families.
Mergers & Acquisitions: As a final question, how do you see
warfare evolving
McChrystal: What we’ve seen in the last few years is that people are
going to look for ways to negate the superiority of other forces. They’re
going to look for ways to take the advantages off of the table. They
will try make it difficult for aircraft, for example, or attack net centric
capabilities. If they can reduce the level of technology at our disposal,
it becomes a different fight, so that’s where I think we’re going.
We also need to think long-term about developing capabilities to
work in any geographic region. We haven’t completely developed the
cultural knowledge and acuity yet. You have to do that homework
up front, and if you understand a particular region before going into
it, you have a significant advantage.
I also think we have to establish tighter relationships with foreign
governments and militaries. We should focus on forming tighter
personal relationships, and bring people to the US to study and our
leaders can go study overseas. These relationships are anything but
irrelevant.
STRATEGIC POWER SHIFT continued from page 30
the focus on growth, but he noted that domestic acquisitions still
accounted for the bulk of the company’s overall capital commitment.
Participants on the panel also noted that strategics have shown
more aggression than in past eras, at least in terms of starting conversations
with potential targets.
“We’ve seen strategic buyers be much more proactive in calling
private equity groups and even other strategics to pre-empt or get
ahead of a potential sale process,” McDonagh says. “They didn’t do a
lot of that in past upcycles; they were content to wait for properties
to come to market.”
The arrival of strategic buyers won’t necessarily shut out private
equity, which drove much of the activity in the middle market in
the fourth quarter. In fact, McDonagh adds that PE firms are actually
gaining market share in terms of middle market activity, and
McDonagh cites that given the liquidity of the debt markets, “PE
groups can compete with strategics.”
But Marc Wolpow, co-founder of Boston PE firm Audax Group,
notes that the line distinguishing corporate from financial buyers has
blurred in recent years.
“Our articulated strategy is growth through acquisition; we’ve
acquired roughly 50 to 55 platform companies and through those
completed roughly 150 add-ons,” Wolpow describes.
Still, as AT&T’s T-Mobile deal underscores, when strategics want
an asset, little can stand in their way.
“Corporations are going to stay strategic and focused, but at the
end of the day, if they want to own an asset, they’re going to own it,”
McDonagh said.
SBA continued from page 33
blind to the factors behind the program’s recent popularity either.
He is aware that the traditional fundraising markets are more challenging
and that in the small market, dealmakers at times can still
struggle to find debt. But he also believes that the recent converts
will help tell the story.
“The bottom line is that the risk/reward of our program is very
attractive,” Greene says. “From our perspective, the last challenge is
making sure everyone knows this capital is available.”
May 2011 MERGERS & ACQUISITIONS 47

Deal Flow
March’s Key Deals
Target
Price
Acquirer Target Date Industry ($mil)
AT&T Inc T-Mobile USA Inc 3/20 Telecommunications 39,000
BRE Retail Holdings Inc Centro Properties Group-US 3/1 Real Estate; Mortgage Bankers and Brokers 9,400
Berkshire Hathaway Inc Lubrizol Corp 3/14 Chemicals and Allied Products 8,793
Valeant Pharm Intl Inc Cephalon Inc 3/29 Drugs 5,602
Western Digital Ireland Ltd Viviti Technologies Ltd 3/7 Computer and Office Equipment 4,250
Terumo Corp CaridianBCT Inc 3/7 Measuring, Medical, Photo Equipment; Clocks 2,625
Gibraltar Acquisition Corp GSI Commerce Inc 3/28 Miscellaneous Retail Trade 2,279
Investor Group LDH Energy Asset Holdings LLC 3/22 Electric, Gas, and Water Distribution 1,925
Investor Group Lawson Software Inc 3/12 Prepackaged Software 1,899
KNOC Anadarko Petroleum-Maverick 3/21 Oil and Gas; Petroleum Refining 1,550
Undisclosed Joint Venture Highland Hospitality-Hotel(28) 3/10 Hotels and Casinos 1,277
The Renco Group Inc Severstal North America-Ops 3/2 Metal and Metal Products 1,192
AIG Maiden Lane II-RMBS 3/10 Investment Firms, Dealers, Exchanges 1,099
Walter Investment Management Green Tree Servicing LLC 3/28 Credit Institutions 1,045
Charles Schwab Corp optionsXpress Holdings Inc 3/21 Investment Firms, Dealers, Exchanges 1,030
TMM Holdings LP Taylor Woodrow Hldg (USA) Inc 3/31 Construction Firms 955
Legend Natural Gas IV LP Range Resources Corp-Barnett 3/1 Oil and Gas; Petroleum Refining 900
Investor Group 99 Cents Only Stores 3/11 Retail Trade-General Merchandise and Apparel 896
White Tiger Gold Ltd Century Mining Corp 3/14 Mining 763
Spark Acquisition Corp Celera Corp 3/18 Business Services 657
Galaxy Dream Corp RC2 Corp 3/10 Miscellaneous Manufacturing 604
El Paso Pipeline Partners LP Southern Natural Gas Co 3/7 Electric, Gas, and Water Distribution 587
CreXus Investment Corp Barclays Capital RE Inc-Coml R 3/21 Real Estate; Mortgage Bankers and Brokers 586
WGR Asset Holding Co LLC Wattenberg Processing Plant 3/22 Oil and Gas; Petroleum Refining 576
Kirby Corp K-Sea Transp Partners LP 3/13 Transportation and Shipping (except air) 574
Vanguard Natural Resources LLC Encore Energy Partners LP 3/25 Oil and Gas; Petroleum Refining 568
Catalyst Health Solutions Inc Walgreens Health Initiatives 3/9 Insurance 525
Cephalon Inc Gemin X Pharmaceuticals Inc 3/21 Drugs 525
Station GVR Acquisition LLC Green Valley Ranch Gaming LLC 3/10 Hotels and Casinos 500
NetApp Inc LSI-Engenio External Storage 3/9 Computer and Office Equipment 480
James River Coal Co International Resource 3/6 Mining 475
Warburg Pincus LLC Rural/Metro Corp 3/28 Transportation and Shipping (except air) 438
Cals Refineries Ltd Hardt Group GmbH-Cenco Asts 3/16 Oil and Gas; Petroleum Refining 417
Dover Subsidiary Inc drugstore.com Inc 3/24 Miscellaneous Retail Trade 414
Reynolds Group Holdings Ltd Dopaco Inc 3/11 Paper and Allied Products 400
Capital Power Corp Bridgeport Energy LLC 3/8 Electric, Gas, and Water Distribution 355
Bondholders DirecTV Holdings LLC 3/11 Radio and Television Broadcasting Stations 353
Harbinger Capital Partners Old Mutual (US) Holdings Inc 3/7 Holding Companies, Except Banks 350
Mood Media Corp Muzak Holdings LLC 3/24 Advertising Services 340
Industria de Diseno Textil SA Kushner Cos-666 Fifth Avenue 3/4 Retail Trade-General Merchandise and Apparel 324
Host Hotels & Resorts Inc New York Helmsley Hotel,New 3/24 Hotels and Casinos 314
Newfield Exploration Co Uinta Basin Oil & Gas Assets 3/22 Oil and Gas; Petroleum Refining 308
48 MERGERS & ACQUISITIONS May 2011