SPOTLIGHT: BIGS GET BIGGER

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Each week, we report instances where the money junky hedge funds, private equity groups and the already big companies swallow another piece of the global economy.

Here are some more of what the BIGS have been gobbling up and how the Bigs keep getting bigger and the rich keep getting richer.

It should be noted that when interest rates in the U.S. were floating at near zero, merger and acquisition hit an all-time high in 2021. Now with rates rising, M&A activity is slowing down.

And most importantly, a lot of these acquisitions were made with the belief of rising economic growth. Now, as economies go down and interest rates rise, the debt burden from these M&A’s will grow heavier, crashing many of them into bankruptcy and default on debt. 

EQUITY FUND PARTNERSHIP PAYS $10.2 BILLION TO BUY ZENDESK

A group of private equity funds is buying Zendesk, which makes software for customer sales and services, for $77.50 a share, or about $10.2 billion, and will take the company private.

The price is a 34-percent premium over Zendesk’s closing share price on 23 June. The company’s stock value jumped 27 percent the next day.

Zendesk’s board of directors unanimously approved the takeover.

The partners making the buy include Hellman & Friedman, London-based Permira, the Abu Dhabi Investment Authority, and GIC, Singapore’s sovereign wealth fund.

BARCLAYS BUYS BRITISH MORTGAGE LENDER

Barclays, the multinational British bank, will buy Kensington Mortgage Co. Ltd. from Blackstone and Sixth Street Partners, its current owners, for $2.8 billion.

The current owners bought Kensington in 2014 for $300 million.

Kensington holds about $2.4 billion in mortgage loans and also operates a loan-servicing business.

Kensington bundles loans into securities and issues bonds against them. The company will now keep the loans on its own books, Barclays announced.

In April, Barclays announced a 5-percent revenue increase in this year’s first quarter because of higher net interest income from its mortgage loan portfolio, which was valued at $196 billion at the time, The Wall Street Journal reported.

For several years, large British banks have been taking over smaller ones and specialized financial businesses.

The takeovers have been helped by looser regulations, but those rules also allow banks less leeway for losses if loans go bad.

Home prices are still rising in England but the rate of increase has slowed as the Bank of England has upped its base interest rate five times this year and inflation ran at 9.1 percent in May.

FUND PARTNERS CHECK INTO THE STUDENT HOTEL

GIC, Singapore’s sovereign wealth fund, and Dutch pension fund manager APG have partnered to buy majority ownership of The Student Hotel (TSH), a company specializing in student housing.

THS has 15 student residences across Europe with 10 more in development and 10,000 beds in eight countries across Europe.

APG and THS owner Charlie MacGregor already are owners and will increase their stakes as part of the deal; GIC is making its first investment in the business. Aermont, a British private equity firm, is selling its portion of the company.

The new arrangement values TSH at about €2.1 billion.

The company has announced plans to expand its number of residences to 50.

Student housing has been a fertile field for private equity investors recently. 

Blackstone, Brookfield Asset Management, and other private equity firms have sunk billions into creating or buying upscale off-campus housing for college students, as we reported in “Investors Now Targeting Off-Campus Student Housing” (14 Sep 2021).

Deals involving student housing totaled $2.52 billion during the first six months of 2021, compared to $1.68 billion during the first half of 2020, The Wall Street Journal reported.

Residences for college students provide more stable, long-term occupancy than hotels, giving investors comfort, especially during times of economic uncertainty.

“It’s very stable on the downside but also able to take the upside when the market returns,” MacGregor told the Financial Times.

GIC has been an especially active investor. 

In May, it joined with Greystar Real Estate Partners to buy Student Roost, which owns more than 50 student residence buildings with more than 23,000 beds across the U.K.

The purchase was valued at €3.3 billion.

Bookings for the 2022-23 academic year have reached record levels, TSH reported.

PFIZER PAYS €90.5 MILLION FOR A PIECE OF VALNEVA

Drug giant Pfizer continued its shopping spree, agreeing last week to pay €90.5 million for 8.1 percent of Valneva, a French vaccine maker testing a Lyme Disease preventive.

The purchase was read as a sign of confidence in Valneva, which has floundered after its COVID vaccine proved in trials to be less effective than its competitors.

The British government canceled an order for the drug that would have guaranteed public investment in a Scottish manufacturing site; the European Union also has canceled its purchase of the vaccine.

Pfizer and Valnera will now work together on the latter’s Lyme vaccine project and are planning stage 3 clinical trials later this year.

Valneva’s stock bounced up 28 percent on news of the Pfizer deal.

Several of Pfizer’s lucrative patents will expire in the next few years. The company has said it will add $25 billion in annual revenue by 2030 through acquisitions paid for by its windfall COVID vaccine profits, as we reported in “After Record Revenues, Pfizer is On the Hunt” (15 Feb 2022).

Last September, Pfizer bought Trillium Therapeutics, a cancer biotech firm for $2.26 billion. In March, Pfizer bought Arena Pharmaceuticals, with its promising drug to treat inflammatory bowel disease, for $6.7 billion. 

Recently, Pfizer announced its intent to snap up Reviral, which makes oral antiviral drugs, for $525 million. Last month, Pfizer  shelled out $11.6 billion to buy the portion of conglomerate Biohaven Pharmaceutical Holdings it did not already own.

LOGISTICS GIANT BUYS USA TRUCK

DB Schenker, an international logistics firm, has agreed to buy USA Truck, an interstate freight hauler, for about $435 million in cash and debt.

Schenker is paying $31.72 a share for USA Truck, more than double its closing price of $14.58 on 23 June.

The Arkansas-based trucker has about 1,800 trucks in its fleet.

The purchase advances Schenker’s “strategic ambition to expand our network in North America and foster our position as a leading global logistics provider,” Schenker CEO Jochen Thewes said in announcing the purchase.

Schenker is a division of Deutsche Bahn, Germany’s national railway.

International logistics firms have taken an enthusiastic part in this year’s consolidation in the U.S. trucking industry.

Global shipper A.P. Moller-Maersk bought Pennsylvania’s Pilot Freight Services earlier this year as part of its plan to create a factory-to-front-porch logistics chain, as we reported in “Maersk Building End-to-End Logistics Service” (12 Oct 2021).

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