Tech deals drove Texas M&A activity to near-record levels in first half of 2021

Texas companies and private equity firms returned to the deal table in force during the first six months of 2021 as merger and acquisition transactions came close to all-time record highs.

New data show that technology — not energy — is the biggest driving force behind the surge in the state’s M&A activity so far this year.

There were 661 corporate transactions in which a Texas business or PE firm was the buyer or seller in the first half of this year, 40 percent more than the first half of 2020 and only nine deals shy of the all-time Texas M&A record set 2016, according to Mergermarket, an independent research firm which provided exclusive data to The Texas Lawbook.

The combined value of those 661 Texas transactions was an enterprise value of $280 billion — a 625 percent jump over the same period in pandemic-addled 2020 and the second-highest deal value ever reported for a six-month period.

The COVID-19 pandemic, combined with plummeting oil prices, wreaked havoc on merger activity in Texas during the second quarter of 2020. Mergermarket data show there were only 163 M&A transactions from April 1 through June 30 of last year — the lowest number since the Great Recession in 2009.

But deal activity in Texas during the second quarter of 2021 jumped 96 percent year over year — the largest quarter increase since Mergermarket started tracking dealmaking in 2007.

“You’re seeing a lot more deal optimism,” said Jordan Hirsch, a partner in the Houston office of Hunton Andrew Kurth. “The vaccine rollout has been beneficial for deals to commence as teams meet in-person, and it helps people get to know each other and create a beneficial environment.”

Bracewell Managing Partner Greg Bopp said the firm’s M&A lawyers have been working at a record pace.

“I could hire a couple dozen lawyers tomorrow and keep them busy working up deals day and night,” Bopp said. “I don’t think I have seen the corporate transactional practice ever this busy.”

Unlike most previous years in Texas, energy companies have not been the driving force of M&A activity so far this year. Dealmaking in the oil patch and involving utilities comprised only 13 percent of the transactions announced between Jan. 1 and June 30 in Texas.

Lawyers and bankers handled 169 deals involving Texas technology companies through June, according to Mergermarket, while the industrials and chemicals sector had 92 transactions.

Energy M&A ranked third with 87 deals. Only four of the 15 largest Texas M&A transactions during the first six months involved companies in the oil patch. In fact, mergers and acquisitions involving Texas business services companies had nearly as many transactions as energy — 74. Just three years ago, energy dominated the Texas M&A market.

Deal experts said special purpose acquisition companies epitomized the dramatic increase deal flow in the first half of the year.

These “blank check” companies emerged as a force in late 2020, a pace that continued through the first six months of 2021 as private equity firms sought to put piles of dry powder to work after several brutal quarters and in anticipation of sweeping and far-reaching tax changes with the onset of a new federal administration.

And the huge jump in deal value can be explained in just three letters: AT&T.

The Dallas-based telecom giant spun-off its WarnerMedia division to Discovery Inc. for $96 billion, which accounted for 35 percent of the $280 billion total value during the first six months of this year. The only other six-month period in which deal value in Texas was higher was in the second half of 2016, when AT&T purchased TimeWarner.

AT&T’s spinoff of WarnerMedia unit was more than 10 times larger than the second-place contender, Cabot Oil & Gas’ $9 billion purchase of Cimarex Energy. In third place was the $8.6 billion merger of Houston-based Fertitta Entertainment Co. with Fast Acquisition, a blank-check company. That deal is set to close later this year.

Another SPAC transaction — Apex Clearing’s merger with Northern Star Investment Corp. — and two other oil & gas transactions — Energy Transfer’s acquisition of Enable Midstream and the merger of Independence Energy and Contango Oil & Gas — were included in Mergermarket’s Top 10.

Legal and financial experts said that 2021 dealmaking involves more intentional strategic combinations.

“The buzzword of the day is ‘scale.’ Strategics are looking for synergies to become more efficient and cut (general and administrative expenses),” according to Eric Otness, a partner in the Houston office of Skadden, Arps, Slate, Meagher & Flom. “That is what is driving all of the deals. That is the moment we’re in, and I think it is going to continue.”

Source: houstonchronicle.com

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