Merger-and-acquisition action may be harbinger
A recent string of mergers and acquisitions around Central Pennsylvania is one sign the midstate economy is improving, experts say.
Varied reasons for each M&A deal make it difficult to track why there has been recent activity for local companies. Samuel C. Thompson Jr., director of the Center for the Study of Mergers and Acquisitions at Penn State Dickinson School of Law's University Park campus, said M&A transactions have definitely increased, though.
"But we're not seeing a repeat of what happened from 2003 to 2007 (when M&A deals peaked)," he said. "So we're in a growth phase, but not in a boom phase."
Thompson, a 1961 Steelton-Highspire High School graduate, said the market for M&A deals normally is reflective of the economic climate.
When the economy is good, he said, more companies are willing to take chances on expansion, and M&A activity increases. When the economy is on a slide, M&A activity decreases, because companies are more conservative.
Thompson publishes a yearly report on M&A that shows activity rising dramatically nationally from 2003 to 2007, then falling off in 2008 and 2009. M&A activity reached a peak of almost $2 trillion in 2007, but in 2012, the report showed about $1.2 trillion in deals.
Thompson's 2013 update is likely to be released in June, he said.
Mergers equal money
The reasoning behind each transaction is different, according to Raymond Hedger, a Dauphin County attorney who has handled about a hundred M&A transactions since the early 1970s. Varied reasons makes connecting them to a trend difficult.
Some companies are looking to become more efficient; some want to sell; some are too small to go public but want to grow; and some are looking to grow through acquisitions. On top of that, he said, hybrids of all those scenarios — and more — exist.
The only common thread to any of the deals is money, he said.
"There are a lot of reasons for companies to merge or to be acquired, and they're almost exclusively economic," Hedger said.
When HD York Federal Credit Union completes its merger with White Rose Credit Union in York, it will be out of necessity, according to White Rose President and CEO Deb Kauffman. HD, which serves employees of the Harley-Davidson plant in Springettsbury Township, had only one employee and that person had been out sick for months. During that time, White Rose helped staff the HD credit union.
The two credit unions then started talking merger, and on April 8, the Pennsylvania Department of Banking and Securities approved one.
Kauffman said the merger should be complete by the end of May.
"It was something their board had been looking at, and they liked what we could offer," she said.
TE Connectivity Ltd. announced in April it will buy the Sea Con Group of California for $490 million. Don Sites, TE's vice president of finance for the aerospace, defense and marine unit, said Sea Con had been on the company's radar for years.
Switzerland-based TE, which has administrative and engineering offices in the midstate, had been working in partnership with Sea Con a long time, and Sites said TE had made previous offers.
He said it wasn't any new offer that persuaded Sea Con to sell now but was just a matter of getting the timing right.
"They were looking at ways to accelerate their growth, and we wanted to buy the company for some time," Sites said. "They're in a high-growth field with high barriers for entry. And they have a very, very good product line. ... This really filled a void for us."
Thompson said he doesn't foresee huge gains coming in the M&A market, but anything is good news.
"When M&A picks up, the economy picks up," he said. "That's how it works."
In April, midstate companies were active in the M&A market. Some highlights:
• Milwaukee-based Johnson Controls Inc., which has operations in York County, acquired Canadian company Air Distribution Technologies for $1.6 billion.
• National Penn Bancshares Inc. of Allentown bid to buy a Maryland bank that had declared bankruptcy in the winter but later withdrew its bid.
• HD York Federal Credit Union in Springettsbury Township is being merged into White Rose Credit Union in York. Terms of the deal have not been announced.
• Rite Aid Corp. of East Pennsboro Township made two acquisitions in the month. It bought RediClinic, a Texas retail clinic operating 30 sites in the state, and Health Dialog Services Corp., a health coaching company from Boston. Rite Aid did not disclose the terms of either deal.
• Switzerland-based TE Connectivity Ltd., which has operations and administrative offices in the midstate, announced a deal to acquire the Sea Con Group for $490 million. Sea Con operates an underwater services firm.
• In late March, Strine Printing Co. Inc. of York County sold for an undisclosed amount to Menasha Packaging Co. LLC in Wisconsin.