Acquisition Advisors | Cashing Out: Big Deals Being Done in Tulsa
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14 Oct Cashing Out: Big Deals Being Done in Tulsa

BY ROD WALTON Tulsa World Staff Writer
Sunday, October 14, 2012

No one outside their inner circle knows how many offers the Schusterman family rejected over the years from prospective suitors who wanted to buy privately held natural gas and oil giant Samson Investment Co.

By late 2011, however, Samson founder Charles Schusterman’s widow, Lynn, and daughter Stacy were ready to commit to a group led by New York equity firm KKR and Co. The pot was sweet at $7.2 billion, for sure, but the Schustermans apparently found the experience just a little bittersweet.

“It’s a tremendously emotional time for me and my mom,” Stacy, then Samson’s CEO, told the Tulsa World in November 2011. “We love continuing to build the company that Dad and Mom built.”

But ultimately, the Schustermans sold Samson, which Charles started 40 years earlier. And they are not alone.

Many longtime Tulsa companies have been sold by the second or third generation of the founding families.

Tulsans were reminded of this again only a few weeks ago when the construction firm Flintco, started close to 100 years ago by C.W. Flint Sr., announced talks about a possible merger with Alberici Corp. The St. Louis-based company would buy Flintco if talks are successful, but Flintco would keep its name, employees and divisions.

David Perkins, managing director of Acquisition Advisors in Tulsa, doesn’t blame the families one bit for what some casual observers might call “cashing out.” He believes the city will see more of those in the coming months and year.

“I think it’s silly when families feel like the company ought to stay in the family forever,” Perkins said.

“What do we want in life? We probably want freedom more than anything. Money gives you freedom.”

Generational drift

Successful companies typically start with the driving passion of a founder whose work ethic was shaped by harder circumstances, noted several sources interviewed for this story. They pass control of the firm down to a second generation, which may share that passion, but the drive hardly ever holds out by the third time around.

“Very few companies make it to the third generation, and almost none make it out of the third generation,” John Johnson, CEO of mergers and acquisition consultant Bluestem USA, pointed out.

Many don’t make it past the first generation. Thomas Russell started his eponymous firm, Thomas Russell Co., a decade ago to make natural gas processing units and seemed pretty happy to keep it in the family after a previous merger didn’t turn out as well as he liked.

Less than a month ago, however, Honeywell announced plans to take a 70 percent stake in Thomas Russell Co. for $525 million in cash and the option to buy the other 30 percent at a later date.

Equity firms and larger corporations are snapping up smaller firms due to a combination of low borrowing costs and a chance to maximize profits and diversification.

And everything has a price, the saying goes. Perkins and Johnson predicted that other Tulsa family-owned or locally based companies will find major buyers in the near future.

“I don’t have any names to throw out, but you can bet it’s going to happen,” Johnson said. “You’ve got a choice: You can hold, you can try to grow or you can go.”

Three-headed monster

No less than eight Tulsa-based firms – from oil and gas producers to builders and automobile rental operations – have sold or are close to tying the proverbial knot in deals totaling well more than $10 billion over the past two years.

Samson was the biggest and MacroSolve will be the smallest of those, but the volume of acquisitions seems to prove one point: The economy isn’t as bad or as good as politicians are saying.

Jake Dollarhide, CEO of financial advisers Longbow Asset Management Co., calls it the “three-headed monster” of the M&A universe.

“We’re in a period of unprecedented, artificially low interest rates,” Dollarhide noted. “No. 2, we’re coming out of the worst business recession since the Great Depression … and although families are still hurting, most businesses are doing well and they’re making money.

“No. 3, unique to Oklahoma are these wonderful assets,” he concluded, noting the array of energy, construction and infrastructure assets nearby such as the Tulsa Port of Catoosa and the Cushing oil hub.

“In some ways it’s a compliment to Oklahoma and the talent we have here.”

These moves, of course, seem more curse than blessing to a community that saw no fewer than 30 energy companies fold up their tents and head to Houston in past decades. Forgive Tulsa if it feels a little snakebit, which Dollarhide acknowledged, but stuck with his “glass is half full” view of the mergers and acquisitions.

“I think we’ll always see consolidation,” he said. “As long as we have talented people creating lots of capital and maximizing assets right here in our homegrown state, there’s going to be interest from would-be buyers.”

The Eagle has landed

The selling boom began less than three years ago, mainly involving younger startups such as oil and gas producer Arena Resources Inc. Arena, which had no long-term debt at the time, was acquired by Oklahoma City’s SandRidge Energy Inc. in a $1.6 billion deal.

Randy Foutch is an old hand at the starting and selling game, having created four previous oil and gas firms, which he sold at hefty profits before founding Laredo Petroleum in 2007 and taking it public last year. Tulsa’s Steve Antry also has had similar experiences with Beta Oil and Gas and Eagle Energy.

Eagle grew fast in its two years by snapping up leases and drilling opportunities in the liquids-rich Mississippian Lime trend of northern Oklahoma and southern Kansas. Antry seemed to be growing Eagle for the long haul until he found the right buyer in Houston-based Midstates Petroleum, which offered $650 million in cash and stock for an acquisition that closed earlier this month.

Antry argued that the M&A activity varies depending on the industry involved.

“I know at least a few global bankers that are still complaining about just how much cash is still sitting on the sideline,” he said.

Antry predicted more will come, too.

“While 2012 is up from 2011, I think locally we’ll see more M&A activity because Oklahoma does have more small, quality deals than on average,” he said. “I think this past year that cash has only been coming back into the game very cautiously when the deal seems perfect.”

Perfect in the future tense

Which begs the question: What will seem perfect for buyer and seller in the future?

Some family operations may seem to float above the fray, but then, hardly any outsiders ever dreamed the Daily Oklahoman’s parent firm, the Gaylord family-owned OPUBCO, would sell to the Denver billionaire Philip Anschutz’ group for untold millions in a deal announced 13 months ago.

Perkins, of Acquisition Advisors, admitted he has no special inside knowledge of the Flintco-Alberici negotiations, nor could he divulge it if he did. However, he said that 80 percent of those type of non-binding, “friendly deals” get done.

The Era of Cashing Out is here. But then it’s never really gone away.

“Companies big and small have massive amounts of buyers out there,” Perkins said. “It takes two to tango.”

And experts also point to cautionary tales such as grocer and convenience store owner Hale-Halsell Co. and long hauler Arrow Trucking Co. The former survived more than 100 years and the latter for decades, only to misread the market signs or worse and eventually end up in bankruptcy and liquidation.

“Things came unraveled for them,” Johnson said.

One thing is certain, he noted: One hundred percent of business owners will eventually sell out someday. Death and taxes are no more certain than mergers and acquisitions in the financial world.

Big deals getting done in Tulsa

Date Tulsa Company Sector Buyer Sale price
Apr’10 Arena Resources Inc. Oil and Gas SandRidge Energy $1.6 billion
Nov’10 Samson Investment Co. Oil and Gas KKR and Co. $7.2 billion
Dec’11 RAM Energy Inc. Oil and Gas Floyd Wilson $550 million
Aug’12 Illume Mobile Software (MacroSolve) Technology DecisionPoint Systems $1 million
Dollar Thrifty Automotive Group Inc. Car rental and sales Hertz Global Holdings $2.3 billion
Oct’12 Eagle Energy LLC Oil and Gas Midstates Petroleum $650 million
Thomas Russell Co. Energy manufacturing Honeywell $525 million
Flintco Construction services Alberici ?*

*Flintco and Alberici announce negotiations about possible future acquisition.

Original Print Headline: Cashing out

Rod Walton 918-581-8457

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