S. Florida to feel effect of ‘merger mania’
Mergers and acquisitions are happening across a wide span of industries — retail, health care, finance and and manufacturing —and South Florida workers and consumers are likely to soon feel the impact.
“That’s where we are right now. Companies are forming monopolies,” said Ken Thomas, a South Florida economist, about the recent swell in mergers and acquisitions in the nation and region. “It’s a new era of consolidation,” he said.
In South Florida, large em- ployers are awaiting approvals on proposed mergers or adjusting to newly completed corporate pairings.
Office Depot in Boca Raton is waiting to find out if regulators will allow its proposed merger with rival Staples. Pompano Beach’s Point Blank Enterprises was sold in mid-June to a new private equity firm in New York. And Palm Beach Garden’s Biomet 3i dental implant company just saw its parent company last week finalize its acquisition by Indiana-based Zimmer.
Only halfway through the year, 2015 has already been called the “year of the mega-merger” or “year of merger mania” by some financial media. In South Florida, data tracker Dale Gregory, who heads non-profit Internet Coast, counts 18 mergers or acquisitions so far.
Examples include Sunrise-based Pet Supermarket, acquired by an Atlanta private-equity firm; Patriot National in Fort Lauderdale, which absorped about a dozen insurance-related compa- nies nationwide; Fort Lauderdale-based U.S. Anesthesia Partners’ merger with Medical Anesthesia and Pain Management Consultants in Fort Myers; and Miami-based Opko Health’s acquisition of New Jersey-based Bioreference Laboratories.
Mergers and acquisitions tend to increase in a soaring stock market, when interest rates are low —making money to finance deals cheap — but with prospects of higher rates looming.
Merger activity tends to rise after recessions, said Joel Auerbach, professor at Nova South-
eastern University’s H. Wayne Huizenga School of Business and Entrepreneurship in Davie. Many companies see this time as an opportunity to buy more productive assets and reduce their debt.
But Thomas said though the outcome of mergers can be good for shareholders and CEOs, they can be “bad for consumers and bad for employees.”
Mergers can make money for shareholders — the deal may offer a premium price for stock that may have been sagging. Publicly held companies usually urge shareholders to vote for a merger as the best strategy to maximize their shareholder value. They emphasize the deal’s cost savings and reduced expenses from combining operations.
But mergers can also stifle competition and raise prices for consumers, experts say.
Economist John Kwoka, who once worked for the FTC and the U.S. Department of Justice, analyzed business combinations between 1976 and 2006 for his book Mergers, Merger Control, and Remedies, published in 2015 by MIT Press. He found that prices of products and services rose more than 5 percent on average after the merger was approved.
For workers, some win and some lose as combined companies choose one community over another to locate.
Thomas fears the worst, for example, for office-supply consumers and for up to 2,000 workers at Office Depot’s Boca Raton headquarters, if Staples is allowed to acquire the retailer.
Staples proposed $6.3 billion acquisition of Office Depot has been approved by shareholders but is awaiting regulators’ approval before it can close, which the companies hope to complete by the end of the year.
The effect on South Florida’s economy of a Office Depot-Staples merger re- mains to be seen, although Staples’ CEO has said the combined company’s headquarters will be in Massachusetts, and “a presence” will be evaluated in Boca Raton.
But the impact of mergers can reach far and wide, no matter where the merging companies are headquartered.
Fort Lauderdale-based Commonwealth-Altadis, a tobacco sales and distribution company, has said it will lay off 150 workers, the result of a series of transactions in the industry that made it part of North Carolina-based ITG Brands. Only 20 workers will remain in Fort Lauderdale, with its Premium cigar unit, a spokesman said.
But some mergers and acquisitions do create new jobs, points out Rodger Krouse, co-CEO of Sun Capital Partners in Boca Raton, a private equity firm that deals in smaller transactions.
For example, Sun Capital rescued Pompano Beach’s Point Blank when it purchased the then-bankrupt company in 2011 and combined it with other businesses. The company, which employs1,200, makes bulletproof vests for the military and police.
“We buy companies below their potential and help them reach their potential. Then we consider a sale,” Krouse said.
Despite the sale, Krouse said he doesn’t see any reason for the new owner to uproot the company, which now has higher sales and profitability. New private equity owner JLL Partners in New York didn’t respond to inquiries about potential changes, but indicated in a news release it plans to work with the team put in place by Sun Capital.
And some 450 employees of Biomet 3i in Palm Beach Gardens learned this week, after a year of waiting, that their parent company Biomet has been acquired by Indiana-based Zimmer.
Zimmer’s acquisition of Biomet, which are both in the medical device business, was initially challenged by the Federal Trade Commission as being anti- competitive. But the regulatory agency finally cleared the $14 billion acquisition after Zimmer agreed to divest rights and assets to certain knee implants and Biomet’s selling certain intellectual property to a competitor.
When asked about the merger’s effect on the Palm Beach Gardens company, a Zimmer Biomet spokeswoman would only say it was “business as usual.”
But few are expecting a positive local outcome from the Office Depot-Staples merger.
In addition to the possible displacement of up to 2,000 local workers, the merger would impact small local companies that do businesses with the headquarters and on charitable organizations, said Juan Morales, managing director in South Florida for Stanton Chase, an executive recruitment firm. Office Depot also has its own foundation in Boca Raton.
Mergers and acquisitions also can hurt consumers, which is why they are sometimes blocked by the FTC and other antitrust regulators.
NSU’s Auerbach said mergers can benefit consumers if the combined companies reduce prices. But many mergers “do not live up to their stated benefits,” he said.
“Mergers can also [reduce] the available supply or number of suppliers, “he said. “In those cases, prices tend to rise,” he said.
Last week, the planned merger of food giants Sysco and U.S. Foods Corp. was stopped by a federal judge who said the combination would likely reduce competition and increase prices for consumers.
Economist Thomas, who has filed an objection with regulators about Staples’ acquisition of Office Depot, said the Sysco decision could signal an FTC challenge to the office-supply retailers’ merger.
Like Sysco and U.S. Foods, Staples and Office Depot dominate the business-to-business market, which includes large multinational corporations and the government, he said.