MERGERS & ACQUISITIONS
t was David Mering ’ s turn to share . On a conference call in March 2020 with a group of independent advertising agencies , he looked a bunch of other CEOs in their virtual eyes and confessed that COVID-19 put Mering , the Sacramento-based branding company he founded in 1985 , in a chokehold . It was tough to admit . Other owners had shared minor updates , nothing catastrophic . But most of Mering ’ s clients came from the travel industry , so the agency ( whose motto is “ We move people ”) found itself at the mercy of a pandemic .
“ You can imagine , when everything went into lockdown , we were hit pretty hard ,” Mering says . “ Everyone went around and told stories , but my story was much more dire : revenue loss , layoffs , salary cuts , furloughs . It was very traumatic for the organization .” But the story didn ’ t end there . After the meeting , Mering got a call from Rick Milenthal , CEO of Ohio-based marketing agency , The Shipyard , and chairman of its parent company , TSY Enterprises . TSY wanted a deeper presence in California , and over the next six months , the two companies put together the foundation of a deal to merge , which was finalized in December 2020 .
“ He said he was moved by our situation ,” Mering says . “ He said , ‘ I think we can help you and do something together that ’ s going to be fantastic .’ Given the condition we were staring at , I was not expecting that . I said , ‘ OK , let ’ s see where this goes .’”
Many businesses in many sectors felt the sting of the shutdown . But the recent spate of mergers and acquisitions in the Capital Region tells a story beyond the pandemic , speaking to growing interest in the area and a red-hot financial craze
“( The Shipyard CEO Rick Milenthal ) said he was moved by our situation . He said , ‘ I think we can help you and do something together that ’ s going to be fantastic .’ Given the condition we were staring at , I was not expecting that . I said , ‘ OK , let ’ s see where this goes .’”
DAVID MERING Founder , Mering
that catapults private companies into public markets .
The biggest deal came from Origin Materials , a West Sacramento-based green-tech company that uses patented techniques to convert wood chips into renewable plastics to replace petroleum-based materials . Founded in 2008 , Origin announced in February a nearly $ 1 billion merger with Artius Acquisition , a New York-based special purpose acquisition company , or SPAC . The combination is set to create the first publicly traded carbon negative materials company . With an estimated value of $ 925 million , the transaction is technically a merger , but strategically , the goal was for Origin to go public .
“ We were never looking to get acquired — that was never the endgame ,” says John Bissell , Origin ’ s cofounder and co-CEO , who will continue leading Origin . “ We didn ’ t know if we would end up in public markets or stay private . The SPAC process is a merger-orientated process , but the result is basically an IPO .”
Motives for merging
For some companies , the process to merge or be acquired was already in the works prior to 2020 as Sacramento fixtures ( such as Lyon Real Estate and
Allworth Financial ) looked to move in a different direction . But for businesses writhing from last year ’ s downturn , a merger or acquisition may serve as an exit strategy instead of shutting down or selling assets piecemeal , says Vusal Eminli , an associate professor of finance at the University of the Pacific ’ s Eberhardt School of Business .
“ One of the major economic impacts of the COVID-19 pandemic has been the structural shifts it has caused in the business environments of many of the industries ,” he says . “ Firms that are not able to cope with this changing environment have to exit the market , which creates room for further consolidation through mergers and acquisitions .”
There are three different factors why a merger or an acquisition may happen : expansion of market power , synergistic gains or managerial reasons . In some cases , the result can be good for all parties . But some mergers and acquisitions may not be beneficial — at least not to consumers .
“ Of course , this is not what we want to see in the economy ,” Eminli says . “ Companies eating up other companies for market space hurts customers . It eliminates competition and typically results in higher prices for customers for lower quality products and services .”
The Federal Trade Commission and the U . S . Department of Justice review mergers and acquisitions to make sure they won ’ t greatly lessen competition and negatively affect customers . But to get flagged for federal review , the acquirer must come in possession of at least $ 94 million worth of the assets or securities of the other party as a result of the deal . Smaller deals can fly under the radar .
44 comstocksmag . com | April 2021