Dealmaking slows down to a trickle.

Los Angeles dealmaking activity drifted deeper into slumber mode during 2001, with mergers-and-acquisitions volume down 23.2 percent from the prior year and initial public offerings off 73.3 percent.

Contributing to the lull are the global economic downturn, a tightening commercial financing crunch, widespread risk aversion among investors and a cloudy financial outlook.

"In times of uncertainty, it becomes a lot harder for two parties to come together in a deal," said Brett Hendrickson, director of research at B. Riley & Co. in West L.A. "Aside from the normal issues, when there's economic uncertainty, it becomes a lot harder for companies to forecast."

Being able to make solid forecasts is crucial to establishing valuations for any companies being sold on Main Street or Wall Street. But the investing public has grown wary of forecasts in the wake of Enron Corp.'s collapse. The terrorist attacks have made them even more skittish. Even earlier in the year, investors were playing it close to the vest after having been burned, or at least spooked, by the spring 2000 Internet crash.

And investors' withdrawal from tech-related issues has hurt the L.A. region disproportionately.

"L.A. has more technology companies relative to the nation as a whole, with the exception of certain regions," said Brent Stevens, executive vice president at Jefferies & Co. "The reality is, IPO activity was reduced for much of the year, particularly for small growth companies, to which L.A. is home for a large number."

Reflecting tepid investor demand for new issues, only four L.A.-area companies went public last year -- all in the health care sector, according to IPO Monitor, an L.A.-based securities research firm. They are American Pharmaceutical Partners Inc., VCA Antech Inc., Unilab Corp. and AquaCell Technologies Inc.

"After eToys went public, Unilab and VCA didn't get the attention they needed, so they went private. Now, in an ironic turn of events, Unilab and VCA are becoming public because Wall Street has woken up to real business," Hendrickson said.

Performance to date

Unilab had an impressive IPO, closing at $23 a share on its first day of trading -- up 43.8 percent from its $16 offering price. Last week it was trading at slightly below that level, closing Jan. 3 at $22.74. VCA Antech decided to lower its initial offering price to $10 a share, and closed Jan. 3 at $12.20 a share.

AquaCell, as of last week, was 20 percent below its $5 offer price. And American Pharmaceutical was 25 percent above its $16 IPO level.

The company most likely to be L.A.'s first IPO of 2002 is Intra-Asia Entertainment Corp., which owns and operates an amusement park in the mainland China city of Weifang.

It filed an application with the Securities and Exchange Commission on Nov. 30 to sell 1.4 million shares for $12.9 million.

"We just got the comments back from the SEC, and we didn't see any red flags that should pose any problems," said Michael Demetrios, Intra-Asia's chairman, chief executive and president.

With the proceeds, the company plans to spruce up its amusement park into a theme park, and undertake similar upgrades at other Chinese amusement parks, through joint ventures.

"These parks will never be Disneyland," Demetrios conceded. "But by making each area of the park distinctive -- tying your rides, gift shops and live attractions to a particular theme -- that encourages people to go around the entire park, stay longer and spend more."

The company's IPO is being underwritten by WestPark Capital Inc.

Underwriting influence

"(Intra-Asia is) going to have a hard time because WestPark is a small underwriter," said Jeffrey Hirschkorn, senior analyst at IPO Monitor. "Underwriting relationships are very important, more so than before."

In this environment, investors are generally steering clear of most IPOs not underwritten by one of the major Wall Street firms.

Demetrios seemed unconcerned, saying, "We anticipate the majority of shares will be purchased in Taiwan, mainland China, Hong Kong, possibly Singapore."

As for L.A. mergers-and-acquisitions activity during 2001, there were 477 deals announced that involved either an L.A.-based buyer or seller, according to Mergerstat, a research unit of L.A. investment bank Houlihan Lokey Howard & Zukin. That's down from 621 local M&A deals in 2000.

Of those 477 deals, values were publicly disclosed for 160, with the aggregate value being $35.9 billion.

That's down from $43.3 billion in value-disclosed L.A. deals for 2000. The drop-off would have been much greater had it not been for Amgen Inc.'s December agreement to buy Immunex Corp. for $15.8 billion. The largest local deals following that were the sale of Northridge-based MiniMed Inc. to Medtronic Inc. for $3.1 billion and Walt Disney Co.'s purchase of News Corp.'s Fox Family Worldwide Inc. for $2.9 billion.

There's hope for more deal flow in L.A. for 2002, but at valuations considerably lower than in recent years past. Also, expect local companies in M&A deals to again be sellers more often than buyers, a trend that has helped transform L.A. into a community of small entrepreneurial companies.

"The smaller companies that have really had a tough time getting through the recession in 2001 are weakened by the tough economy and lack of financing and may find themselves deciding it's hard to compete," said David Barnes, director of M&A at Houlihan Lokey. "It makes sense for them to sell out to the big competitor and partner up with strategic partners to give them the resources."