Disney's radio spinoff deal dominated acquisition scene.

MAYBE it's a hangover.

After nine deals involving L.A.-area firms topping $1 billion in the previous two months, only one mega-deal was announced in February--the Walt Disney Co.'s spinoff/merger of its radio stations to Citadel Broadcasting Corp. for $2.7 billion.

Instead, February was characterized by dozens of smaller deals as entrepreneurs rushed to cash in on high valuations.

"We're seeing a greater number of these smaller deals in the $50 million to $100 million range," said Ed Villeneuve, managing director of Goldsmith Agio Helms. the Minneapolis-based investment banking firm that compiles monthly mergers and acquisitions data for the Business Journal.

In all, just over $4 billion changed hands as a result of transactions announced in February in which dollar values were revealed. That's down from $16 billion in January and $19.6 billion in December--and is the lowest level since $2.4 billion changed hands in September.

While the dollar value of transactions plummeted, the number of deals held relatively steady in February at 64. That's up slightly from 60 in January but down from 73 in December.

With the Disney-Citadel transaction coming in at $2.7 billion and the sale of Van Nuys-based Easton Sports Inc. to Irving, Texas-based Ridell Bell Holdings Inc. at $385 million, the remaining deals with announced values cumulatively totaled less than $1 billion.

However, nearly half of all 64 deals announced did not disclose values; Villeneuve said these historically have tended to be smaller and mid-sized transactions.

Villeneuve and other investment analysts said the paucity of megadeals topping $1 billion in February could be due to the fact that there are relatively few companies in Los Angeles big enough to participate in such transactions. With so many of these deals occurring in December and January, it's only natural that there would need to be a breather.

Whether this is just a brief respite or augers a longer-term trend toward smaller deals remains to be seen.

"The overall merger and acquisition market right now is fairly healthy. There's lots of private capital, interest rates--while rising--are still at historically affordable levels and companies feel confident about the overall performance of the economy," said Christopher Lewis, founding and managing partner of Riordan Lewis & Haden in downtown Los Angeles.

Of course, deals topping $1 billion are fairly rare and their presence or absence can skew the overall merger and acquisition data.

"These deals are very complex and usually take months to negotiate. If a couple of those deals in December or January had slipped to February, you'd be looking at a completely different picture," Lewis said.

A perfect example of this complexity can be seen with the Disney-Citadel deal, which is neither an outright merger nor an acquisition. Instead, the transaction is considered a "spinoff merger."

Since at least last summer, Disney officials had been trying to unload the stations it inherited from the company's 1996 purchase of Capital Cities/ABC, but were looking for a way to avoid capital gains taxes on the sale.

Disney settled for what's known as a "reverse Morris Trust." Under this scheme, the radio stations were to be spun off or split off into a separate unit and then merged into Citadel Broadcasting. Disney shareholders would then get 52 percent of the shares of this new entity--called Citadel Communications--but Citadel would get managerial control.

"This was all driven by tax considerations," said David Miller, media and entertainment equity research analyst with the Los Angeles office of Sanders Morris Harris Group. "Disney had those radio stations for nearly 10 years: if they had sold off the radio stations directly to Citadel, there would have been a major tax hit to Disney's bottom line."

Besides the Disney-Citadel deal, only three other transactions topped $100 million. One was Van Nuys-based sports equipment maker Jas Easton Inc.'s selling of Easton Sports Inc. to Ridell Bell Holdings for $385 million.

Another one was Los Angeles-based AEW Capital Management Inc.'s announcement that it was selling six senior living facilities in California, Ohio and Washington to Chicago-based Brooksdale Senior Living Inc. for $210 million. And Los Angeles-based HOB Entertainment Inc. announced it was selling the House of Blues Hotel and Marina City retail space to Bethesda, Md.-based LaSalle Hotel Properties for $115 million.

The AEW-Brooksdale deal was not the only major senior living transaction involving L.A. companies. Malibu-based LTC Properties Inc. sold four assisted living properties (in Westlake Village) to Salem, Ore.-based Sunwest Management Systems Inc. for $59 million.

"This is all part of the huge demographic trend going on to take care of our graying population. There are constant deals involving startup companies and companies that are adding to their assisted living portfolios," said Lewis, whose firm provided equity capital for Silvarado Senior Living of San Juan Capistrano.

Another health care-oriented transaction involved American Medical Technologies, of Corpus Christi, Texas, buying El Segundo-based Spectrum Dental Inc., a teeth whitening firm. Spectrum was financed by two private equity firms: Levine Leichtman Capital Partners Inc. of Beverly Hills and DDJ Capital Management LLC of Wellesley, Mass. "We've seen a pretty steady drumbeat of medical services activity--dental services, medical devices, you name it," said Frank Kline, founder and managing partner of Kline Hawkes & Co. in Brentwood.

M&A Update

Announced mergers and acquisitions in
L.A. County.

Month        Deals     Deal Value

July          85       $7.5 billion
August        75       $4.7 billion
September     77       $2.4 billion
October       72       $6.5 billion
November      66       $9.2 billion
December      73      $19.6 billion
January       60      $16.0 billion
February      64       $4.0 billion

Source: Goldsmith Agio Helms