Merger activity remains healthy as new year kicks off.

Several billion-dollar deals and increased activity in the entertainment, health care and real estate sectors drove corporate mergers in January.

Sixty companies announced plans last month either to buy or sell a business in Los Angeles County for a combined $16 billion. Four of the deals accounted for $13.3 billion of the month's total activity, an unprecedented amount, according to Goldsmith Agio Helms, a Minneapolis-based investment-banking firm that compiled the monthly data for the Business Journal.

The mega-deals included Walt Disney Co.'s $7.4 billion purchase of Pixar Animation Studios; Colony Capital's $3.3 billion purchase of Fairmont Hotels & Resorts Inc. from Icahn Associates Corp.; and Leonard Green & Partners $1.4 billion buy of Sports Authority Inc.

Some private equity firms are reducing their risk by taking majority stakes in companies rather than purchasing them outright. JP Morgan Chase's Asian buyout arm paid $1.2 billion for a 57 percent stake in Johannesburgbased rental equipment firm Waco International--the largest private equity deal for a South African company. Taking a large stake in a management-led buyout or recapitalization also keeps pressure on management, which typically has its own skin in the game.

The strong deal activity in January comes on the heels of a busy December, when 73 companies valued at $19.6 billion changed hands.

"January has been extremely busy, probably the busiest that I can remember, and I think the general sense is that last year was a good year for M&A deals and 2006 will be strong as well," said Andrew Apfelberg, a partner specializing in mergers and acquisitions at Rutter Hobbs & Davidoff in Century City.

Of course, mega-deals are not uncommon in Los Angeles, despite its reputation as a middle-market capital. Several trends also are changing the types of deals taking place, and resulting in more mega-mergers.

Many private equity firms are no longer anticipating an exit with an initial public offering. Rather, many are opting to buy a competitor in the hopes of being bought out themselves down the road. Others are moving vertically into new markets, particularly as entertainment and multimedia converge.

One of the more interesting deals last month was Wasserman Media Group LLC's acquisition of the business of veteran sports agent Arn Tellem. His roster of clients includes baseball stars Jason Giambi, Hideki Matsui, Barry Zito and Nomar Garciaparra, recently acquired by the Dodgers.

On the video gaming front, Vivendi Universal Games, which publishes the "World of Warcraft" video game, bought High Moon Studios of Carlsbad for an undisclosed sum.

And Stone Canyon Entertainment Corp. of West Hollywood, an operator of fairs and amusement rides in the Midwest, bought marketing firm Vacation Connections, of Montclair, N.J. Stone Canyon, which was formed by former Ticketmaster Corp. CEO Fredric Rosen, is a portfolio company of New York private equity firm Cypress Group.

Last month, a dozen deals were completed in the health care sector, 11 in real estate and 10 in media and entertainment.

On the technology front, Arrowhead Research Corp., a nanotechnology company in Pasadena with ties to the California Institute of Technology, was bought for $19.6 million by two New York private equity firms, Knott Partners and York Capital Management.

Equity elite

Private equity firms continue to dominate the M&A landscape.

Last year, private equity firms raised $175 billion in private capital, mostly from large institutional investors and the mega-rich. Private equity firms typically take four to five years to raise capital and deploy it, pouring an estimated $500 billion into the deal market over the next five years.

"There are a finite number of deals and demand is increasing, so a lot of money is chasing all these deals," said Frederick Schmitt, vice president at investment bank Sage Group LLC in West Los Angeles.

One of the biggest changes taking place in the funding of merger deals is the growing phenomenon of highly leveraged loans, which have now eclipsed the high-yield bond market in size, according to Stephen Moyer, director of research at Imperial Capital LLC in Beverly Hills.

High-yield bond issuance has been stagnant over the past few years, with roughly $125 billion to $150 billion in investments per year. That compares to nearly $400 billion in new leveraged loans, making the $1.4 trillion leveraged loan market almost twice the size of the $950 billion high-yield bond market.

"Private equity buyout activity is being financed by the leveraged-loan market, which will have another banner year this year," said Moyer. "Whereas the high-yield bond market will probably be flat."

Many of the buyers of leveraged loans are hedge funds.

M&A Update

Announced mergers and acquisitions in
L.A. County.

Month       Number of 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

Source. Goldsmith Agio Helms