The Supplier Scene 2014

Mega Deals Boom

Boom! The acquisition by number-one T-A Computershare of Registrar & Transfer Company’s stock transfer business – along with its Commerce Financial Printers unit and R&T’s relatively new Eagle Rock Proxy Advisors business – dropped with a big loud bang in May…surprising all the other TAs we think, since it was quietly negotiated person-to- person and not put out to bid – but not surprising the OPTIMIZER, which had been seeing this in the tea leaves for over a year, and telling readers, as we say yet again, “The dealin’s are far from done in this fast shrinking business.” One big surprise, however, was the whopping price of $37.3 million – roughly two- times annual revenues - and with only $1.9 million linked to business retention: A reflection, we’d say, of the extreme scarcity of potential TA acquisitions that could significantly build market share for a potential rival - where Computershare already had well over 80% of the market, and now adds a few more points of share - AND of the strong likelihood that almost all the revenue will indeed “stick” given Computershare’s  commanding  market  position, its hard-won experience with file conversions and especially, their assurance that they’ll keep the current fees in place. It would take an unprecedented screw-up to tip the ship, we think…though on the TA scene, hope springs eternal it seems…

And BOOM again…Less than a month after the Computershare announcement, American Stock Transfer (AST) announced that its affiliate, AST Fund Solutions, LLC is acquiring D.F. King, which “will be integrated and operate immediately with ASTOne, a division of AST that offers a comprehensive array of of proxy solicitation, ownership identification and corporate governance services” their press release stated. A HUGE win for AST, we say: the 70-year-old D.F. King still has the largest and richest book of old-time proxy solicitation clients in the country, we believe, and a very fine staff. The entire proxy solicitation business seems to rapidly re-making itself, as noted elsewhere, and in earlier editions too, but as also noted, market share is still very much the key to success here…and continues to be king…So do expect the competition to circle with alacrity!

BUST! Then a smallish boom again…as Chicago- based Illinois Stock Transfer Company’s long-term owner, Robert Pearson, was indicted for fraud and the business was temporarily locked-down when a routine SEC audit uncovered the fact that Pearson had been dipping into funds over the past two years (more than $1.3 million, the complaint asserts) arising from unpaid dividends (Ooops…So- called “Abandoned Property” yet again!!) – and from DRP activities too - in order to meet the payroll, following relocation expenses and some major client losses that IST was unable to replace with new business. It appears from their website that the IST book of business had fallen to fewer than 100,000 shareholder accounts in total –  and  somewhat  to our own surprise, given the potential liabilities that may still be buried in the records, AST stepped in to purchase the business, which included several nice mid-western community banks that any TA would be happy to have as clients.

And in yet another mini-boom this quarter – which we think could turn into a big one, Continental Stock Transfer & Trust Company, via a new entity, Continental/FRS Plan Administration, Inc., has acquired FRS Equity Strategies, “a market leader in stock plan administration in Silicon Valley since 2002…Marianne Brannock-Hill, the founder of FRS, and her entire staff will be staying on…[and] the new company will continue to feature, among other software platforms, the industry-leading software of Equity Administration Solutions, Inc. (“EASi”), software that is used by over 800 public and private companies to meet customers’ various and complex stock plan administration needs.” The OPTIMIZER has been saying for years that the TA that can reliably and cost-effectively serve the wild and crazy and constantly gushing pipeline of inventive new stock plans that today’s comp-consultants dream up will have a chance to corner the market on the biggest, richest and most dependable class of individual share-owners in the USA. And virtually every TA has promised over the years to turn the trick…although most have come away with nothing much to show or quit the employee plan servicing game altogether… So we’ll be watching this closely, and maybe there WILL be a big, game-changing boom here…

Maybe the biggest and best boom of all for our much-beleaguered supplier universe, merger activity in the first six months of 2014 is at $1.77 trillion – up 73% from last year. Even better news for the biggest TAs, 46 deals over $5 billion have been announced, up a whopping 130% vs. last year, since in that biz, as in most, money will continue to go to money. Great news for the bigger TAs, proxy solicitors and financial printers, where big deals throw off big money, albeit through one-time-only events where next year – ouch - one big customer is no longer around.

Great news for those much beleaguered law-firms too – or at least some of them: Skadden Arps’ ranking in the 2014 advisory biz to date rose from 3 to 1, and Freshfields rose from 5 to 2, and Sullivan & Cromwell rose from 7 to 3 – while Cleary Gottlieb soared from 20 to 5. But ouch! Latham & Watkins fell from 1 to 8, and Wachtell, Lipton plummeted from 4 to12 in the deal tables, though do remember, it often takes just one big deal to ‘turn the tables” big-time.