Financial crisis, recession hammer deal flow

Companies searching for a merger or acquisition partner had one heck of a time finding a match last year.

Place much of the blame on the credit crunch that rattled the nation’s economy and sent deal-making into a downward spiral.

Only 47 major deals were consummated in the Indianapolis area last year, according to IBJ’s
annual list of Big Deals. That’s down nearly 30 percent from 2007.

Worse, the $9.9 billion in volume was less than half the $23.4 billion in 2007 and a small shadow of the $38.5 billion in
2006.

Nationally, the number of deals fell nearly 23 percent and the dollar volume declined 38.3 percent from 2007, according to
New York-based research firm Thomson Reuters.

Global merger-and-acquisition volume dropped by nearly a third, ending five years of growth. The financial bailout plan
approved by the federal government has done little to help credit-seekers, said David Millard, chairman of Barnes & Thornburg
LLP’s business department.

"The credit market drives deals, but there is no lubricant in that engine," he said. "It’s seized up."

Each year, IBJ tracks business deals of $5 million or more involving companies based
in the metropolitan area. Only deals
for which financial terms are available are included in the Big Deals list of mergers and acquisitions.

Eli Lilly and Co.’s $6 billion purchase in October of ImClone Systems Inc., a New York-based developer of cancer drugs, accounted
for almost two-thirds of the local dollar volume. It was Lilly’s largest deal ever.

The only other sale topping the billion-dollar mark was St. Paul, Minn.-based 3M Co.’s $1.2 billion acquisition of Aearo Technologies
Inc., an Indianapolis company that makes goggles, earplugs and other personal safety equipment.

Milwaukee bank Marshall & Illsley Corp.’s $529 million purchase of First Indiana Corp. rounded out the top three.

Besides boasting the largest deal, Lilly was the most aggressive. It made six acquisitions, including the Posilac bovine growth
hormone from St. Louis-based Monsanto Co. for $300 million. The pharmaceutical giant also sold rights to market the Cialis
impotence pill for treating high blood pressure to Maryland-based United Therapeutics Corp. for $150 million.

Real estate transactions made up nearly half the deals on the list. Locally based real estate investment trusts Duke Realty
Corp. and Kite Realty Group were almost as active as Lilly.

Duke, along with co-venture partner CB Richard Ellis Realty Trust, bought three warehouses and one office building in multiple
states for $139.1 million. Duke bought two distribution centers and industrial property in two separate deals in Savannah,
Ga., totaling nearly $35 million.

The company also unloaded 16 acres of business park land in Alexandria, Va., to the U.S. Army for $105 million. Duke also
made numerous other real estate deals for which financial information was unavailable.

Kite purchased 123 acres of commercial land in Holly Springs, N.C., for $21.6 million, and another 18 acres there for $5 million.
Locally, it acquired Rivers Edge Shopping Center near Clearwater Crossing for $18.3 million.

Kite sold its Spring Mill Medical office complex in Carmel for $28.2 million and its Silver Glen Crossing shopping center
in South Elgin, Ill., for $20.4 million.

Pedcor Investments, a Carmel-based builder of affordable housing, and educational supplies maker Herff Jones Inc. also recorded
multiple transactions last year.

We’ll sit this one out

Despite Lilly’s robust activity, many companies took a wait-and-see approach to deal-making until the prognosis for the economy
improved.

Deals with a combined volume of nearly $800 billion were withdrawn in 2008 as the credit crunch, economic woes and volatile
stock market took their toll, according to Thomson Reuters.

Steve Humke, co-chair of Ice Miller LLP’s private equity and venture services group, cited several reasons for the trepidation.
Foremost was tightening credit markets.

Financing for multibillion-dollar deals began to dry up in the second half of 2007 as fallout from the subprime mortgage
mess began to spread. But the depth of the crisis has made it hard to fi nance even smaller, more routine deals in Indiana.

Private equity sources also felt the fallout as they tried to shore up performance of their portfolios.

Global private equity activity fell to a five-year low of $188.7 billion in 2008, Thomson Reuters reported. That’s a 72-percent
decline from 2007 and underscores just how troubled the private equity market may be.

Mezzanine lenders, which straddle the gap in risk between traditional banks and venture capitalists and angel investors, are
picking up some of the slack.

"Banks aren’t lending at all, so the mezzanine lenders are having a heyday, because now they can pick up deals with even
less
risk," Millard said.

Buyers also may have gotten cold feet after discovering some companies’ demanding high prices that would have been in line
before financial markets began sliding in mid-2007.

Mixed outlook

The first half of 2009 is shaping up to be just as grim, according to a December survey by the Palatine, Ill.-based Association
for Corporate Growth and Thomson Reuters.

Forty-four percent of the dealmakers surveyed expected the climate to be worse in six months, 31 percent thought it would
be the same and 24 percent believed it would be better.

Brian Baker, vice president of corporate finance at locally based City Securities Inc., is confident this year will be better
than 2008, particularly since the firm already has closed one transaction.

Said Barker: "It’s certainly a year that we’re happy to have in our rearview mirror."

These deals didn’t make the list, but are still worth mentioning

Every year, for various reasons, significant business deals take place in central Indiana that can’t be included in Indianapolis
Business Journal‘s annual list of mergers and acquisitions.

These "other deals" often involve private parties that don’t disclose financial terms or companies headquartered
elsewhere
that nevertheless influence the Indianapolis area. Still other deals, while notable, don’t reach the $5 million threshold
for inclusion.

The following is a look at some important deals that didn’t show up on our main list but deserve mention. We’ve also included
some major deals announced last year that closed or are expected to close in 2009.

Too late for 2008

•Southwest Airlines Co. won approval from a U.S. bankruptcy judge last month to buy operating rights from Indianapolis-based
ATA Airlines Co. at LaGuardia Airport in New York. The $7.5 million deal isn’t expected to go into effect until March.

•Indianapolis-based OneAmerica Financial Partners Inc. announced Nov. 19 that it would acquire Roanoke, Va.-based Shenandoah
Life Insurance Co.,
a company with nearly $2 billion in assets. The deal isn’t expected to close until mid-2009.

•Cardinal Health, the money-losing hospital system headquartered in Muncie, agreed in November to merge with Clarian
Health
as the Indianapolis system continued its expansion into new markets. Clarian promised $25 million to Cardinal’s Ball Memorial
Hospital Foundation and $100 million to fund Cardinal projects.

•White River Capital Inc., the Indianapolis-based holding company that owns Union Acceptance Corp. and Coastal Credit
LLC auto
financing companies, announced in late June it would be acquired for $87.8 million by First Chicago Bancorp., based in the
Chicago suburb of Itasca. The deal hadn’t closed by year-end.

No price tag

•KAR Holdings Inc., the Carmel company that owns a string of auto auctions including Adesa Auction Services, snapped
up 18
companies throughout the United States and Canada in the first nine months of the year at a total cost of $152.9 million.
It did not divulge the values of the individual acquisitions.

•Print Communications Inc., one of Central Indiana’s largest printers, sold a controlling interest to Stonehenge Partners
Inc.
of Columbus, Ohio, in January. Print Communications was renamed PCI Holdings LLC.

•Brownsburg-based Atlantic Racing Series was sold by Kevin Kalkhoven and Gerald Forsythe in October to Atlanta businessman
Ben Johnston. The Atlantic Championship series has operated for 35 years and focuses on developing race car drivers.

•WellPoint Inc. acquired Resolution Health Inc. of Columbia, Md., to gain technology that uses medical claims information
to
help doctors and patients cope with chronic diseases.

•WellPoint Inc.’s Anthem Blue Cross and Blue Shield in Kentucky sold its Arison Insurance Services Inc. to Assurance
Investment
Partners.

•WellPoint Inc. acquired Minneapolis-based DeCare Dental, which manages dental plans for nearly 4 million people.

•Health Systems International, a health care manager, acquired three companies—Bridgeway Medical LLC of Montgomery,
Ala.; Bass
& Babb Cos., headquartered in Des Moines; and Miami-based Asert Benefit Services Inc.

•Printing Partners Inc. acquired the printing operation of direct-marketing firm Marketing Informatics LLC in September.

•Thomas Healthcare Consulting, which helps long-term care facilities with reimbursements from Medicare and Medicaid,
was acquired
in September by BKD LLP, an accounting firm headquartered in Springfield, Mo.

•Ricker Oil Co. Inc. bought all 32 BP convenience stores in the Indianapolis area in September. Ricker also operates
convenience
stores in its headquarters city of Anderson and in Fort Wayne.

•Vista Graphic Communications LLC bought Centennial Press-Printing and Mail in October to obtain Centennial’s direct-mail
capabilities
and the associated service of data analysis.

•Crystal Food Services in August sold two units—Capitol Vending and Cafe Group, which runs corporate cafes—to
Treat American
Food Services of the Kansas City suburb of Merriam, Kan. In July, Crystal sold Coffee Etc. to Copper Moon Coffee LLC of Indianapolis.

•Frost Brown Todd LLC, a Cincinnati law firm, acquired Indianapolis-based Locke Reynolds LLP in January.

•Cincinnati law firm Taft Stettinius & Hollister LLP acquired local firm Sommer Barnard PC in May.

Other deals

•Evansville-based Old National Bancorp agreed Nov. 25 to buy 65 branches from Charter One, which is owned by Royal Bank
of
Scotland. The $16 million deal fetched Old National 51 locations in Indianapolis for what the bank called a bargain price.

•Irwin Financial Corp. sold its Canadian small-ticket leasing business to Scotia Bank in Canada for $389 million. Columbus-based
Irwin undertook the sale as part of a turnaround plan following heavy
losses on subprime mortgages.

•Clarian Health bought a controlling stake in a cardiology practice at Indiana Heart Hospital in February. Heart Hospital
was
owned by Clarian competitor Community Health Network.

•Symphony Bank was acquired in November for $3.9 million in cash by Greensfork Township State Bank, a small farm lender
in
the eastern town of Lynn. The Carmel bank never turned a profit during its three years in business.

•Katz Sapper & Miller acquired another local accounting firm, Heaton & Eadie, on July 10 to strengthen its health
care and
employee benefit consulting.

•Katz Sapper & Miller’s KSM Business Technology arm acquired Digitech Inc. on Dec. 1 to broaden its network services.

•Carmel-based American Med-Scan Inc. was acquired in July by Wells Fargo Insurance Services Inc., an arm of San Francisco
banking
giant Wells Fargo & Co.

•Indianapolis-based Herff Jones Inc. began to acquire American Achievement Corp. in May, but the parties without explanation
called off the deal in December.
Like Herff Jones, Austin, Texas-based American Achievement makes class rings and other educational products.

•Locally-based health care manager Health Systems acquired Bridgeway Medical LLC of Montgomery, Ala.; Des Moines, Iowa-based
Bass & Babb Cos.; and Asert Benefits Services Inc. in Miami.

•Twenty-three Indianapolis-area locations operated by Tuchman Cleaners were acquired out of bankruptcy in August by US
Dry
Cleaning Corp. of Newport Beach, Calif., for $792,000. Tuchman parent National Dry Cleaners Inc. was headquartered in Phoenix.

•Indianapolis-based Sign Craft Industries acquired Sign Studio in June and Atlas Sign Co. in September.

•Toshiba Office Solutions acquired HPS Office Systems from ImageTec LP in November. HPS founder Leon Mordoh sold the
local
office-equipment dealer to ImageTech in 2006.

•Indianapolis-based Finish Line Inc. in March agreed to pay $81.5 million to back out of a proposed $1.5 billion acquisition
of Tennessee-based mall retailer Genesco Inc.

•Peerless Pump Co. acquired Flometrico Ltd., its main distributor in Canada, in March. Peerless is using the Toronto
company
to expand in Canada.