Feb 10, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Greetings from the snow-covered home office. Just a reminder that we also have two other (earlier) morning newsletters, including AM (politics) and Vitals (healthcare). Plus news alerts. Get em all by going here. Here we go...

Top of the Morning

• Mr. Smith went to Washington: FedEx founder and CEO Fred Smith was on Capitol Hill last week, testifying in front of a House committee about improving the nation's highways, bridges and air traffic control system. Yesterday I spoke with Smith via phone about how to pay for modernized infrastructure, plus his thoughts on Trump, trade and automation. You can read the full piece here, but two replies of particular note for the Pro Rata crowd:

  • "I think that private, incentive-based financing of public infrastructure is certainly a good idea and has its place. But I do not think, based on my long experience in the industry, that it can finance all of our infrastructure needs."
  • "Remember Marlon Brando in On The Waterfront? He's a stevedore, which was a very tough job in the 1950s and didn't pay very well. Today, the crane operator at a major U.S. port offloads in a day the tonnage that Brando's character would have in a lifetime, and is probably making between $150,000 and $200,000 per year. It's the capital investment in technology that produced that high income for today's version of the stevedore. But the tax code punishes those investments. Private equity and activists are all looking to capture short-term cash flow instead of investing in productive equipment."

• Spectacle update: On Tuesday we reported that Joanna Coles, the only woman on Snap's board of directors, in January had received an option grant not reflected in the company's S-1 filing (something which had led to undertstandable accusations that she was being compensated less than all of her male peers), based on her signing of a four-year contract. Yesterday Snap filed an amended S-1, which included this information.

• Recommended reading: How tech broke media and our minds, by Jim VandeHei and Sara Fischer

• 1986 redux: One notable nugget from yesterday's White House presser was that the Administration wants corporate and individual tax reform done simultaneously, as part of a single package.

• Media market: There's a Politico report this morning that VC-backed media company Thrillist went through a pink slip "bloodbath," but my understanding is that this is a bit of an exaggeration. Around 20 staffers got laid off yesterday as part of a broader reorganization (Thrillist doesn't really exist as an entity anymore, following last fall's Group 9 consolidation and new $100m investment), and that Group Nine plans to add at least 100 net employees in 2017 (it currently has around 500). Seems the big shift is from written content to video content, with layoffs mostly affecting the former. [Disclaimer: Group 9 CEO Ben Lerer is a managing partner of Lerer Hippeau Ventures, which is an Axios shareholder]

• SF island: Alex Slusky is the founder of Vector Capital, the tech-focused special situations firm that just closed on $1.4 billion for its fifth fund. He's also one of very few San Francisco-based tech investors who are willing to support President Trump on anything outside of repatriation (Slusky is a longtime Republican who supported Rubio in the primaries). Here he is talking about trade with China as part of a broader convo):

"A trade war with China is not in anyone's interest, but the U.S. government being forceful with China about opening its markets to U.S. technology companies would be welcome and overdue. China is the black hole for most of our software and tech companies…

It is not unusual for our portfolio companies to sell more to Australia, with less than 1/50th the number of people, than in China, where the only explanations I can think of are that China is putting up non-tariff barriers through either regulations or implicit government instructions to not buy American. So I actually appreciate the Trump Administration getting tough with China. Companies like Apple are big enough to stand up for themselves, but there are a lot of smaller tech companies that aren't."

• Have a great weekend...

The BFD: Blackstone Gets Benefits

The Blackstone Group has agreed to acquire the tech-enabled benefits and HR platform of Aon PLC (NYSE: AON) for upwards of $4.8 billion in cash. The deal includes a $4.3 billion upfront payment, and upwards of $500 million in possible earn-outs. Aon had acquired the business ― which serves around 15% of all U.S. workers ― in as part of its $4.9 billion purchase of Hewitt Associates in 2010, but recently decided that it didn't fit within its core focus area.

Why it's the BFD: This is really a quintessential leveraged buyout. It's carving out a slowish-growth, cash-flow steady business that doesn't have too many synergistic complications with its parent company. Plus, Blackstone has some experience in the general sector, vis-a-vis its existing investment in Kronos (a company that's more like a thematic cousin than a rival to the acquired biz). Blackstone's win also comes as a bit of surprise, given earlier (and I'm told erroneous) reports that Clayton Dubilier was in pole position to win the auction. Finally, familiarity can breed buyouts, as some of Blackstone's portfolio companies, such as Hilton, were already customers.

• Bottom line: "This company is oriented toward the Fortune 100, and those companies frankly haven't had massive employment growth over the last couple of years. The opportunity is to take what this company has been doing for the Fortune 100 and expand it to the Fortune 1000… This is not a fixer-upper, nor something that's been ignored by Aon. It's just not their primary focus, and we think we can invest more and innovate more to help it expand." ― Peter Wallace, senior managing director at Blackstone Group, speaking to Axios.

Venture Capital Deals

• SpringCM, a Chicago-based provider of document and sales contract management solutions for Salesforce customers, has raised $25 million in new equity and debt funding. Crestline Investors led the round, and was joined by Foundation Capital. http://bit.ly/2kaKogf

• Evident.io, a Pleasanton, Calif.-based provider of cloud infrastructure security services for Amazon Web Services, has raised $22 million in Series C funding. GV led the round, and was joined by return backers Bain Capital Ventures, True Ventures and Venrock. http://bit.ly/2kLkLPR

• Exactuals, a Los Angeles-based provider of a SaaS platform for complex payments, has raised $10 million in Series A funding. City National and TTV Capital co-led the round, and were joined by Stanford-StartX Fund, S-Cubed Capital, Palo Alto Venture Partners, Skyview Fund, The Strand Partners, Temerity Capital and individual angels. http://bit.ly/2kPr7xO

• SpaceKnow, a San Francisco-based provider of access and analysis of satellite imagery, has raised $4 million in Series A funding. BlueYard Capital led the round, and was joined by return backer Reflex Capital. http://bit.ly/2kWt7qp

• Float, a Los Angeles-based lending platform for small credit lines, has raised $3 million in seed funding from Camp One Ventures, Funders Club and 500 Startups. http://bit.ly/2kPqDYq

• HeadBox, a London-based online marketplace for event spaces, has raised £1.4 million in angel funding. www.headbox.com

• CrossLend, a Berlin-based platform that securitizes individual loans, has raised an undisclosed amount of funding from CME Ventures. www.crosslend.com

Private Equity Deals

• Associated Asphalt, a Roanoke, Va.-based portfolio company of ArcLight Capital Partners, has agreed to acquire Axeon Marketing, a marketer of markets liquid asphalts and polymer modified asphalts through 13 terminals along the East Coast. The seller is Axeon Specialty Products, a Stamford, Conn.-based portfolio company of Lindsay Goldberg. No financial terms were disclosed. www.axeonsp.com

• KKR is among the suitors short-listed for the sale of United Engineers, a listed Singapore property group that is currently valued at around US$1.3 billion, according to Bloomberg. Others still in the process include Samling Group, Perennial Real Estate Holdings and an affiliate of Malaysian tycoon Lee Ming Tee. http://bloom.bg/2kOvRE0

• Lone Star Funds has purchased Bentley Mills, a City of Industry, Calif.-based floor coverings manufacturer, from Dominus Capital. No financial terms were disclosed. www.bentleymills.com

• Pharm-Olam International, a Houston-based clinical research organization for the pharma and medical device markets, has secured an undisclosed amount of private equity funding from Quad-C Management. www.pharm-olam.com

• Morgan Stanley Global Private Equity and Far EasTone Telecommunications (TSEC: 4904) have pulled out of their $2.39 billion agreement to acquire Taiwanese cable television operator China Network Systems from MBK Partners. The decision followed a lengthy regulatory review. http://bit.ly/2kaIiwA

• Telefonica of Spain is in talks to sell a 49% stake in Telxius, its telecom masts subsidiary, according to Reuters. Suitors include CVC Capital Partners, Ardian, KKR and GIC, while HSBC is managing the process. http://reut.rs/2kzrNZw

• TPG Capital has completed its previously-announced acquisition of Mediware Information Systems, a Lenexa, Kansas-based provider of SaaS systems for healthcare and human services providers and payers, from Thoma Bravo. No financial terms were disclosed. http://reut.rs/2kzuvhW

Public Offerings

• Clipper Realty, a New York-based REIT focused on both multi-family and commercial properties, raised $77 million in its IPO. The company priced 5.7 million shares at $13.50 per share (low end of range), and will trade on the NYSE under ticker symbol CLPR. FBR Capital Markets and Raymond James served as lead underwriters. www.clipperrealty.com

Foundation Building Materials, a Tustin, Calif.-based distributor of wallboard and suspended ceiling systems, raised $179 million in its IPO. The company priced 12.8 million shares at $14 per share (below $17-$19 range), and will trade on the NYSE under ticker symbol FBM. Deutsche Bank was listed as left lead underwriter. The company is owned by Lone Star Funds. www.fbmsales.com

• Visterra Inc., a Cambridge, Mass.-based developer of drugs for infectious diseases like seasonal and pandemic influenza, has postponed an IPO that had been designed to offer 3.9 million shares at between $12 and $14 per share. Leerink Partners and Stifel were serving as lead underwriters. Shareholders include Polaris Partners, Flagship Ventures, Merck Research Labs, Bill & Melinda Gates Foundation, Omega Funds and Alexandria Venture Investments. www.visterrainc.com

Liquidity Events

• Airbnb reportedly is in talks to acquire Canadian vacation rentals company Luxury Retreats for between $200 million and $300 million. Sellers would include iNovia Capital. http://bit.ly/2lwo9xq

• Elementis (LSE: ELM) has agreed to acquire SummitReheis, a Huguenot, N.Y.-based maker of antiperspirant actives, from One Rock Capital Partners at an enterprise value of approximately $360 million. http://reut.rs/2lyj0po

• Sun Seven Stars of China has agreed to acquire a majority stake in Grapevine Logic, a Boston-based social media influencer marketing platform. No financial terms were disclosed. Grapevine had raised VC funding from Accomplice, TechStars, Boston Seed Capital and Mass Ventures. www.grapevinelogic.com

More M&A

• GIC and a unit of Unite Group (LSE: UTG) have agreed to acquire Aston Student Village, a Birmingham, England-based student housing provider, for £227 million. http://bit.ly/2l0Oeri

• Reckitt Benckiser Group (LSE: RB) has agreed to acquire Glenview, Ill.-based baby formula maker Mead Johnson Nutrition (NYSE: MJN) for around $16.6 billion, or $90 per share. http://bloom.bg/2l09M7E

Rio Tinto is hiring BofA Merrill Lynch to sell Queensland, Australia coking coal assets that could be valued at around A$2 billion, according to The Australian. http://bit.ly/2lymet1

• Walt Disney Co. (NYSE: DIS) has increased its stake in Euro Disney (Paris: EDL) theme park complex from 76.7% to 85.7%, by acquiring a stake from Saudi Prince Alwaleed Bin Talal's fund, Kingdom Holding. The deal was done at a 9% premium to Euro Disney's closing price on Thursday, with Walt Disney Co. also offering to purchase any other outstanding shares. http://bit.ly/2kzI6FU

Fundraising

• The Carlyle Group next month will begin raising its third financial services fund, and its first since former financial services chief Olivier Sarkozy left the firm, per Dow Jones. http://on.wsj.com/2kPprEu

It's Personnel

• Travis Brown has joined the Alaska Permanent Fund as an investment officer focused on private equity and special situations, per his LinkedIn profile. He spent the past four years as an investment banker with Goldman Sachs.

• Tom Gladden has stepped down as a partner with fund-of-funds manager Adams Street Partners, where he had spent the past 14 years. No word yet on future plans.

• David Pendergast has joined Waud Capital Partners as a vice president, per his LinkedIn profile. He previously was a VP with Great Point Partners.

• Jean Raby, former CFO of France's SFR, has agreed to join Natixis Global Asset Management as CEO, which gives him control over the firm's asset management, private banking and private equity businesses. He succeeds Pierre Servant, who is said to be stepping down for health reasons. http://bit.ly/2lvOdZE

• Casey Winters has joined VC firm Greylock as a "growth advisor in residence. He is a former executive with both Pinterest and GrubHub. www.greylock.com

Final numbers
Dan Primack