Axios Pro Rata

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April 13, 2017

Top of the Morning

• Indebted: Private equity multiples breached Fed guidelines in Q1, according to new data published this morning by PitchBook. It shows debt-to-equity multiples hit a whopping 6.2x in Q1, compared to 5.4x for the entirety of last year and a 5.19x average between 2011 and 2016.

  • What the Fed says: Four years ago, America's central bank issues guidelines that debt-to-EBITDA ratios (for most industries) shouldn't exceed 6x.
  • What happened: For a while, most everyone played by these rules ― largely because banks were scared of crossing the Fed. Then a bunch of one-off transactions began breaching the threshold, particularly in tech. Then "baskets" of deals began to breach. All the while, the Fed did little more than send the occasional letter of reprimand. The takeaway for banks was: You can do it, just don't flout it.
  • Should the Fed care more? It's tough to argue that companies benefit from being over-leveraged but, from a public policy standpoint, private equity-backed deals don't pose a systemic risk. Namely because the failure of one PE portfolio company shouldn't impact the fortunes of another PE portfolio company, even if held in the same fund.
  • Caveat: It can be very difficult for data providers like PitchBook to accurately gauge market-wide leverage multiples, given that so many LBO values and debt breakdowns are kept private. Thus the average is prone to being weighted toward take-private transactions, which tend to be larger (and, historically, have higher leverage multiples). It's also worth noting that PitchBook also reported a mark in excess of 6x for Q1 2016, but the overall year settled much lower.

• Speaking of debt: White House budget director Mick Mulvaney gave an interview yesterday to CNBC, in which the headline was that we weren't supposed to take Candidate Trump seriously when he promised to eliminate the national debt during his time in office. Apparently that was "hyperbole."

He also suggested that there could be a $200 billion federal outlay for infrastructure, Mulvaney thinks would be matched 5:1 by the private sector: "Gary Cohn and I talked about this. You've got to give these Goldman Sachs guys credit. They know how to lever up."

Still no word on how the infrastructure plan would address the countless roads, bridges and tunnels that don't have any prospect of having revenue attached...

• New firm alert: Riot Ventures, a new Boston-based firm led by serial entrepreneur and angel investor Stephen Marcus, is out raising $25 million for its debut fund, per an SEC filing. A source familiar with the situation says Marcus plans to focus the early-stage effort around the Internet-of-Things (including of AI, robotics, etc.).

• Publishing notes: The markets may be closed tomorrow, but Pro Rata will be open for business. Then publishing early next week from Orlando for school vacation week (shhhh... don't tell E, she doesn't know yet).


Katerra, a Menlo Park, Calif.-based provider of design services to the construction industry, has raised $130 million in Series C funding at a valuation north of $1 billion. Greenoaks Capital led the round, and was joined by Moore Capital Management, Khosla Ventures, DFJ, Foxconn and Paxion.

  • Why it's the BFD: The bet here is that the building construction supply chain isn't really all that different from the computer manufacturing supply chain. The common link is Katerra executive chairman Michael Marks, who faced similar supply chain skepticism in his early days of leading Flextronics. Marks also has spent time in private equity (KKR and Riverwood Equity) and as interim CEO of Tesla Motors.
  • Bottom line: "Although several companies compete with Katerra in different areas — Prescient builds frames and panels for developers in its own manufacturing plant while Rhumbix sells software to track construction costs — Marks said Katerra stands out for wanting to do everything. The risk, however, is that Katerra is taking on too many different tasks." ― Jonathan Vanian, Fortune

Venture Capital Deals

• PagerDuty, a San Francisco-based provider of digital operations management solutions, has raised $43.8 million in Series C funding. Accel led the round, and was joined by return backers Andreessen Horowitz, Bessemer Venture Partners, Baseline Ventures and Harrison Metal.

• Luminar, a LiDAR sensor developer founded in 2012, has come out of stealth mode and said that it has raised $36 million in total seed funding, from Canvas Ventures, GVA Capital and 1517 Fund.

• Lyndra, a Watertown, Mass.-based developer of a therapeutic oral delivery platform, has raised $23 million in Series A funding. Polaris Partners led the round, and was joined by Quark Venture and GF Securities, Yonghua Capital, Healthlink Capital, Partners Healthcare and Suffolk Equity.

• ClearData, an Austin, Texas-based managed cloud provider for healthcare cybersecurity, has raised $12 million in new VC funding from return backers Merck Global Health Innovation Fund, Norwest Venture Partners, Excel Venture Management, Heritage Group, HLM Venture Partners and Flare Capital Partners.

• Tasktop, a Vancouver-based provider of software lifycycle integration solutions, has raised US$11.3 million in second-round funding. AVX Partners led the round, and was joined by return backers Austin Ventures and Yaletown Partners.

• Neyber, a UK-based consumer finance and wellbeing platform, has raised £7.5 million in Series B funding. Backers include Police Mutual, Henry Ritchotte (ex-Deutsche Bank COO) and Gaël de Boissard (ex-Credit Suisse banker).

• Ink Labs, a Lincoln, Neb.-based connected printing network for college campuses, has raised $6.65 million in seed funding from backers like VTF Capital, Base Ventures, G-Bar Ventures, Nelnet, IT-Farm and Invest Nebraska.

• Skyline Vet Pharma, a North Carolina-based animal health product development and marketing company, has raised $5 million in Series A funding from backers like AgTech Accelerator.

• Teamable, a Redwood City, Calif.-based online portal for employee referrals, has raised $5 million in Series A funding. True Ventures led the round, and was joined by the SaaStr Fund.

• Elmodis, a Polish provider of machine monitoring solutions, has raised $4.9 million in new VC funding from undisclosed backers.

• HackerEarth, an Indian developer of "corporate innovation services," has raised $4.5 million in Series A funding. DHI Group led the round, and was joined by Beenex, Beenos, Digital Garage, BizReach and seed backer Prime Venture Partners.

Private Equity Deals

• CITIC Capital has partnered with portfolio company New Journey Cancer Hospital on a takeover bid for Icon Group, an Australian cancer care center company owned by Quadrant Private Equity, according to The Australian. The deal could be worth more than A$1.4 billion, with other bidders expected to include China's Yibai Pharmaceuticals and, Baring Private Equity and Luye Pharma.

• Gas Station TV, an "at the pump" video network backed by Rockbridge Growth Equity, announced a 50/50 joint venture to merge with the assets and operations of Verifone's (NYSE: PAY) Pump Media division. No financial terms were disclosed.

• Insight Venture Partners has invested over $100 million for a majority stake in Zyme, a Redwood Shores, Calif.-based provider of channel data management solutions. Sellers include Susquehanna Growth Equity.

• Intapp, a Palo Alto, Calif.-based provider of software for law firms and professional services firms, has raised an undisclosed amount of new equity funding from Temasek. The company continues to be majority-owned by Great Hill Partners.

• Lovell Minnick Partners has acquired a majority stake in Global Financial Credit, a White Plains, N.Y.-based provider of working capital solutions to healthcare providers and pre-settlement funding to consumers. No financial terms were disclosed.

Public Offerings

• Cadence Bancorp, a Houston-based commercial bank with 66 locations, raised $150 million in its IPO. The company priced 7.5 million shares at $20 per share (middle of $19-$21 range), and will trade on the NYSE under ticker symbol CADE. Goldman Sachs was listed as left lead underwriter.

• Netshoes, a Brazilian ecommerce company focused on sporting goods, raised $149 million in its IPO. The company priced 8.3 million shares at $18 per share (low end of $18-$20 range), and closed its firdty day of trading down to $16.10 per share. It is trading on the NYSE under ticker symbol NETS, while Goldman Sachs was listed as left lead underwriter. Shareholders include Tiger Global (37.8% pre-IPO stake) and Riverwood Capital Partners (8.8%).

• Tapstone Energy, an Oklahoma City-based oil and gas E&P focused on the Anadarko Basin, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol TE, with BofA Merrill Lynch and Citigroup serving as lead underwriters. Shareholders include GSO Capital.

• Yext, a New York-based "knowledge engine" that helps local businesses sync their data across services like Apple Maps and Instagram, raised $115.5 million in its IPO. The company priced 10.5 million shares at $11 per share (above $8-$10 range), for a fully-diluted market cap of around $1.3 billion. It will trade on the NYSE under ticker symbol YEXT, while Morgan Stanley was listed as left lead underwriter. Yext had raised over $100 million in VC funding from firms like Sutter Hill Ventures (23.6% pre-IPO stake), IVP (16%), Marker Financial (13.6%) and Insight Venture Partners (10.3%).

Liquidity Events

• The Blackstone Group has reached a tentative agreement to give control of German outdoor brand Jack Wolfskin to company lenders, in a debt-for-equity swap.

• Lee Equity Partners has agreed to sell WealthTrust, a Houston-based wealth management firm with $6.4 billion in client assets, to HighTower. The all-cash deal was financed via a $75 million expansion to an existing credit facility to $245 million.

• Milestone Partners has sold Quintus Technologies, a Swedish provider of high pressure systems for sheet metal forming, to Kobe Steel (Tokyo: 5406) for $115 million.

More M&A

• Baidu (Nasdaqq: BIDU) has agreed to acquire xPerception, a Silicon Valley computer vision startup, for an undisclosed amount.

• Berkshire Hathaway has withdrawn a regulatory request to increase its stake in Wells Fargo (NYSE: WFC) above 10%, and instead will sell shares to keep it below the threshold.


• Eniac Ventures has closed its fourth early-stage VC fund with $100 million in capital commitments.

• TZP Group has raised $565 million for its third buyout fund, per an SEC filing.

• Yellow Wood Capital Partners, a Boston-based private equity firm focused on the consumer sector, has secured $180 million for a second fund that is targeting a total of $360 million, per an SEC filing. Park Hill Group is serving as placement agent.

It's Personnel

• Bob Alderman has joined Pomona Investment Fund as head of business development. He previously was with Gold Bullion International.

• Michael Horton, a former managing director at GE Capital, has joined StartUp Health, an online community for healthcare professionals, as CFO.

• Alex Williams is stepping down as a managing director at Terra Firma Capital Partners, just one year after joining from First Reserve, according to Private Equity International.

Final Numbers