Apr 18, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Tuesday greetings from Orlando. Just a reminder that you can always provide feedback or send scoop by hitting replying to this email. Or using our anonymous tip line at http://axios.com/tips. Or by using text message, Signal, Confide, Telegram, etc. (Dan Primack / 857-472-3072). Here we go...

Top of the Morning

Big data software company Cloudera filed its proposed IPO terms yesterday, and the big takeaway was that the top end of its proposed $12-$14 price range ($2.6 billion fully diluted valuation) is more than a 50% haircut from where Cloudera raised VC funding from Intel Corp. back in May 2014 ($30.92 per preferred share). So what happened?

  • Market multiples changed: Cloudera looks like it wants to price on 5x projected 2018 revenue and 4x 2019 revenue, per Renaissance Capital's model. That's in line with current enterprise software multiples (and better than where things stood last spring), but well below the ≈10x revenue multiples paid for one or two years out back when Intel made its investment.
  • Outlier: Intel's investment seemed to be as much about hitting an ownership threshold as it was about underlying VC fundamentals. And it still seems to care about that, given its plan to buy up to 10% of the IPO.
  • Comps (Part I): Hortonworks (Nasdaq: HDP) is smaller than Cloudera ($184m in 2016 revs vs. $261m) and growing slower (51% vs. 57%), but it's still in the same general business. Trouble is that Hortonworks shares have gotten hammered since its late 2014 IPO. That offering priced at $16 per share, quickly zoomed up north of $26 but broke the IPO price in January 2016 and hasn't recovered. It opened trading today at just $10.40 per share.
  • Comps (Part II): The bull case for Cloudera and HortonWorks (not to mention MapR, which also is in IPO prep) is that cloud penetration into the enterprise still has a very long way to go. The fields are green for ultra-marathon miles. The bear case is that many of those potential enterprise clients already have existing relationships with Amazon, IBM, Google and/or Microsoft ― and each of them can theoretically provide some sort of price-cutting bundle, or at least the peace of mind that comes from working with an existing vendor. Which leads to one more bull case: Cloudera could get snapped up by one of these companies, but it has a history of saying no to such things (even from Intel, and at loftier valuations than the IPO now projects).

• Tax talk: The White House will not have its comprehensive tax reform package ready by August's congressional recess, Treasury Secretary Steve Mnuchin conceded in an FT interview. And, of course, the stock markets tanked rallied. We're living in post-logic times.

• Tops (for now): Silver Lake this morning announced that it has closed its fifth flagship fund with $15 billion (including $500m from the general partner). It had originally targeted $12.5 billion, and this follows on a $10.3 billion fund (SLP IV) closed in April 2013. Notes:

  • This is the largest tech-dedicated private equity fund ever raised. At least for now, given that SoftBank is close to wrapping up its $100 billion Vision Fund.
  • This is Silver Lake's first fund to not include any of its three co-founders as general partners. The last holdout was Jim Davidson, who served as managing partner and investment committee member of SLP IV, but who didn't lead any of that fund's deals.
  • There is still some dry powder in SLP IV, so expect the first SLP V calls to come in the second half of 2017.
  • The size increase reflects how Silver Lake has been making larger and larger follow-ons in existing portfolio companies (e.g., Dell, WME, etc.), and a belief in increased consolidation opportunities going forward.

• Recommended reading: Today's is Facebook's annual developers conference, and Kia's preview has you covered.

• More recommended reading: A pair of law school professors steeped in the academia of activist investors decided to play activists in real life, buying big into a small NYSE-listed real estate company called Tejon Ranch and agitating for change (such as a sale). They share what happened in The Atlantic.

One graph of particular note, regarding the longstanding public vs. private debate:

"[The CEO] said that the benefits of being public outweighed the costs. He had been at a private company and had worked under pressure from private-equity investors. Public markets, he said, enabled Tejon Ranch to operate under much less short-term pressure, and to take a longer-term perspective. We were flabbergasted: Many companies go private or stay private to avoid the short-term pressure that public markets can create. But the fact is, for companies the size of Tejon Ranch—and there are thousands of them, filling the portfolios of mutual funds and pension funds, even though most investors have never heard their name—[the CEO] is probably right."

• Carrier calendar: Next Thursday marks the end of the landmark FCC spectrum auction, which also means that the legal muzzle on wireless carrier M&A talks will be lifted. Think T-Mobile/Sprint, Verizon or Charter buying Dish, etc. Telecom bankers, start your engines...

The BFD

Cardinal Health (NYSE: CAH) has agreed to acquire the medical supply unit of Medtronic (NYSE: MDT) for $6.1 billion in cash.

  • Why it's the BFD: "Cardinal Health is most known for its drug distribution business. But drug distributors are facing criticism over their role in the opioid crisis. Cardinal Health and its competitors also are expecting lower profits this year as generic drug prices temper — a general good for society. The generic drug deflation is hammering Cardinal Health, so the Medtronic deal allows the company to diversify its revenue more." ― Bob Herman, Axios
Venture Capital Deals

• Actility, a French machine-to-machine communications platform focused on the industrial and physical infrastructure sectors, has raised $75 million in new VC funding. Backers include Creadev, Rober Bosch, Koninklijke KPN, Orange, Swisscom and the European investment arm of Foxconn (d.b.a. GInko Ventures). https://bloom.bg/2oPVg40

• Reltio, a Redwood Shores, Calif.-based enterprise data management platform, has raised $40 million in Series C funding. NEA led the round, and was joined by Sapphire Ventures and return backers Crosslink Capital and .406 Ventures. http://bit.ly/2puhklz

• More Health, a Beijing-based, has raised $36.3 million in Series B funding co-led by CITIC Capital and a joint venture between the Agricultural Bank of China and the Wuxi government. http://bit.ly/2pKCl8b

• Aspect Imaging, an Israeli developer of compact MRI systems, has raised $30 million in VC funding from undisclosed investors. http://bit.ly/2nFnZVh

• Aspect Imaging, an Israeli developer of compact MRI systems, has raised $30 million in VC funding from undisclosed investors. http://bit.ly/2nFnZVh

• NeuroTronik, an Ireland and Chapel Hill, N.C.-based developer of cardiac neurostimulation therapy, has raised $23.1 million in Series B, tranched funding. Boston Scientific led the round, and was joined by Hatteras Venture Partners, Synergy Life Science Partners, Lord Baltimore Investment Partners, Mountain Group Capital and Sovereign's Capital.

• Flowhub, a Denver-based compliance platform for the cannabis industry, has raised $3.25 million in Series A funding co-led by Green Lion Partners and Phyto Partners. http://bit.ly/2puKEWf

• PowerPost, a St. Louis-based SaaS content marketing platform, has raised $2 million in VC funding from Arsenal Capital Management. http://bit.ly/2oIxpkH

Private Equity Deals

• Accel-KKR has agreed to acquire Utiligroup, a UK-based provider of cloud services for the utility sector, for a reported £100 million. Utiligroup will be merged into existing Accel-KKR portfolio company ESG. http://on.ft.com/2pNK5Gm

• CDH International is in talks to acquire Belle International (HK: 1880), China's largest retailer of women's shoes with a market cap of $5.7 billion, according to Bloomberg. https://bloom.bg/2pLVqqj

• General Atlantic has acquired an equity stake in Torchy's Tacos, an Austin, Texas-based fast-casual restaurant chain. www.torchystacos.com

• MAG Aerospace, a Woodbridge, Va.-based portfolio company of Clairvest Group, has acquired Discovery Air Fire Services, a Canadian provider of aerial forest fire management and related services. No financial terms were disclosed. www.magaero.com

• Permira has agreed to acquire DiversiTech, a Duluth, Ga.-based provider of aftermarket parts for the residential and light commercial HVACR market, from The Jordan Company. No financial terms were disclosed. www.diversitech.com

• Platinum Equity has agreed to acquire American Traffic Solutions, a Mesa, Ariz.-based provider of road safety cameras and toll and violations management solutions. No financial terms were disclosed. Sellers include Goldman Sachs. www.atsol.com

• Silver Oak has sponsored a recapitalization of Legacy Farms, a Buena Park, Calif.-based fresh produce grower and distributor. No financial terms were disclosed. www.legacyfarms.com

• Vista Equity Partners has acquired Market Track, a Chicago-based provider of ecommerce and promotional intelligence software, from Aurora Capital Group for an undisclosed amount. www.markettrack.com

• Frank Wilson, former head of Quintis (ASX: QIN), owner and operator of Australian and Indian sandalwood plantations, has hired Goldman Sachs to advise him on a possible takeover bid for the A$450 million company (in which he still holds a 13% stake). Earlier reports suggest he was approached by KKR, among others. http://reut.rs/2oRbtWL

Public Offerings

Carvana, a Phoenix-based online and offline used car platform, has set its IPO terms to 15 million shares being offered at between $14 and $16 per share. It would have a fully-diluted market value of around $2.1 billion, were it to price in the middle of its range. The company plans to trade on the NYSE under ticker symbol CVNA, with Wells Fargo serving as lead underwriter. Carvana reports a $93 million net loss on $365 million in revenue for 2016. www.carvana.com

• Floor & Décor, a Smyrna, Ga.-based retailer of hard surface flooring and related accessories, has set its IPO terms to around 8.82 million shares being offered at between $16 and $18 per share. It would have a fully diluted market value of around $1.7 billion, were it to price in the middle of its range. It plans to trade on the NYSE under ticker symbol FND, with BofA Merrill Lynch serving as lead underwriter. The company reports $43 million of earnings on $1.05 billion in revenue for 2016, and is owned by Ares Management and Freeman Spogli & Co. www.flooranddecor.com

• Kamux, a Finland-based used car retailer owned by Intera Partners, said that it plans to revive an IPO process that it suspended last year after an internal audit uncovered irregularities. http://reut.rs/2ooKAph

• NCS Multistage Holdings, a Houston-based maker of oil well completion tools, has set its IPO terms to 9.5 million shares being offered at between $15 and $18 per share. It plans to trade on the Nasdaq under ticker symbol NCSM, with Credit Suisse listed as left lead underwriter. The company is owned by Advent International, and reports nearly an $18 million net loss on $98 million in 2016 revenue. www.ncsmultistage.com

• Zymeworks Inc., a Vancouver-based developer of bi-specific antibodies and antibody drug conjugates for the treatment of cancer, autoimmune and inflammatory diseases, has set its IPO terms to 4.5 million shares being offered at between $13and $16 per share. It would have an initial market cap of around $351 million, were it to price in the middle of its range. The company plans to trade on both the NYSE and TSX under ticker symbol ZYME, with Citigroup listed as left lead underwriter. Shareholders include Eli Lilly (17.5% pre-IPO stake), CTI Life Sciences (14.6%), Celgene (6.1%), BDC Capital, Lumira Capital, Perceptive Advisors, Teralys Capital, Northleaf Venture Catalyst Fund, Brace Pharma Capital, Merlin Nexus and the Fonds de solidarite FTQ. www.zymeworks.com

Liquidity Events

• Crown Castle International (NYSE: CCI) has agreed to acquire Wilcon Holdings, a Los Angeles-based provider of fiber optic and data center infrastructure solutions, from Palmico Capital for $600 million. http://bit.ly/2oRpQdM

• CVC Capital Partners and Leonard Green & Partners are exploring a sale of Westborough, Mass.-based retailer BJ's Wholesale Club – scrapping earlier plans for an IPO – according to the NY Post. The deal could be valued north of $4 billion, with Amazon said to have expressed "modest internal interest." http://nyp.st/2oIZfiX

• Oracle (NYSE: ORCL) has acquired Wercker, a Dutch developer of code testing and deployment solutions for developers. No financial terms were disclosed. Wercker had raised $7.5 million in VC funding from backers like Inkef Capital and Notion Capital. http://tcrn.ch/2p9UAr6

• VMWare (NYSE: VMW) has agreed to acquire Wavefront, a Palo Alto, Calif.-based metrics monitoring service for cloud and app environments. No financial terms were disclosed, except that VMWare does not expect the deal to have a material impact. Wavefront had raised over $60 million in VC funding from firms like Sutter Hill Ventures, Sequoia Capital, Tenaya Capital and Workday. http://bit.ly/2oFdvHl

More M&A

• Bustle, a VC-backed content site aimed at millennial women, has acquired New York-based online publisher Elite Daily from The Daily Mail for an undisclosed amount. http://read.bi/2pJSJ91

• Post Holdings (NYSE: POST) has agreed to buy British cereal brand Weetabix from China's Bright Food Group for around $1.76 billion. https://bloom.bg/2oHYVi8

• SharkNinja, a Champlain, N.Y.-based maker of blenders and vacuum cleaners, has hired Goldman Sachs to find a buyer, according to Reuters. The deal could be valued at more than $1.5 billion, including debt. http://reut.rs/2oHJmbY

• South32 (ASX: S32) has terminated a $200 million agreement to acquire the Metropolitan coal mine in Australia from Peabody Energy (NYSE: BTU), due to what Reuters refers to as "competition concerns about supply of coal to local steel makers." http://reut.rs/2oRo9No

• Synovus Financial (NYSE: SNV) has agreed to acquire the banking operation of outdoor retailer Cabela's (NYSE: CAB), with plans to then resell the unit's credit card portfolio to Capital One Financial (NYSE: COF). Capital One had originally agreed to buy the Cabela's banking business, but that deal ran into regulatory resistance. All of this smooths the way for Bass Pro Shops to complete its takeover of the rest of Cabela's, at what is now a $5 billion price (down from $5.5b). http://reut.rs/2oGG6vZ

• Time Warner (NYSE: TWX) received FCC approval for its sale of Atlanta broadcast station WPCH to Meredith Corp. (NYSE: MDP), which is designed to help improve chances that its planned takeover by AT&T (NYSE: T) gets approved. http://bit.ly/2oHQ8yl

• Williams Partners (NYSE: WPZ) has agreed to sell its position in a unit that owns over 88% of a Louisiana olefins plant to Canada's Nova Chemicals for US$2.1 billion in cash. http://reut.rs/2pb8cT0

Fundraising

• Apollo Global Management has told some investors that it is seeking to raise between $20 billion and $22.5 billion for its ninth flagship fund, according to the WSJ. http://on.wsj.com/2px8gJO

It's Personnel

• John Lewis, former global president of Nielsen Holdings (NYSE: NLSN), has joined Madison Dearborn Capital Partners as an executive partner focused on the information services space. www.mdcp.com

• JMP Securities has promoted Gavin Slader to head of M&A. He previously led tech M&A. www.jmpg.com

• Paul Maritz, former CEO of VMWare and current executive chairman of Pivotal Software, has joined Warburg Pincus as an industry advisor in its TMT group. www.warburgpincus.com

Final Numbers
Dan Primack