Feb 14, 2017

Axios Pro Rata

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Top of the Morning

We talk a lot in this space about financial engineering, which is a process whereby investment firms can juice returns without necessarily improving the underlying asset. But any negative connotations of such behavior pales in comparison to the profit engineering Chicago-based Valor Equity Partners has overseen, as a key investor in Marathon Pharmaceuticals, the Illinois-based drug company that tried to jack up prices on its Duchenne muscular dystrophy treatment to a whopping $89,000 (or an equally outrageous $54k after various rebates and discounts).

For context, this same formulation can be bought outside the U.S. for less than $2,000 (and, prior to Marathon's plans to introduce it stateside, many patients were importing). Moreover, independent experts argue that Marathon's costs for acquiring and developing the drug are unlikely to have topped $75 million, as the company never even conducted new registrational studies (i.e., the thing that costs drug cos a lot of cash). Or, put another way, Marathon would be in the black after treating just 200 of the country's 1,400 Duchenne patients for only one year, at the "discounted" $54,000 price. This isn't about funding R&D.

Marathon got so much media and political blow-back in the past 48 hours that late yesterday it decided to pause the drug roll-out while working out a new price. That's mildly positive, save for the patients who could actually use the treatments now at a reasonable cost.

Silent on all of this has been Valor and its founder Antonio Gracias, whose last name must seem like a cruel joke to those with Duchenne. Gracias, best known in tech circles for sitting on the boards of Tesla and SpaceX, is a Marathon director but has declined repeated requests for comment. But two of Valor's LPs tell me that they are monitoring what one refers to as an "upsetting" situation.

When it comes to Valor, the only thing worse than price gouging is refusing to answer for your role in it.

• PE WH: The Trump Administration could be adding yet another private equity executive to a top position, following last night's resignation of National Security Advisor Michael Flynn. Presidential counselor Kellyanne Conway said this morning on Good Morning America that one of the three replacement candidates is David Petreaus, the retired military general and CIA director who has been a top executive with KKR since June 2013.

Last month we put together a quick primer on all of Trump's PE picks although, since then, Army Sec nominee Vincent Viola bailed due to his various business ties, and there have been reports that Cerberus boss Steve Feinberg may sign on.

• Revved up: The Engine, an MIT-affiliated startup accelerator focused on "tough tech," yesterday named Katie Rae as president, CEO and managing partner of a new $150 million investment fund. Some notes:

  • Rae is a former TechStars and Microsoft exec who most recently was a partner with seed-stage firm Project 11. She plans to continue managing her portfolio responsibilities for Project 11, but the Boston-based shop is not expected to raise a successor to its $30 million debut fund. No word yet on the future plans of her fellow Project 11 partners Reed Sturtevant and Bob Mason. Rae also says she plans to add at least two general partners to work with her on the fund, but that none have yet been hired (read: VC job opportunities in Boston).
  • MIT is the fund's cornerstone LP, but not its only one. All startups backed by the fund will be admitted into the accelerator. Expect the sector focus to be on things like AI, robotics and non-pharma biotech.
  • Rae says The Engine's mission is to make it more cost-effective for harder-tech startups to get off the ground, almost like what AWS and Azure have done for software startups.

• Never mind: We've previously discussed a December WSJ story about how Saudi Arabia's massive Public Investment Fund might pause U.S. investments due to Trump-related concerns, but PIF seems to have never taken its finger off the play button. Beyond its pending commitment to Softbank Vision Fund (first close expected imminently), just last week there was a Bloomberg report about PIF considering a major investment in Texas-based theme park operator Six Flags. There's still the chance that Saudi will list Aramco in Toronto instead of New York, but the prospects of a blanket ban seem to have fallen by the wayside.

• No comment: We're only hearing crickets from the camp of New York-based venture capitalist Joshua Kushner, over multiple reports that he has offered to buy the Miami Marlins baseball club for around $1.6 billion. No specifics yet on how much of that price-tag would be leveraged, except for "a lot."

The BFD: Popeyes in Play?

Restaurant Brands International (TSX: QSR), the 3G Capital-backed owner of Burger King and Tim Hortons, approached Popeyes Louisiana Kitchen (Nasdaq: PLKI) about a takeover, according to Reuters. Popeyes shares climbed 14% on the news yesterday, giving it a market cap of around $1.6 billion. Shares this morning are sinking, however, after a late-night NY Post report suggesting that the Reuters info is out of date, and that RBI lost interest in Popeyes late last year.

• Why it's the BFD: The approach suggests that RBI is seeking to expand its U.S. presence by purchasing new assets that don't compete too directly with Burger King or Tim Hortons (from a menu perspective). Even if Popeyes isn't the ultimate target, that doesn't mean that some other billion dollar-plus chain won't get gobbled up.

• Bottom line: The best way to gauge the likelihood of this deal happening is probably to stake out a pair of Popeyes stores on Dodge St. and West Broadway St. in Omaha. Those are the ones closest to Warren Buffet's office and, whenever 3G Capital is involved in buying something , the fast food-loving Oracle is almost certain to be involved.

Venture Capital Deals

Yunniao Delivery, a Chinese B2B courier platform, has raised $100 million in Series D funding. Warburg Pincus led the round, and was joined by Sequoia Capital China, Matrix Partners China and GSR Ventures. http://bit.ly/2kqXnWl

• 8i, a developer of holographic technologies for AR/VR, has raised $27 million in Series B funding. Time Warner Investments led the round, and was joined by Baidu Ventures, Hearst Ventures, Verizon Ventures, One Ventures and Seed & Speed Ventures. http://bit.ly/2lJvQBa

• Samanage, a developer of cloud-based customer service software, has raised $20 million in new VC funding from Carmel Ventures, Gemini Israel Ventures, Marker LLC, Salesforce Ventures and Vintage Investment Partners. http://tcrn.ch/2lLfas3

• Simba Sleep, a British mattress startup, has raised £17.5 million in new VC funding from firms like Henderson Global Investors. http://bit.ly/2klhdad

Dedrone, a San Francisco-based developer of software for detecting threats to drones, has raised $15 million in Series B funding from Felicis Ventures and John Chambers. http://bit.ly/2kklIlr

• Sensely, a San Francisco-based virtual medical assistant app for patient engagement and chronic disease monitoring, has raised $8 million in Series B funding. Chengwei Capital led the round, and was joined by Bioveda Ventures, Fenox Venture Capital, Mayo Clinic and Stanford StartX. www.sensely.com

• Sure, a New York-based smartphone app that lets users purchase insurance, has secured $6.3 million of a new VC round that could total $8 million, per an SEC filing. IA Capital Group led the round, while existing backers include ff Venture Capital, Fosun Kinzon Capital and Montage Ventures. http://bit.ly/2lLihkR

• Electric Cloud, a San Jose, Calif.-based developer of dev-ops release automation platform solutions, has raised $6 million in growth equity funding from Wellington Financial. The company also secured a $5 million credit and venture term loan facility from Bridge Bank. http://bit.ly/2l7n82n

• Voonik Technologies, an Indian fashion app maker, has raised $6 million in third-round funding from RB Investments and return backer Sequoia Capital. http://bit.ly/2lDPVfm

• SigTuple Technologies, an Indian developer of AI technology to digitize pathological tests, has raised $5.8 million in Series A funding. Accel Partners led the round, and was joined by IDG Ventures, Endiya Partners, Pi Ventures, VH Capital and Axilor Ventures. http://bit.ly/2kl9SHS

• Bolstra, a Carmel, Ind.-based agile customer success management platform for SaaS companies, has raised $1.5 million in seed funding. Allos Ventures and 4G Ventures co-led the round, and was joined by Collina Ventures and Elevate Ventures. www.bolstra.com

• Exceed.ai, a Tel Aviv-based developer of chatbot solutions for brands, has raised $1.5 million in VC funding from Glilot Capital Partners. www.exceed.ai

• NanoSteel, a Providence, R.I.-based developer of nanostructured steel materials, has raised an undisclosed amount of new VC funding. GM Ventures led the round, and was joined by Lear Corp. and Brussels-based family office SPDG. www.nanosteelco.com

Private Equity Deals

• Bregal Sagemount has acquired a majority stake in Single Digits, a Bedford, N.H.-based provider of high-speed Internet management software and managed services. www.singledigits.com

• E2open, a Foster City, Calif.-based supply chain operating network backed by Insight Venture Partners, has acquired Steelwedge, a Pleasanton, Calif.-based cloud planning platform. No financial terms were disclosed. Steelwedge had raised over $50 million in VC funding, from firms like Camden Partners, Globespan Capital Partners, Sigma Partners, Mainsail Partners, Shea Ventures and Western Technology Investment. http://bit.ly/2lLi29j

• High Road Capital Partners has acquired Midwest Wholesale Hardware, a Kansas City-based distributor of commercial and institutional door hardware, electronic access control and security products. No financial terms were disclosed. www.midwestwholesale.com

• JMK Consumer Growth Partners has secured minority equity stake in Miyoko's Kitchen, a Fairfax, Calif.-based developer of non-dair y, vegan cheese and butter alternatives. www.miyokoskitchen.com

• KKR has agreed to acquire Travelopia, a UK-based provider of travel experiences, from TIU AG. No financial terms were disclosed. http://reut.rs/2lDMllm

• Riverside Partners has acquired Medical Reimbursements of America, a Franklin, Tenn;-based provider of reimbursement services for hospital revenue cycle departments. Sellers include Clayton Associates and West End Holdings. No financial terms were disclosed. www.medicalreimbursements.com

• WILsquare Capital has acquired Data and Contact Management Solutions, a Minneapolis-based provider of tech-enabled service provider for estate asset recoveries, from Norwest Equity Partners. No financial terms were disclosed. www.dcmservices.com

• Zenith American Solutions, a Mokena, Ill.-based third-party benefits administrator backed by Water Street Healthcare Partners, has acquired Pacific Federal, a Glendale, Calif.-based employee benefits company. No financial terms were disclosed. www.zenith-american.com

Public Offering

• SailPoint Technologies, an Austin, Texas-based cybersecurity company backed by Thoma Bravo, is considering an IPO for the second half of 2017, per the WSJ. http://on.wsj.com/2lbWgOC

Liquidity Events

• Allergan (NYSE: AGN) has agreed to acquire Zeltiq Aesthetics (Nasdaq: ZLTQ), a Pleasanton, Calif.-based developer of "cool sculpting" solutions for aesthetic fat loss. The deal is valued at $2.48 billion in cash, or $56.50 per share (14.4% premium over Friday's closing price). Sellers would include venture firm Venrock, which still holds a 4.4% stake. http://reut.rs/2lIszSy

• The Blackstone Group and The Carlyle Group are considering a sale process for joint portfolio company Service King Paint & Body, a Richardson, Texas-based auto repair company that could be valued at $2 billion, according to Bloomberg. http://bloom.bg/2lDsMtC

More M&A

• Delta (NYSE: DAL), which already holds a 4.2% stake in Grupo Aeromexico, said that it will launch a cash tender offer to acquire upwards of another 32% position. The offer comes at a 34.4% premium to Friday's closing price for the Mexican air carrier's stock. http://reut.rs/2klnLFR

• Hologic (Nasdaq: HOLX) has agreed to acquire Cynosure (Nasdaq: CYNO), a -based developer of medical aesthetics systems and technologies, for approximately $1.65 billion in cash. The $66 per share deal represents nearly a 28.16% premium over yesterday's closing price. http://reut.rs/2kmko1j

• PSA Group, the French owner of car brands like Peugeot, is in talks to acquire the European Opel unit of General Motors (NYSE: GM). http://reut.rs/2lfuPTM

• Recon Group of China is in talks to acquire Millennium Films, a Hollywood production company whose titles include The Expendables, according to Bloomberg. http://bloom.bg/2kF5OxS

It's Personnel

• Ryan Lucero has joined Frazier Healthcare Partners as a VP on the firm's growth buyouts team, and promoted Philip Zaorski to the same position. Lucero was previously with Kohlberg & Co. www.frazierhealthcare.com

• Josh Raffaelli stepped down as a managing director with Silver Lake Kraftwerk at the end of 2016. No word yet on his future plans.

• Sorenson Capital has promoted Peter Sturgeon to a managing director, and head of the Salt Lake City-based firm's investment efforts in Arizona. www.sorensoncapital.com

• TSG Consumer Partners has promoted Mary Miller to principal of business development. www.tsgconsumer.com

Final numbers