May 4, 2020

Axios Pro Rata

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Top of the Morning

Source: Giphy

Activist investor Elliott Management has a new target, but it isn't a publicly traded company with a CEO to pressure into stock buybacks or divestitures.

  • Elliott is going after video streaming upstart Quibi, by agreeing to finance a patent and trade secret lawsuit filed in March by Israeli interactive video company Eko.

Terms of the arrangement are unknown, but a source says that Elliott will receive a "significant" equity stake in Eko, which raised over $35 million in VC funding between 2011 and 2016 from firms like Sequoia Capital Israel, Sony Pictures Entertainment, Samsung, and Warner Music Group.

  • Quibi, which launched its short-form original video service last month, has raised around $1.75 billion and is led by Meg Whitman (ex-HP and eBay CEO) and Jeffrey Katzenberg (ex-CEO of DreamWorks, ex-chairman of Walt Disney Pictures).
  • It's struggled to meet aggressive expectations, in part due to the dearth of commuters.

This isn't the first time Elliott has been involved in high-stakes litigation (just ask the governments of Argentina or South Korea) or litigation finance (it controls litigation finance firm Innsworth), but it is unusual to see it take sides in a skirmish between privately held tech companies.

  • The lawsuit alleges that Quibi's flagship technology, which allows users to seamlessly switch mobile displays between horizontal and vertical, is stolen from Eko.
  • Eko cites two primary pieces of evidence: (1) It held repeated talks with Snap, from which Quibi poached numerous employees. (2) Eko's CEO and Katzenberg discussed Eko's technology prior to Quibi's big unveil.
  • Quibi unambiguously denies Eko's claims, and also has countersued Eko.

Calendar: Eko has requested an immediate injunction against Quibi, with a ruling possible this week. But that's only on the trade-secret piece, not the patents, with a broader case management conference scheduled for July. Overall, the entire case could take upwards of three years.

  • A loss may devastate Quibi, given that it's pitched the display tech to Hollywood content creators as an exciting new way to film. It's unclear if Eko would be willing to license out the tech to Quibi and, even if so, at what price.
  • A loss for Eko would largely invalidate the investment thesis for Elliott, whose equity stake in Eko seems predicated on owning exclusive rights to the display tech.

The bottom line: Just days ago, it looked like Quibi was Goliath to Eko's David. Elliott may prove to be the slingshot.


Source: Giphy

J. Crew today filed for Chapter 11 bankruptcy protection, nearly a decade after being taken private for $3 billion by Leonard Green & Partners and TPG Capital.

  • Why it's the BFD: This is likely the leading edge of big retail bankruptcies, particularly for companies that were already struggling before the coronavirus pandemic.
  • Details: J. Crew's lenders will convert $1.65 billion of debt into equity, with some of them also providing another $400 million of debtor-in-possession financing to continue operations during the bankruptcy process.
  • The bottom line: J. Crew nearly defaulted in 2017 before striking a controversial restructuring that ring-fenced its growing Madewell denim unit from creditors. The retailer, which named a new CEO just months ago, had hoped to use proceeds from a Madewell IPO to de-lever its balance sheet, but couldn't get it done ahead of the market tumult.
Pro Rata for Kids

Today's project is for your kids to make a musical instrument out of items found around the house. It could be something recognizable (guitar, horn, drums, etc.) or a brand new instrument (be sure to give it a name).

  • Per usual, please send me photos of what they create.

This weekend's project was for your kids to dress up as their favorite Star Wars characters, in preparation for May the 4th (be with you). Twenty-five of them were posted this morning on Nasdaq's digital tower in Times Square, and I'll post that image tomorrow. Some highlights:

Venture Capital Deals

Otonomo, an Israeli automotive data services platform, raised $46 million in Series C funding from SK Holdings, Avis Budget Group, Alliance Ventures, and return backer Bessemer Venture Partners.

🚑 Medable, a Palo Alto-based platform for decentralized clinical trials, raised $25 million. GSR Ventures led, and was joined by return backer PPD Inc.

KlearNow, a Santa Clara, Calif.-based digital customers clearance platform, raised $16 million in Series A funding. GreatPoint Ventures led, and was joined by Autotech Ventures, Argean Capital, and Monta Vista Capital.

Classplus, an Indian online platform for coaching content and payments, raised $9 million in Series A funding. RTP Global led, and was joined by seed backers Blume Ventures, Sequoia Capital India, Spiral Ventures, and Strive.

Guilded, a chat platform for esports and competitive gaming, raised $7 million in Series A funding. Matrix Partners led, and was joined by Initialized Capital, Susa Ventures and Sterling.VC.

Oxwash, a British laundry startup that uses ozone to sterilize fabrics, raised £1.4 million in seed funding from TrueSight Ventures, Founders Factory, Biz Stone, and Paul Forster.

Private Equity Deals

Advent International and Cinven are seeking equity co-investors for their €17.2 billion deal to buy Thyssenkrupp’s elevator and escalator unit, per the FT.

🚑 Altaris Capital Partners completed its $650 million purchase of an 83% stake in the drug delivery systems unit of 3M (NYSE: MMM), which will renamed Kindeva.

🚑 CareCentrix, a Hartford, Conn.-based health benefits manager owned by Summit Partners, acquired Turn-Key Health, a Philadelphia-based palliative care company.

Cove Hill Partners acquired Kalkomey, a Dallas-based provider of online recreational safety education and agency management software, from Inverness Graham Investments and Riviera Investment Group.

Levine Leichtman Capital Partners acquired SiPM, a Belgian provider of corporate e-learning solutions.

🎧 Maple Media, a Los Angeles-based portfolio company of Shamrock Capital, acquired podcast app Player FM.

Silver Lake agreed to invest $750 million in Indian telecom operator Reliance Jio, just weeks after Facebook took a $5.7 billion stake.

Public Offerings

🚑 Ayala Pharma, an Israeli oncology drug company, set IPO terms to 3.3 million shares at $14-$16. It would have a fully-diluted market value of $190 million, were it to price in the middle, and plans to trade on the Nasdaq (ALYA) with Citi and Jefferies as lead underwriters. The company raised $52 million in VC funding from Israel Biotech Fund (35.2% pre-IPO stake), aMoon (25%), Harel Insurance (18.4%), Bristol-Myers Squibb (6.4%), Novartis (7.2%), and Bristol-Myers Squibb.

Kingsoft Cloud, a Chinese cloud storage and distribution company being spun out of Kingsoft (HK: 3888) set IPO terms to 25 million shares at $16-$18. It would have an initial market cap of $3.4 billion, were it to price in the middle, and plans to trade on the Nasdaq (KC) with JPMorgan as lead underwriter. Kingsoft Cloud raised over $900 million in VC funding from its parent company and other backers like Xiaomi, Liyue Investment and China Minsheng Investment.

GAN Ltd., a London-based provider of online gambling software, is the only company planning to price an IPO on U.S. exchanges this week.

Liquidity Events

DocuSign (Nasdaq: DOCU) completed its $188 million cash purchase of Seal Software, a Walnut Creek, Calif.-based provider of contract discovery and data extraction solutions. Seal had raised nearly $50 million from DocuSign, Toba Capital, Advent Venture Partners, Greylock, and Kreos Capital.

Intel (Nasdaq: INTC) is in advanced talks to buy Israeli public transit app maker Moovit for $1 billion, per Calcalist. Moovit raised around $133 million from BRM Group, Gemini Israel Ventures, Sequoia Capital, BMW iVentures, NGP Capital, Sound Ventures, Vaizra Investments, Vintage Investment Partners, and Hanaco Venture Capital.

Mediobanca (Milan: MDBI) walked away from its 2018 agreement to buy a 19.9% stake in Indonesian consumer lender BFI Finance from sellers like TPG Capital.

Microsoft (Nasdaq: MSFT) is in talks to buy Softomotive, a British software automation process company that in 2018 raised $25 million from Grafton Capital, per Bloomberg.

More M&A

BAE Systems (LSE: BAES) completed its $275 million purchase of Raytheon’s (NYSE: RTX) airborne tactical radios business.

Ericsson (Nasdaq: ERIC) is seeking a buyer for U.S. call routing business Iconectiv, which could fetch upwards of $2 billion, per Bloomberg.

Pendragon (LSE: PDG) said it’s no longer in merger talks with rival British auto dealer Lookers (LSE: LOOK).

Millicom International Cellular (Nasdaq: TIGO) bailed on its $570 million agreement to buy Telefonica’s (Madrid: TEF) Costa Rican business, after failing to secure requisite regulatory approvals.

Sabre (Nasdaq: SABR) walked away from its $360 million takeover of Miami-based airline industry software provider Farelogix, just months after defeating a Justice Department antitrust lawsuit.

Telefonica (Madrid: TEF) and Liberty Global (Nasdaq: LBTYA) confirmed that they are in talks to merge their British units, O2 and Virgin Media. The combined business could be valued at around $30 billion.

Tencent acquired a 5% stake in Australian “buy now pay later” company Afterpay (ASX: APT).


Partners for Growth raised $325 million for its sixth specialty lending fund focused on growth companies.

Redpoint Ventures is raising $500 million for its eighth flagship fund, per an SEC filing. It had raised $400 million for its seventh fund in 2018.

It's Personnel

• Janet Gurwitch, founder and ex-CEO of Laura Mercier, joined Advent International as an operating partner focused on the beauty and wellness sectors.

• Susan Stella and Kamil Saeid joined Ridge Ventures as head of investment relations and principal, respectively. Stella previously was with Knightsbridge, while Saeid was with Aspect Ventures.

Perry Wu joined AI Fund as its third general partner, per his LinkedIn profile. Wu co-founded and was CEO of BitGravity and, before that, was a general partner with ComVentures.

Final Numbers: PE-backed bust history
Source: PitchBook report

More from PitchBook report:

  • Leverage matters: Median debt load for PE-backed companies going bankrupt between 2005–2009 was 64.9%, while the median debt load for successfully exited companies during that period was 57.1%.
  • Bigger pool: The number of PE-backed companies has doubled since 2007, so a similar bankruptcy rate to the GFC would involve far more companies.
  • High risk: Around 14% of all PE-backed holdings right now are in travel, retail, and entertainment companies.

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