Jun 10, 2019

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

Illustration: Aïda Amer/Axios

A bipartisan consensus has emerged that antitrust law is antiquated, written for an analog world of railroad and tobacco giants. Market no longer knows best.

  • President Trump, despite his fondness for all things big, seems averse to large mergers. Just this morning, he voiced concerns over United Technologies buying Raytheon.
  • Democrats two years ago introduced a vague framework for 21st Century trust-busting, and "break up big tech" has become a campaign rallying cry in Iowa and New Hampshire.
  • Congressional Republicans have begun to get on board, at least with the tech portion, with Sen. Josh Hawley (R-MO) going so far as to wonder: "Should these platforms exist at all?"

But there is not yet consensus on what should come next.

Today's antitrust law focuses almost exclusively on the short-term welfare of consumers, in terms of price and product competition. In other words, a merger is problematic — in the broadest terms — if it leads to higher prices or otherwise hurts consumers by severely limiting their choices.

Legislators must first decide if they only want to revise antitrust law as it applies to big tech platforms, or if they also want to address consolidation in areas like health care, agriculture, etc.

  • Many argue that key for either approach would be to redefine market power.
    • First, by recognizing that some competition (i.e., Google and Facebook fighting for ad dollars) doesn't always suffice. Two or three companies engaging in predatory pricing, for example, shouldn't be elevated above one company doing it.
    • Second, by looking at both sides of the pricing equation. Not just what consumers are charged, but also what suppliers are paid and the results of cross-sector integration. The idea here is to be more holistic, as consumers can be hurt at places beyond the register (e.g., lost wages, jobs, etc.).
    • Third, by trying to divine how markets will look in the future. This is a bit squishy, but goes beyond pricing guarantees. For example, what if regulators in 2012 had tried to understand what Facebook/Instagram would look like a decade out, rather than contemporaneously?
  • In terms of tech specifically, there could be moves to reclassify certain platforms and infrastructure as utilities. Not public ones, but rather a new category for the digital age.
    • Part of this also could supplement "price" with "data," when determining consumer welfare.
    • Plus explicit realization that the current focus on short-term price only serves to perpetuate big tech dominance, as consumers don't pay direct dollars for services like Google, while Amazon's size helps it lower prices (at least in the short-term).

The bottom line: We're not yet near new antitrust rules, which is why the immediate noise will be about stepped-up enforcement. But that's not a status quo that's likely to keep.

The BFD
Source: Giphy

United Technologies (NYSE: UTX) agreed to buy Raytheon (NYSE: RTN), in an all-stock transaction whereby UTX shareholders would own around 57% of a combined company with annual sales of around $74 billion.

  • Why it's the BFD: It would be the largest-ever merger in the aerospace and defense contracting space, and is sure to be causing consternation at Boeing and Airbus.
  • But first... UTX still plans to complete the previously-announced spin-outs of its Otis elevator and Carrier air conditioner businesses.
  • Bottom line: "The deal would reshape the competitive landscape by forming a conglomerate which spans commercial aviation and defense procurement. United Technologies provides primarily commercial plane makers with electronics, communications and other equipment, whereas Raytheon mainly supplies the U.S. government with military aircraft and missile equipment." — Harry Brumpton & Kate Duguid, Reuters
Venture Capital Deals

Vectra, a San Jose, Calif.-based network threat detection and response company, raised $100 million led by TCV. http://axios.link/VniQ

Privitar, a London-based data privacy software startup, raised $40 million in Series B funding. Accel led, and was joined by Partech, Salesforce Ventures, 24Haymarket and IQ Capital. http://axios.link/PVrF

Innoviz, an Israeli developer of Lidar sensors and perception software, raised $38 million in new Series C funding (round total $170m). Prior backers include China Merchants Capital and Shenzhen Capital Group. www.innoviz.tech

Immedis, an Irish provider of payroll and employment tax software, raised €25 million from Scottish Equity Partners. http://axios.link/QZdl

Spacemaker, a Norwegian provider of AI design software for architects and property developers, raised $25 million in Series A funding. Atomico and Northzone co-led, and were joined by NREP, OBOS, Round Hill Ventures and Construct Ventures. http://axios.link/H4xq

Zyper, a marketing platform that connects brands with fans, raised $6.5 million in Series A funding. Talis Capital led, and was joined by Forerunner Ventures and YC. http://axios.link/Yt0w

Private Equity Deals

The Blackstone Group plans to combine around $6.8 billion worth of European urban warehouse assets into a single company, and currently is hiring executives to run the new business, per Bloomberg. http://axios.link/v4Ar

CC Industries acquired Southern Towing Co., a Memphis, Tenn.-based inland tank barge operator, from Trive Capital. www.southerntowing.net

CDC Group will invest over $300 million to launch Gridworks, a new company that will develop electricity networks in Africa. http://axios.link/BW9D

CVC Capital Partners acquired a majority stake in PR and advisory firm Teneo at an enterprise value north of $700 million, per the FT. http://axios.link/BU8y

H.I.G. Capital acquired Cardinal Logistics, a Concord, N.C.-based provider of transportation and logistics services. www.cardlog.com

Public Offerings

Five companies plan to price U.S. IPOs this week: CrowdStrike, Fiverr, Chewy, G Medical Innovations, and Mohawk. http://axios.link/zKfm

Grocery Outlet Holdings, an Emeryville, Calif.-based discount grocer owned by Hellman & Friedman, set IPO terms to 17.2 million shares at $15-$17. It plans to trade on the Nasdaq (GO) with BAML as lead underwriter, and reports $16 million of net income on $2.29 billion in revenue for 2018. www.groceryoutlet.com

Wanda Sports Group, a live sports and events business being spun out of China’s Wanda Group, filed for a $500 million IPO. It plans to trade on the Nasdaq (WSG) with Morgan Stanley as lead underwriter, and reports a $2.7 million net loss on $276 million in revenue for Q1 2019. http://axios.link/Jt7o

Liquidity Events

Tilray (Nasdaq: TLRY) announced plans whereby majority shareholder Privateer will gradually sell its stake over the next two years. http://axios.link/dSl4

More M&A

Salesforce (NYSE: CRM) agreed to acquire data analytics company Tableau Software (NYSE: DATA) for $15.7 billion in stock, just one week after Google bolstered its own cloud service by paying $2.6 billion for Looker. http://axios.link/lqpI

Fosun Tourism (HK: 1992) is in talks to buy the tour operating unit of Thomas Cook (LSE: TCG), per Sky News. http://axios.link/LrHK

Metso, a listed Finnish engineering firm, agreed to buy McCloskey International, a Canadian maker of mobile crushing and screening equipment, for C$420 million. http://axios.link/RXu8

Super League Gaming (Nasdaq: SLGG) acquired social video network Framerate for $2.5 million in cash and stock. http://axios.link/9Vxo

Fundraising

Champ Private Equity of Australia is pre-marketing its fifth fund with a A$900 million target, per PE International. http://axios.link/hTaO

Edmond de Rothschild raised 375 million for its fourth Africa-focused private equity fund, per PE International. http://axios.link/hdnw

It's Personnel

Wai Hoong Fock and Piti Hongsaranagon are leaving General Atlantic, where they are Southeast Asia-focused managing director and vice president, respectively. per DealStreetAsia. http://axios.link/KR3T

Final Numbers
Expand chart
Data: Open Markets Institute; Chart: Axios Visuals

America's healthcare sector is rapidly consolidating, due to mergers of hospital operators, health insurers and pharmacy benefits operators. And the trend is tricking down the ecosystem, Axios' Sam Baker writes:

  • One company controls 64% of the market for syringes, according to Open Markets Institute data. Just three companies control 86% of the market for IV solution. Two companies make 47% of hospital beds.
  • None of those sectors is particularly huge. But in a system that’s already not very competitive, each step without competition feeds into the next one.

Go deeper: America's health system plays monopoly

Dan Primack

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