May 13, 2019

Axios Pro Rata

Dan Primack

🚨 Breaking: It's officially a trade war, with China pledging to impose retaliatory tariffs on $60 billion in U.S. goods on June 1.

Top of the Morning
Source: Giphy

Slack today will hold its "investor day," ahead of a direct public listing that's expected for early June. It may become the venture capital industry's most consequential deal since the financial crisis.

  • Uber's IPO on Friday was a dud, and shares opened even lower this morning.
    • Some of the blame here falls on Uber and lead banker Morgan Stanley. Some of it was outside of the company's control.
    • For a full postmortem, check out my weekend post on how Uber ran into the perfect storm.
  • For most of Uber's early investors, this was still the single best deal of their careers. But much of the later-stage money is currently underwater.
  • These later-stage investors are what's driven the unicorn phenomenon, allowing companies to stay private longer at higher and higher valuations. For most, it's not their primary business. They want easy returns and IPO optionality. If they bail, everything changes.

And that brings us to Slack.

The enterprise messaging platform has little in common with ride-hail giants Uber and Lyft, except that it loses (less) money, was valued (less) highly by private market investors and appears to have slowing growth.

  • Slack lost $154 million on $400.5 million in revenue for the fiscal year ending January 30, 2019.
  • That revenue figure was 81% higher than the prior year's, versus 109.5% growth between 2017 and 2018. Revenue growth was 67.5% for the three months ending April 30, 2019 versus the same period in 2018.
  • Its last private market valuation was around $7.1 billion.

If Slack goes public and trades higher, then Uber and Lyft will be viewed as unpopular outliers. The narrative will be Spotify, Zoom, Pinterest, Slack. Go long on khaki and Roadsters.

But if Slack stumbles, then a new storyline emerges. It's one in which people suddenly remember how underwhelming Dropbox has been since its March 2018 IPO — with a fully-diluted value barely above where it raised money in 2014. Go short on fleece vests and subscriptions to The Information.

Venture capitalists love to talk about inflection points, and that's exactly where we're at.

  • The only thing tourists like more than visiting is going back home.
  • There also was a lot of crossover money before the dotcom bubble burst, albeit at lower prices, and it disappeared very quickly.

Slack didn't ask for this responsibility. And there's certainly a chance that trade tumult will cause it to hit the brakes. But if Slack moves forward within the next few weeks, its results could determine if the future is full of unicorns or full of horses.

The BFD

Illustration: Rebecca Zisser/Axios

Sycamore Partners offered to buy women’s apparel retailer Chico’s FAS (NYSE: CHS) for $408 million, or $3.50 per share.

  • Why it's the BFD: Because the price isn't just 5.4% lower than where Chico's stock closed on Thursday or 12% lower than where it closed on Friday. It's 18.6% less than the $4.30 per share offer that Chico's already rejected from Sycamore. Looks like someone's been eyeing the clearance rack.
  • Also: Sycamore disclosed a 6.6% position in Chico's, making it the New York-based company's fourth-largest outside shareholder. These "footholds" have become common for Sycamore, although still uncommon for private equity at-large.
  • Bottom line: "Chico’s net income plunged by almost two-thirds last fiscal year, while its stock has tumbled 60% in the past 12 months... Still, Chico’s has advantages. Unlike some of its peers left with unmanageable debt following leveraged buyouts, the company owes just $57.5 million, leaving more resources available for a turnaround." — Lauren Coleman-Lochner & Jordyn Holman, Bloomberg
Venture Capital Deals

🚑 ElevateBio, a Cambridge, Mass.-based cell and gene therapy platform, raised $150 million in launch capital from the UBS Oncology Fund (co-managed by MPM Capital and F2 Ventures), EcoR1 Capital, Redmile Group and Samsara BioCapital. http://axios.link/GV5h

🚑 Philogen, an Italian developer of antibody-based therapeutics, raised €62 million from undisclosed investors. www.philogen.com

Xometry, a Gaithersburg, Md.-based on-demand industrial parts marketplace, raised $50 million. Greenspring Associates led, and was joined by Dell Technologies Capital, BMW i Ventures, Foundry Group, GE Ventures, Highland Capital Partners, Maryland Venture Fund and Almaz Capital. http://axios.link/2KyW

Locus, an India-based supply chain optimization startup, raised $22 million in Series B funding. Falcon Edge Capital and Tiger Global co-led, and were joined by Exfinity Venture Partners and Blume Ventures. www.locus.sh

🚑 TreeFrog Therapeutics, a French stem cell startup, raised €7.1 million in Series A funding led by XAnge. http://axios.link/tdU7

Agile Analog, a UK-based analog IP startup, raised $5 million from Delin Ventures, Firstminute Capital and MMC Ventures. http://axios.link/T2Kl

Private Equity Deals

BV Investment Partners acquired a minority stake in CivicPlus, a Manhattan, Kansas-based tech platform for local government. www.civicplus.com

ION Investment Group, an Irish portfolio company of The Carlyle Group, agreed to buy Accuris, the UK-based financial news and data business formerly known as MergerMarket, from BC Partners and GIC (each of which will retain minority stakes). No financial terms were disclosed, although earlier reports suggested a price-tag north of $1 billion. http://axios.link/jFl9

KPS Capital Partners is in talks to buy the air and gas handling unit of Colfax (NYSE: CFX) for more than $1.8 billion, per Reuters. http://axios.link/Bhli

Oakley Capital acquired a majority stake in both Seagull and Videotel, European providers of e-learning to the marine sector, from Herkules Private Equity and KVH Industries, respectively.

Truck Hero, an Ann Arbor, Mich.-based portfolio company of CCMP Capital Partners, agreed to acquire Lund, a Buford, Ga.-based maker of branded auto accessories, from Highlander Partners. www.lundinternational.com

West Lane Capital Partners acquired a majority stake in Fantasy Files, a San Fernando, Calif.-based maker of specialty cosmetic products under the Blossom, Blue Cross and Savina brands. www.blossombeauty.com

Public Offerings

Seven companies expect to go go public this week on U.S. exchanges. The most noteworthy is Avantor, a lab supplies company that's seeking $3 billion in what would be the largest LBO-backed IPO since 2011.

Liquidity Events

Unilever (LSE: ULVR) is considering a $1 billion takeover offer for Drunk Elephant, an Austin, Texas-based skincare brand backed by VMG Partners, per The Daily Telegraph. http://axios.link/2s7T

More M&A

BAIC Group of China is seeking to buy up to a 5% stake in Daimler, per Reuters. http://axios.link/HwXO

Flywheel Sports, an indoor cycling studio operator, has been taken over by lender Kennedy Lewis Investment Management, per Bloomberg. A sale process is possible. http://axios.link/AP7R

🍦 Froneri, a UK-based ice cream maker, agreed to buy New Zealand Tip Top from Fronterra (NZE: FCG) for NZ$380 million. http://axios.link/YCH8

Goldman Sachs (NYSE: GS) reportedly is in talks to buy United Capital Financial Partners, a Newport Beach, Calif.-based wealth manager with around $23 billion in AUM. CNBC puts the price tag at between $700 million and $750 million. http://axios.link/clr8

IFM Global Infrastructure Fund agreed to buy Buckeye Partners (NYSE: BPL), a Houston-based operator of oil pipelines and terminals, for $6.5 billion, or $41.50 per share (28% premium to Thursday’s closing price). http://axios.link/QmAA

It's Personnel

Ken Brown, former head of equity capital markets at Nomura, joined Barclays as chair of equity capital markets for Europe and the Middle East. http://axios.link/hH7Z

Final Numbers
Data: Yahoo Finance; Chart: Axios Visuals
Dan Primack