Jun 14, 2019

Axios Pro Rata

By Dan Primack
Dan Primack

🌞 Friday greetings from the home office. I'm off next week, so Kia Kokalitcheva will be your Pro Rata captain. Follow her on Twitter. Or email her. Or you're not even reading this because your summer weekend began early. Okay, here we go...

Top of the Morning
Source: Giphy

General Electric is seeking to turn off the lights at its venture capital arm, which has invested in hundreds of companies since being founded in 2013.

  • CNBC's Christina Farr reported yesterday that GE Ventures "has been shopping itself for several months and is in discussions with other venture firms as well as groups of limited partners who invest in those funds," with Lazard managing the process.
  • My understanding is that GE approached investment banks last summer, eventually picking Lazard, and that prospective buyers were first contacted in early 2019. At the time, it was a package of nearly 100 companies with a net asset value of approximately $500 million.
  • It's not considered to be a particularly strong portfolio, per multiple sources who have seen it.

Venture capital generally sells at a discount to buyouts on the secondaries market, and corporate venture often sells at an even deeper discount because buyers don't share in any strategic synergies. For GE Ventures, that could be anywhere from a 20% to 50% haircut, if it can find a buyer at all.

  • Some of the pricing pressure is the byproduct of a relatively small universe of secondary firms interested in venture capital, and an even smaller number with enough capital to do such a large deal on their own.
  • That means GE likely not only needs a lead investor, but also that investor's limited partners to co-invest.
    • Unless it can find a VC firm to take it on, although that seems pretty unlikely.
    • There's also is talk that some GE Ventures staffers are pitching portfolio slivers that they'd continue to manage, but it's unclear if such talks are sanctioned by GE.
  • Until recently, there really wasn't much transaction history for direct VC portfolios valued in the hundreds of millions. But then NEA sold a big basket to a Goldman Sachs-backed fund led by a former NEA partners, and Greenspring Associates quietly led the acquisition of a top-heavy portfolio from Altos Ventures that included unicorns like Roblox and Bluehole.

I asked a GE spokesperson if the unit is still making new investments, and specified that I wasn't asking about follow-on deals for existing portfolio companies. Her reply:

"While we are evaluating strategic options for GE Ventures we are focused on actively supporting our portfolio companies."

The bottom line: GE Ventures is effectively dead, because it doesn't have a checkbook to do new deals. The only question now is where it gets buried.

The BFD

Photo by Gregory Shamus/Getty Images

Chewy, an online pet food and supplies retailer owned by PetSmart, raised $1 billion in its IPO. The company priced 46.5 million shares at $22, above its upwardly-revised range, for an initial market cap of around $8.77 billion.

  • Why it's the BFD: Because it's a massive valuation bump from the $3.3 billion that PetSmart, owned by BC Partners, paid to buy Chewy in 2017.
  • Bottom line: The bull case here is that this is a very sticky subscription service in an age of ubiquitous e-commerce (i.e., it operates in a very different world than did Pets.com). Plus, it's managed to consistently outpace Amazon in its segment. The bear case is partially around profits, or lack thereof, but more around a lopsided governance structure whereby BC Partners/PetSmart could maintain control of Chewy with as little as a 10% equity stake.
Venture Capital Deals

SecurityScorecard, a New York-based security ratings company, raised $50 million in Series D funding. Riverwood Capital led, and was joined by return backers Accomplice, Evolution Equity, Intel Capital, Two Sigma and AXA Ventures. http://axios.link/KLNc

VidMob, a New York-based provider of video advertising tools, raised $25 million in Series B funding. BuildGroup led, and was joined by return backers Acadia Woods, Herington, Interlock Partners, Macanta Investments, Manifest affiliates and You & Mr Jones. http://axios.link/xOz8

Skupos, a San Francisco-based data platform for convenience retail, raised $26 million in Series B funding. Insight Partners led, and was joined by Unilever Ventures, Tao Capital and return backers Toba Capital, Dynamo Ventures and Loup Ventures. http://axios.link/2aq4

Audio Analytic, a UK-based sound recognition startup, raised $12 million in series B funding from Cambridge Innovation Capital, IQ Capital and National Grid Partners. http://axios.link/7QzF

Edge Case Research, a Pittsburgh-based startup focused on AI safety problems, raised $7 million. Chris Urmson led, and was joined by Lockheed Martin Ventures, Liberty Mutual Strategic Ventures, Trucks VC and Blue Tree Allied Angels. http://axios.link/zXTp

🚑 Saga Diagnostics, a Swedish developer of ultrasensitive liquid biopsy tests, raised $4.1 million. Hadean Ventures led, and was joined by Fårö Capital and the Gunnar Nilsson Cancer Foundation. http://axios.link/bKDE

Facebook (Nasdaq: FB) acquired a stake in Indian e-commerce company Meesho, which had previously raised $65 million from firms like Sequoia Capital. http://axios.link/Fv18

Private Equity Deals

Clessidra agreed to acquire a 80% stake in L&S Group, an Italian maker of interior lighting for the residential, industrial and retail sectors.

🚑 EQT is circling Australian healthcare provider Healius (ASX: HLX), which has a market cap of nearly A$2 billion, per The Australian.

OpenGate Capital sold Omniplast, a provider of PVC piping systems to the agricultural and greenhouse sectors, to Reedcapital, Luigi Chiaraviglio and Swiss Merchant Corp.

Prudential Capital Group invested in Soltage, a Jersey City, N.J.-based solar power producer. www.soltage.com

🚑 TPG Growth acquired Nova IVI, an Indian provider of fertility treatment services. www.novafertility.com

TPG Pace (NYSE: TPGH), a blank-check acquisition company sponsored by TPG, agreed to buy Lemont, Ill.-based slot machine operator Accel Entertainment for $884 million. http://axios.link/akkK

Vintage Capital Management said it would will willing to pay $40 per share, or $519 million, for Colorado-based fast-food chain Red Robin (Nasdaq: RRBG). http://axios.link/zjEL

Public Offerings

🚑 Change Healthcare, a Nashville-based healthcare revenue and payment cycle management software company being spun out of McKesson Corp. (NYSE: MCK), set IPO terms to 42.9 million shares at $16-$19. It would have a market value of $5.2 billion, were it to price in the middle, and plans to trade on the Nasdaq (CHNG) with Barclays as lead underwriter. http://axios.link/8hln

Liquidity Events

VMWare (NYSE: VMW) agreed to buy Avi Networks, a Santa Clara, Calif.-based developer of intent-based application services. Avi had raised around $115 million from firms like Greylock, Lightspeed Venture Partners, Cisco, DAG Ventures and Menlo Ventures. http://axios.link/WqNG

More M&A

Situational awareness: Federal judge Richard Leon is raising antitrust concerns about CVS Health's $78 billion takeover of Aetna, but legal experts say he simply doesn't have authority to nix the deal. Bob Herman has more here.

AppOnboard, a Los Angeles-based no-code mobile app design and development platform, acquired smaller Palo Alto rival Buildbox. AppOnboard has raised around $19 million from firms like Korea Investment Partners and Breakaway Growth. www.apponboard.com

Grupo SBF, operator of Brazil’s Centauro stores, increased its takeover offer for Brazilian online shoe retailer Netshoes (NYSE: NETS) to $4.10 per share, or $127.5 million. It has been locked in a bidding war with Magazine Luiza. http://axios.link/hsit

Jana Partners disclosed a 9.5% stake in Callaway Golf (NYSE: ELY), an is asking the company to explore a possible sale. Callaway shares surged on the news, giving it a market cap of $1.7 billion. http://axios.link/wLfr

Pernod Ricard (Paris: RI) agreed to acquire Rabbit Hole Whiskey, a Louisville, Ky.-based premium whiskey and bourbon maker. http://axios.link/Lmnc

Petrobras of Brazil completed the $8.69 billion sale of its TAG gas pipeline system to Engie (Paris: ENGI) and Caisse De Depot Et Placement Du Quebec. http://axios.link/7iWD

Third Point, led by Dan Loeb, disclosed a $1.5 billion stake in Sony Corp. (Tokyo: 6758) and said the company should spin off its semiconductors business via a Tokyo IPO. http://axios.link/7GCV

Total SA is in advanced talks to acquire a 30% stake in Indian gas distributor Adani Gas for upwards of $800 million, per Times of India. http://axios.link/taPg

WeWork is in talks to acquire a 70% stake of affiliate WeWork India for around $1.9 billion in cash and stock, per Bloomberg. http://axios.link/9S3E

Zume, a Mountain View-based robotic pizza delivery and logistics startup, acquired Pivot, a maker of plant-based packaging material. Zume has raised over $400 million from firms like SoftBank. http://axios.link/yS9F

Fundraising

Monomoy Capital Partners is raising $250 million for a credit opportunities fund, per an SEC filing.

It's Personnel

Arsham Memarzadeh (ex-OpenView Venture Partners), Adam Smith (ex-Bain Capital Ventures) and Amy Wu (ex-Discovery Inc.) joined Lightspeed Venture Partners to focus on growth equity investments. http://axios.link/847n

Jamie Weinstein stepped down as co-head of special situations investing at KKR, in order to join Pimco as a managing director.

Final Numbers
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Data: Money.net; Chart: Axios Visuals
Dan Primack

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