Apr 15, 2019

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Source: Giphy

"It's self-dealing and it shouldn't get approved. But I don't think we really have a choice."

That's what a limited partner in a buyout fund told me years ago, when the fund manager wanted to lead a restructuring and simultaneously raise a follow-on fund. The message was basically that limited partners should play ball on both fronts, or else the general partner would effectively stop paying attention to hundreds of millions of sunk capital.

Why it matters: GP-led restructurings, once just the provenance of struggling firms, have gone mainstream, increasing around 70% in 2018. They don't always include the so-called "staple" of a primary fund commitment, but they do often put LPs — including public retirement funds and charitable foundations — at a disadvantage.

  • Even when LPs can "roll" their existing interests into a special purpose vehicle, it can be on less favorable terms than was the initial fund.

What's new? ILPA, the trade group representing limited partners, published the first-ever guidelines for GP-led restructurings. Some highlights:

  • ILPA recommends that "rolling" LPs be allowed to maintain initial fund terms, including on carry and management fees.
  • LP advisory committees (LPACs) should have enough time and information to seek independent advice, including fairness opinions. All LPs should also should be allowed to question to GP and/or its advisor.
  • LPAC should also have a say on fees, including approval of breakup or termination fees if a deal isn't consummated.

The bottom line is that these rules are reasonable, which probably is why they haven't been widely practiced. But as GP-led restructurings become much more common, both sides would benefit from a mutual playbook.

• Today in terrible: Purdue Pharma, currently being sued by dozens of U.S. states for fueling the opioid epidemic, quietly tried to buy the addiction treatment unit of drug-maker Reckitt Benckiser back in 2014, per The Financial Times.

The division, now known as Indivior, makes opioid replacement therapies developed to wean addicts off heroin and prescription painkillers including Purdue’s notorious blockbuster drug OxyContin...
Internal company documents stated that 'pain treatment and addiction are naturally linked' and contained a picture of a funnel, 'beginning with pain treatment and leading to opioid addiction treatment,' according to [a] lawsuit.

• Golden: In case you haven't yet seen it, here is video of presumptive Fed nominee Stephen Moore on CNN saying he's never really said anything about the gold standard (adding that he's not in favor of it), and then being confronted with video of him speaking repeatedly in favor of the gold standard.

• Stalled: Lyft shares are off another 2% in early trading today, at just $58.70 as of this writing, on news that the newly-public company removed electric bikes from its fleets in New York City, San Francisco and Washington, D.C., due to possible braking issues.

• Antitrusting: Democrats in 2017 introduced A Better Deal, suggesting that antitrust law not only be more strictly enforced, but also revisited "to stop abusive corporate conduct and the exploitation of market power where it already exists."

  • There seems to be emerging bipartisan consensus on this point, at least when it comes to big tech, but so far we've seen little legislative action beyond campaign-adjacent proposals from Sen. Elizabeth Warren.
  • One reason for the inaction could be Democratic House leadership. Nancy Pelosi, who spoke at a press conference about A Better Deal, was asked during a recent Recode podcast about antitrust rules, and replied only by emphasizing the need to apply current law. Nothing about a 21st Century update, adding that she hasn't even yet "studied" Sen. Warren's proposals.
The BFD
Source: Giphy

Waste Management (NYSE: WM) agreed to buy Florida-based rival Advanced Disposal Services (NYSE: ADSW) for around $3 billion in cash, or $33.15 per share. It represents a 22% premium to Friday's closing price, and the deal value climbs to $4.9 billion once debt is included.

  • Why it's the BFD: Because it's Waste Management's largest-ever acquisition, uniting the country's number one and number four solid waste management companies.
  • Bottom line: The move comes just days after both companies were downgraded by Stifel, in light of deeper-than-expected deterioration in the recycling industry.
Venture Capital Deals

• Hireology, a Chicago-based hiring management platform, raised $27 million in Series B funding. Blue Cloud Ventures led, and was joined by return backers Bain Capital Ventures, Baird Venture Partners and SVB. http://axios.link/sjFg

🚑 Medbelle, a platform for medical procedure information and booking, raised $7 million in Series A funding. German health insurer Signal Iduna led, and was joined by Talis Capital, Mutschler Ventures, IBB and Cavalry Ventures. http://axios.link/yNPl

• Tripoto, an India-based community platform for travelers, raised $3.6 million from Orchid India. http://axios.link/mAWo

Private Equity Deals

🚑 TA Associates invested in Indira IVF, an Indian operator of fertility treatment centers. www.indiraivf.com

Public Offerings

Eight companies plan to go public on U.S. exchanges this week, seeking to raise a combined $2.5 billion: Pinterest, Zoom Video, Brainsway, Palomar Holdings, Brigham Materials, Hookipa Pharma, Greenlane and Turning Point Tx. http://axios.link/0OVZ

🍺 Anheuser-Busch InBev (Brussels: ABI) added BAML and Citigroup to the banking team working on an IPO of its Asia-Pacific business, per Reuters. http://axios.link/q2qH

🚑 Cortexyme, a South San Francisco-based developer of Alzheimer’s disease therapeutics, filed for an $86 million IPO. It plans to list on the Nasdaq (CRTX) with BAML as lead underwriter. The pre-revenue company raised around $100 million in VC funding from firms like Pfizer (14.71% pre-IPO stake), the Lamond Family (14.37%), Takeda Ventures (12.32%), Sequoia Capital, Vulcan Capital, Verily Life Sciences, EPIQ Capital Group, RSL Investments, Huizenga Capital, Breakout Ventures and Dolby Family Ventures. www.cortexyme.com

Mayville Engineering, a Mayville, Wis.-based provider of end-to-end manufacturing services for OEMs, filed for a $100 million IPO. It plans to trade on the NYSE (MEC) with Baird as lead underwriter. The employee-owned company reports $28 million of net income on $524 million in revenue for 2018. www.mecinc.com

Liquidity Events

🚑 Catalent (NYSE: CTLT) agreed to buy Paragon Bioservices, a Baltimore-based contract research and manufacturing group, for $1.2 billion in cash from shareholders like Camden Partners and NewSpring Partners, per the WSJ. http://axios.link/Qbac

Clearlake Capital is seeking a buyer for Perforce Software, a Minneapolis-based provider of configuration management software that could fetch around $2 billion, per Bloomberg. http://axios.link/5wuV

Entertainment One (LSE: ETO) agreed to buy Audio Network Ltd., a UK-based music publisher for the TV, film and ad markets, from shareholders like Stripes Group for $215 million. http://axios.link/FS5A

More M&A

🚑 Biohaven Pharma (NYSE: NHVN), a New Haven, Conn.-based developer of migraine treatments, is considering a sale, per Bloomberg. It had a $2.6 billion market cap at Friday’s close. http://axios.link/JNyi

Investec is in talks to sell its Ireland wealth management unit to Brewin Dolphin for around €60 million, per The Sunday Times. http://axios.link/hmND

• LiveRamp (NYSE: RAMP) acquired Faktor, an Amsterdam-based provider of privacy and consent management software. http://axios.link/H4Z7

• Publicis (Paris: PUB) agreed to buy the Epsilon marketing unit of Alliance Data Systems (NYSE: ADS) for $4.4 billion, beating out a joint bid from Advent International and Goldman Sachs. http://axios.link/eGN7

• Sho Products, a Los Angeles-based maker of cannabis accessories, acquired Master Minded Distribution, a wholesale cannabis distributor.

• Trafigura Group of Singapore agreed to take control of Nyrstar (Brussels: NYR), Europe’s largest zinc smelter in which it already held a stake, via a restructuring. http://axios.link/qjAp

Fundraising

🚑 Ajax Health, a Menlo Park-based investor in medical device companies, raised $85 million. HealthQuest Capital led, and was joined by Aisling Capital and Polaris Partners. http://axios.link/5XFZ

TTV Capital, an Atlanta-based VC firm focused on financial services, held an $88 million first close on its $125 million-targeted fifth fund, per an SEC filing. www.ttvcapital.com

It's Personnel

• Michael Gosk, GE’s former chief tax officer, joined General Atlantic as an operating partner. www.generalatlantic.com

• Rob Sweeney joined consumer-focused private equity firm Sycamore Partners as president. He previously was global head of consumer and retail investment banking at Goldman Sachs. http://axios.link/c1JJ

• Travis Keller has joined M/C Partners as a partner. He previously was a director with Altman, Vilandrie & Co. www.mcpartners.com

Final Numbers
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Data: Investing.com, Yahoo! Finance; Chart: Axios Visuals
Dan Primack