Nov 13, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Quick reminder that tomorrow I'll be interviewing Kim Posnett, global head of Internet banking at Goldman Sachs, in San Francisco as part of the Virtuous Circle Summit. Okay, here we go...

Top of the Morning

The Senate GOP tax plan unveiled last week is causing major heartburn in startup circles, as it includes a provision that would tax stock options and restricted stock units at vesting, rather than when they are exercised (as under current law) or when there actually is a liquid market (as under the amended House proposal). Per Greg Grogan, a compensation and employee benefits attorney with Simpson Thacher & Bartlett:

"For startup employees, this is equivalent to the government taxing a lottery ticket because the first two ping pong balls match your ticket. Employees will owe taxes on 'potential' value on the vesting date of their options before they know whether the option will ever really be worth anything and before there is any cash available to pay taxes. Maybe next, Congress will tax us when Zillow says our home value has increased."

Not only is such a plan nonsensical in terms of encouraging new company creation, but it's also fiscally dumb.

For example, imagine if all early Facebook employees had been taxed at the time of vesting (at relatively low valuations) as opposed to the time of exercise or sale. Pretty sure that would result in lower tax revenue (while, again, the entire plan might have discouraged people from working to build Facebook in the first place).

  • If it passes: Startups would need to flip their compensation structure to favoring cash over equity.

• Tender time: Uber's warring factions have agreed to a truce that will allow Japan's SoftBank Group to launch its long-awaited tender offer. Two keys to breaking the stalemate:

  1. Benchmark agreed, in writing, to suspend its lawsuit against Kalanick during the tender, and drop it if the deal gets closed.
  2. Kalanick will allow a majority of the board to approve (or disapprove) his future nominees to three board seats that he currently controls.
  • Bottom line: This is major development, but doesn't mean the deal will actually be consummated (despite poorly-worded headlines to the contrary). Instead, SoftBank now will propose a price at which it would buy stock from eligible Uber shareholders, who would then have 30 days to tender. Or not.

• New firm alert: Mill Point Capital is raising $375 million for a debut private equity fund that will focus on control deals for North American business services and industrial companies. It also will consider turnaround deals, which makes sense given that its namesake is chairman Jim Millstein, former co-head of corporate restructuring at Lazard who later oversaw the AIG restructure through a Treasury Department role. Also involved is managing partner Michael Duran, who previously was a partner with Ripplewood Holdings.

The BFD

Hasbro (Nasdaq: HAS) has offered to acquire rival toy-maker Mattel (Nasdaq: MAT), as first reported by the WSJ. Mattel closed Friday trading with a market cap just north of $5 billion, but its shares spiked around 25% in aftermarket trading.

  • Why it's the BFD: Because this would be a merger of the country's two largest toy-makers. Plus, it may cause major jealousy issues for Ken, as Barbie and GI Joe would be living under the same corporate roof.
  • Bottom line: These are two companies moving in opposite directions, as Hasbro shares are up around 13% this year while Mattel was off 47% before news of a possible sale. One differentiator for Pawtucket, R.I.-based Hasbro has been its strategy of buying toy rights to popular entertainment franchises like Star Wars.
Venture Capital Deals

🕸 Bolt Threads, an Emeryville, Calif.-based maker of spider silk threads, has secured $57 million of what could be a $106 million Series D round, per an SEC filing. Existing backers include Formation 8, Innovation Endeavors, Nan Fung and return backers Founders Fund, Foundation Capital, Alafi Capital and East West Capital. http://axios.link/KJ15

Graphcore, a UK-based developer of machine intelligence processors (i.e., startup rival to Nvidia and Intel), has raised $50 million in Series C funding led by Sequoia Capital. http://axios.link/vWFH

• Flightdocs, a Bonita Springs, Fla.-based provider of SaaS solutions to the business aviation industry, has raised $10 million from Argentum. www.flightdocs.com

• Trouva, a British online marketplace for homeware and lifestyle brick and mortar boutiques, has raised $10 million in Series A funding. BGF Ventures led, and was joined by Index Ventures and Octopus Ventures. http://axios.link/8n5C

• Loft Orbital, a San Francisco-based "satellite rideshare service" for earth observing sensors, has raised $3.2 million in seed funding. Uncork Capital led, and was joined by MDI Ventures, V1 VC, Mercuria Investment Japan and The Remote Sending Tech Center of Japan. www.loftorbital.com

• TrackStreet, a Santa Barbara, Calif.-based automated brand protection platform, has raised $2 million in seed funding led by Okapi Capital. www.trackstreet.com

Private Equity Deals

• AbacusNext, a San Diego-based portfolio company of Providence Equity Partners, has acquired HotDocs, a British provider of document automation solutions. www.abacusnext.com

• Accruent, an Austin, Texas-based portfolio company of Genstar Capital, has acquired BlueCielo, an Amsterdam-based provider of asset lifecycle information management, from Glide Equity Management. www.accruent.com

• Brookfield Asset Management has bid more than $14 billion, or $23 per share, for the 64% stake it does not already hold in Chicago-based shopping mall operator GGP (NYSE: GGP, according to Bloomberg. http://axios.link/grL3

• Lone Star Funds has agreed to acquire Stark Group, a Denmark-based building materials distributor, from Ferguson (LSE: FERG) for €1.03 billion. http://axios.link/3Z4s

• Olympus Partners has acquired Vaco, a Brentwood, Tenn.-based executive search firm, from Quad-C Management. www.vaco.com

• Tengram Capital Partners has agreed to acquire Madison, N.J.-based luxury skincare brand RéVive from Shiseido Americas. http://axios.link/9H3g

Public Offerings

• 12 companies expect to go public on U.S. exchanges this week: Stitch Fix, Sendgrid, SailPoint Technologies, AMERI Holdings, Arsanis, Bluegreen Vacations, scPharmaceuticals, LiveXLive Media, Jianpu Technology, Canuelas Mill, MPM Holdings and Workspace Property Trust. http://axios.link/PZCq

• Bandwidth, a Raleigh, N.C.-based cloud communications platform, raised $80 million in its IPO. The company priced 4 million shares at $20 (low end of range), and trades on the Nasdaq under ticker BAND. Morgan Stanley was listed as left lead underwriter. It reports $157 million in revenue for the year ending June 30, 2017. www.bandwidth.com

🚑 Erytech Pharma, a French developer of therapies for pancreatic cancer, raised $109 million in its IPO. The pre-revenue company priced 4.7 million American depository shares at $23.26, and also raised $16 million via a private placement. It now trades on the Nasdaq under ticker symbol ERYP, while Jefferies was listed as left-lead underwriter. Shareholders include Baker Brothers and Auriga Ventures. www.erytech.com

• MAP Active, an Indonesian sporting goods retailer backed by CVC Capital Partners, is prepping a local IPO that could raise around $300 million, per Bloomberg. http://axios.link/FUnc

• PPDAI Group, a Chinese P2P online lending platform, raised $221 million in its IPO. The company priced 17 million shares at $13 (below $16-$19 range), ands will trade on the NYSE under ticker PPDF. Credit Suisse and Citi served as lead underwriters. Shareholders include Sequoia Capital China and Lightspeed Venture Partners China.

• Sabre, a British auto insurer owned by BC Partners, plans to raise nearly $280 million in a London IPO next month. http://axios.link/9R1d

Liquidity Events

Apple (Nasdaq: AAPL) has acquired InVisage Technologies, a Newark, Calif.-based company focused on improving imaging capabilities on smaller devices. InVisage had raised over $100 million since 2007, from firms like InterWest Partners, GGV Capital, Nokia Growth Partners, RockPort Capital, Intel Capital and Arsenal Venture Partners. http://axios.link/R2h2

More M&A

• Electronic Arts (Nasdaq: EA) has agreed to acquire Respawn Entertainment, a Sherman Oaks, Calif.-based game studio whose titles include Titanfall, for upwards of $445 million in cash and stock ($315m upfront). http://axios.link/msKZ

• General Electric (NYSE: GE) reportedly plans to divest all business lines outside of aviation, power and healthcare. The company also is cutting its dividend in half.

  • Programming note: Former GE CEO Jeff Immelt will be among those participating in an Axios event this Thursday in Chapel Hill.

• Green House Data, a Cheyenne, Wyo.-based provider of cloud hosting and data center services, has acquired Ajubeo, a Boulder, Colo.-based cloud infrastructure services company that recently went bankrupt after having been backed by Grey Mountain Partners. http://axios.link/SRiK

🚑 Pfizer (NYSE: PFE) has sold its 49% stake in a joint venture it had launched with China's Zhejiang Hisun Pharmaceuticals to develop and market generic drugs. http://axios.link/JuBm

⛽ Royal Dutch Shell is selling some of its stake in Australian oil and gas company Woodside Petroleum (ASX: WPL) for around A$1.7 billion. http://axios.link/tN4x

Fundraising

• Leavitt Equity Partners, a Utah-based private equity firm, is raising up to $125 million for its second fund, per an SEC filing. www.leavittpartners.com

It's Personnel

Nathan Benaich, a former partner with Playfair Capital, has joined Berlin-based VC firm Point Nine Capital as a venture partner. www.pointninecap.com

• Stan Laurent, former CEO of Photobox, has joined venture firm Highland Europe as a partner. http://axios.link/602p

Final Numbers: Private Capital Comp
  • More from Preqin report: "Base salary mostly increased for mid-level (i.e., VP and sr. associate) and junior level (i.e., associate/analyst) functions. Across all levels of seniority, the largest proportion (65%) of firms saw no change in base salary at executive management level, and 2% of firms saw a decrease."
Dan Primack