Oct 3, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Greetings from the home office. Quick reminder to send me feedback and tips via dan@axios.com or anonymously at http://axios.com/tips. Okay, here we go...

Top of the Morning

• Buy American: A Texas district court on Friday struck down an Obama-era Treasury Department rule that restricted corporate inversions, and the Trump-era Treasury Department is mum on its next moves.

  • At issue: Corporate inversions are when U.S. companies "move" abroad for lower tax rates, while still maintaining most of their operations in the U.S. For more context, check out this Allan Sloan piece from 2014, in which he concludes that such moves are "positively un-American tax dodges." Sloan would later be called to testify in Congress on the matter, but the real outcry came a year later when New York-based Pfizer tried to invert via a $160 billion merger with "Ireland-based" Allergan. That deal was scuttled after Treasury put new rules in place in April 2016, which were designed to discourage inversions.
  • From the bench: Those rules were challenged by the U.S. Chamber of Commerce and the Texas Association of Business. Not so much on the substance, but rather on the process. And a judge agreed, saying the changes were substantive enough to require both public notice and comment before being implemented (two things that didn't happen).
  • Now what? One would think Treasury either would be working on an appeal or prepping that public notice period, or both. After all, Trump constantly complains about U.S. companies moving overseas. But so far there has been no reaction at all, and my emails to a Treasury spox on the matter have gone unanswered. It's possible that the silence is tied into tax reform, with the thinking that a 20% corporate rate will eliminate inversion interest — even though 20% remains well above the statutory rate in a country like Ireland.

• Stop it. Just stop it: The new Forbes cover story on WeWork contains this gem from CEO Adam Neumann, in regards to his company's recent $4.4 billion investment led by SoftBank Vision Fund:

"No one is investing in a co-working company worth $20 billion. That doesn't exist. Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue."

• Off the docket: Khosla Ventures has filed for a dismissal with prejudice of its fraud and extortion litigation against former portfolio company CEO Dinesh Ramanathan, without any admission of liability by either Ramanathan nor his company. We had first discussed the suit last month. No explanation yet for Khosla's change of heart.

• "To be determined." That was the comment yesterday from House Ways & Means Committee chair Kevin Brady (R: TX), when asked if the tax plan would be retroactive to the beginning of 2017.

• All hail breaks loose: Uber's board today is expected to vote on governance changes that could clear a path for SoftBank to launch its Dutch auction-style secondary tender. Lots of questions, beyond just if Travis Kalanick and Matt Cohler will engage in an epic slapfight. For example, will Benchmark and other preferred shareholders convert to common if they sense a loss? How will new board members Ursula Burns and John Thain be integrated into broader board responsibilities? Will they explain why they agreed to be used as pawns in a private proxy battle?

  • More: A due diligence report prepared by a forensics company as part of Uber's acquisition of Otto was publicly released last night. It confirms much of what Alphabet's Waymo, which is suing Uber for alleged trade secret theft, has suspected about Otto founder Anthony Levandowski. Kia has more, including the full report.
The BFD

Bain Capital has a possible roadblock in its $1.3 billion takeover offer for Japanese ad agency Asatsu-DK (Tokyo: 9747), as global ad agency WPP (LSE: WPP) does not plan to tender its 24.7% stake, according to the FT. Not only does WPP apparently believe the 15.4% premium undervalues ADK, but Bain's bid also would effectively sever a longstanding partnership between ADK and WPP.

  • Why it's the BFD: For starters, this would be the first-ever buyout of a major ad company in Japan. It also would be the second time this year that Bain has run into problems in Japan with a target's non-Japanese partner (the first being Western Digital on the Toshiba memory chips deal). All fairly remarkable, given that U.S. private equity firms had written off Japan not too long ago.
  • Bottom line: "WPP seems to be holding on for financial reasons rather than to capitalize on ADK's ambitions to grow with Japan's digital ad market. Japan, the third-largest ad market globally at roughly $41 billion, is expected to grow to $44 billion, largely due to accelerated growth in mobile advertising." — Axios' Sara Fischer
Venture Capital Deals

• Ola, an Indian ride-hail company, has raised $2 billion in new funding from new investors like SoftBank and Tencent, according to Bloomberg. https://bloom.bg/2fEUzVH

🚑 Cullinan Oncology, a Cambridge, Mass.-based cancer drug development company led by former Intarcia Therapeutics exec Owen Hughes, has raised $150 million in VC funding from MPM Capital and F2 Ventures. http://axios.link/0k9Y

🚑 Recursion Pharmaceuticals, a Salt Lake City-based drug discovery startup that leverages AI, has raised $60 million in Series B funding. Data Collective led the round, and was joined by Mubdala, Menlo Ventures, CRV, Two Sigma and return backers Lux Capital, Obvious Ventures, Advantage Capital, Felicis, Epi and AME. www.recursionpharma.com

• EnvoyGlobal, a Chicago-based provider of compliance management software for immigrant employees, has raised $21 million in Series C funding. Catalyst Investors led the round, and was joined by return backer General Catalyst. http://tcrn.ch/2yTX12F

• Forensic Logic, a Walnut Creek, Calif.-based provider of network search technology and cloud-based information services to law enforcement, has raised $20 million in growth equity funding from Mainsail Partners. www.forensiclogic.com

🚑 CathWorks, an Israel-based developer of non-invasive FFR measurements for guiding coronary interventions, has raised $15.8 million in Series B funding. Quark Ventures and Triventures co-led the round, and were joined by Planven Investments, Pontifax, Corundum Open Innovation and BioStar Ventures. http://axios.link/FDH3

• Kryon Systems, an Israeli provider of robotic process automation solutions, has raised $12 million in Series B funding co-led by Aquiline Technology Growth and Vertex Ventures. http://axios.link/u4hb

• Cloud4Wi, a San Francisco-based provider of a location analytics and mobile marketing platform, has raised $11.5 million in Series B funding co-led by Opus Capital and United Ventures. www.cloud4wi.com

• STARC Systems, a Brunswick, Maine-based maker of safety barriers for construction sites, has raised $3.5 million in funding led by Blue Heron Capital. http://axios.link/xKHX

• TrademarkNow, a Finland-based trademark management platform, has raised €3 million from Karma Ventures, Balderton Capital and Montiko GmbH. It also has secured a €2 million loan from Finnvera. www.trademarknow.com

• Dwell, a UK-based online mortgage broker, has raised $1.2 million in seed funding led by Passion Capital. http://axios.link/DZ9j

Private Equity Deals

• American Securities has acquired MW Industries, a Rosemont, Ill.-based precision spring and fastener manufacturer, from Genstar Capital. No financial terms were disclosed. www.mw-ind.com

• Apax Partners has completed its previously-announced purchase of the electronic monitoring business of 3M's (NYSE: MMM) traffic safety and security division for around $200 million. http://on.mktw.net/2ro2n34

• Arlington Capital Partners has acquired Xebec Global, a McLean, Va.-based provider of human intelligence solutions and services to the intelligence community. No financial terms were disclosed. Sellers include CM Equity Partners. www.xebecglobal.com

• Francisco Partners has acquired a majority stake in Dynamo Software, a Watertown, Mass.-based provider of investment management software for the alternative asset industry. No financial terms were disclosed. www.dynamosoftware.com

• PAI Partners has offered to buy Dutch juice bottler Refresco for €1.6 billion, just months after being rejected on a €1.4 billion offer. http://reut.rs/2yly1V3

• The Riverside Company has agreed to acquire Parker Products, a Fort Worth, Texas-based provider of inclusions and other specialty ingredients the baking and other food production and foodservice markets. No financial terms were disclosed. http://axios.link/jFk9

🚑 Sentinel Capital Partners has invested in MB2 Dental Solutions, a Carrollton, Texas-based dental services organization that employs a "joint venture" ownership model with affiliated dentists. No financial terms were disclosed. www.mb2dental.com

• T.F. Hudgins, a Houston-based machine reliability company owned by The CapStreet Group, has acquired Pro-Line Inspections, a Simi Valley, Calif.-based company that uses infrared and ultrasound inspection technologies to identify equipment problems in advance of failure. No financial terms were disclosed. www.tfhudgins.com

• TowerBrook Capital Partners has acquired Rewards Network, a Chicago-based provider of loyalty programs to the restaurant industry, from Equity Group Investments. No financial terms were disclosed. www.rewardsnetwork.com

🚑 Water Street has acquired Employee Benefit Management Services, a Billings, Mont.-based third party administrator for health insurance plans. No financial terms were disclosed. www.ebms.com

🚑 Waud Capital Partners has invested in APDerm, a provider of adult and pediatric dermatology services in Massachusetts and New Hampshire. www.apderm.com

Public Offerings

🚑 Ablynx, a Belgium-based developer of proprietary therapeutic proteins based on single-domain antibody fragments, has filed for a $150 million IPO. It plans to trade on the Nasdaq under ticker symbol ABLX, with BofA Merrill Lynch listed as left lead underwriter. The company reports nearly €86 million in 2016 revenue, while shareholders include Perceptive Advisors (4.52% stake). www.ablynx.com

• ForeScout, a 16-year-old cybersecurity firm based in Campbell, Calif., has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol FSCT, with Morgan Stanley listed as left-lead underwriter. The company reports around a $47 million net loss on $91 million in revenue for the first half of 2017, compared to a $39 million net loss on $67 million in revenue for the year-earlier period. Forescout has raised over $150 million in VC funding (most recently at a $1 billion valuation), from firms like Amadeus Capital (19.6% pre-IPO stake), Accel (15.2%), Meritech Captial Partners (13.4%), Wellington Management (7.7%), Cross Creek Advisors, Intel Capital, Itochu and Pitango Venture Capital. http://tcrn.ch/2hILmzR

🚑 OrthoPediatrics, a Warsaw, Ind.-based medical device company focused on the pediatric orthopedic market, has set its IPO terms to 4 million shares being offered at between $12 and $14 per share. It plans to trade on the Nasdaq under ticker symbol KIDS, with Piper Jaffray and Stifel serving as lead underwriters. The company reports a $2.5 million net loss on $21.6 million in revenue for the first half of 2017. Shareholders include Squadron Capital (66.8% pre-IPO stake). www.orthopediatrics.com

Regalwood Global Energy, a blank check company formed by The Carlyle Group to acquire an energy business, has filed for a $300 million IPO. It plans to trade on the NYSE under ticker symbol RWGE.U, with Citigroup and J.P. Morgan serving as lead underwriters. www.carlyle.com

Liquidity Events

Akindo Sushiro and Genki Sushi, a pair of Japanese conveyor-belt sushi chains, have agreed to merge. The deal also represents an exit for Permira, which had acquired Sushiro in 2012 and maintained a stake after bringing it public earlier this year. http://on.ft.com/2wZAZyi

🚑 Boston Scientific (NYSE: BSX) has agreed to acquire Apama Medical, a Campbell, Calif.-based developer of atrial fibrillation technologies, for upwards of $300 million in cash (including $175m upfront). Apama had raised around $44 million in VC funding from firms like Ascension Ventures, Broadview Ventures, Grant Park Ventures, Medvance Incubator Partners, ONSET Ventures and Incept LLC. http://axios.link/GiH3

• The Carlyle Group has agreed to sell German wood products manufacturer Klenk Holz to Austria's Binderholz for an undisclosed amount. www.carlyle.com

• High Road Capital Partners has sold The Crown Group, a Warren, Mich.-based provider of component finishing services, to PPG (NYSE: PPG) for an undisclosed amount. www.thecrowngrp.com

• Wal-Mart (NYSE: WMT) has acquired Parcel, a New York-based delivery logistics startup. No financial terms were disclosed. Parcel had raised seed funding led by Liberty City Ventures. http://reut.rs/2xWZHP8

More M&A

• Adecco (Swiss: ADEN), a global staffing firm, has acquired Mullin International, a New York-based outplacement group, for an undisclosed amount. http://reut.rs/2xRiDNe

• Berkshire Hathaway has agreed to purchase a majority stake in Pilot Flying J, the largest U.S. truck stop operator, over several years, from the Haslam family. http://reut.rs/2ylk5uk

• J. Safra Sarasin Group has agreed to acquire the Luxembourg and Switzerland private banking business of Israel's Bank Hapoalim for an undisclosed amount. http://reut.rs/2fGW85u

• Methode Electronics (NYSE: MEI) has acquired Pacific Insight (TSX: PIH), a Vancouver-based maker of indoor LED systems, for $114 million. www.pacificinsight.com

• Natixis (Paris: CNAT) has agreed to acquire a majority stake in Australian fund management company Investors Mutual for around A$155 million, from sellers like Pacific Current Group (ASX: PAC). http://reut.rs/2fMS732

• ServiceNow (NYSE: NOW) has agreed to acquire San Diego-based design firm Telepathy for an undisclosed amount. http://tcrn.ch/2xSZSup

• Truphone, a London-based provider of low-cost international mobile voice and data plans, has raised £255 million in new funding from existing majority backers Mindel and Vollin Holdings (both tied to Russian oligarch Roman Abramovich). Some proceeds will be used to retire company debt. http://tcrn.ch/2kfgE1S

Fundraising

• NSSK, a Japanese middle-market private equity firm, has closed its second fund with around $530 million in capital commitments. www.nsskjapan.com

It's Personnel

• Edward Donkor has joined SK Capital Partners as a principal, while Simon Dowker has joined as director of business development. Donkor previously was with Pine Brook Partners, while Dowker was with PJT Partners. www.skcapitalpartners.com

• Reto Schwager (ex-Partners Group) has been named CEO of European private equity firm Schroder Adveq. http://axios.link/KMEO

Final Note

"Take me as I come 'cause I can't stay long."

Dan Primack