Oct 23, 2020

Axios Pro Rata

Top of the Morning

Illustration: Annelise Capossela/Axios

Okay. It's my fault for thinking (wishing?) that a more "presidential" debate tone would translate into more substantial, forward-looking policy discussions.

  • But rather than punt this morning with more cat GIFs, let's quickly update some stories that we've left by the wayside...

TikTok: There still isn't a deal, although ByteDance and CFIUS continue to negotiate.

  • A source close to the situation tells Axios' Ashley Gold that it's unlikely an agreement will be finalized until after the election.
  • The official deadline is Nov. 12, per the initial CFIUS order, although CFIUS could extend that by another 30 days.
  • TikTok remains available inside the U.S., and President Trump didn't mention it in either debate.

💰 Apollo Global Management: All eyes are on next Thursday's earnings call, and what CEO Leon Black may or not say about his personal ties to Jeffrey Epstein.

  • The first crack in Apollo's LP wall appeared earlier this week, when the Pennsylvania Public School Employees' Retirement System (PSERS) said it would stop making new commitments to Apollo funds. It currently has over $900 million in existing exposure, via multiple investment strategies.
  • Apollo's board of directors has hired law firm Dechert to conduct an independent investigation.
  • Black is not listed by name in the unredacted portions of the recently-released Ghislaine Maxwell deposition.
  • An Apollo spokesperson declined to comment on the earnings call script. The firm's shares are down for both the week and the month.

💼 WeWork: Fitch Ratings downgraded the co-working company from CCC+ to CCC, which means Fitch believes that "default is a real possibility."

  • Fitch estimates that the company reduced its burn from $4 billion in 2019 to $2.5 billion in 2020.
  • WeWork chairman and SoftBank exec Marcelo Claure recently made headlines for saying that Adam Neumann's "consulting contract" is no longer active. My understanding is that the vast majority of the $185 million was paid out to Neumann, and that the consulting contract ended when SoftBank bailed on its tender offer (which triggered litigation with Neumann and others). There has been some pundit suggestion that Neumann violated a noncompete agreement, but I'm told that's untrue.

🎬 Quibi: Jeffrey Katzenberg and Meg Whitman fell on their swords yesterday, during a joint interview with CNBC.

  • Katzenberg: "All we can do in the end is own it... All of us expected a much better, bigger outcome." He also said he "100%" regretted an earlier comment to the NY Times that all of Quibi's problems were caused by the pandemic.
  • Whitman: "The honorable thing to do is return money to shareholders once there isn't a viable way forward."
  • Axios Re:Cap dug into the Quibi calamity, including what comes next, with REDEF's Jason Hirschhorn. Listen via Apple, Spotify, or Axios.
The BFD

Source: Giphy

BC Partners plans to disentangle pet supplies retailer PetSmart from online rival Chewy (NYSE: CHWY), via a recapitalization plan. BC bought Chewy in 2017, in part by piling new debt onto existing portfolio company PetSmart, and then took Chewy public in mid-2019 while retaining almost total voting control.

  • Why it's the BFD: This reflects PetSmart's improved performance, driven largely by increased pet adoptions during the pandemic. It's also a tacit admission by BC Partners that its original investment thesis was flawed.
  • Details: PetSmart would be recapped with $1.3 billion in new equity and its $4.65 billion of debt would be refinanced (with pro forma leverage decreasing from 3.5x/5,6x to 3.2x/4.2x, per LevFin Insights). Commitments are due next Thursday, although there's no guarantee this deal goes through.
  • The bottom line: "The transaction is likely to be seen more favorably by creditors compared to a 2018 deal in which BC Partners put a portion of Chewy’s equity outside the reach of PetSmart lenders. They argued that PetSmart was insolvent at the time of the transfer, and that the move was thus fraudulent. PetSmart eventually got a majority of its lenders to approve amendments to their documents to squash the dispute." — Davide Scigliuzzo & Katherine Doherty, Bloomberg
Venture Capital Deals

🐺 Arctic Wolf, a Sunnyvale, Calif.-based security operations center-as-a-service company, raised $200 million in Series E funding at a $1.3 billion valuation. Viking Global Investors led, and was joined by DTCP and existing backers. http://axios.link/sFJ3

Rokt, a New York-based ecommerce marketing company, raised $80 million in Series D funding led by existing backer TDM Growth Partners. http://axios.link/YCKb

Lunar, a Nordic challenger bank, raised €40 million in Series C funding. Backers include Seed Capital, Greyhound Capital, Socii Capital, and Chr. Augustinus Fabrikker. http://axios.link/5Hoe

🚑 Allonnia, a Boston-based bioremediation company focused on waste management, raised $40 million in Series A funding from Ginkgo Bioworks, Battelle, General Atlantic, Cascade Investment, and Viking Global Investors. http://axios.link/7LCA

🚑 Azura Ophthalmics, an Israeli developer of treatments for dry eye, raised $20 million from OrbiMed, TPG Biotech, Brandon Capital, and Ganot Capital. http://axios.link/cdLE

🚑 Cohere Health, a Boston-based medical collaboration platform, raised $10 million co-led by Flare Capital Partners and Define Ventures. http://axios.link/gH38

EveryoneSocial, a Salt Lake City-based provider of employee advocacy SaaS, raised $7.6 million in Series A funding. Next Frontier Capital led, and was joined by Crane Group and Epic Ventures. http://axios.link/TLml

Render, a San Francisco-based dev-ops platform, raised $4.5 million in new seed funding led by General Catalyst. http://axios.link/PQwt

Ware, a San Francisco-based developer of autonomous drones for warehouse inventory counting, raised $2.5 million in seed funding. UP Partners led, and was joined by Bloomberg Beta and 2048 Ventures. www.getware.com

Private Equity Deals

Link Administration (ASX: LNK), an Australian fund administration services company, turned down a A$2.76 billion takeover offer from The Carlyle Group and Pacific Equity Partners, but said it’s open to further talks. http://axios.link/VG4r

Revolution, a Little Rock, Ark.-based portfolio company of Arsenal Capital Partners, acquired St. Paul, Minn.-based plastic packaging company Polar Plastics from Spell Capital Partners. www.revolutioncompany.com

Symplr, a Houston-based portfolio company of Clearlake Capital Group, agreed to buy TractManager, a Dallas-based provider of health care contract lifecycle management solutions, from Arsenal Capital Partners, per PE Hub. http://axios.link/0vi5

Public Offerings

🚑 Foghorn Therapeutics, a Cambridge, Mass.-based startup focused on the body’s chromatin regulatory system, raised $120 million in its IPO. The company priced at $16 per share (middle of range) for a fully diluted market value of $628 million, and will list on the Nasdaq (FHTX) with Goldman Sachs as lead underwriter. Backers include Flagship Pioneering (44.4% pre-IPO stake) and Seth Klarman’s family foundation (7.6%). http://axios.link/ARS8

Lufax, a Chinese online lender, set IPO terms to 175 million shares at $11.50–$13.50. It would have an initial market value of $30.5 billion, were it to price in the middle, and plans to list on the NYSE (LU) with Goldman Sachs (Asia) as lead underwriter. It reports over $1 billion of net income on more than $3 billion in revenue for the first half of 2020. Ping An holds a 42.3% pre-IPO stake, while other backers include Primavera Capital, Qatar Investment Authority, All-Star Investors and SBI Holdings. http://axios.link/M1bK

SPAC Stuff

Altimar Acquisition, a SPAC formed by HPS Investment Partners, raised $250 million in a downsized IPO. http://axios.link/mVVb

Churchill Capital Corp V, a SPAC led by Michael Klein, raised $400 million in an upsized IPO. http://axios.link/DNtD

Zanite Acquisition, an aviation-focused SPAC formed by Resilience Capital and Directional Aviation, filed for a $200 million IPO. http://axios.link/Emnj

Liquidity Events

Ares Management is seeking a buyer for high-end British paint maker Farrow & Ball, per Bloomberg. http://axios.link/MKif

PayPal (Nasdaq: PYPL) has held talks to acquire BitGo, a Palo Alto-based cryptocurrency custodian that’s raised over $70 million in VC funding, per Bloomberg. BitGo backers include Valor Equity Partners, Craft Ventures, Redpoint Ventures, Inventures, and Radar Partners. http://axios.link/cjAy

More M&A

Continental AG, a listed German auto parts maker, is seeking a buyer for its turbocharger unit, per Bloomberg. http://axios.link/JCW8

EQT Corp. (NYSE: EQT) offered to buy rival shale gas producer CNX Resources (NYSE: CNX), which has a $2.6 billion market cap, per Bloomberg. http://axios.link/UjgO

Flipkart, the Indian e-commerce firm owned by Walmart, agreed to pay $204 million for a 7.8% stake in listed Indian clothing store chain Aditya Birla Fashion & Retail. http://axios.link/rq79

Japan Post (Tokyo: 6178) plans to break up and sell parts of Australian logistics business Toll Group, per the FT. http://axios.link/1uO5

KPMG is seeking a buyer for its U.K. restructuring business, per the FT. http://axios.link/vBnw

🚑 Pfizer (NYSE: PFE) agreed to buy Arixa Pharma, a Palo Alto-based developer of oral antibiotics for drug-resistant infections that had raised $13 million in VC funding from undisclosed backers. http://axios.link/xyHD

Wells Fargo (NYSE: WFC) is considering a sale of its asset management unit, per Reuters. http://axios.link/LUrp

Fundraising

Hutt Capital, a Portland, Ore.-based fund-of-funds and direct VC firm focused on blockchain, is raising $25 million for its debut fund, per an SEC filing. www.huttcapital.com

Lavrock Ventures of McLean, Va. is raising $75 million for its second fund, per an SEC filing. www.lavrockvc.com

🚑 RA Capital Management raised $461 million for a new biotech-focused venture fund. http://axios.link/BmTw

Rainfall Ventures (fka Vaizra Investments) is raising $60 million for its second fund, per an SEC filing. www.rainfall.com

Final Numbers: Investor survey says...
Reproduced from UBS Investor Sentiment Q3 2020; Chart: Axios Visuals

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