Nov 27, 2017

Axios Pro Rata

Dan Primack
Top of the Morning

Meredith Corp. has finally gotten Time Inc. to the altar, after years of fruitless courting.

The two magazine publishers announced a $2.8 billion tie-up last night, with Meredith paying $18.50 per share in cash and assuming around $900 million in debt. Meredith also has secured a $650 million preferred stock commitment from Koch Equity Development. Let's dig in:

  • Premium: Time Inc. is hyping the price-tag, given that shares hit an all-time low of $10 back on Nov. 8. But it's also worth noting that Meredith is paying a scant $50 million more than Edgar Bronfman Jr. and Access Industries repeatedly offered to pay one year ago — offers that were rejected out of hand.
  • Politics: Meredith says that the Koch investment is passive. No managerial or editorial influence, nor a board seat. And, to be sure, Koch has made plenty of passive, minority investments in the past, including a $2 billion infusion into private equity-backed Infor earlier this year. But when I asked a Time spokeswoman if the Koch passivity was written into the equity commitment letter or any other relevant documents, she told me to call Meredith. Same thing happened when I asked a Koch spokesman. But Meredith has not responded to my repeated inquiries on this point, and I saw nothing about it in the 84-page merger agreement.
  • So... I just have a very hard time believing Koch is only in this for the ROI, particularly given all the other financial sponsors who passed. Maybe there will be a data play. Maybe Koch will scoop up an orphaned news brand — yes, divestitures are expected, per a buy-side source — or eventually ask for that board seat it doesn't currently hold.
  • Scary stats: 59% of the combined company revenue, and 25% of its EBITDA, will come from print publications (print ads plus circulation). On the other hand, waiting rooms still love their print copies of People.
  • Supportive stats: The combined company says it would have around 170 million monthly unique U.S. visitors to its digital properties, per ComScore, ranking it sixth (behind Amazon and above Comcast/NBC).
  • Flashback: Time Inc. made sure its top execs would be taken care of in the case of a takeover. This includes CEO Rich Battista, who will step down when the deal closes in Q1, after just around 18 months on the job. No such protections were added for its other employees.

• New fund alert: Axios' Kia Kokalitcheva reports that Adam Jackson, the former CEO of telemedicine startup Doctor on Demand, has co-founded a cryptocurrency hedge fund called Cambrian Asset Management. His co-founders are Martin Green (ex-Meebo president) and Jay Posner (ex-Blue Cub Capital).

• Thiel talk: Peter Thiel has sold three-quarters of his remaining stake in Facebook, where he remains a director.

  • Thiel donated $300,000 last year to Missouri Attorney General Josh Hawley, who just launched an investigation into customer data and competition practices of Facebook rival Google. Axios' David McCabe has more.

• Value-minus: A pair of very troubling stories from the world of private equity portfolio oversight:

  1. Massage Envy is a national franchisor of massage parlors, owned by private equity firm Roark Capital Group. It also is a company that claims its franchising model absolves it of all legal liabilities in the 180 sexual assault lawsuits filed against its franchisees, according to a harrowing investigation from BuzzFeed.
  2. RYB Education is a Chinese provider of early childhood education that went public earlier this year after raising money from firms like Hillhouse Capital. Now it's embroiled in a child abuse scandal that seems to also have been enabled, in part, by a franchising model that allowed individual centers to be lax on background checks and reporting of abuse.

Mingbike, a Chinese bike-share company, appears to have shut down. Some laid-off employees have complained via social media that they haven't been paid in months, while users have been unable to receive deposit refunds.

  • Why it's the BFD: Because this is the third Chinese dockless bike-share startup to go bust in recent months, following Bluegogo and Coolqi.
  • More: Bluegogo is the largest such failure, having raised $90 million in venture funding — including from a firm actually called Black Hole Capital... how was that not a red flag? — and rolling out 600,000 bikes. One contributing factor seems to have been a June app modification (unclear if poorly-conceived ad campaign or a hack) that changed Bluegogo bike icons to tank icons. The result in Beijing was that it looked like tanks were rolling toward Tiananmen Square.
  • Bottom line: "China's bike-sharing market, overcrowded with more than 40 platforms, have attracted US$2 billion in funding over the last 18 months, making it one of the most popular industries for private equity, venture capitalists and angel investors." — Sarah Dai, South China Morning Post
Venture Capital Deals

• Lyft is raising up to $500 million in new funding, as an extension to the $1 billion round recently led by CapitalG.

• Niantic, the mobile AR game-maker behind Pokémon Go, has raised $200 million in Series B funding. Spark Capital led, and was joined by Founders Fund, Meritech, Javelin Venture Partners and NeatEase. The San Francisco-based company soon will release a Harry Potter-themed game.

• Victoria Beckham Ltd., a luxury fashion retailer and e-commerce company, has raised £30 million in new funding from NEO Investment Partners, according to Business of Fashion.

• LeafLink, a Los Angeles-based wholesale cannabis marketplace, has raised $10 million in Series A funding. Nosara Capital led, and was joined by Hippeau Ventures, Casa Verde Capital, Wisdom VC, Phyto Partners, TIA Ventures and Brand New Matter.

• PacketZoom, a San Mateo, Calif.-based provider of in-app mobile networking technology, has raised $5 million in Series A funding. Baseline Ventures led, and was joined by First Round Capital, Tandem Capital and Arafura Ventures.

Private Equity Deals

• Baring Private Equity Asia and CITIC Capital have agreed to buy Wall Street English, a China-based language learning company, from Pearson (LSE: PSON) for around $300 million (although proceeds only total around $100m).

• The Blackstone Group has agreed to acquire a portfolio of Australian industrial and logistics properties from Goodman Group (ASX: GMG) for around A$400 million, according to The Australian. It is Blackstone's third such purchase from Goodman.

⛽ I Squared Capital has agreed to acquire the Latin American and Caribbean business of IC Power, a subsidiary of Israel's Kenon Holdings (NYSE: KEN), for around $1.2 billion. IC Power had filed for an IPO back in January, but later reversed course.

• McAfee, a cybersecurity company owned by TPG Capital and Intel Corp., has agreed to buy Skyhigh Networks, a Campbell, Calif.-based provider of cloud visibility software that had raised over $100 million in VC funding from Sequoia Capital, Thomvest Ventures, Instant Scale Capital, Tenaya Capital, Northgate Capital and Greylock.

• Quilvest Private Equity has acquired a majority stake in Groupe des écoles Denis Huisman, a French chain of higher education schools, from Platina Equity Solutions.

• Southfield Capital has acquired American Refrigeration Co., an Andover, Mass.-based industrial refrigeration service provider.

• Triton has agreed to acquire Ramudden, a Nordic provider of work zone safety solutions, from IK Investment Partners.

Public Offerings

⛽ Abu Dhabi National Oil Co. is prepping an IPO of its fuel retailing unit that could raise upwards of $2 billion.

🚑 Denali Therapeutics, a South San Francisco-based biotech focused on neurodegenerative diseases, set its IPO terms to 8.33 million shares being offered at $17-$19. It would have an initial market cap of around $1.48 billion, were it to price in the middle. The pre-revenue company plans to trade on the Nasdaq under ticker DNLI, with Goldman Sachs serving as lead manager. Denali has raised around $350 million in VC funding, from the Alaska Permanent Fund (28.1% pre-IPO stake), Arch Venture Partners (15.3%), Flagship Ventures (12.3%), F-Prime Capital Partners (6.8%) and Fidelity Biosciences (5.8%).

🚑 Odonate Therapeutics, a San Diego-based developer of chemotherapy drugs, set its IPO terms to 5.88 million shares being offered at $24-$27. It would have an initial market cap of around $676 million, were it to price in the middle. The pre-revenue company plans to trade on the Nasdaq under ticker ODT, with Goldman Sachs and Jefferies serving as lead managers. Shareholders include Janus Capital (4.3% pre-IPO stake), Arcus Ventures (1.5%) and Samsara BioCapital (1.3%).

🚑 Ping An Good Doctor, a Chinese online medical platform, is prepping a Hong Kong IPO for Q1 2017 that could raise up to $1 billion, per IFR. Citigroup and J.P. Morgan are managing.

🚑 Quanterix, a Lexington, Mass.-based company that digitizes biomarker analysis, set its IPO terms to 3.34 million shares being offered at $14-$16. It would have an initial market cap of around $304 million, were it to price in the middle. The company plans to trade on the Nasdaq under ticker symbol QTRX, with J.P. Morgan and Leerink Partners serving as lead underwriters. It reports $16 million in revenue for the first nine months of 2017, and has raised nearly $100 million from firms like Arch Venture Partners (21.8% pre-IPO stake), Bain Capital Ventures (12.7%), BioMerieux (12.2%), Flagship Ventures (12.1%), Cormorant (5%) and T. Rowe Price.

• Ri Happy Brinquedos, a Brazilian toymaker owned by The Carlyle Group, has picked banks for an IPO that could raise upwards of $310 million, per Valor Economico.

Liquidity Events

• American Securities has agreed to sell SeaStar Solutions, a Litchfield, Ill.-based provider of vessel control, fuel systems and systems integration to the marine industry, to Dometic Group (Oslo: DOM) for $875 million.

• Premium Brands Holdings (TSX: PBH) has acquired Raybern Foods, a Hayward, Calif.-based provider of branded specialty sandwiches for the U.S. retail market, from TSG Consumer Partners. Premium Brands also has acquired Buddy's Kitchen (Minnesota-based prepared sandwich maker) and a 50% stake in Shaw Bakers (San Francisco-based bread and pastry maker).

More M&A

• Allianz of Germany has agreed to acquire the shares it doesn't already own in French credit insurance company Euler Hermes (Paris: ELER) for around €1.8 billion.

• BMW has agreed to sell its 49% stake in a carbon fiber production joint venture to partner SGL Group.

🚑 DaVita (NYSE: DVA) is considering a sale of its physician network business, which could be valued at upwards of $4 billion, according to Reuters.

• Sirius International Insurance has exercised its option to buy the remaining 47% stake it doesn't already hold in Israeli insurer Phoenix Holdings (TASE: PHOE1) from Delek Group (TASE: DLEKG) for around $656 million.

⛽ Weatherford International (NYSE: WFT), an oilfield services firm, has hired Morgan Stanley to divest non-core assets, with hopes of raising around $500 million, according to Reuters.


• Balderton Capital has closed its sixth Europe-focused VC fund with $375 million in capital commitments.

• KKR has disbanded its Africa private equity team because it couldn't find enough large buyout opportunities, according to the WSJ.

• Tanarra Credit Partners, an Asia-Pacific credit firm led by former Credit Suisse banker John Wylie, has raised more than A$285 million for its debut fund (which is targeting A$500m).

It's Personnel

• Robert Lu has joined state-backed China Reform Holdings, after having served as a ChemChina executive responsible for overseeing that company's $44 billion purchase of Syngenta.

• Mark McDonald has joined Deutsche Bank's fund management arm as global head of private equity secondaries. He previously was with Credit Suisse Asset Management.

Final Numbers
Dan Primack