Oct 26, 2017

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

We're six days away from House Republicans unveiling the details of their tax plan, and just four days away from most GOP members getting to learn what's actually in it. But multiple sources familiar with the process say that there will indeed be proposed changes to the deductibility of corporate interest.

  • Specifics: The current talk is to reduce the current 100% deduction down to 70%, with an expectation that the extra 30% would be taxed at the new statutory corporate rate. There is an expectation that existing debt would be grandfathered in, and transition rules may include grandfathering for debt that is in process as of the Nov. 1 roll-out (if that last part proves out, expect a massive surge in leveraged loan soft launches).
  • Caveat: Interest deductibility is viewed by the GOP as one of its few remaining ways to pay for tax cuts, and the 70/30 plan was devised in concert with 401(k) caps. If the 401(k) plan gets scrapped over Trump's tweet threats, then it's possible the deductibility limit could climb.
  • Magic number is 25%: That's the statutory rate at which many LBO shops are said to believe the deducibility cuts would effectively balance out. Any lower (i.e., the floated 20%), then the private equity bigs view this as an overall win. Any higher, and returns will suffer.

• For the sake of argument: The case for Uber at $95 billion

• Busted: Last summer I took some reader grief for "outing" former Apollo Global Management senior partner Ali Rashid as the unnamed individual accused by the SEC of "improperly charging personal items and services to Apollo-advised funds and their portfolio companies." That was part of a broader case against Apollo, but yesterday the SEC filed specific charges against Rashid. From an SEC release, Rashid is accused of:

"Defrauding his fund clients by secretly billing them for approximately $290,000 in personal expenditures, including his family vacations, visits to a hair salon, and purchases of designer clothing and high-end electronics."

• Bitcoin=Enron? Saudi Prince Alwaleed bin Talal earlier this week compared Bitcoin to Enron, suggesting the the former will implode like the latter. So I reached out to Peter Elkind, who literally wrote the book on Enron, to ask if he felt the company's primary fault was intentional fraud, or inherent flaws in the underlying business model. His reply:

Both. There was fraud because the underlying business was deeply flawed—and volatile in ways they refused to acknowledge to Wall Street. Skilling and Co. were determined to hide that to keep the illusion of growing profits—and higher stock price—going. Which explains the fraud.


Orchid Labs, a San Francisco-based developer of a new blockchain-based protocol, has raised $4.7 million in seed funding from an investor group that includes Sequoia Capital, Andreessen Horowitz, DFJ, Polychain Capital, Metastable, Blockchain Capital, Crunchfund, Struck Capital, Compound VC and Richard Muirhead.

  • Why it's the BFD: Because Orchid claims its protocol will let users access the Internet free of censorship, restrictions and surveillance. It's the brainchild of Steve Bell, who tells Axios that the idea originated from Internet restrictions he experienced while living and working in China.
  • Bottom line: "The main idea is to incentivize people with unused Internet bandwidth to share it with other users (presumably in places with restrictions), in exchange for payment via Orchid's Ethereum-based tokens. The company also says it's a more viable option than Tor and VPNs, which are increasingly difficult to access in places like China." — Kia Kokalitcheva
Venture Capital Deals

Skybox Security, a cybersecurity analytics company with offices in Israel and Silicon Valley, has raised $150 million in new funding led by CVC Capital Partners' growth equity affiliate. It previously raised around $145 million from Providence Equity Partners, Susquehanna Investment Group, Benchmark, Carmel Ventures, Lightspeed Venture Partners, Glynn Capital Management, Rembrandt Venture Partners, Mitsubishi and Valley Venture Capital. http://axios.link/ZP48

🚑 Y-mAbs Therapeutics, a New York-based developer of cancer antibodies, has raised $50 million in new VC funding from firms like HBM Healthcare Investments. http://axios.link/aEX7

• Brainly, a Poland-based homework help startup, has raised $14 million in new funding from Kulczyk Investments. Existing backers include Naspers, General Catalyst, Point Nine Capital and Runa Capital. http://axios.link/bbQg

• Amastan Technologies, a North Andover, Mass.-based maker of advanced materials using microwave-plasma production systems, has raised $13.85 million in Series B funding. Anzu Partners led the round, and was joined by Material Impact, RKS Ventures, KLP Ventures and LaunchCapital. www.amastan.com

• Deserve (f.k.a. SelfScore), a Menlo Park, Calif.-based credit card startup focused on college students, has raised $12 million in new VC funding. Accel led the round, and was joined by Aspect Ventures and Mission Holdings. http://axios.link/cx1v

• Reflektion, a San Mateo, Calif.-based provider of predictive marketing solutions for e-commerce, has raised $12 million in new Series B funding. Hasso Plattner led the round, and was joined by return backers Battery Ventures and Clear Ventures. http://axios.link/vyDo

• Snapcart, an Indonesia-based cashback app, has raised $10 million in Series A funding. Vickers Venture Partners led the round, and was joined by fellow insiders Wavemaker Partners and SPH Ventures, plus new investors Social Capital, Kickstart Ventures and Endeavor Catalysts. http://axios.link/jAcf

• GuestReady, a London-based management platform for Airbnb hosts, has raised $3 million in seed funding led by Impulse VC. http://axios.link/NvYc

• Menusifu, a New York-based restaurant software startup, has raised $3 million in Series A funding. Amino Capital led the round, and was joined by Jubilee Capital Management. http://axios.link/8Qnn

Private Equity Deals

• ADM Capital Europe has acquired a majority stake in Olivos Naturales, a Spanish producer of extra virgin olive oil. www.innoliva.com

• EPIC Insurance Brokers & Consultants, a retail property and casualty insurance broker owned by Oak Hill Capital Partners, has agreed to acquire New York-based insurance broker Frenkel & Co. http://axios.link/vMvv

• KKR has acquired a 12.64% stake in Indosari, an Indonesia-listed mass-market bread-maker, for $74 million. http://axios.link/exoJ

• Thomas H. Lee Partners has agreed to acquire a "significant" stake in HighTower, a Chicago-based wealth manager with around $50 billion in AUM. No financial terms were disclosed, except that THL will invest $100 million into the company post-close, for expansion purposes. http://axios.link/7UpN

Public Offerings

BP Midstream Partners, a Houston-based midstream energy asset developer and operator being spun out of BP Pipelines (North America), raised $765 million in its IPO. The company priced 42.5 million shares at $18 (below $19-$21 range), and will trade on the NYSE under ticker symbol BPMP. Citigroup was listed as left lead underwriter. www.bppipelines.com

🚑 National Vision, a Duluth, Ga.-based discount optical retailer backed by KKR and Berkshire Partners, raised $348 million in its IPO. The company priced 15.8 million shares at $22 (above $18-$20 range), and will trade on the Nasdaq under ticker symbol EYE. BofA Merrill Lynch was listed as left lead underwriter. National Vision reports $1.3 billion in revenue for its most recent fiscal year. http://axios.link/Sx9F

🚑 Siemens is has hired banks for an IPO of its Healthineers unit, which makes medical equipment like MRI and X-ray machines, according to Reuters. http://axios.link/M0sg

Liquidity Events

• American Securities has hired Morgan Stanley to find a buyer for Learning Care Group, a Novi, Mich.-based child care provider that could be worth up to $1.6 billion, according to Reuters. Interested suitors include China's IDG Capital and Bright Scholar Education Holdings. http://axios.link/uquX

• Intuit (Nasdaq: INTU) has agreed to acquire Exactor, a Bala Cynwyd, Penn.-based provider of sales and use tax calculation and filing SaaS. Sellers include Ben Franklin Technology Partners. www.exactor.com

⛽ White Deer Energy has agreed to sell O-Tex, a Midland, Texas-based pump cementing business, to C&J Energy Services (NYSE: CJ) for around $245 million. http://axios.link/Marp

More M&A

• CCC International of China has agreed to buy Canadian construction company Aecon Group (TSX: ARE) for C$1.51 billion, or C$20.37 per share. http://axios.link/44YZ

🚑 Incyte (Nasdaq: INCY) has agreed to pay $150 million upfront for the global rights to a cancer drug from MacroGenics (Nasdaq: MGNX), which focuses on inhibiting programmed cell death protein, plus upwards of $750 million in milestone payments. http://axios.link/idDz

• TriplePoint Venture Growth BDC (NYSE: TPVG) has raised $21.6 million via a private placement of common stock, at $13.54 per share, from Goldman Sachs Asset Management. www.tpvg.com

⛽ Vistra Energy (NYSE: VST) and rival power producer Dynegy (NYSE: DYN) are again in merger talks, with an announcement possible by next week, according to the WSJ. http://axios.link/8Twa


• Kayne Partners has closed its fourth growth equity fund with $385 million in capital commitments. www.kaynecapital.com

Final Numbers

More from Axios' Bob Herman:

  • A third of the health care deals in the third quarter involved long-term-care facilities, like nursing homes.
  • Buyers are paying more for most health care companies, especially labs and imaging centers.
  • Thad Kresho, who tracks health care deals for PwC, expects even more transactions by the end of the year, partially due to increasing interest by private equity investors.
  • Bob and the Axios healthcare crew bring you news every morning in the Axios Vitals newsletter. Sign up here.
Dan Primack