Jun 27, 2019

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

Illustration: Lazaro Gamio/Axios

Several hours before last night's Democratic presidential debate in Miami, Sen. Elizabeth Warren tried visiting a child detention shelter in neighboring Homestead, Fla. She wasn't allowed in the door, despite having previously requested admission, and instead settled for making a short speech outside and waving to some kids through the chain-link fence.

Homestead is not the El Paso facility from which we recently heard horror stories about disease and lack of sanitation. But it is arguably even more controversial, in that it is the country's only for-profit detention center for migrant children — owned and operated by a company called Caliburn International.

Caliburn, in turn, is owned by a private equity firm, DC Capital Partners, which has no interest in publicly discussing a portfolio company that, just earlier this year, it wanted to take public.

  • Homestead is the nation's largest influx shelter, able to house thousands of kids while they wait for ICE bed assignments elsewhere, and manages to sidestep state inspection regulations because it is located on a U.S. military base.
  • Many of the children have been kept beyond the 20-day legal limit, although there is ongoing court debate over whether such a ceiling applies if there are not available ICE beds (or family/friends to whom the kids can be released).
  • Caliburn insists its charges are well cared for, although not everyone agrees.

DC Partners formed Caliburn via a 2018 merger of three companies. The first of those was purchased back in 2011, while the shelter operator was acquired much more recently.

  • DC Partners filed for the IPO in October 2018, reporting $17 million of profits for the prior nine months on $630 million in revenue.
  • That was when it was still operating under a $220 million, one-year DHS contract for Homestead. It subsequently re-upped via a no-bid process which increased the top-line to $341 million.
  • DC Capital Partners seems to have originally operated as a fundless sponsor, but raised $450 million for its first institutional fund in 2017. Per the IPO docs, at least some of Caliburn sits within that fund.
    • Axios contacted five limited partners in that fund, to ask if they were aware of their indirect ownership in Homestead and for their thoughts on profiting from President Trump's family separation policy. None replied. This included public pensions in Baltimore and Prince George's County, plus corporate pensions for healthcare systems Baystate Health and the Northern Westchester Hospital Association.
    • DC Capital Partners, founded a decade ago by former Veritas Capital partner Tom Campbell, declined comment.
  • The IPO was pulled in March. Officially because of "market forces," but more likely because of controversy over Homestead and government investigations into some of Caliburn's unrelated activities in Iraq.

The bottom line: Homestead is ground zero of a massive political battle playing out in Congress, the presidential campaign trail and on social media. And, like with so much of American society today, private equity is right in the middle of it.

Also...

🥣 Cereal scoop: Lightspeed Venture Partners has agreed to lead an investment in Magic Spoon, a direct-to-consumer breakfast cereal startup known for being higher protein/lower carb than your typical cheerio, per multiple sources. No word yet on the round amount — things won't be finalized for another week or so — but the valuation talk is $25 million.

  • Lightspeed is no stranger to the general area, having dealt in breakfast product via Daily Harvest (albeit frozen food, not dry) and direct-to-consumer (Bonobos, Honest Comany, etc).

Today in Abraaj: The lawyer for former Arif Naqvi claimed yesterday that the U.S. government has "ulterior motives" behind its extradition request for the former Abraaj Group CEO, who is accused of fraud, claiming that he and Abraaj posed some sort of danger to unspecified U.S. interests.

🎧 Pro Rata Podcast digs into the Democratic presidential debates. Listen here.

The BFD
Source: Giphy

Lion Capital has acquired a 50% stake in the North American restaurant business of British chef Gordon Ramsay. The deal is worth $25 million, with Lion also agreeing to invest $100 million over the next five years to help Ramsey open 100 new U.S. spots over the next five years.

  • Why it's the BFD: Because it reflects how private equity keeps plowing into restaurants, including earlier this week, even though they are a notoriously difficult business. Just last month, Ramsay rival Jamie Oliver said he'd close all but three of his 25 locations in the UK.
  • No, this space will not heretofore be devoted to reality TV stars. It's just been a strange week.
  • Bottom line: "Ramsay already has eight restaurants across Las Vegas, Atlantic City and Baltimore, in partnership with Caesars Entertainment. There’s five concepts in Las Vegas, of which three are brands that will be expanded through the new deal. " — Chloe Sorvino, Forbes
Venture Capital Deals

🚑 Encoded Therapeutics, a South San Francisco-based developer of a precision gene therapy for a rare form of epilepsy called Dravet syndrome, raised $104 million in Series C funding. Menlo Ventures, RTW Investments, Boxer Capital and Alexandria Venture Investments were joined by return backers Venrock, Arch Venture Partners, Matrix Capital Management, Illumina Ventures and Altitude Life Science Ventures. http://axios.link/BnJp

Aera Technology, a Mountain View, Calif.-based “self-driving” enterprise platform, raised $80 million in Series C funding. DFJ Growth led, and was joined by NewView Capital and Georgian Partners. http://axios.link/vnqk

🚑 Sanifit, a Spanish drug startup focused on treatments for vascular calcification disorders, raised €55.2 million in Series D funding. Caixa Capital led, and was joined by Columbus Venture Partners, Alta Life Sciences and return backers Lundbeckfonden Ventures, Ysios Capital, Forbion Capital Partners, Gilde Healthcare, Andera Partners, and HealthEquity. http://axios.link/JArQ

Calysta, a Menlo Park-based producer of proteins for fish, livestock and pet feeds, raised $30 million from BP Ventures. http://axios.link/qHk7

AUrate, a New York-based direct-to-consumer retailer of gold jewelry, raised $13 million in Series A funding led by Bluecrest Capital. http://axios.link/Nblt

Vulcan Cyber, an Israeli developer of cyber vulnerability remediation solutions, raised $10 million in Series A funding. Ten Eleven Ventures led, and was joined by seed backer YL Ventures. http://axios.link/kzdy

🚑 TailorMed, an Israeli startup aimed at improving financial performance of healthcare providers, raised $8 million in Series A funding. Triventures led, and was joined by Accelmed and Sanara Ventures. www.tailormed.co

Taster, a London-based developer of delivery-only restaurants, raised $8 million from Battery Ventures, Heartcore Capital and LocalGlobe. http://axios.link/68iM

🚑 CryoTherapeutics, a German developer of cryotherapy to prevent heart attacks, raised €7 million in Series B funding from Noshaq and return backers Peppermint Venture Partners, Creathor Ventures and Getz Brothers. www.cryotherapeutics.com

SoundCommerce, a Seattle-based data platform for commerce ops, raised $6.5 million in seed funding. Defy Partners led, and was joined by Voyager Capital, Stage Venture Partners and the Alliance of Angels. http://axios.link/w0SF

Skubana, a Fort Lee, N.J.-based ecommerce logistics management startup, raised $5.4 million in Series A funding. Defy Partners led, and was joined by Advancit Capital and FJ Labs. http://axios.link/WTFp

WeGift, a UK-based digital rewards startup, raised £4 million in Series A funding led by Stride VC. http://axios.link/Efph

Dfuse, a Montreal-based blockchain API startup, raised US$3.5 million in seed funding co-led by Multicoin Capital and Intel Capital. http://axios.link/uMaW

Private Equity Deals

Advent International agreed to buy a majority stake in Transaction Services Group, a New Zealand-based provider of business management and payments software to the health & fitness and childcare markets, from Calera Capital. www.transactionservices.global

BlackRock and KKR completed their $4 billion investment into the pipeline infrastructure of state-owned Abu Dhabi National Oil Co. http://axios.link/M9oe

🚑 Centerbridge Partners is in exclusive talks to buy Magellan Health (Nasdaq: MGLN), a Scottsdale, Ariz.-based health plan and pharmacy benefits manager with a $1.6 billion market cap, per the WSJ. http://axios.link/iZDp

CVC Capital Partners is in talks to pay at least $1 billion for a 25% stake in GEMS Education, a Dubai-based private school network owned by The Blackstone Group, per Bloomberg. http://axios.link/adQE

Elliott Management is in “advanced talks” to buy QEP Resources (NYSE: QEP), a Denver-based oil and gas explorer that it previously offered to buy in January, per Bloomberg. QEP has a current market cap of $1.7 billion. http://axios.link/5gZR

H.I.G. Capital agreed to buy the European polyurethane systems unit of Germany’s Covestro (DB: 1COV). www.covestro.com

LGT agreed to buy a majority stake in Indian wealth manager Validus Wealth. http://axios.link/IbSo

🚑 Peloton Capital Management invested C$75 million into Canadian dental practice network 123Dentist. www.123dentist.com

Unifrax, a Tonawanda, N.Y.-based portfolio company of Clearlake Capital, acquired Stellar Materials, a Boca Raton, Fla.-based maker of specialty chemistries and materials, from Goldner Hawn. www.thembond.com

Public Offerings

🚑 Adaptive Biotech, a Seattle-based developer of immuno-sequencing diagnostics, raised $300 million in its IPO. The company priced 15 million shares at $20 (above upwardly-revised range) for an initial market cap of $2.42 billion, and will trade on the Nasdaq (ADPT) with Goldman Sachs as lead underwriter. The company reports a $46 million net loss on $56 million in revenue for 2018, and had raised over $400 million in VC funding from firms like Viking Global (36% pre-IPO stake), Matrix Capital Management (16.4%), Celgene, Foresite Capital, Casdin Capita,, Tiger Global Management, Alexandria Venture Investments, LabCorp and Tower Equity. http://axios.link/nW0g

🚑 Castle Bioscience, a Friendswood, Texas-based developer of genetic diagnostics for skin cancers, filed for a $58 million IPO. It plans to trade on the Nasdaq (CSTL) with SVB Leerink as lead underwriter, and reports a $1.4 million net loss on $8.7 million in revenue for Q1 2019. The company raised around $87 million from firms like HealthQuest Capital and Industry Ventures. http://axios.link/CgrT

🚑 Change Healthcare, a Nashville-based healthcare revenue and payment cycle management software company being spun out of McKesson Corp. (NYSE: MCK), raised $557 million in its IPO. The company priced 42.9 million shares at $13 (below $16-$19 range), for a $3.83 billion market cap. It will trade on the Nasdaq (CHNG) with Barclays as lead underwriter. http://axios.link/5AXP

Linx, a Brazilian provider of business management SaaS to Latin American retailers, raised $308 million in its IPO. The company priced 32.8 million shares at $9.40 (a slight discount the prior trades in Brazil), for a fully-diluted market value of $1.8 billion. It will list on the NYSE (LINX) with Goldman Sachs as lead underwriter, and reports $18 million of net income on $176 million in revenue for 2018. http://axios.link/4Jvr

More M&A

Bank of Nova Scotia (TSX: BNS) agreed to sell its Puerto Rico and U.S. Virgin Islands operations to Oriental Bank (NYSE: OFG) for $560 million in cash. http://axios.link/CP4W

🚑 Bracco Imaging of Italy agreed to acquire Blue Earth Diagnostics, a British molecular imaging company focused on radiopharmaceuticals for cancer management, from Syncona (LSE: SYNC) for $450 million. http://axios.link/y83A

Fundraising

Private Advisors raised $420 million for its eighth fund-of-funds focused on the lower middle-markets. www.portad.com

Warburg Pincus raised $4.25 billion for its second private equity fund focused on China and Southeast Asia. http://axios.link/zw7Y

It's Personnel

Scott Berg joined Baird as a managing director in its financial sponsors group. He previously was with RBC Capital Markets. www.rwbaird.com

Campbell Lutyens, a private equity placement agent, promoted Rishi Chhabria (NYC), David Perrin (NYC), Greg Weiner (LA) and Ben Pearce (London) to partners. It also promoted London-based Bashak-Julianna Demir and Ashrith Ramachandran to principals. www.campbell-lutyens.com

Dennis McWilliams, founder of SparkMed Advisors and Apollo Endosurgery, joined Santé Ventures as a venture partner. www.santeventures.com

Dan Oneglia joined GSO Capital Partners as a senior managing director and co-head of distressed investing. He spent the past two decades with Goldman Sachs. www.blackstone.com

Final Numbers
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Data: S&P Global; Chart: Harry Stevens/Axios
Dan Primack

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