May 4, 2017

Axios Pro Rata

Dan Primack

Greetings from Washington, D.C., where this afternoon I'll be interviewing Marc Andreessen about everything from AI to immigration policy to why he stopped tweeting (the last of which made my prep much more laborious). Some quick notes to kick us off, as I spent most of yesterday in transit with intermittent WiFi...

Top of the Morning

• Investment thesis: I had a brief conversation in Los Angeles with Jeff Ubben, the CEO of activist investor ValueAct Capital, about his firm's acquisition of a 5% stake in KKR. Two notes:

  1. Ubben believes that KKR stock is undervalued, so either the markets begin to get it "right" or KKR management will eventually choose to convert the structure (perhaps a take-private?). Either way, ValueAct would get paid.
  2. So why KKR, given that stock price undervaluing could also be an argument for buying into, say, Apollo? The answer is KKR's outsized balance sheet, which Ubben sees as a flexibility boon whereas many other managers view it as a burden. For context, S&P Capital IQ shows that KKR's total balance sheet assets were around $39 billion at the end of 2016. Blackstone was $26 billion, Carlyle was around $10 billion and Apollo was $5.6 billion.

• Jordskred: A Swedish appeals court has ruled that carried interest should be treated by local tax authorities as ordinary income rather than as capital gains, in a reversal of a 2013 lower court decision. This is similar to what may be proposed legislatively in the U.S., but with one huge difference: The Swedish decision could be retroactive for a full decade, meaning massive sticker shock for private equity investors on take-home pay that might have already been spent years ago. Plus, of course, a whole heap of uncertainty and wasted legal fees.

• Globalization: Pakistan now has its first-ever local private equity/venture capital fund, a $100 million vehicle managed by Karachi-based Ijara Capital Partners (which received its government license back in October).

• What is happening here? Axios' David Nather just posted a great breakdown of what's happening today in Congress with the healthcare vote.

• The lede, from Reuters' Lawrence Delevingne:

"Ultra-wealthy private equity managers lamented their reputation as 'lousy' corporate profiteers at a plush Beverly Hills hotel on Tuesday, arguing their value to society was greater than the public realized."

File this one under things you don't say in public. Ever.

Moreover, there were at least two occasions where PE execs at Milken cited 2011 research on private equity and job creation from Harvard Biz School professor Josh Lerner. For starters, that data was more neutral than positive. In short, it showed a tiny net gain in jobs post-acquisition by private equity, with major short-term cuts that were followed by lengthier expansions. But, as we've noted previously, Lerner is updating his data set and says to expect a much less ambivalent result this time around. He's not saying which side of the ledger got a bump but, if it's on the negative, then using Lerner's research as a PR shield is going to be a pretty sharp boomerang.

• Go Celtics!


Abundant Robotics, a Hayward, Calif.-based developer of apple-picking robots, has raised $10 million in new VC funding. GV led the round, and was joined by BayWA, Tellus Partners and return backers Yamaha Motor Co., KPCB Edge and Comet Labs.

  • Why it's the BFD: This isn't today's largest deal, let alone even its largest venture capital deal (namely because it's not based in Asia, which is now regularly atop that double-edged leaderboard). But it is part of a burgeoning wave of farm automation companies that has a little bit of something for everyone to love or hate. It plays to the "tech advancement doesn't cost macro jobs" crowd, because it's so analogous to the tractor. It causes obvious concerns among those who feel exactly the opposite, as there are not as many urban manufacturing jobs anymore to suck up low-skilled rural labor. And then there are the broader policy issues of domestic immigration (this could cut down on demand at a time when supply is threatened by D.C.) and global food production (where long-term shortfall projections are worrisome).
  • Bottom line: "Years of research on automating the harvest of apples and similar crops, such as pears, had previously come to naught because of the challenges of getting machines to identify fruit reliably and handle it gently enough, he says. But improvements in computing power, vision algorithms, and robotics have made striking new types of automation possible in a variety of industries, agriculture among them." ― Tom Simonite
Venture Capital Deals

Go-Jek, an Indonesian motorbike ride-hail service, has raised $1.2 billion in new funding led by Tencent at a $3 billion post-money valuation, according to TechCrunch.

• Radiology Partners, an El Segundo, Calif.-based network of on-site physician-led radiology practices, has raised $200 million in growth equity funding co-led by Future Fund and return backer NEA.

• Canaan, a Chinese chip-making startup, reportedly has raised $43 million in Series A funding at a $480 million post-money valuation. Backers include Jin Jiang International Group, Baopu Asset Management and Tunlan Investment.

• Vivet Therapeutics, a Paris-based developer of gene therapies for rare, inherited metabolic diseases, has raised €37.5 million in Series A funding. Novartis Venture Fund and Columbus Venture Partners co-led the round, and were joined by Roche Venture Fund, HealthCap, Kurma Partners and Ysios Capital.

• Transwap Technology, a Chinese developer of big data processing platform, has raised $34 million in Series C funding. Tencent led the round, and was joined by Triwise Capital and Co-Stone Capital.

• Next Insurance, a Palo Alto, Calif.-based online insurance platform focused on SMEs, has raised $29 million in Series A funding. New backers include Munich Re/HSB Ventures, Markel and Nationwide Insurance.

• Heap, a San Francisco-based provider of self-serve data analytics, has raised $27 million in Series B funding. Return backers Menlo Ventures and NEA co-led the round, and were joined by Initialized Capital and Pear VC.

• Decibel Insights, a British developer of digital experience analytics, has raised $9 million in Series A funding. Eight Roads Ventures led the round, and was joined by Ventureforgood.

• Bonsai, a San Francisco-based platform that helps businesses build their own AI models, has raised $7.6 million in new VC funding. Microsoft Ventures and NEA co-led the round, and were joined by Samsung, Siemens and ABB Technology Ventures.

• Taranis, an Israeli agriculture intelligence platform, has raised $7.5 million in Series A funding. Finistere Ventures and Vertex Ventures co-led the round, and were joined by return backers EWshbol Investments, Mindset Ventures and OurCrowd.

• EveryWell, an Austin, Texas-based healthcare testing platform, has raised $5 million in new VC funding. NextGen Venture Partners led the round, and was joined by SoGal Ventures, Full Tilt Capital and Jack Novak.

• Inked Brands, a Bowling Green, Ky.-based "influencer commerce company," has raised $4 million in Series A funding led by BIP Capital.

• PreparedHealth, a Chicago-based healthcare social network, has raised $4 million in new VC funding. Chicago Ventures led the round, and was joined by Pritzker Group Venture Capital, Beverly Capital and Meridian Street Capital.

• Lantern Pharma, a Dallas-based developer of drugs for multi-drug treatment resistance cancers, has raised $3.7 million in Series A funding co-led by BIOS Partners and GPG Ventures.

• Agolo, a New York-based AI platform for summarizing business information, has raised $3.5 million in seed funding. Microsoft Ventures and CRV co-led the round, and were joined by Point72 Ventures and Franklin Templeton.

Private Equity Deals

• Balmoral Funds and Gala Capital Partners have acquired Mooyah, a Frisco, Texas-based fast casual "better burger" chain. No financial terms were disclosed.

• The Blackstone Group and CVC Capital Partners are among those considering bids for upwards of a 40% stake in the entertainment unit of UAE-based Emaar Properties for upwards of $2 billion, according to Bloomberg.

• Blue Sage Capital has acquired two municipal solid waste services companies in Texas ― Access Disposal Services and K2 Waste Solutions ― as part of a new acquisition platform called Frontier Waste Holdings. No financial terms were disclosed.

• Club Pilates, a San Diego-based chain of pilates fitness studios, has raised an undisclosed amount of private equity funding from TPG Growth.

• Exponent Private Equity has agreed to acquire the European and Australian operations of gardening products company Scotts Miracle-Gro (NYSE: SMG) for $250 million.

• H.I.G. Capital has completed its previously-announced take-private purchase of Lionbridge Technologies, a Waltham, Mass.-based provider of language and digital communication solutions, for around $360 million.

• Kayne Anderson Real Estate Advisors has agreed to acquire Sentio Healthcare Properties, an Orlando, Fla.-based REIT focused on healthcare properties, from KKR for $825 million.

• New Mountain Capital is nearing a deal to acquire VWR (Nasdaq: VWR), a Radnor, Penn.-based lab supplies distributor, for upwards of $5 billion, according to the WSJ.

• Sonar Entertainment, a Los Angeles-based portfolio company of Catalyst Capital Group, has acquired a portfolio of kids and family content (including Counterfeit Cat), from Tricon Films & Television. No financial terms were disclosed.

• Toshiba (Tokyo: 6502) has turned down preemptive bids for Swiss smart metering group Landis+Gyr from CVC Capital Partners and Hitachi, according to Reuters. The offers were for nearly $2 billion, but Toshiba reportedly believes it can get a higher price at auction.

• Young Innovations, an Algonquin, Ill.-based dental supplies manufacturer owned by Linden Capital Partners, has acquired American Eagle Instruments, a Missoula, Mon.-based maker of dental hand instruments and related supplies. No financial were disclosed.

Public Offerings

• Antero Midstream, a Denver-based holder of GP interests in natural gas master limited partnership Antero Midstream Partners (NYSE: AM), raised $875 million in its IPO. The company priced 37.3 million shares at $23.50 per share ($22-$25 offering range), and will trade on the NYSE under ticker symbol AMGP. Morgan Stanley was listed as left lead underwriter.

• Gardner Denver, a Milwaukee-based maker of industrial machinery owned by KKR, has set its IPO terms to 41.3 million shares being offered at between $23 and $26 per share. It would have a fully diluted market value of around $5 billion, were it to price in the middle of its range. The company plans to trade on the NYSE under ticker symbol GDI, with Goldman Sachs listed as left lead underwriter. Gardner Denver reports a $31 million net loss on around $1.9 billion in revenue for 2016, compared to a $352 million net loss on $1.13 billion in 2015.

• Olayan Financing Co., owner of one of Saudi Arabia's largest conglomerates, is considering a public listing for its Saudi business, according to Reuters.

• UroGen Pharma, an Israel-based developer of chemotherapies to treat urological cancers, raised $58 million in its IPO. The company priced 3.5 million shares at $13 per share (middle of $12-$14 range), and will trade on the Nasdaq under ticker symbol URGN. Jefferies and Cowen & Co. served as lead underwriters. Shareholders include Arkin Communication (21% pre-IPO stake), Pontifax (16.7%), ProQuest Investments (10.2%), Telomedix (8.4%) and Tatham Investments (5.1%).

Liquidity Events

• Whirlpool (NYSE: WHR) has agreed to acquire Yummly, a Redwood City, Calif.-based provider of personalized reciples and cooking resources. No financial terms were disclosed. Yummly had raised around $21 million in VC funding from firms like Bauer Venture Partners, Bessemer Venture Partners, Physic Ventures, Unilever, Harrison Metal and First Round Capital.

More M&A

• Belgium has sold a quarter of its 10.3% stake in BNP Paribas (Paris: BNPP) for around €2 billion.

• First Horizon National Corp. (NYSE: FHN) has agreed to acquire Capital Bank Financial Corp. (Nasdaq: CBF) for $2.2 billion, or $40.83 per share (3% premium to yesterday's closing price).

• Verizon (NYSE: VZ) has agreed to sell its private cloud business to IBM (NYSE: IBM). No financial terms were disclosed.


• Advantage Partners, a Japanese private equity firm, has closed its fifth fund with $540 million in capital commitments.

• Fortress Investment Group has raised $590 million for a new senior loan fund.

• Kleiner Perkins is seeing its green tech investment team spinout into an independent firm that is seeking $275 million for its debut fund.

• Novalpina Capital, a new European private equity firm focused on mid-market special situations, has been launched by Stephen Peel, former head of TPG Capital's Europe office. It reportedly is targeting €1 billion for its debut fund.

• Ping An, a Chinese insurer, is launching a $1 billion fund called Global Voyager to invest in financial and healthcare tech companies.

• YL Ventures, a Silicon Valley-based seed-stage firm focused on Israeli startups, has closed its third fund with $75 million in capital commitments.

It's Personnel

• Michael Rich has joined the private equity credit team of Crestline Investors as a director. He previously was with the credit affiliate of Lone Star Funds.

• Tim Robson, a former principal with Doughty Hanson, has joined the UK's Pension Protection Fund as head of alternatives.

Final Numbers

Dan Primack