Mar 27, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Greetings from the rainy home office, where it's good to be back after a week in deeply-dysfunctional D.C. Before moving on, a request: So that we can serve you better, dear readers, Axios is asking that you take a quick reader survey. Much thanks in advance, and here we go...

Top of the Morning

"Traders are dumb."

That was my response on late Friday afternoon, after a colleague asked why the stock markets jumped on the news that the AHCA was DOA. A bump for certain niche sectors like hospitals made sense, but the broader boost reflected a naive belief that healthcare reform's demise meant tax reform's arrival. It didn't, and it still doesn't.

On Friday I posted four reasons why healthcare reform's failure is a giant red flag for tax reform, and things got worse over the weekend ― particularly when House Freedom Caucus leadership suggested that a tax package needn't be revenue neutral. That may be good news for private equity, in that it could exempt changes to both carried interest and debt deductibility, but lousy for the prospect of an actual tax bill getting passed (thus leaving corporate rates, repatriation, cap gains rates, etc. at the status quo). Here are four additional challenges:

  • The White House still has not shared a draft plan with its Congressional allies (even informally), which is being viewed as evidence that the internal squabble over things like BAT have not yet been resolved.
  • Congress gets to tax reform via reconciliation which, given the healthcare debacle, means that the fiscal 2018 budget resolution might need to go first. Republicans could repurpose the healthcare reconciliation vehicle instead but that: (a) Means healthcare reform is really off the table; (2) It includes a massive savings requirement that tax reform will have trouble filling.
  • Did you say budget? You mean the same sort of budget that the House couldn't pass last spring because of the exact same GOP faction conflicts that we just saw on display? Defense and deficit hawks will each claw for the spending mice. Oh, and the Freedom Caucus might try to scuttle any tax deal that doesn't include a WH and leadership promise to reengage on healthcare.
  • None of this addresses the debt limit, which will need to be addressed.

Also not addressed is Treasury Secretary's Steve Mnuchin's statement on Friday to Axios that tax reform is easier than healthcare reform, which seems more reflective of his own understanding of the macro issues than of the multitudinous stakeholders.

But it does seem that traders did some reading and reflecting over the weekend, as the public equity markets this morning are getting hammered.

In short: Private equity investors always talk about how they don't try to "time the market." Given the current mess, it's imperative that actions match rhetoric.

• Gametime: We have our Final Four, and we also have a new leader in our March Madness contest. It's Tim Hettinger, an analyst at LP Analyst who has Oregon beating Villanova in his final game. Tim is actually tied with someone going by GriffyKemp, but he or she has Duke winning it all. Continued good luck to all...

The BFD

Grab, a ride-sharing company focused on Southeast Asia, is in talks to raise more than $1.5 billion in new funding led by existing shareholder SoftBank, per Bloomberg. This would basically double the Indonesia-based company's total VC haul to date, which included a $750 million Series F round last fall at a post-money valuation just north of $3 billion.

Why it's the BFD: For starters, this is just another headache for Uber, which already is experiencing persistent migraines. More broadly, however, it's yet another case of SoftBank stepping into a pre-IPO breach that was created by the partial departure of mutual funds and other venture tourists. It's also worth beginning to question is SoftBank itself is slowing down the tech IPO market, acting as a sort of JOBS Act counterweight.

Bottom line: "Grab, which this week announced plans to expand to its seventh country in the region, is racing against Uber and Go-Jek Indonesia PT to cast its net across more cities and drum up business for its nascent payments platform... It's hiring more than 800 new research and development staff in six centers over the next two years, including new facilities in Bangalore and Ho Chi Minh City." ― Bloomberg

Venture Capital Deals

• Placester, a Boston-based online marketing platform for real estate professionals, has raised $50 million in Series D funding led by return backer NEA. http://bit.ly/2nXpDWt

• Twist Bioscience, a San Francisco-based startup focused on synthetic DNA, has raised over $32 million in fifth-round funding, per an SEC filing. The company previously raised over $150 million from Illumina, Fidelity, Foresite Capital Management, Tao Invest, ARCH Venture Partners Paladin Capital Group and Yuri Milner. www.twistbioscience.com

• Paradata, a San Jose, Calif.-based provider of a supply chain SaaS platform, has raised $10 million in Series A-1 funding from SAP.io and return backers Richmond Global and PivotNorth. http://bit.ly/2nV06wR

• Big Squid, a Salt Lake City-based predictive analytics startup, has raised $3 million in seed funding co-led by Silverton Partners and Kickstart Seed Fund. www.bigsquid.com

• Snapcart, a Jakarta-based retail rewards app, has raised $3 million in seed funding. Vickers Venture Partners led the round, and was joined by return backers Wavemaker Partners and Singapore Press Holdings. http://tcrn.ch/2mHemtw

• Lightform, a San Francisco-based developer of a computer made for projected AR, has raised $2.6 million in seed funding from backers like Lux Capital and Seven Seas Partners. www.lightform.com

Private Equity Deals

• Bain Capital has agreed to acquire Diversey Care, the cleaning and chemicals systems unit of Sealed Air Corp. (NYSE: SEE), for around $3.2 billion.

• Cinven is in talks to acquire Chryso, a French maker of concrete and cement additives and admixtures, from LBO France. No financial terms were disclosed. http://reut.rs/2nUXBLa

• Corsair Capital is in advanced talks to acquire nearly a 30% stake in British mortgage broker London & Country at an enterprise value of around £150 million, according to the FT. http://on.ft.com/2nrbEXI

• Evolent Health (NYSE: EVH), an Arlington, Va.-based healthcare technology provider whose shareholders include TPG Capital (16.21% of outstanding shares) and North Bridge Growth Equity (4.58%), is considering a merger with Advisory Board (Nasdaq: ABCO), a Washington, D.C.-based consulting firm that has been under pressure from Elliott Management (5.05% stake), according to Reuters. http://reut.rs/2o2Ga8r

• Exova Group (LSE: EX), a British materials testing company currently valued at around £550 million, has received cash takeover proposals from PAI Partners, Jacobs Holdings (Switzerland) and Element Materials Technology (Netherlands). http://reut.rs/2n9mjnl

• Permira has agreed to acquire Lyophilization Services of New England, a Manchester, N.H.-based contract developer and manufacturer for the pharma and medical device markets. No financial terms were disclosed. Sellers include Clairvest Group. www.lyophilization.com

• Rhône Capital has agreed to acquire GardaWorld, a Montreal-based provider of security and cash services, from Apax Partners. No financial terms were disclosed. www.garda.com

• Silver Lake has completed its previously-announced sale of Vantage Data Centers Management, a Santa Clara, Calif.-based data center operator, to Digital Bridge Holdings, PSP Investments and TIAA Investments at a reported purchase price in excess of $1 billion (including assumed debt). http://reut.rs/2jbDFlD

• TULA, a skincare brand, has raised an undisclosed amount of growth equity funding form L Catterton. www.tula.com

• Venture Technologies, a Ridgeland, Miss.-based portfolio company of FlatWorld Capital, has acquired NetSource Communications, a Naperville, Ill.-based provider of Internet hosting services to SMEs. www.ntsource.com

Public Offerings

• Calendar: No companies are expected to price IPOs this week on U.S. exchanges.

• Akcea Therapeutics, a Cambridge, Mass.-based developer of drugs to treat cardiometabolic diseases caused by lipid disorders, has filed for a $100 million IPO. The pre-revenue company plans to trade on the Nasdaq under ticker symbol AKCA, with Cowen & Co. listed as left lead underwriter. www.ackceatx.com

• A.S.V., a Grand Rapids, Minn.-based maker of compact track loader and skid steer loader equipment, has filed for a $36 million IPO. It plans to trade on the Nasdaq under ticker symbol ASV, with Roth Capital Partners serving as sole underwriter. http://bit.ly/2nY3oA5

• Elevate Credit, a Fort Worth, Texas-based provider of online creditsolutions to non-prime consumers, has set its IPO terms to 7.7 million shares being offered at between $12 and $14 per share. The company originally planned to go public in early 2016, offering 3.6 million shares at between $20 and $22, but postponed that offering. It plans to trade on the NYSE under ticker symbol ELVT, with UBS listed as left lead underwriter. It reports a $22 million net loss on $580 million in revenue for 2016. Shareholders include Sequoia Capital (27.2% pre-IPO stake) and Technology Crossover Ventures (22.2%). www.elevate.com

• Okta, a San Francisco-based provider of identity access management solutions, has set its IPO terms t0 11 million shares being offered at between $13 and $15 per share. It would have a fully-diluted initial market cap of around $2 billion, were it to price in the middle of its range. The company plans to trade on the Nasdaq under ticker symbol OKTA, and reports a $65 million net loss on $111.5 million in revenue for the nine months ending October 2016. It has raised around $230 million in VC funding, from firms like Sequoia Capital (21.2% pre-IPO stake), Andreessen Horowitz (19.6%), Greylock (16.9%), Khosla Ventures (8.1%) and Floodgate. www.okta.com

• Schneider National, a Green Bay, Wis.-based trucking company, has set its IPO terms to 28.95 million shares being offered at between $18 and $20 per share. It would have an initial fully diluted market cap of $3.3 billion were it to price in the middle of its range, and would trade on the NYSE under ticker symbol SNDR. Morgan Stanley is serving as lead underwriter. http://bit.ly/2nlBXNr

Liquidity Events

• The Blackstone Group has agreed to sell its remaining 21% stake in theme park operator SeaWorld (NYSE: SEAS) to China's Zhonghong Zhuoye Group for $449 million, or $23 per share (3% premium over Thursday's closing price). http://nyti.ms/2nfUiew

• Madison Dearborn Partners has hired Deutsche Bank and J.P. Morgan to explore a sale of Evo Payments International, an Atlanta-based payments processor that could be valued at around $2 billion, according to Bloomberg. http://bloom.bg/2nNZIjE

More M&A

• AccorHotels and Edmond de Rothschild are in talks to acquire Groupe Potel & Chabot, a French operator of conference centers and hospitality events, for around €100 million, according to Reuters. http://reut.rs/2nmUnxn

• HNA Group of China has agreed to buy a 25% stake in OM Asset Management, the U.S. asset management unit of Old Mutual (LSE: OML) for around $446 million. http://bloom.bg/2noVuy3

• Motherson Sumi Systems, an Indian auto parts maker, has completed its $620 million acquisition of Finland's PKC Group. http://bit.ly/2n8LipR

• Rio Tinto is asking Credit Suisse to find a buyer for its Kestrel mine in Australia, according to The Australian. http://bit.ly/2mHyoUB

Fundraising

• Genstar Capital has closed its either middle-market private equity fund with $3.1 billion in capital commitments, plus another $650 million in "overage commitments." Evercore served as placement agent. www.gencap.com

• Medical Technology Venture Partners, a San Francisco-based VC firm led by former Gambro exec Radu Cautis, has secured around $20 million for a $50 million-targeted debut fund, per an SEC filing.

• Science Inc., a Los Angeles-based tech incubator, is raising up to $60 million for its second VC fund, per an SEC filing. www.science-inc.com

It's Personnel

• Michelle Gill has agreed to join TPG Special Situations Partners, according to the WSJ. She previously was with Goldman Sachs, where she "oversaw the bank's business of packaging mortgages and other consumer loans for sale to investors." http://on.wsj.com/2mHyUCd

• William Hagerty has been formally nominated by President Trump to be the next U.S. Ambassador to Japan, in a move that had been widely expected since January. Hagerty has spent the past 20 years at the private equity firm he co-founded, Hagerty Peterson, before which he spent a couple of years with VC firm Trident Capital. http://s.nikkei.com/2mHHh0n

• Andrew Lawson has agreed to join Permira Debt Managers as head of capital markets, effective in June. He previously was with Citi. http://reut.rs/2nZVE0h

Final Numbers
Dan Primack