Jul 17, 2020

Axios Pro Rata

By Dan Primack
Dan Primack

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Top of the Morning

Illustration: Aïda Amer/Axios

The corporate debt market is beginning to follow the public equity market's lead in decoupling from the real economy.

  • Driving the news: KKR reportedly is prepping a $2.75 billion dividend recap for Epicor Software, a portfolio company it tried and failed to sell last year. It would be the first such deal since before the pandemic began.

The big picture: Overall credit conditions have steadily improved since March, thanks in large part to Fed backstops.

  • Private equity execs tell me that high equity prices, not debt availability or terms, is their stumbling block for new deals. As one explained: "The banks obviously know there's a pandemic, but you wouldn't know it when you talk to them about financing a new deal."
  • Defaults and bankruptcies have steadily increased since March, but much of that has been siloed in particularly hard-hit industries (retail, hospitality/leisure) or for companies that were already struggling.
  • Overall, the percentage of corporate bonds trading at distressed rates has fallen from more than 30% in March to 12.7% in June.
  • Within the leveraged loan market specifically, the current default rate is at less than one-third of its 2009 financial crisis peak.

Back to Epicor: Regular readers know my animosity toward dividend recaps, which too often misalign private equity incentive structures. So let's leave that aside for now...

  • The argument for this deal is that KKR has cut Epicor's leverage load since acquiring it from Apax Partners in 2016, and that it has strong recurring revenue and cash flow.
  • The argument against this deal is that Epicor is selling enterprise software in the midst of a severe recession, with a particular focus on retail, manufacturing and distribution. It's one thing to keep the ship steady, it's quite another to encumber it with new debt.

The bottom line: Private equity and its lenders spent 2009 staring into the abyss. In 2020, they're just pretending it doesn't exist.


Illustration: Rebecca Zisser/Axios

EBay's (Nasdaq: EBAY) board of directors today will meet to pick a buyer for the company's classified-ads business, which could fetch between $8 billion and $10 billion.

  • Why it's the BFD: This would be yet another big-money example of activist investor Elliott Management getting what it wants. Elliott in January 2019 began urging eBay to restructure, including by separating its classified and StubHub units from its flagship marketplace platform. EBay completed its StubHub sale this past February, just before the pandemic eviscerated the live events industry.
  • Contenders: Dutch conglomerate Prosus made the highest offer, per Bloomberg, but faces rival bids from Norwegian classifieds firm Adevinta and a private equity group that includes the Blackstone Group, Hellman & Friedman, and Permira.
  • The bottom line: "Ebay’s classified business includes brands such as Gumtree and Kijiji and offers online ads to more than 1,000 cities around the world. The unit posted an operating income of $83 million in the first quarter of 2020, with revenues of $248 million." — Reuters
Venture Capital Deals

🚑 Imvax, a Philadelphia-based developer of cell therapies for brain cancer, raised $112 million in Series C funding. HP Wild Holdings led, and was joined by fellow return backers Ziff Capital Partners, Magnetar Capital, and TLP Investment Partners. http://axios.link/VfY9

BlueVoyant, a New York-based cyber threat intelligence startup, raised $68 million in new Series B funding led by Temasek. http://axios.link/s2X9

🚑 Adagio Therapeutics, a Waltham, Mass.-based developer of antibodies for coronaviruses, raised $50 million. Polaris Partners and Mithril Capital co-led, and were joined by Fidelity, OrbiMed, M28 Capital, and GV. http://axios.link/H9qZ

Moneybox, a London-based savings and investing app, raised £30 million in Series C funding. Eight Roads was joined by return backers Breega and CNP. http://axios.link/MuDV

🚑 Activ Surgical, a Boston-based robotic surgery startup, raised $15 million. Artis Ventures led, and was joined by LRVHealth, DNS Capital, GreatPoint Ventures, Tao Capital Partners, and Rising Tide VC. http://axios.link/Xpgp

🚑 CartiHeal, an Israeli developer of implants for treating joint surface lesions, raised $15 million from Bioventus. http://axios.link/3ZZr

Cohesion, a Chicago-based smart office building startup, raised $6.5 million in seed funding led by Hyde Park Angels. http://axios.link/gVwu

Private Equity Deals

🚑 Accel-KKR invested in Forcura, a Jacksonville, Fla.-based provider of post-acute health care software. www.forcura.com

🤡 Cirque du Soleil, the bankrupt live events company, reached a new purchase agreement with its secured lenders, replacing an earlier agreement with equity owners TPG Capital and Fosun International. http://axios.link/jxyd

GHK Capital Partners acquired Hasa, a Saugus, Calif.-based maker of water treatment products, from Peak Rock Capital. www.hasapool.com

Partners Group agreed to buy a majority stake in Portuguese crop protection company Rovensa from Bridgepoint at an enterprise value of €1 billion (including debt). http://axios.link/ihF2

Public Offerings

2W Energia, a Brazilian energy trading firm, hired banks for an IPO that could raise upwards of $282 million, per Reuters. http://axios.link/vCji

🚑 ALX Oncology, a Burlingame, Calif.-based immuno-oncology biotech, raised $162 million in its IPO. The company priced 8.5 million shares at $19, versus plans to offer 8 million at $15-$17, for a fully-diluted market value of $730 million. It will list on the Nasdaq (ALXO) and had raised $128 million from firms like VenBio Partners (30.6% pre-IPO stake), Lightstone Ventures (15%), Vivo Capital (12.9%), and Logos Opportunities Fund (8.6%). http://axios.link/5Pap

🚑 Berkeley Lights, an Emeryville, Calif.-based digital cell biology startup, raised $178 million in its IPO. The company priced 8.1 million shares at $22 (above upwardly-revised range), for a fully-diluted market cap of $1.5 billion. It will list on the Nasdaq (BLI) and had raised $245 million in VC funding from Walden-Riverwood Ventures (22.5% pre-IPO stake), Sequoia Capital (15%), Nikon (8.1%), Cota Capital, KTB Network, Atinum Investment, Shangbay Capital, AJS BioTree Healthcare Fund, Varian, Black Diamond Ventures, and Paxion Capital. http://axios.link/TwEX

🚑 Deerfield Healthcare Technology Acquisitions, the third healthcare SPAC formed by Deerfield Management, raised $125 million in its IPO. http://axios.link/sWm3

🚑 Pandion Therapeutics, a Phase 1 biotech developing engineered T-cells for autoimmune diseases, raised $135 million in its IPO. The company priced 7.5 million shares at $18, versus original plans to offer 5.5 million shares at $16-$18, for an initial market cap of $504 million. It will list on the Nasdaq (PAND) and had raised $138 million in VC funding from firms like Versant Ventures (15.9% pre-IPO stake), Polaris Partners (14.7%), Roche (14.2%), S.R. One (8.8%), and Boxer Capital (6.5%). http://axios.link/sIoj

🚑 Renalytix AI, a British developer of diagnostic tests for kidney disease, raised $74 million in its IPO. The company priced 5.5 million shares at $13.50, below the company’s as-converted share price on London’s AIM, for a fully diluted market cap of $490 million. It will trade on the Nasdaq (RNLX).

More M&A

Briggs & Stratton (NYSE: BGG) has until Sunday to secure new financing, or else likely file for bankruptcy protection. The century-old Wisconsin maker of small gasoline engines missed a $6.7 million interest payment earlier in the week, but was given an extension by its lenders. http://axios.link/R2rp

🎲 Leisure Acquisition Corp. (Nasdaq: LACQ), a blank check acquisition company, terminated its $1.1 billion agreement to acquire Canadian casino operator Gateway Casinos. http://axios.link/a6Dz

Orange (Paris: ORA) is considering a sale of up to 50% of its Poland fiber-optic network, which could fetch around €1 billion, per Reuters. http://axios.link/EWwm

SoftBank Group sold another $2.2 billion worth of Alibaba Group (NYSE: BABA) shares. http://axios.link/iYYN


Balance Point Capital Partners, a Connecticut-based private equity and debt firm, is raising $425 million for its fifth fund, per an SEC filing. www.balancepointcapital.com

Boyne Capital, a Florida-based private equity firm focused on the lower middle-markets, is raising $225 million for its second fund, per an SEC filing. www.boynecapital.com

CRV raised $600 million for its eighteenth early stage VC fund. It also said that longtime general partner Devdutt Yellurkar is stepping back. http://axios.link/YuUA

Industry Ventures is raising $750 million for its ninth secondaries fund, per an SEC filing. www.industryventures.com

McCarthy Capital, an Omaha-based private equity firm, is raising $425 million for its seventh fund, per an SEC filing. http://axios.link/RGml

SV Angel is raising $30 million for its eight seed-stage fund, per an SEC filing.

It's Personnel

• Carolina Brochado has joined EQT to lead a new growth equity fund, per TechCrunch. She previously was a partner with SoftBank Vision Fund and, before that, Atomico. http://axios.link/kV4V

• Anne Yang joined Star Mountain Capital as a partner and strategic portfolio manager. She previously was an adviser to the firm and M&A banker at Goldman Sachs. http://axios.link/2o3e

Final Numbers
Source: Pitchbook-NVCA Venture Monitor. * As of June 30, 2020
Dan Primack

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