Mar 17, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Greetings from the home office. Early next week I plan to be in D.C. to see my Axios colleagues (who have been doing a remarkable job, in my biased opinion). If you haven't checked out the full site, please do. Here we go...

Top of the Morning

• It's taxing: There is a NY Post story getting play in PE circles this morning, saying that private equity should be relieved to know that President Trump's tax plan does not include an elimination of corporate interest deductibility.

The only trouble is that President Trump hasn't actually released a tax plan yet, and the story isn't based on insider info. Instead, the quoted source (UCLA law professor Steven Bank) seems to have been extrapolating from the White House's budget blueprint, which (1) Only deals with discretionary spending, not taxes; (2) Is highly unlikely to become law in its current form; (3) Did I mention that it has nothing to do with tax reform?

I have no doubt that Steve Schwarzman and Trump's legion of other private equity confidants are regularly in his ear on this issue. But we don't yet have evidence that those whispers have remained in his head, or shot out the other ear.

• Clippy: Microsoft earlier this week said that Reid Hoffman, co-founder of LinkedIn and a partner with VC firm Greylock, would be joining its board of directors. This move had been widely expected ever since Microsoft originally agreed to buy LinkedIn for $26 billion, but it wasn't actually part of the deal negotiations.

Here is Hoffman's explanation, via email: "Simple legal issues around good governance, due process, etc. Easiest simply to consider after the deal closed, and to have real discussions and deliberations."

• Goose gift: Luxury winter jacket maker Canada Goose raised around $255 million in its IPO, and closed its first day of trading yesterday up more than 25%. The most obvious winner is Bain Capital, which acquired Canada Goose in April 2013, and oversaw steadily increasing revenue and profit growth.

But a less noticeable beneficiary are a pair of charities that were gifted Canada Goose shares from Bain Capital partners and employees, per SEC filings: Fidelity Investments Charitable Gift Fund (1.9m shares) and the Combined Jewish Philanthropies of Greater Boston (454,000 shares).

The nonprofits each sold all of their stock at the IPO price, netting more than $30 million in total.

• On the other hand: PETA has been an active opponent of Canada Goose (including protests yesterday outside the NYSE), but yesterday bought stock so that it can access/agitate at the company's annual shareholder meetings.

• SV swap: Adit Singh has stepped down as a partner with VC firm Foundation Capital, in order to join new venture shop NeoTribe Ventures (founded by ex-NEA partner Kittu Kolluri). In a private letter to limited partners, Foundation wished Singh well and said that it would " continue our pre-existing recruitment effort to add additional depth to our IT bench." While with Foundation for over three years, the former Cisco engineer's deals included Zerostack, CliQr, ForgeRock and Trufa.

• Recommended reading: J.D. Vance, the author of Hillbilly Elegy and a principal with Peter Thiel's Mithril Capital, late last year announced that he would be leaving Silicon Valley, moving back to his home state of Ohio (where some expect him to eventually run for office). Today he writes in the NY Times about his decision, which he says was prompted by his concerns over brain drain. An excerpt:

"I've long worried whether I've become a part of this problem. For two years, I'd lived in Silicon Valley, surrounded by other highly educated transplants with seemingly perfect lives. It's jarring to live in a world where every person feels his life will only get better when you came from a world where many rightfully believe that things have become worse. And I've suspected that this optimism blinds many in Silicon Valley to the real struggles in other parts of the country. So I decided to move home, to Ohio."

Vance also seems to be remaining with Mithril in a scaled back capacity, and plans to focus most of his immediate Ohio efforts on combating the opioid abuse epidemic.

• For posterity: DraftKings reported in an SEC filing that its Series E-1 round came in at $118.65 million.

• For accuracy: Vertex Ventures has Temasek as an LP, but it is not a wholly-owned subsidiary (as I mistakenly reported). Also, its debut fund was $151 million.

• Gametime: We have more than 800 readers participating in our March Madness contest, 14 of whom are currently tied for first place. We'll begin some individual shout-outs once things separate out after the weekend games. For the record, I am not among those 14. Nor the next 14. Etc. Etc.

The BFD

MuleSoft, a San Francisco-based SaaS integration company, raised $221 million in its IPO. The company priced 13 million shares at $17 per share, which was above its already-increased price range. It gives MuleSoft an initial market cap of around $2.14 billion, and a fully-diluted valuation just north of $2.2 billion. Early indications are that shares will open at the IPO price.

Why it's the BFD: This is the first domino in what looks to be a coming trail of significant (and unprofitable) cloud enterprise software IPOs, and pricing well above MuleSoft's last private valuation ($1.5b) should be welcome news to the VC community. As we've written before, there are a lot more VC-backed companies like MuleSoft in the IPO queue than there are companies like Snap (which has slid to below $20 per share).

Bottom line: In addition to revenue from its subscription model, a 'substantial' portion of the company's revenue comes from professional services, that is, implementing the platform and training customers in how to use it. MuleSoft lists this as a risk factor, as it has a lower gross margin than revenue from its other segments. ― Caitlin Huston

Venture Capital Deals

• Weather Analytics, a Washington, D.C.-based provider of weather and predictive risk software for the insurance industry, has raised $17 million in Series B funding from Tokio Marine and W.R. Berkley Corp. www.weatheranalytics.com

• EndoMaster, a Singapore-based developer of robot-assisted surgical systems, has raised around $14.6 million in Series B funding. No investor information was disclosed. http://bit.ly/2mCh3YW

• RenalGuard Solutions, a Medford, Mass.-based developer of a device that measures urine output and automatically infuses hydration fluid based on that output, has raised $14.5 million in Series A funding. Exigent Capital led the round, and was joined by return backer Genesis Capital Advisors. www.renalguard.com

• LimeBike, a San Francisco-based bike-share network, has raised $12 million in new VC funding. Andreessen Horowitz led the round, and was joined by firms like IDG Ventures and DCM. http://tcrn.ch/2nFcA7Z

• Brooklinen, a New York-based ecommerce company focused on the bedding products space, has raised $10 million in Series A funding led by FirstMark Capital. http://tcrn.ch/2ndLdWj

• Insurify, a Cambridge, Mass.-based virtual agent for car insurance shopping, has raised $4.6 million in new VC funding led by MassMutual Ventures and Nationwide Ventures. http://bit.ly/2n3ypB3

• POPxo, an Indian fashion, beauty and lifestyle content site aimed at young female readers, has raised $2.7 million in Series B funding. GREE Ventures led the round, and was joined by return backers Kalaari Capital and IDG Ventures India. http://bit.ly/2mWybeD

• Collective Retreats, a Wolcott, Colo.-based luxury pop-up travel startup, has raised $2.5 million in seed funding from First Round Capital, BBG Ventures, Box Group and Slow Ventures. http://bit.ly/2n5F9i6

• Countable, a San Francisco-based digital platform for civic engagement, has raised $2 million in seed funding from Canaan Partners. http://on.wsj.com/2mJQu54

• Homage, a Singapore-based caregiving platform for seniors, has raised $1.2 million in seed funding from 500 Startups, Golden Gate Ventures and SeedPlus. http://tcrn.ch/2mBhqmT

• Cohero Health, a New York-based developer of connected mobile health tools for respiratory patients, has raised an undisclosed amount of new Series A funding from Samsung NEXT and Omron Healthcare. The company previously announced a $9 million first close for the round. http://bit.ly/2mPQFvz

Private Equity Deals

• Anne Arundel Dermatology Management, a Severna Park, Md.-based portfolio company of New MainStream Capital, has acquired JOL, a provider of dermatology services to the Bethesda, MD and Washington, D.C. areas. No financial terms were disclosed. www.aadermatology.com

• Atlas Merchant Capital and QInvest have agreed to acquire listed British mid-cap broker Panmure Gordon. QInvest already holds a 43% stake in the business, which would be valued at around £15.5 million. http://bit.ly/2n55NaA

• Bharti Airtel of India has canceled plans to sell a control stake in its mobile tower unit (Bharti Infratel), which had received interest from firms like Blackstone Group, CPPIB and KKR. http://s.nikkei.com/2mWAJJJ

• KKR and Caisse de dépôt et placement du Québec have agreed to acquire USI Insurance Services, a Valhalla, N.Y.-based insurer owned by Onex Corp., for approximately $4.3 billion (including assumed debt). http://on.wsj.com/2mCa2re

• Providence Equity Partners has agreed to acquire the Baltic broadcasting unit of Sweden's MTG for approximately $124 million. http://reut.rs/2nMm1mn

Public Offerings

• AppDynamics formally pulled its IPO registration docs, following its January agreement to be purchased by Cisco for $3.7 billion. www.appdynamics.com

• Azul, Brazil's third-largest airline, has set its IPO terms to 72 million shares being offered at between $18.02 and $21.81 per share. It would have a fully-diluted market value of around $2.2 billion, were it to price in the middle of its range. The company plans to trade on the NYSE under ticker symbol AZUL, with Deutsche Bank serving as lead underwriter. Azul reports around a $39 million net loss on over $2 billion in revenue for 2016, and was founded by David Neeleman (67% pre-IPO ownership stake), who also founded JetBlue. Other shareholders include TPG Growth, Weston Presidio, Calfinco and Peterson Partners.

• The Carlyle Group has asked Goldman Sachs to explore an IPO of nutritional supplements company Nature's Bounty, while maintaining a current auction process, according to Bloomberg. The initial sale process reportedly has been complicated by suitors only wanting to buy part of the business, whereas Carlyle was seeking a full exit. http://bloom.bg/2nyLa4n

• ProPetro, a Midland, Texas-based oilfield services company focused on hydraulic fracturing, raised $350 million in its IPO. The company priced 20 million shares at $14 per share (below $16-$19 range), and will trade on the NYSE under ticker symbol PUMP. Goldman Sachs and Barclays served as lead underwriters. The company is backed by Energy Capital Partners, and reports a $36 million net loss on $273 million in revenue for the first nine months of 2016. http://bit.ly/2mCnRWK

Liquidity Events

• H.I.G. Bayside Capital has agreed to sell Bodybell, a distributor of perfumery and household products in Spain, to German retailer Douglas for an undisclosed amount. www.bodybell.com

• PVH, the parent company to Calvin Klein, Tommy Hilfiger, has acquired True & Co., a San Francisco-based e-commerce company focused on bras. No financial terms were disclosed. True & Co. had raised around $13 million in VC funding from firms like Crosslink Capital, First Round Capital, SoftBank, SoftTech VC and the Vegas Tech Fund. http://tcrn.ch/2nKIqQN

More M&A

• 3M (NYSE: MMM) has agreed to acquire safety equipment company Scott Safety from Johnson Controls (NYSE: JCI) for approximately $2 billion. http://bloom.bg/2ne3Byk

• Circassia (LSE: CIR) paid up to $230 million for U.S. rights to a pair of AstraZeneca (NYSE: AZN) drugs that treat chronic obstructive pulmonary disease. http://on.ft.com/2nurguD

• Rao's Specialty Foods, a tomato sauce brand spinoff of Rao's Italian restaurant in Harlem, has hired Morgan Stanley to find a buyer, according to Reuters. The company reportedly generated more than $20 million in 2016 EBITDA. http://reut.rs/2mCaB4s

• Sinopec of China is in advanced talks to acquire a majority stake in Chevron Corp.'s (NYSE: CVX) South African oil assets for around $1 billion, according to Reuters. http://reut.rs/2nyvDS8

Fundraising

• Apax Partners has raised €1 billion for its ninth France-focused mid-market private equity fund (which also will back SMEs valued at up to €500m in other European countries). http://bit.ly/2mPWARA

Celestine Johnson, an "innovation partner" with Eric Schmidt's Innovation Endeavors, is raising $5 million for a VC firm called Boom Capital, per an SEC filing.

Final Numbers
Dan Primack