Apr 17, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Monday greetings from Orlando, where E is off pretending to be Hermione. A quick invite for Chicago readers: Axios tomorrow afternoon will be hosting a live event about new cures and new innovations in mental healthcare, featuring Mike Allen interviews with former WNBA star and mental health advocate Chamique Holdsclaw, Facebook head of global safety policy Antigone Davis, Fisher Wallace co-founder and CMO Kelly Roman and Takeda North America lead Ramona Sequeira. Please RSVP here.

Top of the Morning

• Tree Two: Oak HC/FT has raised $600 million for its second fund, Axios has learned. This is the VC and growth equity firm focused on healthcare and financial technology, which spun out of legacy Oak Investment Partners back in 2014. This is a bit larger than the firm's $500 million debut vehicle, which is partially a reflection of wanting to bring in some new strategic LPs, like an association for retirees and some insurance companies. Two notes:

Oak HC/FT appears on first glance one of the few non-biotech VC firms that directly aims at regulated industries, although it mitigates such risk on the healthcare side by not going after anything with binary FDA or reimbursement risk.

There has been a theory that fintech startups could soon face M&A challenges because Trump-era deregulations could remove a lot of the banking sector's incentive to innovate. But Oak HC/FT partner Tricia Kemp (speaking to Axios from Slovakia, where her son is competing in a hockey tournament) isn't worried: "I'd argue that the digitization of payments and transactions and needing to know your customers -- in terms of things like anti-money laundering -- are only going in one direction. Trump is mainly talking about capital requirements for banks, which could possibly affect the direct lending space, but not most of fintech."

• Enterprising: The FT yesterday delved into the burgeoning world of tech-focused private equity, with a particular focus on Vista Equity Partners. So some scoop to move the story along: Vista has quietly closed its first "Endeavor" fund with $500 million in capital commitments. This is like other Vista funds in that it will buy up enterprise software companies, but different in that it will focus on companies too small to fit into the flagship funds (the latest of which still is not quite closed). Endeavor is co-led by René Yang and James Zubok.

• Crossed-off border: It used to be that regulatory problems on cross-border deals went in one direction, depending on that particular moment's geopolitics. When it comes to recent Chinese purchases of foreign entities, however, the roadblocks are being installed on all of the rotary exits. Just look at what happened in the past 24 hours:

  • China's Lander Sports bailed on a deal for British football club Southampton, due to a Chinese crackdown on overseas purchases.
  • China's Anbang Insurance Group abandonned its $1.6 billion purchase of Iowa-based Fidelity & Guaranty Life, due to opposition from U.S. state regulators (not from the feds).
  • China's Ant Financial sweetened its bid for MoneyGram by 36%, in part because MoneyGram seemed partial to a rival offer from U.S.-based Euronet because it expects the Ant Financial deal to face possible CFIUS pushback. The theory now is that MoneyGram will lobby CFIUS particularly hard, given the the increased value.

• Misdirection: The WSJ uses this subhead in a piece about the ongoing private equity tumult at CalPERS (which we've discussed here): "Pension fund's private-equity returns were 12.3% over 20 years, but they would have been 19.3% without fees and costs."

Well. Ummm. Not really. Those fees are inextricably linked to participating in the funds that generated those returns. That's like saying I'd be $5 richer if I hadn't paid for E's ice cream yesterday and that her explicit desire for ice cream would have still been satisfied. Arguably I could have gotten a better deal, but to ignore the transactional relationship is sophistry.

The WSJ subhead encapsulates so much of the wrong-headed thinking about private equity fees at public pensions. The paramount issue should be producing top net returns for pensioners, not paying the lowest fees (as we discussed last week in regards to North Carolina).

• Know your audience: Uber on Friday shared top-line financials with Bloomberg.

  • Top line: Gross bookings its 2016 doubled to $20 billion. Net revenue was $6.5 billion and adjusted net losses were $2.8 billion (excluding China, which it sold to Didi, and certain other expenses). In short, "revenue growth is outpacing losses."
  • Bottom line: Releasing these financials wasn't to better inform the public. It was aimed at Uber employees and contractors, trying to calm concerns that all the recent scandals could be hurting business. Morale matters, and it's smarter to control the messaging than to share numbers internally and then watch them leak (when you can't know the interpretation of the leaker).
The BFD

Walmart is in talks to acquire Bonobos, a New York-based men's clothing retailer, according to Recode. Bonobos has raised pver $120 million in VC funding, from firms like Felicis Ventures, Accel, Forerunner Ventures, Lightspeed Venture Partners and Nordstrom.

  • Why it matters: This probably won't be a huge purchase by Walmart standards, but continues to show that Walmart's $3 billion purchase of new e-commerce boss Marc Lore (I mean, of Jet.com) is the VC-backed market's most consequential acqui-hire to date. It also is further indication that Lore finally has the freedom ― both financially and strategically ― to attempt what he won't admit publicly wanting so very, very much: Take a massive chunk out of Amazon's core business.
  • Bottom line: "On the surface, the Walmart and Bonobos brands make little sense together. But Lore has been trying to buy digital-native companies with strong brands that appeal to a different demographic than Walmart does, and ones that have the potential to be healthy standalone businesses with Walmart's backing." ― Jason Del Rey
Venture Capital Deals

• Frequency Therapeutics, a Woburn, Mass.-based developer of a therapy for noise-induced hearing loss, has raised $32 million in Series A funding. CoBro Ventures led the round, and was joined by Morningside Ventures, Emigrant Capital, Korean Investment Partnership and Alexandria Real Estate Equities. http://bit.ly/2pH1SPv

• Zhejiang POCTech Medical, a Chinese developer of wearable medical devices, has raised $14.5 million in Series B funding. Bioventure Investment Management, Tasley Great Health Industry Fund and Tonghua Dongbao Pharmaceutical were joined by return backer Legend Capital. http://bit.ly/2pny9ic

• Akoonu, a San Francisco-based SaaS solution for account-based sales, has raised $8 million in Series A funding led by Shasta Ventures. www.akoonu.com

• LeanDNA, an Austin, Texas-based provider of analytics and project execution SaaS for factories, has raised $4.5 million in Series A funding led by Next Coast Ventures. www.leandna.com

Private Equity Deals

• Bain Capital has agreed to invest around $816 million for a 30% stake in Hugel, a listed South Korean maker of beauty products like botox. Bain last week agreed to pay $5.6 billon (alongside Cinven) for Germany's Stada, which is Hugel's European sales partner. https://bloom.bg/2pH3uZu

• The Blackstone Group has agreed to acquire EagleClaw Midstream Ventures, a midstream operator in the Permian's Delaware Basin in West Texas, from EnCap Flatrock Midstream for around $2 billion in cash (including $1.25b of stapled debt financing from Jefferies). http://on.mktw.net/2oDqsBA

• The Blackstone Group and the Canada Pension Plan Investment Board have agreed to acquire Ascend Learning, a Burlington, Mass.-based maker of educational software, from Providence Equity Partners and Ontario Teachers' Pension Plan. No financial terms were disclosed, but an earlier Reuters report put the expected price-tag north of $2 billion. http://bit.ly/2omsd4a

• The Carlyle Group has acquired the remaining 10% stake it did not already own of Italian fashion brand Twinset, from company founder Simona Barbieri. http://reut.rs/2nSVFmU

• H.I.G. Capital has agreed to acquire and merge Barnet Dulaney Perkins and Southwestern Eye Center, both providers of surgical and clinical ophthalmic care in Arizona. No financial terms were disclosed. www.higcapital.com

• Leonard Green & Partners has agreed to acquire Charter NEX Films, a Miltin, Wisc.-based maker of specialty films for the food and medical markets, from Pamplona Capital Management for around $1.5 billion, according to Reuters. http://reut.rs/2prtkRV

• Thomas H. Lee Partners has acquired a majority stake in Material Handling Systems, a Louisville, Ky.-based provider of parcel sortation systems engineering and equipment. No financial terms were disclosed. www.mhsinc.net

Public Offerings

There is only one IPO on the U.S. calendar this week: Select Energy Services, a Texas-based provider of water services for hydraulic fracturing. It's backed by Crestview Partners and plans to raise around $175 million.

More M&A

• Anbang Insurance Group of China will let its $1.6 billion agreement to buy Iowa-based Fidelity & Guaranty Life (NYSE: FGL), according to Reuters. The deal had received approval from CFIUS, but not all state-level regulatory approvals had been obtained. http://reut.rs/2p8IdLU

• Lander Sports, a Chinese stadium construction firm, has terminated plans to acquire a stake in British football club Southampton, citing Chinese regulatory concerns. http://reut.rs/2omvjVN

• Zoetis (NYSE: ZTS) has agreed to acquire Nextvet, an Ireland-based veterinary drug developer, for around $85 million, or $6.72 per share (66% premium over last Wednesday closing price). http://bit.ly/2p3eC6U

Fundraising

• G20 Ventures is raising $63.5 million for its second fund, per an SEC filing. www.g20vc.com

• Curtis MacDonald, a former partner with German venture firm High-Tech Grunderfonds, has launched a San Francisco-based firm called Happiness Ventures, per his LinkedIn profile.

• The Riverside Company has closed its first non-control private equity fund, called the Riverside Strategic Capital Fund, with $418 million in capital commitments. www.riversidecompany.com

It's Personnel

• Jason Cunningham has joined Ardenton Capital (f.k.a. Regimen Capital Partners) as VP of private equity. He previously was with Baker Tilly Capital.

• Alex Stais, a former managing director with Goldman Sachs Asset Management, has been named chief investment officer for the state of Rhode Island. http://bit.ly/2oOQLGQ

Final Numbers
Dan Primack