Jul 2, 2018

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Illustration: Lazaro Gamio/Axios

Juul, the maker of vaping devices and nicotine flavor pods that dominate college and (yes) high school campuses, is raising $1.2 billion at a valuation of around $15 billion.

Bloomberg was first with the news on Friday, and Axios has learned that it's basically a done deal that could be announced within just a week or two. We've also gotten our hands on some company financials, which helps explain the investor appeal. The following numbers are a bit dated (they come from late last year), and I'm told that Juul is blasting through the 2018 projections:

  • 2017 revenue was around $245 million, with a 54/46 split between product (devices) and subscription (pods). This is up from around $60 million in 2016, and projected 2018 revenue was $940 million.
  • Gross margins are 70%
  • 2018 EBITDA projection is approximately $250 million.

Such numbers would normally make Juul a no-brainer for venture capital and growth equity types, particularly given that the San Francisco-based company hasn't yet tapped overseas markets other than Israel. But this one is complicated:

  • Ethical con: Juul contains a ton of nicotine. Specifically, each Juul pod is the nicotine equivalent of an entire pack of regular cigarettes. This can make it very addictive, and also may create cardiovascular issues for older users and brain development issues for younger ones. Moreover, there has been academic research showing that young people using e-cigs are more likely to begin smoking regular cigarettes than are those who don't use e-cigs. That research isn't specific to Juul, but Juul's design and flavoring makes it the e-cig of choice for those who aren't legally allowed to have them.
  • Ethical pro: Juul is used by some regular cigarette smokers as a cessation tool, and there is some Juul-funded research that points to its efficacy. It also has taken steps to reduce its visibility among young people, including via social media, and says it has online ordering limits to prevent black market sales to underage users.

Bottom line: As we said, this deal is getting done because the growth almost demands it. But don't be surprised if it doesn't include traditional VC or growth equity investors.

  • Some funds are knocked out because of tobacco restrictions, while others won't think the possible risks — both ethical and regulatory — are worth the reward at such a high valuation.
  • I don't have any inside info on the actual investors, but would guess there would be some non-U.S. names (particularly because of the int'l expansion plans). Also could be interesting to see if TPG becomes involved, given that Juul CEO Kevin Burns is a former TPG exec who previously helped lead portfolio company Chobani.
Source: Giphy

Dell is returning to the public markets, five years after going private in a $25 billion transaction backed by Silver Lake. It's a complex transaction that involves Dell and Silver Lake offering cash or shares to holders of a Dell tracking stock, valued at $21.7 billion, with financing coming via an $11 billion special dividend being issued by listed Dell subsidiary VMWare.

  • Why it's the BFD: Because Michael Dell originally took his eponymous company private, in large part, because of his growing distaste for public market short-termism. And while he says the reversal is partially prompted by a successful transformation enabled by Dell's private tenure (including its $67 billion EMC purchase), it also reflects the need to service a big debt-load and few viable buyers at its increased scale.
  • Drawing board: This move comes after Dell had explored other options, including a pure IPO or reverse merger with VMWare.
  • Bottom line: "Not only does Dell still supply the machines that sit on the desks inside many office buildings, it has also found a ready market selling equipment and software to the kinds of networked computing services that were once thought to spell its end." — Michael de la Merced, NYT
Venture Capital Deals

Trax, a Singapore-based provider of image recognition tech to consumer packaged goods brands, raised $125 million in new funding led by Boyu Capital. Existing backers include Warburg Pincus. http://axios.link/wAWw

Aikucun, a Chinese marketplace for fashion brands and professional shoppers, raised $87 million in Series B funding. Legend Capital led, and was joined by Eastern Bell VC and C&D Corp. http://axios.link/jBVM

Califia Farms, a Los Angeles-based maker of plant-based beverages, raised over $50 million in new funding. Ambrosia Investments led, and was joined by return backers Sun Pacific and Stripes Group. www.califiafarms.com

Windward, an Israeli provider of maritime risk analytics, raised $16.5 million in Series C funding. XL Innovate led, and was joined by return backers Aleph and Horizons Ventures. www.wnwd.com

Oden Technologies, a New York-based IoT startup that provides manufacturing data analytics, raised $10 million in Series A funding led by Atomico. http://axios.link/DJf6

Private Equity Deals

Blackstone has agreed to acquire Averys, a French manufacturer of racking and storage solutions for warehouses, from Equistone. www.averys.fr

🚑 CVC Capital Partners agreed to buy a 51.8% stake in Italian drugmaker Recordati (Milan: RECI) for around €3 billion. http://axios.link/2nDK

DFW Capital Partners has invested in Restoration and Recovery, a Durham, N.C.-based provider of stormwater management services. www.rrstormwater.com

EQT Partners agreed to buy SUSE, a developer of enterprise-grade Linux software, from Micro Focus (LSE: MCRO) for $2.535 billion. http://axios.link/Lx90

H2Solutions, a Chicago-based portfolio company of Mountaingate Capital, acquired Infield Digital, a Denver-based digital experience consultancy. www.infielddigital.com

Wynnchurch Capital acquired Colchester, Vt.-based Critical Process Systems Group. www.cpsgrp.com

Public Offerings

No companies expect to price IPOs on U.S. exchanges this week.

• Endava, a London-based provider of outsourced IT development services, filed for a $75 million IPO. It plans to trade on the NYSE (DAVA), with Morgan Stanley as lead underwriter. The company reports $20 million of net income on $219 million in revenue for the nine months ending March 30, 2018. www.endava.com

Pinduoduo, a Chinese discounted e-commerce site focused on group buying, filed for a $1 billion IPO. Credit Suisse is lead underwriter. It reports a $32 million net loss on $220 million in revenue for Q1 2018, and is backed by Tencent (18.5% stake), Banyan Capital (10.1%) and Sequoia Capital (7.4%). http://axios.link/XboF

Opera, an Oslo-based maker of a web browser and digital content discovery tools, filed for a $115 million IPO. It plans to trade on the Nasdaq (OPRA) with CICC and Citi as lead underwriters. It reports $6.6 million of net income on $39 million in revenue for Q1 2018. Shareholders include China’s Kunlun Tech (48% stake). http://axios.link/sFv6

Tenable, a Columbia, Md.-based cybersecurity and compliance monitoring platform, filed for a $100 million IPO. It plans to trade on the Nasdaq (TENB) with Morgan Stanley as lead underwriter. It reports a $16 million net loss on $59 million in revenue for Q1 2018, compared to a $9 million net loss on $40 million for the year-earlier period. The company raised around $300 million in VC funding from firms like Insight Venture Partners (35.3% stake) and Accel (34.4%). http://axios.link/aedv

Liquidity Events

ADM (NYSE: ADM) is in exclusive talks to buy French animal feeds business Neovia for around €1.5 billion from backers like Eurazeo and CDC International Capital, per Reuters. http://axios.link/4Rsk

🍜 Centerbridge Partners said it has hired BofA Merrill Lynch and Barclays to explore a sale of restaurant chain P.F. Chang’s. http://axios.link/fUsA

Fortive (NYSE: FTV) has agreed to buy Gordian, a Greenville, S.C.-based provider of construction cost data, software, from Warburg Pincus. www.thegordiangroup.com

More M&A

Acxiom (Nasdaq: ACXM) is in talks to sell its marketing solutions unit to Interpublic (NYSE: IPG) for around $2.2 billion, per Reuters. http://axios.link/Zv4W

ChemChina and Sinochem Group, both state-owned, reportedly have agreed to merge, which would create the world’s largest industrial chemicals maker with a value of around $120 billion. http://axios.link/UOK4

🏀 The Los Angeles Lakers inked LeBron James for four years and $153 million. http://axios.link/fxMg

Randa Accessories is prepping a $28 per share bid for apparel brand Perry Ellis (Nasdaq: PERY), which would top the $27.50 per share offer from Perry Ellis founder George Feldenkreis, per the WSJ. http://axios.link/vt2Q

Thyssenkrupp of Germany and India’s Tata Steel have agreed to create Europe’s second-largest steel producer, with Thyssenkrupp holding a 55% stake in the joint venture. http://axios.link/G7FS

Uzabase (Tokyo: 3966) has agreed to buy business news site Quartz from Atlantic Media for between $75 million and $110 million (depending on earnouts). http://axios.link/tEQS


China Merchants Group is raising a $15 billion tech investment fund, which already has around 40% of its targeted commitments. http://axios.link/3uKf

Industry Ventures closed its fifth hybrid VC fund-of-funds/secondary fund with $335 million. www.industryventures.com

It's Personnel

Sumit Jussal stepped down as a managing director with Probitas Partners to join the private funds group of UBS, per his LinkedIn profile.

Mitch Lasky, a partner with Benchmark, will not stand for reelection to Snap’s (NYSE: SNAP) board of directors, where he has served since Benchmark invested in late 2012, per The Information. http://axios.link/goBT

John Stewart, a former partner with Monomoy Capital Partners, has formed a Lexington, Ky.-based firm called MiddleGround Capital, per his LinkedIn profile.

Final Numbers
Source: Thomson Reuters
Dan Primack

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