Nov 7, 2018

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Source: Giphy

The midterms are (mostly) over, with Democrats winning control of the House and Republicans increasing their edge in the Senate. Big story-lines include increasing demographic polarization and an unprecedented pink wave of successful women candidates.

  • This morning you'll see lots of analyses about how the results will affect markets and the long-term economy. Just remember that everyone is guessing, particularly with a wildcard like Trump in the White House.

Some lower-profile results of particular note:

  • In Illinois, Democrat J.B. Pritzker easily defeated incumbent Gov. Bruce Rauner. In other words, a venture capitalist defeated a big buyout exec.
  • In California, Josh Harder looks like he will narrowly lose a Congressional race to incumbent Rep. Jeff Denham. Harder, a Democrat, stepped down as a VP with Bessemer Venture Partners in order to run.
  • Both Missouri and Utah approved ballot measures to legalize medicinal marijuana, while Michigan went for a recreational use measure. The only place where cannabis lost was in North Dakota, which focused on recreational use. Overall, 33 states now allow at least medicinal use.
  • San Francisco's Prop C, the "homelessness tax" on local companies that had split the city's tech titans, passed with around 60% of the vote.
  • California's Prop 10 — the rent control expansion effort we discussed last Friday — got crushed.

Yesterday also presented two new opportunities for Silicon Valley: Fix polling and fix voting technology.

  • Pollsters are still reliant on what people say, even if they manage to reach them via digital technologies. If online ad and e-commerce companies can incorporate "sentiment" into their analytics, so could pollsters.
  • Yesterday was just absurd. Way too many people waiting way too long because the voting machines just didn't work. Smartphone voting is the eventual future, but we need some effective bridge technology.

On the docket: We now know the three judges who will hear the U.S. Justice Department's appeal of AT&T's acquisition of Time Warner, and two of them — Judith Rogers and David Sentelle — were involved in the old Microsoft antitrust case that left the company intact, but still ruled that it acted like a monopoly, thus curbing some momentum.

  • Fox Biz's Charlie Gasparino tweets: "DOJ anti-trust appeal of lower-crt decision to approve its merger w Time Warner draws a judicial appellate panel of 2 dems and one republican, which is exactly what Makan Delrahim wanted."
  • Be smart: It's still a long shot that the original federal ruling gets overturned, and even that likely would only mean some required divestitures, not putting all the toothpaste back in the tube. But this does make things more interesting...

Big buyout: Reuters reported yesterday that Thoma Bravo has approached Symantec, maker of the Norton antivirus software, about a takeover. It sent Symantec stock up 12.6%, giving it a market cap of $14.4 billion. If it were to sell even at that price, once the company's $5 billion of debt is added, it would be the largest leveraged buyout of 2018.

• Update: Last Wednesday's BFD was the possibility that Platinum Equity would buy Jostens, a Minneapolis-based maker of class rings and yearbooks, from Newell Brands (NYSE: NWL) for around $1.3 billion.

  • The deal was made official this morning, with Newell also announcing that it will sell Pure Fishing, a maker of fishing gear, for $1.3 billion to private equity firm Sycamore Partners.

🎧 Pro Rata Podcast: Our latest episode focuses on Amazon HQ2 (and, apparent,y, HQ3). Listen here or via Apple.

  • Now you can also tell Amazon's Alexa to "play Pro Rata flash briefing."
The BFD

Illustration: Sarah Grillo/Axios

SpaceX, the commercial space company led by Elon Musk, has launched a $750 million leveraged loan led by BofA Merrill Lynch. A meeting with prospective lenders is set for this morning, according to LevFin Insights.

  • Why it's the BFD: Because it is SpaceX's first foray into the institutional debt market, and could result in some of the company's financials becoming public.
  • Banker biz: SpaceX previously was said to be working with Goldman Sachs on a potential debt issue, so the use of BAML is a switch.
  • Bottom line: "I’d like to see what the company is charging and making from customers for launches on recycled Falcon 9 rockets, which is a central piece of its business model - reducing the cost of access to space. Plus, where they’re at in terms of launch revenue and how dependent they are on government contracts. Also, costs related to the Big Falcon Rocket is could be crucial to evaluating the company’s viability several years down the road." — Andrew Freedman, Axios science editor
Venture Capital Deals

Grab, a ride-hail and financial services company focused on Southeast Asia, raised $250 million in equity funding from automakers Kia and Hyundai, as part of a broader strategic partnership around electric vehicles. http://axios.link/ezwq

🚑 Mirum Pharmaceuticals, a San Diego-based developer of a treatment for rare cholestatic liver diseases, raised $120 million in Series A funding. NEA led, and was joined by Deerfield Management, Frazier Healthcare Partners, Novo Holdings, Pappas Capital, RiverVest Venture Partners and Rock Springs Capital.

Overwolf, an Israeli app store for PC gamers, raised $16 million led by Intel Capital. http://axios.link/pG4v

Fraugster, a Berlin-based provider of anti-fraud software for online retailers, raised $14 million in Series B funding. CommerzVentures led, and was joined by return backers Earlybird, Speedinvest, Seedcamp and Rancilio Cube. http://axios.link/OMMC

PressLogic, a Hong Kong-based provider of social media content and data analytics, raised $10 million in new Series A funding from Meitu. http://axios.link/bivi

Partnerize, a San Francisco-based provider of partner marketing software for global brands, raised $9 million led by GP Bullhound at a $127 million valuation. www.partnerize.com

Yotascale, a Menlo Park-based developer of autonomous cloud operations, raised $8 million in Series A funding led by Crosslink Capital. www.yotascale.com

Photomath, an app for learning math, raised $6 million. Goodwater Capital led, and was joined by Learn Capital. http://axios.link/nL15

Private Equity Deals

Altice (Amsterdam: ATCA) has received four bids for between a 40% and 60% stake in its fiber business, which could fetch around $4 billion, per Reuters. Lead investors for the quartet are Allianz, KKR, Macquarie Group and I Squared Capital. http://axios.link/lVqp

Anderson Metals, a Kansas City-based portfolio company of Wynnchurch Capital, acquired Midland Metal Mfg, a Kansas City-based distributor of fittings, valves, clamps and related products. www.midlandmetal.com

C&D Technologies, a Blue Bell, Penn.-based portfolio company of KPS Capital Partners, agreed to buy Trojan Battery Co., a Santa Fe Springs, Calif.-based maker of deep-cycle batteries, from Charlesbank Capital Partners. http://axios.link/N5Xq

Frontenac agreed to buy Motion Solutions, an Aliso Viejo, Calif.-based provider of linear motion, motion control and automation solutions. www.motionsolutions.com

Jøtul, a Norwegian portfolio company of OpenGate Capital agreed to buy AICO, an Italian maker of residential stoves, fireplaces, boilers and cookers from European private equity firm Ambienta. www.jotul.com

Messagepoint, a Toronto-based provider of customer communications management software and services, raised an undisclosed amount of funding from NewSpring. www.messagepoint.com

Oaktree Capital Management acquired MWH Constructors, a Broomfield, Colo.-based construction firm focused on water and energy. www.mwhglobal.com

Palladin Consumer Retail Partners acquired Splash Car Wash, an operator of 18 car wash locations in Connecticut and New York. www.splashcarwashes.com

Liquidity Events

Arsenal Capital Partners agreed to sell Elite Comfort Solutions, a Newman, Ga.-based maker of bedding and furniture foam, to Leggett & Platt (NSYE: LEG) for $1.25 billion in cash. www.leggett.com

The Blackstone Group and LLOG Exploration Co. hired Barclays to find a buyer for their Gulf of Mexico exploration joint venture, which could fetch more than $2 billion, per Reuters. http://axios.link/v5TF

Goldman Sachs and Rhone Capital are seeking a buyer for Neovia Logistics Services, an Irving, Texas-based supply chain manager they acquired in 2015 for over $1 billion, per Bloomberg. http://axios.link/Bn2M

More M&A

AXA Investment Managers agreed to buy a $9.4 billion U.S. commercial mortgage loan portfolio from Georgia-based Quadrant Real Estate Advisors, plus hire 24 Quadrant investment professionals. No financial terms were disclosed. http://axios.link/s7vk

• CommScope (Nasdaq: COMM) is nearing an agreement to buy Suwanee, Ga.-based telecom equipment provider Arris (Nasdaq:ARRS) for more than $5.6 billion in cash, per CNBC. http://axios.link/7QBh

Illycaffe, an Italian coffee roaster and store chain, denied a local media report that its founding company was planning to sell a minority stake to financial investors. http://axios.link/EkBj

Investors Bancorp (Nasdaq: ISBC), which has around 150 branches in New Jersey and New York, hired Keefe, Bruyette & Woods to find a buyer, per the WSJ. The company’s market cap rose to around $3.5 billion on the news. http://axios.link/5Ngw

Kraft Heinz (Nasdaq: KHC) agreed to sell its Canadian natural cheese business to Italy’s Parmalat (Milan: PLT) for C$1.62 billion. http://axios.link/xusy

Virtu Financial (Nasdaq: VIRT) agreed to buy New York-based independent brokerage Investment Technology Group (Nasdaq: ITG) for around $1 billion in cash, or $30.30 per share (9% premium to yesterday’s closing price). http://axios.link/TdaY

Fundraising

Kelso & Co. held a $2 billion first close on its tenth buyout fund, which has a $2.95 billion hard cap, per PE International. http://axios.link/6gKc

MassMutual Ventures launched a $50 million early-stage VC fund focused on Southeast Asia. http://axios.link/G5Hp

Monashees raised $150 million for its eighth VC fund focused on Latin American startups. www.monashees.com.br

Morgan Stanley raised around $400 million for its eighth growth equity fund, called North Haven Expansion Equity. http://axios.link/4Phx

It's Personnel

Anthony Kelly is stepping down as co-chief of the SEC’s asset management enforcement unit, after 18 years with the agency.

🛴 Joe Kraus is stepping down as a general partner at GV, in order to join e-scooter company Lime as its first chief operating officer. He led GV’s investment in Lime, and sits on his board of directors (GV will find a replacement). http://axios.link/AN6K

Veronica Rodriguez joined AUA Equity Partners as VP of investor relations. She previously led U.S. IR for Markets Group. www.auaequity.com

Final Numbers
Source: Preqin

Conventional wisdom is that a Democratic House could make it easier for President Trump to pass his desired $1 trillion infrastructure package.

  • It is more likely, but that doesn't make it likely.
  • Bull case: Democrats want it, and the newly-elected Senate Republicans are more Trump-y and less GOP doctrinaire on deficit spending.
  • Bear case: Any package would include lots of new spending, and there might still be enough fiscal hawks — including within the White House — to make it a nonstarter.
  • I'm told that Nancy Pelosi's office has been working on a $1 trillion plan, in preparation of winning the House, but the better bet could be a smaller infrastructure deal before the new Congress takes office. For example, current Democrats trade some wall funding for some infrastructure spend. The big impediment is time, as there would be just a few weeks to get it done.
Dan Primack

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