Axios Pro Rata
September 13, 2018
Top of the Morning
Private equity takeovers of public companies are becoming an endangered species, according to new data from PitchBook.
- There have only been 39 take-privates so far this year, which puts us on pace for a decade-long low.
- This reverses a three-year upswing in such deals, and remains well below the 2007 high-water mark of 174 take-privates.
- PitchBook (correctly) suggests that this is mostly about supply and demand, given that "there are fewer publicly traded companies than at any point in the past four decades" and that the market caps for many of those companies keep rising.
- It's also something that feeds on itself, with buyout firms able to fish in a much deeper pool of private companies.
• Legal spin: Peloton, the connected indoor cycling company valued at $4 billion by VCs, yesterday sued rival Flywheel for allegedly stealing some of Peloton's proprietary technology, such as displaying live classes, tracking rider performance and competing with other at-home riders.
- But the real news here is that Peloton is accusing Michael Milken of being the thief.
- It alleges that Milken, the former junk bond king turned think tank titan, approached Peloton CEO John Foley about possibly becoming an investor, and "pressed for — and obtained — information from Foley about Peloton’s technology and business strategy."
- What Milken allegedly didn't tell Foley was that he already had an investment in privately-held Flywheel, and Peloton thinks he passed on the info.
- Milken, who isn't named as a defendant, told WSJ via a rep that he did nothing wrong.
• Unicorn dreams: When interviewing venture capitalists, a favorite question of mine is if they'd buy the entire basket of "unicorn" companies at their current valuations. I've always framed it as a hypothetical, of course, but maybe not for much longer.
A company called Lagniappe Labs, which regularly scours Delaware stock filings, has created something called the Prime Unicorn Index and word is that it's talking to banks about bringing related notes to the institutional investor market.
- The notes would basically work as long/short securities with matched trades.
- The marketing pitch would be twofold: Long appeal for those without direct equity exposure to unicorns, and downside protection for those with lots of exposure (e.g., LPs in VC and growth equity funds).
- Yes, we're talking about startup stock derivatives just as we approach the 10-year anniversary of Lehman's collapse. Hey, I don't make the calendar.
- There are currently 102 companies in the index, with prices recast weekly and the index refreshed monthly. Only US-incorporated companies qualify, and the valuation threshold is $500 million instead of $1 billion.
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The BFD
Hershey Co. (NYSE: HSY) agreed to buy Pirate Brands, the Parsippany, N.J.-based maker of cheese puff snacks like Pirate’s Booty, from B&G Foods (NYSE: BGS) for $420 million in cash.
- Why it's the BFD: Because it's part of the chocolate giant's pricey diversification efforts into both healthier and saltier snacks, including prior deals for the makers of SkinnyPop popcorn and Krave jersey.
- ROI: B&G paid $195 million to buy Pirate Brands in 2013 from private equity firm VMG Partners.
- Bottom line: "Please buy me Pirate's Booty when you go to the store." — Regular refrain of Emma Primack, age 7
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It's Personnel
Final Numbers: LBO leverage creeps up
More from Debtwire's CJ Doherty:
Less focus on leveraged lending guidelines has helped boost leverage at the upper end, while private equity funds remain eager to put their dry powder to work, even if it means having to pay up for businesses in the current environment.
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