Jan 14, 2020

Axios Pro Rata

Dan Primack

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Top of the Morning

Source: Giphy

Private equity firms will rush the exits if they believe that a Democrat is likely to defeat President Trump, investors tell me.

  • Each of the four leading Democratic candidates have pledged to eliminate beneficial tax treatment for capital gains among top earners.

Elizabeth Warren has proposed the most dramatic change, raising capital gains rates to all earners and requiring annual, mark-to-market taxes (i.e., not just when an asset is sold).

  • Bernie Sanders would eliminate the rate differential for households making $250,000 or more. Joe Biden would do it for those making $1 million or more. Pete Buttigieg also has proposed a cap gains rate hike and mark-to-market taxation for the top 1% of earners.
  • All four also plan to raise ordinary income rates on top earners so, for many private equity investors, this would be a double whammy.

The result is that private equity investors are talking about clearing the portfolio decks this year, locking in profits under the current taxation scheme.

This is different than the decades-long debate over carried interest, which was about if PE investment profits should be taxed as capital gains or as ordinary income. If you no longer have a difference between the two rates, it no longer matters how carried interest is classified.

  • But, but, but: Exits are a double-sided door., requiring both sellers and buyers. There could be a slowdown in sponsor-to-sponsor opportunities due to both the tax issue and a growing PE consensus that portfolio companies are overvalued.
    • On the other hand, many strategic buyers are flush with cash.
  • Private equity funds also must be careful not to run afoul of their fiduciary responsibilities, as most of its limited partners are nonprofits that don't pay federal taxes at all. If LPs believe that their general partners are selling for personal tax benefits, it could turn into a legal liability.

The bottom line: Pay greater attention this year to why a private equity firm says it sold a company, particularly if it's been a short hold period.

The BFD

Source: Giphy

Visa (NYSE: V) agreed to buy Plaid, a San Francisco-based provider of analytics software for accessing transaction data, for $5.3 billion in cash.

  • Why it's the BFD: Plaid is a company that many of us use, but few of us know. Kind of like Stripe, but a bit further down the payments infrastructure stack. Sources also say that it became a competitive process, even though Plaid originally was seeking growth equity instead of an acquisition.
  • ROI: Plaid had raised over $300 million in VC funding, most recently at a $2.3 billion post-money valuation in late 2018. Backers include Spark Capital, NEA, Kleiner Perkins Growth, NEA, Citigroup, Goldman Sachs, Index Ventures, and Andreessen Horowitz, Visa, and MasterCard. The $5.3 billion sale price is said to include around $400 million tied to retention bonuses and other Plaid employee compensation.
  • Bottom line: "Plaid’s API software, often referred to as the 'plumbing' behind fintech companies, lets startups connect to users’ bank accounts... As of December, Plaid said one in four people in the U.S. with bank accounts have connected to the fintech company through an app." — Kate Rooney, CNBC
Venture Capital Deals

🚑 Concerto HealthAI, a Boston-based provider of data and “enterprise AI tech” for precision oncology, raised $150 million in Series B funding. Declaration Partners led, and was joined by Maverick Ventures, AllianceBernstein PCI, and SymphonyAI Group. www.concertohealthai.com

🚑 Virta Health, a San Francisco-based biotech that aims to reverse Type 2 diabetes, raised $93 million in Series C funding. Caffeinated Capital led, and was joined by return backers Venrock, Obvious Ventures, Creandum, Playground Global, and SciFi VC. http://axios.link/vBJh

🚑 Arcadia, a Burlington, Mass.-based developer of population health management software, raised $29.5 million led by Cigna Ventures. www.arcadia.io

🚑 ReadCoor, a Cambridge, Mass.-based multi-omic spatial sequencing platform, raised $27 million in Series B funding from Pavilion Capital and return backers Decheng Capital and Hansjörg Wyss. http://axios.link/dgZp

🚑 Treadwell Therapeutics, a New York-based oncology pharma startup, raised $27 million in seed funding led by TIO Bioventures. http://axios.link/dlXG

🚑 Zipari, a Brooklyn-based customer experience platform for health insurance, raised $22.5 million in Series B funding. Vertical Venture Partners led, and was joined by Health Velocity Capital, Healthworx and Horizon Healthcare Services. www.zipari.com

🚑 Codagenix, a Farmingdale, N.Y.-based developer of prophylactic vaccines and oncolytic virus therapies, raised $20 million in Series B funding. Adjuvant Capital led, and was joined by Euclidean Capital and Topspin Partners. http://axios.link/WaeB

Trusona, a Scottsdale, Ariz.-based multi-factor authentication startup, raised $20 million. Georgian Partners led, and was joined by return backers Kleiner Perkins, M12, OurCrowd, and Seven Peaks Ventures. www.trusona.com

Locale, an Austin, Texas-based upscale apartment/hotel brand, raised $11 million in Series A funding. Amplo Ventures led, and was joined by Susa Ventures, Malkin Holdings, Rogue Insight Capital, and Metropolis Capital Partners. www.locale.com

🚑 AbSci, a Vancouver, Wash.-based protein printing startup, raised $10.4 million in Series D funding co-led by KBI Biopharma and JSR Life Sciences. http://axios.link/GF0o

Containous, an enterprise networking startup, raised $10 million in Series A funding. Balderton Capital led, and was joined by Elaia and 360 Capital Partners. www.containo.us

🚑 Nicoya, a Canadian developer of analytical instruments for biotech and pharma, raised C$10 million in Series A funding led by Whitecap Venture Partners. http://axios.link/BQuB

SurvivorNet, a New York-based online provider of cancer information, raised $10 million in Series B funding led by Gatemore Ventures. http://axios.link/DOsu

Spotio, a Dallas-based provider of enablement and performance management software for field salespeople, raised $4.5 million in Series A funding from Ballast Point Ventures. http://axios.link/HNIM

Private Equity Deals

AFV Partners acquired Aircraft Performance Group, a Castle Rock, Colo.-based provider of flight operations software to business and charter aviators, from Liberty Hall Capital Partners. www.flyapg.com

Bestar, a Canadian portfolio company of Novacap, acquired Bush Industries, a Jamestown, N.Y.-based maker of case goods and ready-to-assemble furniture. www.bush.co

Circle Graphics, a Longmont, Colo.-based portfolio company of H.I.G. Capital, acquired the assets of Metromedia Technologies, a New York-based digital printing company. www.circlegraphicsonline.com

LogicMonitor, a Santa Barbara, Calif.-based IT infrastructure monitoring platform owned by Vista Equity Partners, acquired Unomaly, a Swedish AI ops startup that’s raised over $7 million from firms like EQT Ventures. http://axios.link/3UX1

🚑 Medsphere Systems, a Carlsbad, Calif.-based provider of healthcare IT software, raised $40 million from TPG Sixth Street Partners. www.medsphere.com

🚑 Montagu Private Equity agreed to buy the sports and reconstructive surgery implants divisions of RTI Surgical Holdings (Nasdaq: RTIX) for $490 million. http://axios.link/pfcM

Pennon (LSE: PNN) rejected a takeover offer for its Veridor waste management unit from KKR, per The Telegraph. http://axios.link/ISzh

Liquidity Events

American Infrastructure Partners is exploring a sale of Safe Harbor Marinas, a Dallas-based marinas operator, that could fetch more than $2 billion, per Bloomberg. http://axios.link/i8zi

Elastic Path, a Vancouver-based provider of commerce and content management software, acquired Moltin, an ecommerce API platform that had raised around $8 million from firms like Underscore VC, Connect Ventures, and Frontline Ventures. Elastic Path backers include Sageview Capital, Yaletown Partners and BDC Venture Capital. http://axios.link/J3id

The Jordan Co. agreed to sell Borchers, a Westlake, Ohio-based maker of coating additives and specialty catalysts, to Milliken & Co. www.borchers.com

More M&A

Brookfield Renewable Partners (TSX: BEP) agreed to buy the 38% stake it doesn’t already own in New York-based renewable power utility TerraForm Power (Nasdaq: TERP) at a $3.93 billion valuation. http://axios.link/TpGk

Cott Corp. (NYSE: COT) of Canada agreed to buy North Carolina-based bottled water company Primo Water (Nasdaq: PRMW) for $550 million in cash and stock, or $14 per share (26.2% premium to Friday’s close). http://axios.link/CKGF

Relx (LSE: REL) agreed to buy ID Analytics, a San Diego-based provider of identity risk and fraud management services, from Norton Lifelock (Nasdaq: NLOK) for $375 million. http://axios.link/uInE

Samsung acquired TeleWorld Solutions, a Chantilly, Va.-based provider of wireless networking and consulting services. http://axios.link/oY5Q

SML Group, a Hong Kong-based maker of garment labels, hired Citigroup to find a buyer, per Bloomberg. A deal could be worth around $500 million. http://axios.link/3Ucq

WSP Global (TSX: WSP) approached rival engineering services company Aecom (NYSE: ACM) about a possible merger, per Bloomberg. http://axios.link/XcON

Fundraising

Obvious Ventures raised $271,828,182 for its third fund. Firm co-founder James Joaquin explains:

"The number e (2.71828182…) is the limit of (1 + 1/n)ⁿ as n approaches infinity. You may have learned about it studying compounding interest or calculus. It’s named e after Leonhard Euler (pronounced 'Oiler'), who is downright legendary in mathematics."

Siguler Guff raised nearly $1.6 billion for its fourth fund focused on lower middle-market buyouts. www.sigulerguff.com

Unicorn Capital Partners, a fund-of-funds focused on Chinese tech venture funds, raised $350 million for its third fund. Monument Group served as placement agent.

It's Personnel

Preeti Rathi joined Icon Ventures as a general partner. She previously was with Ignition Partners. www.iconventures.com

Energize Ventures promoted Tyler Lancaster to principal. www.energize.vc

Levine Leichtman Capital Partners promoted Andrew Schwartz to partner, Andrew Alexander and Weston Richter to principal, Jamie Lee Principe to director and deputy chief compliance officer, and Jay Berajawala to senior associate. www.llcp.com

Venrock promoted Ethan Batraski (tech) and Racquel Bracken (healthcare) to partner, and hired Todd Graham (ex-Cisco) as a VP. www.venrock.com

Final Numbers: U.S. venture deals
Source: NVCA-PitchBook Venture Monitor
Dan Primack

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