Apr 14, 2017

Axios Pro Rata

By Dan Primack
Dan Primack

Good Friday greetings from the market holiday. Some quick notes for the 18 of you actually at your desks (because 18 is the number of Pro Rata readers who I imagine left their wallet or something else important in the office last night)...

Top of the Morning

• Fake biz news: Earlier this week we noted that the SEC had filed enforcement actions against 27 individuals and entities that had used sites like Seeing Alpha, Forbes and Yahoo Finance to post "bullish articles" about listed biotech companies "under the guise of impartiality when in reality they were nothing more than paid advertisements."

Now we've learned more about how the scam first came to the SEC's attention, per a source familiar with the situation:

  • In 2013, a Seeking Alpha contributor named Richard Pearson was contacted by a self-described investor relations firm, asking him to write paid promotional articles about a publicly-traded biotech companies Galena Biopharma and CytRx, without disclosing the payments (which would be a violation of Seeking Alpha policy).
  • Pearson played along to learn more about the scam, submitting a few dummy articles. He then submitted everything he had learned not only the Seeking Alpha, but also to the SEC. He later made his top-line allegations public via a Seeking Alpha post.
  • Seeking Alpha immediately launched an internal investigation, removing dozens of articles and tightening up its contributor requirements (none of the publishers were charged by the SEC). It also provided information to the Agency, which managed to identify several fraudsters that website had been unable to pin down.

• Post-IPO: Yext shares closed up nearly 22% on their first day of trading yesterday, and co-founder and CEO Howard Lerman tells Axios that his company is playing in a "winner take all market." Kind of different from typical tech CEO rhetoric, which usually allows for multiple victors. More here.

• Founder control: There has been a lot of tech and trader talk lately about founder control, in light of both the Snap stock structure and Uber's ongoing sadness soirée. At the heart of it have been two competing theses:

  • Pro: Such arrangements usually only apply to visionary founders who have demonstrated an ability to successfully execute and generate major market traction, either at a past company (e.g., Jack Dorsey at Square) or at their current one (e.g., Travis Kalanick at Uber). The investment is as much about the person as it is about the idea, which is at the heart of venture capital's "founder friendly" movement.
  • Con: The board of directors must be able to fire the CEO, or else it's really just a board of feckless advisors. You may have invested in "the person," but sometimes that person changes or does something unforeseen that is extraordinarily damaging to one or more of the company's many stakeholders (other shareholders, employees, customers, etc.). With great voting rights comes no responsibility.

The latter argument is quite persuasive from a corporate governance standpoint. On the other hand, a young Facebook is probably sold to Yahoo if Zuckerberg didn't have the ability to say no. And Snap likely would be owned by Facebook (which is already owned by Yahoo in this scenario, all of which makes me want to write a wonderfully nerdy Choose Your Own Adventure book).

Again, these cases are outliers. Most entrepreneurs don't get voting rights in excess of their actual equity. But such outliers often are where the most money is at stake, so it seems that there must be some middle ground. Kind of like a limited no trade clause in pro sports, although I'm struggling with its construction in this context. So I turn to you for thoughts, dear readers. What to do?

• VC vs VC: Venrock this week released a survey of a couple hundred healthcare investors and professionals, for what it called the 2017 Healthcare Prognosis. One of the questions was if respondents would invest in various healthcare startups at their latest valuations. Top of the chart was Doctors on Demand (42% yes at $250m), while at the bottom was Oscar (7% at $2.75 billion).

Brian Singerman, a Founders Fund partner and Oscar board member, tells Axios: "There's a reason that venture investing is done with real dollars, and not anonymous surveys. Oscar is well-positioned to succeed in the long term, and the team has the full confidence of their investors."

• Decision-maker: Yesterday should have been a very good day at Marker LLC, a venture capital firm that held a 13.9% pre-IPO stake in Yext. But then its COO/CFO Dan Rochkind agreed to interviewed by the NY Post about why he "won't date hot women anymore." Tippy top of the cringe-worthy scale. This isn't just grabbing defeat from the jaws of victory ― it's then pulling the teeth out of those jaws and grinding them down into a fine powder.

• Have a great weekend!


Abbott Labs (NYSE: ABT) has reached a revised $5.3 billion agreement to purchase of Waltham, Mass.-based diagnostic test maker Alere Inc. (NYSE: ALR), as first reported by the FT.

  • Why it's the BFD: Because a proooooloooonged legal battle is finally over, as Abbott had originally agreed to buy Alere back in February 2016. Abbott first said that Alere had made misrepresentations during due diligence, and offered to pay a deal termination fee. Alere later sued to push the merger forward, which resulted in a countersuit from Abbott. The revised deal values Alere stock at $51 per share, a 20.5% premium to yesterday's closing price, but well below the original $56 per share agreement. All lawsuits will be dropped.
  • Bottom line: "Medical-device manufacturers have undergone consolidation as they come under pressure from hospitals and health systems to cut prices." ― Edward Robinson, Bloomberg.
Venture Capital Deals

• Sansoro Health, a Minneapolis-based developer of interoperability solutions for healthcare providers, has raised $5.2 million in new VC funding led by Bain Capital Ventures. http://bit.ly/2oGothI

• Fishbrain, a Sweden-based app and social network for anglers, has raised $3.7 million in new VC funding. FJ Labs was joined by return backers Northzone, Industrifonden, Active Venture Partner and Recruit Strategic Partners. http://bit.ly/2oeH4xC

• BestMile, developer of a fleet automation platform for autonomous vehicles, has raised $2 million in new VC funding from Partech Venture, Serena Capital and Airbus Venture. http://bit.ly/2obLh5U

Private Equity Deals

• The Blackstone Group is in advanced talks to acquire Ascend Learning, a Burlington, Mass.-based maker of educational software, from Providence Equity Partners for more than $2 billion, according to Reuters. http://reut.rs/2oeFko7

• Clayton Dubilier & Rice and Hillhouse Capital have agreed to acquire the digital equipment unit of Carestream Health, a portfolio company of Onex Corp. No financial terms were disclosed, although Bloomberg earlier reported that the deal could be worth around $1 billion. http://bit.ly/2pgDzIO

• Starwood Capital Group has agreed to acquire Forestar Group (NYSE: FOR), an Austin, Texas-based real estate company, at an equity value for $14.25 per share in cash (equity value of $605 million). www.forestargroup.com

• Sweeping Corp of America, a Nashville, Tenn.-based portfolio company of Soundcore Capital Partners, has acquired Sky Sweeping, a Louisville, Ohio-based provider of parking lot, street and industrial sweeping. No financial terms were disclosed. www.sweepingcorp.com

• Warren Equity Partners has acquired a majority stake in SSP Innovations, a Centennial, Colo.-based provider of geographic information systems and workforce management software. No financial terms were disclosed. www.sspinnovations.com

Public Offerings

G1 Therapeutics, a Chapel Hill, N.C.-based developer of small molecules for use in cancer therapy and biodefense applications, has filed for a $115 million IPO. It plans to trade on the Nasdaq under ticker symbol GTHX, with J.P. Morgan and Cowen & Co. serving as lead underwriters. Shareholders in the pre-revenue company include Hatteras Venture Partners (19.79% pre-IPO stake), MedImmune Ventures (16.7%), Ashelman Ventures (15.38%), RA Capital (10.66%), Lumira Capital (7%), Cormorant Asset Management, Aju IB Investment, Cowen Private Investments, Franklin Templeton Investments, Rock Springs Capital, Mountain Group Capital and Tavistock Life Sciences. www.g1therapeutics.com

Liquidity Events

• Guala Closures, an Italian packaging company backed by aPriori Capital Partners, is prepping a sale or stock listing that could value the company north of €1 billion (including debt), according to Reuters. https://yhoo.it/2otJsSO

• Lightower Fiber Networks, a Boxborough, Mass.-based based provider of high-speed broadband infrastructure solutions, has hired Evercore and Citigroup to explore a sale that could value the company at around $7.5 billion, according to Reuters. Lightower was originally formed by Berkshire Partners, while Palmico Capital and ABRY Partners have since acquired minority equity stakes. http://reut.rs/2otLHpa

More M&A

• Chevron (NYSE: CVX) is considering the sale of its 20% stake in Canada's Athabasca Oil Sands project, which could be worth around $2.5 billion, according to Reuters. http://reut.rs/2nJ9m7Y

• Chiltern International, a British contract research org for the pharma market, has hired Jefferies to explore a sale that could value the company at around $1.3 billion (including debt), per Reuters. http://bit.ly/2pdUXAy

• ConocoPhillips (NYSE: COP) has agreed to sell its gas assets in the San Juan Basin to privately-held Hilcorp Energy Co. for around $3 billion. http://bit.ly/2oy7qy5

• Fosun International of China reportedly is leading a group that plans to purchase between 20% and 25% of Russia's largest gold producer, Polyus, for upwards of $2 billion. http://bit.ly/2nMdl3y

• SP Setia has agreed to acquire rival Malaysian property developer I&P Group for around $795 million. http://reut.rs/2otH1Qa

• Verizon is thinking about topping AT&T's $1.6 billion takeover bid for Straight Path Communications (NYSE MKT: STRP), a Glen Allen, Va.-based owner of nationwide rights to millimeter-wave spectrum, according to Reuters. http://reut.rs/2nLGwEf


• HCI Equity Partners, a Washington, D.C.-based private equity firm focused on middle-market industrial services and product companies, is targeting $400 million for its fifth fund, per an SEC filing. UBS is serving as placement agent. www.hciequity.com

Final Numbers
Dan Primack