Oct 8, 2018

Axios Pro Rata

Dan Primack
Top of the Morning

Saudi Crown Prince Mohammed bin Salman. Photo by Nicolas Asfouri/Getty Images.

We don't yet know what happened last week to Jamal Khashoggi, a journalist who disappeared after visiting the Saudi Arabian consulate building in Istanbul.

  • Turkish officials claim he was murdered, and that his body was removed.
  • The Saudis call such allegations preposterous propoganda, and that Khashoggi left unharmed shortly after arriving.

Why it matters, beyond the obvious: If the Turks are right — and that remains a big if — it could have repercussions for some of the world's largest prospective financial deals:

  • Aramco IPO: The largest IPO in history was supposed to take place in 2018, but Saudi Crown Prince Mohammed bin Salman tells Bloomberg that the delay should not be misinterpreted as a cancellation. Instead, the new target date is 2020, with MBS saying a strategic decision was made to have Aramco first obtain a control stake in Saudi petrochemical giant Sabic, with the IPO to follow one year later (i.e., 2020).
  • SoftBank Vision Fund: MBS said in that same interview that the Saudi Public Investment Fund plans to commit another $45 billion or so to SoftBank's next Vision Fund.

Both of these deals are, in part, predicated on beliefs in MBS as a reformer. Were the Turkish allegation substantiated, then it could become much tougher for Western bankers or exchanges to work on the Aramco IPO, or for Masayoshi Son to accept Saudi as the ongoing capital cornerstone of its evolution into an investment company.

Expect more clarity on how this is playing among the global business elite in two weeks — pending definitive resolution on Khashoggi's fate — when we learn who chooses to attend Saudi's second annual Future Investment Initiative conference.

• Forerunner Ventures, a commerce-focused venture capital firm known for early-stage investments in companies like Glossier and Dollar Shave Club, this morning announced that it's closed its fourth fund with $360 million. Two takeaways from a conversation with firm founder Kirsten Green:

  • "Having a popular product and brand is now table stakes. What we're looking for beyond that is teams that understand dislocations in their markets, and an idea for how to bring something new to the business model. Something the incumbents are too sleepy to notice, or something consumers are pushing for."
  • "The success that's unfolding with Walmart's purchase of Jet is helping to give some of these big [commerce] companies permission to not only buy startups, but also invest in them at the earlier stages."

• Today in ex-Tesla: Justin McAnear last month resigned as VP of global finance and operation for Tesla, in order to take a CFO job at an undisclosed company. Now we've learned his new employer: 10X Genomics, a Silicon Valley genomics company whose investors include Fidelity and SoftBank.

• Up in smoke: Juul, the e-cigarette company most recently valued at $15 billion by firms like Fidelity and Tiger Global, has one month left to explain to the FDA how it will prevent minors from accessing its flavored products. In the meantime:

  • There were reports last week that Juul was "raided" by the FDA. And, for the record, I also used that term on the podcast. But the reality is that it was a so-called "tobacco manufacturing inspection" that Juul had been expecting (it simply didn't know when, as is standard). Just a few guys in suits, buzzed in through reception.
  • Juul filed a patent infringement complaint against 18 e-cigarette manufacturers and groups via the International Trade Commission.
  • If the FDA does pull flavored product, that would include Juul's best-selling mango. It could still sell traditional flavored pods (tobacco, menthol, etc) and likely would accelerate international expansion efforts.

🎧 Pro Rata Podcast: Special edition this morning, with highlights of a recent "Tech in the Age of Trump" conversation with Anthony Scaramucci and Brex CEO Henrique Dubugras. Listen here.

The BFD

The Blackstone Group, The Carlyle Group, Onex Corp. and Canada Pension Plan Investment Board are working on a joint bid for aluminum parts maker Arconic (NYSE: ARNC), per Reuters.

  • Why it's the BFD: Because this could signal that big buyout firms are beginning to get over their decade-old aversion to large club deals. Plus, Arconic remains under pressure from aluminum tariffs, including ones on Canada that were not rescinded as part of the recent trade deal.
  • Not alone: Apollo Global Management was first mentioned as a suitor back in July, and reportedly remains interested.
  • Bottom line: "The Pittsburgh-based company, which was spun out of Alcoa Corp in 2016, said in February it would carry out a 'strategy and portfolio review,' to be completed by the time its holds its investor day in November. As plane-makers ramp up production to satisfy growing global demand for air travel, Arconic is paying more attention to aircraft parts." — Harry Brumpton & Joshua Franklin, Reuters
Venture Capital Deals

• Varjo Technologies, a Finnish developer of a VR and mixed reality headset, raised $31 million in Series B funding. Atomico led, and was joined by Next47 and return backers EQT Ventures and Lifeline Ventures. http://axios.link/lHvW

• ICHunt.com, a Chinese B2B trading platform for IC electronic components, raised $23 million in Series B funding led by affiliates of Haitong Securities. http://axios.link/aUDq

• Klarna, a Swedish payments startup, raised $20 million from retailer H&M. http://axios.link/cTt0

• Kitchen United, a San Francisco-based “virtual restaurant concept,” raised $10 million in Series A funding led by GV. http://axios.link/zefW

Private Equity Deals

Apollo Global Management agreed to buy around a $1 billion portfolio of energy investments from GE Capital. http://axios.link/KdOz

The Blackstone Group is investing “hundreds of millions of dollars” to launch Zarou, a new renewable power platform focused on the MENA region, per the FT. http://axios.link/RYSu

• Bomgar, a Johns Creek, Ga.-based portfolio company of Francisco Partners, completed its purchase of BeyondTrust, a Phoenix-based provider of privilege-centic access management solutions, from Veritas Capital. www.bomgar.com

• KKR offered to buy the 82.4% stake it doesn’t already own in Australian cloud services company MYOB Group (ASX: MYO) for around A$1.75 billion. http://axios.link/RnIw

🚑 Onex Corp. has received preliminary private equity bids for BrightSpring Health Services (fka ResCare), a Louisville, Ky.-based provider of residential health services, per Reuters. http://axios.link/5cNJ

• Perforce, a Minneapolis-based portfolio company of Clearlake Capital, agreed to buy Perfecto, a Burlington, Mass.-based provider of automated mobile and web application test software. Perfecto had raised around $90 million from firms like TCV, FTV Capital, Carmel Ventures, Globespan Capital Partners and Vertex Venture Israel. www.perforce.com

Public Offerings

• Five companies expect to go public on U.S. exchanges this week: Allogene, Anaplan, Equillium, Livent and Osmotica Pharmaceuticals. http://axios.link/s7o7

🚑 Axonics Modulation Technologies, an Irvine, Calif.-based developer of minimally-invasive sacral neuromodulation, filed for an $86 million IPO. It plans to trade on the Nasdaq (AXNX) with BofA Merrill Lynch as lead underwriter, and raised over $140 million from firms like Andera Partners (14.44% stake), Longitude Venture Partners (12.88%), Gilde Healthcare (12.16%), Advent Life Sciences (9.09%), NeoMed (8.1%), Legend Capital, Edmond de Rothschild Investment Partners and Cormorant Asset Management. www.axonicsmodulation.com

• Exyte, a German builder of semiconductor fabs, shelved plans for a Frankfurt IPO. http://axios.link/EgAA

🚑 PhaseBio Pharma, a Malvern, Penn.-based drug developer focused on orphan cardiopulmonary diseases, set IPO terms to 5 million shares at $12-$14. It would have a fully-diluted market value of $269 million, were it to price in the middle. The pre-revenue company plans to trade on the Nasdaq (PHAS) with Citigroup as lead underwriter, and raised around $140 million in VC funding from firms like NEA, Hatteras Venture Partners, Johnson & Johnson and Fletcher Spaght Ventures. www.phasebio.com

• SolarWinds, an Austin, Texas-based provider of IT management software, set IPO terms to 42 million shares at $17-$19. It would have a fully-diluted market value of $5.5 billion, were it to price in the middle, and plans to trade on the NYSE (SWI) with Goldman Sachs as lead underwriter. The company reports an $87 million net loss on $399 million of revenue for the first half of 2018, and was taken private in 2016 for $4.5 billion by Silver Lake and Thoma Bravo. www.solarwinds.com

• Valtech, a London-based provider of digital agency services, set IPO terms to 6.7 million shares at $14-$16. It would have a fully-diluted market value of $678 million, were it to price in the middle, and plans to trade on the Nasdaq (VTEC) with JPMorgan as lead underwriter. The company reports $6 million of net income on $159 million in revenue for the first half of 2018, while shareholders include Verlinvest. www.valtech.com

Liquidity Events

🚑 Civitas Solutions (NYSE: CIVI), a Boston-based provider of home and community health services for those with disabilities, is exploring strategic options, per Reuters. It has a market cap of around $580 million and an enterprise value of around $1.3 billion, while Vestar Capital Partners holds a 54% stake. http://axios.link/5cNJ

More M&A

• French Connection (LSE: FCCN), a British clothing retailer, confirmed it’s in talks to be sold, sending the company’s stock up 45%. http://axios.link/8Fs8

Orsted, a Denmark-based offshore wind power company, agreed to buy Providence, R.I.-based Deepwater Wind for $510 million. http://axios.link/uKMQ

Fundraising

• Catalyst Labs, an early-stage VC fund led by Jon Sakoda (ex-NEA) that features Cisco as its cornerstone limited partner, is raising $500 million for its debut fund, per an SEC filing.

• Kraft Heinz has launched a $100 million VC fund called Evolv Ventures, led by former Lightbank partner Bill Pescatello. http://axios.link/1MJG

• Mosaic Ventures of London raised $150 million for its second early-stage fund. http://axios.link/kKra

• Partners Group is raising up to €5 billion for its fourth buyout fund, per Bloomberg. http://axios.link/qtCR

• Petershill, a unit of Goldman Sachs, is in talks to buy a stake in the management company of VC firm General Catalyst, per Bloomberg. http://axios.link/YeLO

It's Personnel

• Tom Hill is stepping down as vice chairman of The Blackstone Group at year-end. http://axios.link/Bhnb

• Ani Khatri joined The Carlyle Group as a London managing director of investor relations, per WSJ. He previously was with PJT Partners. http://axios.link/2D8D

• Yacine Mancer joined BC Partners as a London-based principal of investor relations, having previously been with Ardian, per WSJ. http://axios.link/2D8D

Final Numbers
Source: EY Capital Confidence Barometer, based on survey of 2,600 senior executives.
  • 41% of U.S. respondents to the EY survey said the main M&A theme of the next 12 months would be "an increase in private equity as a major acquirer of assets."
  • It also led for non-U.S. respondents, but down at 31%.
  • The second-place answer for both groups was "an increase in cross-sector M&A driven by technology and digital."
Dan Primack