Mar 7, 2019

Axios Pro Rata

By Dan Primack
Dan Primack

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Top of the Morning

Illustration: Rebecca Zisser/Axios

Private equity firms are regularly accused of inflating their internal rates of return, particularly ahead of fundraising. But new data suggests that one widely-suspected technique isn't actually being used.

This would be subscription lines, or loans that PE firms typically use to cover the time between capital calls and actually receiving the funds. They've been around for a long time, but have increased in popularity and became headline news after being defaulted on by Abraaj Group (as part of its broader implosion).

Per a new benchmarks report from PitchBook:

Despite worries that subscription credit lines are inflating IRR, we do not find any evidence that the IRR of newer vintages is being manipulated by these facilities or other means. The reported IRR of more recent vintages can appear to be “inflated” relative to cash-on-cash returns when compared to historical performance, but we find this apparent inflation dissipates when controlling for the age of the funds.
If aggressive markups early in the holding period were historically inflating IRR, we would expect to see IRRs peak early in a fund’s life and to subsequently fall as the holding period extends. While we do find that most funds tend to hit their peak IRR around year seven, the median fund historically has been able to maintain that level through liquidation. But that still means roughly half of managers eventually are revising their IRRs lower in the end stages of a fund’s life.

Shakeup: Toronto-based private equity giant Onex Partners has quietly said goodbye to Tony Morgan, who had joined in 2012 to help lead European investment operations. A receptionist in the firm's London office still pretends he's there but, well, he's not.

  • This move comes amidst broader concerns within the firm about the lagging performance of its fourth global buyout fund, a $5.7 billion vehicle raised in 2014 (it later raised over $7 billion for a successor fund).
  • LPs in Onex's fifth fund must approve the replacement of Morgan with Jonathan Mueller, who was recently promoted to managing director and will now lead European industrials coverage.
  • Per a memo obtained by Axios, Onex also will restructure its top management by naming Bobby LeBlanc and Anthony Munk as co-heads of Onex Partners, and Seth Mersky as chair of a newly-formed investment committee.
  • The firm did not return a request for comment.

Quotable: Elon Musk, after Saturday's successful launch of an unmanned rocket ship called Crew Dragon that eventually will be used to send humans into space:

"When we started SpaceX, they said, 'Oh, you are going to fail.' And I said, 'Well, I agree. I think we probably will fail.'"

Telco talk: Sprint and T-Mobile will defend their proposed $26 billion mega-merger on March 12, in front of a U.S. House Judiciary subcommittee. Expect antitrust issues to be front and center.

  • Fox Biz Channel's Charlie Gasparino reports that the deal has now gotten national security sign-off from the White House, although it still needs DOJ and FCC clearance.
    • T-Mobile execs have spent nearly $200,000 at the Trump International Hotel in D.C. since announcing the merger, despite having never spent a dime there previously. But I'm sure that's just because of the TripAdvisor reviews.
  • Sprint executive chair and SoftBank COO Marcelo Claure this morning was put in charge of a new SoftBank fund that will invest in Latin American tech startups. It's called the SoftBank Innovation Fund, and includes an initial $2 billion commitment from SoftBank with a total reported target of $5 billion.

Photo by Sasin Tipchai via Getty Images

Apollo Global Management agreed to buy Direct ChassisLink, a Charlotte-based chassis rental and leasing company, for a reported $2.5 billion (including debt), from EQT Partners.

  • Why it's the BFD: Because ChassisLink is the largest such business in the U.S., with over 226,000 chassis and 450 locations. Plus, the deal is yet another example of Apollo being the private equity market's most aggressive firm so far in 2019.
  • Bottom line: "The deal represents a bet by Apollo on Direct ChassisLink’s dominant position in the transfer of shipping containers between ports and hubs for transport by rail or truck." — Harry Brumpton, Reuters
Venture Capital Deals

Remix, a San Francisco-based provider of predictive analytics for public transit infrastructure, raised $15 million in Series B funding led by Energy Impact Partners.

🍷 Bright Cellars, a Milwaukee-based wine subscription service, raised $8.5 million in Series A funding. Revolution Ventures led, and was joined by seed backer CSA Ventures.

Hadean, a London-based distributed compute platform, raised £7 million led by Draper Esprit.

Private Equity Deals

The Blackstone Group has acquired a minority stake in GI Partners, a middle-market alternative asset manager with a particular focus on infrastructure and real estate.

Carousel Capital acquired Process Barron, a Birmingham, Ala.-based maker of industrial process fans and material handling systems, from The Sterling Group.

Fullstream, an Auburn, Ala.-based portfolio company of Aquiline Capital Partners, acquired Euclid Technology, a Bethesda, Md.-based provider of association management software.

🚑 KKR completed its purchase of BrightSpring Health Services (fka ResCare), a Louisville, Ky.-based provider of residential health services, from Onex Corp. BrightSpring will be merged into existing KKR portfolio company PharMedica.

Olympus Partners agreed to buy the plastics unit of British packaging company DS Smith (LSE: SMDS) for $585 million.

Trinity Private Equity Group invested in Falcon Structures, a Manor, Texas-based manufacturer of container-based structures.

Weld North Education, a digital curriculum company owned by Silver Lake, acquired Assessment Technology, a provider of K-12 online assessments.

Public Offerings

Ruhnn Holding, a Chinese platform for managing online influencers, filed for a $200 million IPO. It plans to trade on the Nasdaq (RUHN) with Citi as lead underwriter, and reports a $58 million net loss on $125 million in revenue for the last nine months of 2018.

Tufin Software Technologies, an Israeli provider of network security policy management software, filed for a $100 million IPO. It plans to trade on the NYSE (TUFN) with J.P. Morgan as lead underwriter, and reports a $4 million net loss on $85 million in revenue for 2018. The company raised around $26 million in VC funding from firms like Catalyst Investors, Sberbank Capital, Pacific Growth Investors, Marker and Axess Ventures.

More M&A

Cognizant (Nasdaq: CTSH) acquired Meritsoft, an Irish software platform for tax, regulatory and claims services.

General Electric (NYSE: GE) is considering a sale of its 50% stake in a renewable energy joint venture with Italy's Enel, per Reuters. The deal could fetch more than $1 billion, excluding debt.

National Grid (LSE: NG) agreed to buy Geronimo Energy, an Edina, Minn.-based utility-scale wind and solar power company, for at least $100 million.

Raisin, a German fintech marketplace that just raised $114 million in Series D funding, has acquired Frankfurt-based MHB Bank, which provides most of its banking services in Germany.


Omidyar Network has spun out its financial services investing arm. It will be called Flourish Ventures, and is initially capitalized with $300 million.

Playfair Capital, a UK-based seed firm, raised $32 million for its second fund.

It's Personnel

Anne Dinning has rejoined the executive committee of hedge fund manager DE Shaw, per the FT. She had left the firm in 2017, after a 17-year run.

🚑 Ross Jaffe, a co-founder of Versant Ventures, joined NEA as a venture advisor for the firm’s healthcare team.

Carrie Wheeler, former head of retail for TPG Capital, joined the board of Dollar Tree (Nasdaq: DLTR) as an independent director.

Final Numbers

The U.S. trade deficit grew to $621 billion in 2018, its highest level in a decade, per a U.S. Commerce Department report released yesterday.

  • Included was a record-breaking $419.2 billion trade deficit with China on goods.
  • The overall December trade goods imbalance was the highest in U.S. history, once adjusted for inflation.
Dan Primack