Oct 11, 2018

Axios Pro Rata

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Source: Giphy

On Monday I was sent a four-page memo purportedly written by a Defense Department official, requesting that the U.S. Treasury launch a national security review of Broadcom's proposed $18 billion takeover of CA Technologies.

The sender claimed to be a government official who shared the memo's concerns that Broadcom, which recently redomiciled from Singapore to the U.S., is beholden to Chinese interests because of its client base and the physical locations of its manufacturing facilities.

Other sources said that neither Broadcom nor CA had requested a CFIUS review after announcing the deal in July, despite Broadcom having previously been blocked from buying Qualcomm on national security grounds, and that no review had yet been initiated.

  • I spent much of the next 48 hours trying to authenticate the memo, including through communications with the Defense Department and Broadcom.
  • Early yesterday a DoD spokeswoman emailed: "Our initial assessment is that this is likely fraudulent document."
  • So I didn't write about it, but kept making calls.

Then, shortly after the newsletter went out, Sen. Rand Paul (R-Ky.) said during a public hearing that CFIUS should review the proposed deal, adding that he would soon send a letter to that effect. He also cited two statistics included in the memo, although those statistics also are publicly available via the intertubes.

  • We reported on his statements, sending both Broadcom and CA stock lower.
  • Broadcom then publicly revealed the existence of the memo, which it hadn't known about until my initial call, saying DoD had confirmed it to be a "forged document." [note: DoD's statement to me was slightly less definitive]
  • Once Broadcom had disclosed the memo's existence, I felt it was fair game to also write about it.
  • Rand Paul later sent his letter to Treasury Sec. Mnuchin, with a top staffer denying that Paul's office had ever seen the memo.

Bottom line: Assuming the memo was indeed fraudulent, then we might have just entered a new phase of short-seller espionage.

  • To be clear, I don't know if my original source was in on that, or just being used (I tend to think the latter, but can't be sure).
  • But no matter how fake the memo might have been, Broadcom's potential roadblock to buying CA has become very real, thanks to the actions of Senator Paul.

🌲 High times: Altria, the Virginia-based maker of Marlboro cigarettes, is in talks to buy Toronto-listed cannabis company Aphria, per The Globe & Mail.

  • This would be big tobacco's first major diversification into the cannabis market, following the lead of beverage giants like Constellation Brands and Coca-Cola.
  • Nasdaq-listed cannabis company Tilray successfully placed $450 million of convertible notes. Its shares closed yesterday at $136.80 — less than half its $300 intra-day peak last month, but still a 460% YTD gain.

😀 Dental work: SmileDirectClub, a Nashville-based provider of at-home dental alignment solutions, yesterday said it raised $380 million at a $3.2 billion valuation.

The big numbers didn't surprise me, particularly given Invisalign's $25 billion market cap, but I was intrigued that the lead investor on this late-stage VC deal was leveraged buyout firm Clayton Dubilier & Rice. Here's the explanation, per CD&R partner Tom Franco:

"We’re definitely investing in fast-growing, disruptive healthcare models and have done so successfully for the past few years, including agilon, naviHealth and Vets First Choice...
In addition, this investment reflects the combination of a number of themes that are core to our healthcare investing strategy, such as direct to consumer healthcare and cost effective care. Finally we have domain experience in the dental space though our investment in Carestream.  SDC is a $500 million in sales business and expected to grow dramatically next year and beyond."

Pro Rata Podcast: Our new episode discusses Hurricane Michael, and the impact of climate change on extreme weather. All in just 10 minutes. Listen here, or via Apple Podcasts.


Illustration: Rebecca Zisser/Axios

Apple is paying $300 million in cash to carve out part of European chipmaker Dialog Semiconductor, and also committed to buy another $300 million of products from the remaining Dialog business over the next three years.

  • Why it's the BFD: Because it's Apple's largest-ever acqui-hire, with over 300 Dialog engineers moving over, and reflects how Apple is seeking to control more and more of its supply chain.
  • Bottom line: "The talent acquisition comes as the performance of the processors Apple is designing for its iPhones are outpacing technology advances related to the batteries commonly used in iPhones, according to chip experts. The rate of processor development has made preserving power more critical in the devices." — Anthony Shevlin & Tripp Mickle, WSJ
Venture Capital Deals

Snowflake Computing, a San Mateo, Calif.-based provider of data warehousing solutions, raised $450 million at a post-money valuation of nearly $4 billion led by return backer Sequoia Capital. Other investors included Meritech Capital and existing shareholders Altimeter Capital, Capital One Growth Ventures, ICONIQ Capital, Madrona Venture Group, Redpoint Ventures, Sutter Hill Ventures and Wing Ventures. http://axios.link/fwCp

Allbirds, a San Francisco-based sneaker maker, raised $50 million in Series C funding. T. Rowe Price led, and was joined by Fidelity and return backer Tiger Global.

RoboSense, a Chinese provider of lidar sensors for autonomous cars, raised over $45 million from Alibaba, SAIC Motors and BAIC Group. http://axios.link/wIkx

Letus Legend, Chinese chain of fresh produce supermarkets, raised $43 million in Series B funding. IDG Capital led, and was joined by BA Capital and return backer Sequoia Capital China. http://axios.link/3FgB

RedShelf, a Chicago-based distributor of digital course materials for higher ed, raised $25 million in Series C funding led by DNS Capital. http://axios.link/CMHN

Total Expert, a Minneapolis-based provider of a “marketing operating system,” raised $20 million in Series B funding. Emergence Capital led, and was joined by Rally Ventures and Arthur Ventures. www.totalexpert.com

🚑 Cardialen, a Minneapolis-based developer of low-energy defibrillators, raised $17 million in Series B funding. RiverVest Venture Partners led, and was joined by Qiming Venture Partners, HBM Healthcare Investments and Cultivation Capital. http://axios.link/UGcQ

Kahoot, an Oslo-based educational gaming startup, raised $15.4 million at a post-money valuation of around $300 million led by return backer Datum. http://axios.link/Oe5P

Xingkeduo, a chain of 15-minute haircut shops, raised $14.4 million in Series B funding. Shunwei Capital led, and was joined by CICC Pucheng Investment and return backers HongDao Capital and Future Capital. http://axios.link/4jpw

Gogoprint, a Bangkok-based online printing startup, raised $7.7 million in Series A funding led by Online Printing Group. http://axios.link/n73U

Shujinko, a Seattle-based cloud security compliance startup, raised $2.8 million from Unusual Ventures, Defy, Vulcan Capital, PSL Ventures and Vas Ventures. http://axios.link/hsIS

Private Equity Deals

🚑 Abry Partners invested in Lighthouse Autism Center, a Mishawaka, Ind.-based provider of center-based applied behavioral analysis therapy. www.lighthouseautismcenter.com

• Advent International invested in Manjushree Technopack, an Indian provider of rigid plastic packaging solutions. Sellers include Kedaara Capital.

FountainVest Partners is part of a group seeking to buy listed Finnish sporting goods company Amer Sports, per Bloomberg. http://axios.link/X6it

• Greenbriar Equity invested in Spireon, an Irvine, Calif.-based provider of vehicle analytics and telematics solutions. www.spireon.com

• Hentsū, a provider of cloud solutions to hedge funds and asset managers, raised an undisclosed amount of funding from Credit Suisse Asset Management, Falconwood and Raptor Group. www.hentsu.com

Lennar (NYSE: LEN) is in talks to sell its real estate lending unit, Rialto Capital, to Stone Point Capital, per the WSJ. http://axios.link/XGMG

🚑 MBF Healthcare Partners bought Rose Dental, an Austin, Texas-based dental practice group that will become the first acquisition in a new MBF platform company called Strive Dental Management. www.rosedental.net

TPG Sixth Street Partners is buying a minority stake in the management company of New York-based hedge fund manager Halcyon Capital Management. Existing investor Dyal Capital Partners also is increasing its stake in Halcyon, which will be renamed Bardin Hill Investment Partners. http://axios.link/of9d

Public Offerings

🚑 Allogene Therapeutics, a South San Francisco-based developer of CAR-T cancer therapies, raised $288 million in its IPO. The pre-revenue company priced 16 million shares at $18 (high end of range) for an initial market cap of around $2 billion, and will trade on the Nasdaq (ALLO). Goldman Sachs was lead underwriter. Shareholders include TPG (25.1%), Pfizer (24.6%), Gilead Sciences (8.4%) and Vida Ventures (8.4%).

Livent, a Philadelphia-based maker of lithium batteries for electric vehicles, raised $340 million in its IPO. It priced 20 million shares at $17 (below range), for an initial market cap of around $2.4 billion. The company was spun out of FMC Corp. (NYSE: FMC), and is listing on the NYSE (LTHM) with BofA Merrill Lynch as lead underwriter. It reports $70 million of net income on $211 million in revenue for the first half of 2018.

Liquidity Events

Egeria agreed to sell JET-Group, a German provider of industrial roof light systems, to Denmark’s Velux. www.jet-gruppe.de

Graycliff Partners agreed to sell Impakt, a Santa Clara, Calif.-based outsourced manufacturer for the semiconductor and OLED display markets, to Celestica (NYSE: CLS) for $329 million in cash. www.celestica.com

Kainos Capital agreed to sell SlimFast, a Palm Beach Gardens, Fla.-based maker of health shakes, to Irish nutrition company Glanbia for $350 million. http://axios.link/bJnm

ServiceNow (NYSE: NOW) agreed to buy FriendlyData, a San Francisco-based provider of natural language query technology that had been seeded by 500Startups, TMT Investments and Digital Future. http://axios.link/Cwqk

🚑 Stryker Corp. (NYSE: SYK) agreed to buy HyperBranch, a Durham, N.C.-based maker of medical devices focused on the wound market, from H.I.G. Capital for around $220 million in cash. www.hyperbranch.com

More M&A

Ceva Logistics (Swiss: CEVAL), a Swiss supply chain management company, said it rejected a $1.55 billion cash takeover offer from an unidentified suitor. http://axios.link/Qb7P

🚑 CVS (NYSE: CVS) received U.S. antitrust approval for its $69 billion purchase of health insurer Aetna (NYSE: AET). http://axios.link/EwFQ

Diversified Gas & Oil (LSE: DGOC) acquired Core Appalachia, a natural gas producer operating wells in Kentucky, West Virginia and Virginia, for $183 million. http://axios.link/BC5M

Ingenico (Paris: INGC), a French payments company with a market cap of around €3.9 billion, has received takeover interest from both Natixis and Edenred, per Reuters. http://axios.link/YeFZ

Johnston Press (LSE: JPR), publisher of The Scotsman and The Yorkshire Post, put itself up for sale. http://axios.link/pAPr

Mitek Systems (Nasdaq: MITK), a San Diego-based provider of mobile image capture and identity verification software, rejected a takeover offer from ASG Technologies, backed by Elliott Management, according to Reuters. Mitek has a market cap of around $290 million. http://axios.link/iT3x

Thai energy regulators will block state-owned PTT from buying power company Glow Energy from France’s Engie for upwards of $4 billion. It would have been the largest M&A deal in Thailand this year. http://axios.link/hKw5


Edison Partners raised $365 million for its ninth growth equity fund. www.edisonpartners.com

Guillermo Borda (senior advisor at Mercury Fund) is raising $70 million for a new Houston-based VC effort called HX Venture Fund, per an SEC filing. http://axios.link/k88I

It's Personnel

Peter Berg, former head of Visa Ventures, joined San Francisco-based data security startup Very Good Security as VP of business development and strategy. www.verygoodsecurity.com

David Pogoda (ex-Evolution Media Capital) and Mathew Carvajal (J.P. Morgan) have joined sports and entertainment finance firm 23 Capital as managing directors. http://axios.link/vdBP

Shasta Ventures hired Balaji Yelamanchili (venture partner, former Symantec GM), Izak Mutlu (entrepreneur-in-residence, former Salesforce chief information security officer) and Drew Harman (board partner, ex-Ariba). www.shastaventures.com

Final Numbers
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Data: Money.Net; Chart: Harry Stevens/Axios
  • The Dow opened down around 60 points this morning after yesterday's massive sell-off, but was in positive territory by 9:50am.