May 8, 2020

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

Illustration: Aïda Amer/Axios

Seventy-five dealmakers and small business owners yesterday crowded into a Zoom call to be greeted by their host, who had originally planned to make his remarks in front of a live audience in Dallas.

  • The participants, many of whom represented private equity firms and family offices, then split off into a lengthy series of 1-on-1 meetings.

Why it matters: Large-market private equity is mostly sitting on the sidelines right now, outside of some opportunistic minority deals, but lower middle-market activity remains relatively vibrant.

Details: Yesterday's event was hosted by Axial, an online deal-sourcing and transaction platform that mostly focuses on businesses with less than $20 million in EBITDA.

  • CEO Peter Lehrman says that attendance was similar to what its Dallas events normally get when in-person, and that Axial's platform is still averaging more than 500 NDAs signed per week.
  • "Lower middle-market deals are driven as much, if not more, by personal reasons than by financial ones," he explains. "Death, disease, divorce, retirement. ... It's not always about maximizing for price, which is what usually catalyzes larger deals."
  • In terms of pricing, he says that buyers are "honoring multiples of EBITDA but transferring risk into deal structures." For example, there has been an increase in earn-out provisions that often are extending into 2021.

Caveat: Deal sourcing doesn't necessarily lead to dealmaking, particularly given lead times that average around six months.

The bottom line: The lower middle-markets are changing more in terms of how they're working on deals — moving into the virtual realm — than in terms of the number of deals they're working on.


Illustration: Aïda Amer/Axios

Zoom (Nasdaq: ZM) acquired Keybase, a New York-based encrypted messaging platform, for an undisclosed amount.

  • Why it's the BFD: This is Zoom's first-ever acquisition in its 9-year history, and comes as the videoconferencing giant scrambles to patch security holes.
  • The bottom line: The deal is intended to let Zoom offer end-to-end encryption for calls with large numbers of participants, which has proven to be challenging for rivals, although it only plans to make the feature available to paying customers.
Pro Rata for Kids

This weekend's project is... Wait! Are you a mom? If so, hand this newsletter over to your kid or your partner and ask them to scroll down to the very bottom. In the meantime, a couple more Star Wars photos:

Mollie and Nola
Cole and Pierce
Venture Capital Deals

🚑 Owkin, a New York-based collaboration platform for health care R&D, raised $25 million from Bpifrance, Cathay Innovation, MACSF, and return backers GV, F-Prime Capital, and Eight Roads.

Workstream, a San Francisco-based provider of hiring software for SMBs, raised $10 million in Series A funding co-led by Founders Fund and Basis Set Ventures.

🚑 Braid Health, a San Francisco-based developer of diagnostic tools for radiology, raised $9 million. Lux Capital led, and was joined by 01 Advisors and Rucker Park Capital.

Stilt, a San Francisco-based provider of financial services to immigrants, raised $7.5 million in seed funding from Hillsven Capital, Streamlined Ventures, Bragiel Brothers, and individual angels.

Hub Security, an Israeli cryptography platform, raised $5 million in Series A funding. AXA Ventures led, and was joined by OurCrowd.

Locatee, a Swiss provider of physical workplace analytics, raised $4 million in Series A funding co-led by Fyrfly Venture Partners and Tomahawk VC.

Invisible AI, a San Francisco-based computer vision startup, raised $3.6 million in seed funding. 8VC led, and was joined by iRobot Ventures, K9 Ventures, Sierra Ventures, and Slow Ventures.

Private Equity Deals

Apttus, a "quote to cash" software company owned by Thoma Bravo, agreed to acquire document automation company Conga for $715 million from Insight Venture Partners (which will retain a minority stake).

Brookfield Asset Management said it plans to invest up to $5 billion for minority stakes in retailers that had pre-pandemic revenue of at least $250 million.

Brook & Whittle, a Guilford, Conn.-based portfolio company of Snow Phipps Group, acquired Pennsylvania-based label-converting business Croydon.

Far Point Acquisition (NYSE: FPAC), a blank-check acquisition company backed by Dan Loeb and led by former NYSE boss Tom Farley, is seeking to back out of its $2.6 billion deal to buy Swiss payments firm Global Blue, which is controlled by Silver Lake.

Neiman Marcus, a Dallas-based luxury department store operator owned by Ares Management and the Canada Pension Plan Investment Board, filed for Chapter 11 bankruptcy protection.

Vista Equity agreed to invest $1.5 billion into Reliance Jio. This comes shortly after Facebook invested $5.7 billion and Silver Lake invested $750 million.

Public Offerings

🚑 Ayala Pharma, an Israeli oncology drug company, raised $55 million in its IPO. The company priced 3.7 million shares (upsized from 3.3m) at $15, for a fully diluted market value of $190 million. It will trade on the Nasdaq (ALYA), used Citi and Jefferies as lead underwriters, and had raised $52 million in VC funding from Israel Biotech Fund (35.2% pre-IPO stake), aMoon (25%), Harel Insurance (18.4%), Bristol-Myers Squibb (6.4%), Novartis (7.2%), and Bristol-Myers Squibb.

Kingsoft Cloud, a Chinese cloud storage and distribution company being spun out of Kingsoft (HK: 3888), raised $540 million in its IPO at an initial market cap of $3.7 billion. The company priced 25 million shares at $18 (high end of range), and also sold share blocks to Xiaomi and Carmignac Gestion. It will trade on the Nasdaq (KC), used JPMorgan as lead underwriter, and had raised over $900 million in VC funding from its parent company and other backers like Xiaomi, Liyue Investment and China Minsheng Investment.

Liquidity Events

WEX (NYSE: WEX) said it may walk away from its $1.7 billion purchases of eNett, an Australian provider of B2B payment solutions to the travel market, and Optal, U.K.-based provider of B2B transaction optimization software, due to the pandemic. ENett is currently owned by Travelport, a portfolio company of Siris Capital Group and Elliot Management.

More M&A

AMP (ASX: AMP), an Australian wealth manager, no longer plans to sell its New Zealand unit, after bids came in lower than expected.

• Dow (NYSE: DOW) is exploring a sale of its U.S. Gulf Coast ports and six railway hubs, per Bloomberg.

• Pricefx, a Munich-based pricing software startup, acquired French peer Brennus Analytics. Pricefx has raised over €50 million from Talis Capital and Digital+ Partners.

• Shandong Gold Mining (HK: 1787), a Chinese gold miner, agreed to buy TMAC Resources (TSX: TMR) for around C$230 million.


• Ares Management has closed on $3 billion for its latest special opportunities fund, which could cap out at $3.5 billion.

Energy Spectrum Capital, a VC firm focused on energy infrastructure, raised $969 million for its eighth fund.

• Pomona Capital is targeting $2 billion for its tenth private equity secondaries fund.

• Thoma Bravo is raising $3 billion for its third middle-market fund.

Final Numbers
Data: Bureau of Labor Statistics; Chart: Axios Visuals
  • The U.S. economy shed 20.5 million nonfarm payrolls in April, with the unemployment rate soaring to 14.7%. It is by far the worst monthly jobs report in U.S. history.
  • Hospitality took the biggest hit with 7.7 million job losses.
  • Also notable was an 800k drop to local government jobs, given that this report only covers through the middle of April. We discussed the state and local budget troubles last month, and some new tax revenue data is staggering.
  • Remember that millions of small businesses are using PPP loans to keep people on payrolls, but that those loan periods begin expiring at month's end.
  • Takeaway from Axios' Courtenay Brown: "Every single chart these days looks like a fat finger messed something up."
Dan Primack

👋 Hi kids: This weekend's project is to create a giant Mother's Day card. The biggest one you've ever seen. You could tape together lots of pieces of paper, or maybe make it out of something else entirely.

  • After you give it to her on Sunday, ask her to send me a photo.

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