Dec 6, 2018

Axios Pro Rata

Dan Primack
Top of the Morning

Apollo Global Management's Leon Black yesterday sounded the leverage alarm, while speaking at a Goldman Sachs conference:

"The credit markets, unlike the equity markets, have gone to bubble status. The amount of covenant-less debt is more than 2007. You have a thirst for yield that exists on a global basis. So there is true excess."

This came just hours after Moody's published a report on the "alarming" number of private equity-backed companies with poor credit ratings, which "suggests an elevated default risk when credit conditions become more difficult and investors' appetite for risk diminishes."

  • Moody's reports that around 90% of PE-backed debt issues are rated B2 or lower, compared to just 40% of spec-grade companies without PE sponsorship.
  • But, right now, creditor recoveries are fairly similar for companies with and without private equity sponsors.

It also comes as debt multiples are on the rise for private equity companies. S&P LDC provided Axios with data showing that debt-to-EBITDA multiples for private equity deals are at their highest average levels since 2007.

  • The year-to-date figure is 5.8x, up slightly from 5.7x for all of 2017 and a big climb from the decade-low of 3.8x in 2009. In 2007 the figure was 6.1x.
  • LBO purchase price multiples of EBITA are down slightly from 10.6X last year to 10.5X so far in 2018, although it's the fourth straight double-digit year. In 2007 it was 9.7x.

The bottom line: Private equity didn't cause the last recession, and it won't cause the next one. But when the fall comes, it hasn't given itself much of a cushion.

🎧 A new episode of the Pro Rata Podcast focuses on a deepening digital divide when it comes to kids' homework. Big thanks to guest host Kim Hart, filling in while I was on a plane. Listen here.

Source: Giphy

Lyft this morning announced that it has filed confidential IPO paperwork with the SEC. No details yet on how many shares it plans to sell.

  • Why it's the BFD: Because this means Lyft plans to lead the parade of 2019 unicorn IPOs, which also is expected to include Uber,Slack, Peloton and Airbnb. It also would provide retail investors with their first opportunity for ride-hail exposure.
  • Bottom line: Yes, there is something oxymoronic about publicly announcing a confidential filing, but there have been so many leaks about this process that Lyft comms likely felt like this was its most prudent course of action.
Venture Capital Deals

Looker, a Santa Cruz, Calif.-based data analytics platform, raised $104 million in Series E funding at a $1.6 billion valuation. Premji Invest led, and was joined by Cross Creek Advisors and return backers like CapitalG, Kleiner Perkins, IVP, Redpoint Ventures and Meritech Capital Partners.

Cross River Bank, a Fort Lee, N.J.-based lender to fintech companies, raised $100 million. KKR led with a $75 million investment, and was joined by CreditEase, LionTree Partners and return backers Andreessen Horowitz, Battery Ventures and Ribbit Capital.

🚑 Impel NeuroPharma, a Seattle-based developer of treatments for CNS disorders, raised $67.5 million in Series D funding. KKR and Norwest Venture Partners co-led, and were joined by return backers Vivo Capital, 5AM Ventures and venBio Partners.

LeanIX, a German provider of enterprise architecture management SaaS, raised $30 million. Insight Venture Partners led, and was joined by return backers DTCP, Capnamic Ventures and Iris Capital.

• Sansan, a Japanese contacts management startup, raised $26.5 million from Japan Post Capital, T. Rowe Price, SBI Investment and DCM Ventures.

M17 Entertainment, the Taiwan-based entertainment streaming company that priced an IPO over the summer but never ultimately listed, raised $25 million in new VC funding. Terry Tsang (CEO of gaming company Madhead) led, and was joined by Pavilion Capital and Stonebridge Ventures.

Workato, a Cupertino, Calif.-based automation platform for workflow management, raised $25 million in Series B funding from Battery Ventures, Storm Ventures, ServiceNow and Workday Ventures.

NuOrder, a Los Angeles-based B2B wholesale ecommerce platform, raised $15 million in Series C funding. NewSpring led, and was joined by return backers Upfront Ventures and Argentum.

Forethought, a San Francisco-based enterprise search startup, raised $9 million in Series A funding. NEA led, and was joined by K9 Ventures and Village Global.

Trustology, a UK-based startup focused on securing digital assets, raised $8 million in seed funding. Two Sigma Ventures led, and was joined by ConsensSys.

AsiaYo, a Taipei-based travel booking site, raised $7 million in Series B funding. Alibaba Taiwan Entrepreneurs Fund led, and was joined by China Development Financial, Darwin Ventures and Delta Ventures.

Private Equity Deals

📺 Apollo Management Group is interested in a group of television stations that Nexstar Media Group (Nasdaq: NXST) plans to divest, in order to gain regulatory approval for its planned $4.1 billion purchase of Tribune Media (NYSE: TRCO), per Bloomberg. Nexstar beat out Apollo for the Tribune deal, and also is getting reported interest from rival media companies like Meredith Corp and EW Scripps.

Marlin Equity Partners completed its purchase of MOBI, an Indianapolis-based provider of managed mobility services software, which will be merged with existing Marlin portfolio company Tangoe.

Salveo Capital acquired a minority stake in Massachusetts-based cannabis retailer Ascend Wellness.

Shopko Stores, a Green Bay, Wis.-based general merchandise retailer owned by Sun Capital Partners, is prepping for bankruptcy after plans to fund a buyer “stalled,” per Bloomberg.

Public Offerings

Alight Solutions, a Lincolnshire, Ill.-based benefits administration software company owned by The Blackstone Group, is prepping an IPO for the first half of 2019, per Reuters. Blackstone paid $4.8 billion to buy the business two years ago from Aon PLC.

• BYD Co., a Chinese electric vehicle maker backed by Berkshire Hathaway, said it plans to list its batteries business by 2022.

• MOGU, a Chinese online fashion marketplace, raised $67 million set IPO. The company priced 4.75 million shares at $14 (low end of range), will trade on the NYSE (MOGU) and used Morgan Stanley as lead underwriter. Shareholders include Tencent (18% pre-IPO stake) and Hillhouse Capital (10.2%).

More M&A

Cohen Media Group bought movie theater chain Landmark Theaters from Mark Cuban.

🚑 Freesenius Medical Care (DE: FMEG) acquired stakes in several Chinese dialysis centers and renal hospitals.

• Hopewell Holdings (HK: 54), a Chinese property developer, received a $2.7 billion take-private offer led by chairman Gordon Wu.

🚑 Mallinckrodt (NYSE: MNK), a British drugmaker with a market cap of around $1.9 billion, said it will spin off its specialty generics business to shareholders by the second half of next year.

• TheStreet agreed to sell B2B units The Deal and BoardEx to Euromoney Institutional Investor (LSE: ERM) for $87.3 million.


• Building Ventures, an early-stage VC firm focused on the “built environment” space, closed its debut early-stage fund with $53 million.

• Costanoa Ventures raised $75 million for its first opportunities fund.

It's Personnel

🚑 Steven Burrill, the former biotech VC who last year plead guilty to tax evasion and defrauding investors, has been sentenced to 30 months in prison.

• Howard Searing stepped down as director of private markets at DuPont, in order to join Credit Suisse.

Final Numbers
Source: FactSet

Chinese stocks got hammered on news that Huawei CFO Meng Wanzho was arrested in Canada for allegedly violating Iran sanctions, and that she faces extradition to the U.S.

  • Her arrest came just hours after President Trump and China's President Xi Jinping finished their trade negotiations dinner, which both praised as a rousing success.
  • China is demanding her release, calling it a violation of human rights.
  • She's not only Huawei's CFO, but also the daughter of its founder.
  • A court hearing is set for tomorrow.
  • "If I was an American tech executive, I wouldn't travel to China this week," former U.S. Commerce Dept official James Lewis tells Axios.
  • Bottom line: This is reminiscent of U.S. actions toward ZTE, except that Huawei is far more important to the global tech sector and China's tech identity.
Dan Primack

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