Jul 27, 2018

Axios Pro Rata

By Dan Primack
Dan Primack

Situational awareness: U.S. GDP grew 4.1% in Q2, the highest mark in nearly four years. Q1 was revised up from 2% to 2.2%.

Top of the Morning
Source: Giphy

Yesterday we noted that Qualcomm will pay $2 billion to Dutch chipmaker NXP, after pulling the plug on a $44 billion takeover attempt. But it didn't need to be this way.

  • Qualcomm originally agreed to buy NXP in October 2016. That agreement did include the $2 billion reverse termination fee, but there were some exceptions to when it would be applicable.
  • The big one was if Qualcomm couldn't get enough NXP stockholders to tender their shares (the deal had to be done via a tender, not just a vote, because of Dutch securities laws).
  • Qualcomm never hit the tender threshold.
  • This past April the two companies amended the agreement, as U.S.-China trade tensions were getting in the way of gaining Chinese regulatory approval. The headline change was a three-month extension to get China's okay, but the fine print included a removal of language that tied the $2 billion fee to enough shares being tendered.
  • That April agreement could have just included a change to the expiration date, but instead it did much more. It is unclear if NXP, which declined comment, requested the additional changes, or if Qualcomm ever objected.

Bottom line: Qualcomm, which also declined comment, seems to have made a $2 billion bet in April that trade tensions between the U.S. and China would settle down by mid-July. It was wrong.

Leveraged buyout multiples fell a bit in the first half of 2018, per new data from S&P LCD:

  • Purchase price-EBITDA multiples were 9.8x, compared to 10.6x for all of 2017. The last full year below 10x was 2014, at 9.7x.
  • Debt-to-EBITDA multiples were 5.6x in the first half vs. 5.7x in all of 201. The last time they were below 5% was 2011.

Crypto: The SEC yesterday again rejected a proposal from the Winklevoss twins for a Bitcoin ETF. But not all commissioners were in agreement. Kia has more.

🎙 On air: The first week of Pro Rata Podcast is in the books, with four episodes now available for your listening pleasure. Check them out via Apple, Google Play or other platforms. Or, for Amazon Echo folks, you can just tell Alexa to "play Axios Pro Rata Podcast."

Source: Giphy

Hillhouse Capital is in early talks to lead a takeover offer for Yum China (NYSE: YUMC), the exclusive operator of KFC and Pizza Hut stores in mainland China, per The Information.

  • Why it's the BFD: Yum China is the country's largest fast-food purveyor, with over 8,000 stores.
  • Deal size: Yum China, which was spun out of Yum Brands (NYSE: YUM) in 2016, saw its market cap soar to nearly $14 billion on the news.
  • Bottom line: "A takeover led by Hillhouse, known for its early bets on Tencent and Didi Chuxing, could accelerate Yum China’s efforts to outfit its brick-and-mortar stores with high-tech initiatives that appeal to Chinese millennials." — Yunan Zhang & Juro Osawa, The Information
Venture Capital Deals

WeWork’s China business has raised $500 million in new funding from Trustbridge Partners, Temasek, SoftBank, SoftBank Vision Fund and Hony Capital. http://axios.link/y6l3

TheRealReal, a San Francisco-based luxury consignment startup, raised $115 million in Series G funding. PWP Growth Equity led, and was joined by Sandbridge Capital and return backer Great Hill Partners. http://axios.link/BZ6u

🚑 Sutro Biopharma, a South San Francisco-based cancer therapeutics company, raised $85.4 million in Series E funding. Samsara BioCapital and Surveyor Capital co-led, and were joined by Merck, Eventide, Nexthera Capital, Vida Ventures, Tekla Capital and return backers Alta Partners, Amgen Ventures, Celgene, Lilly Ventures, Skyline Ventures and SV Health Investors. http://axios.link/9i1X

Groundspeed Analytics, an Ann Arbor, Mich.-based provider of data solutions to the global commercial property and casualty insurance market, raised $30 million in Series B funding led by Oak HC/FT. http://axios.link/SuoI

Tikin Media, a Beijing-based in-building advertising company, raised around $18 million in new funding. Sequoia Capital China led, and was joined by IDG Capital. http://axios.link/EZx9

OpenInvest, a San Francisco-based digital advisor for socially-responsible investing, raised $10.4 million in Series A funding. QED Investors led, and was joined by Andreessen Horowitz, SYSTEMIQ, Wireframe Ventures, Yard Ventures and Abstract Ventures. www.openinvest.com

ODX, a Singaporean developer of a “blockchain-based data marketplace,” raised over $60 million from a private token sale. Backers included Pantera Capital, BlockTower Capital, DNA Fund, Kenetic Capital, Andromeda, Hexa Labs and Wavemaker Genesis. http://axios.link/6uIU

Private Equity Deals

⛽ Encino Acquisition Partners, backed by CPPIB and Encino Energy, has agreed to buy the Ohio shale acreage of Chesapeake Energy (NYSE: CHK) for around $2 billion.

KKR agreed to acquire Bay Club, a San Francisco-based fitness club chain, from York Capital Management, JMA Ventures and Roxborough Group. www.bayclubs.com

PennSpring Capital has acquired PSST, a Louisville, Ky.-based provider of data integration software for school districts and municipalities. www.psst.com

Trinity Hunt Partners has acquired Improving, a Dallas-based provider of custom software development services. www.improving.com

Public Offerings

Aurora Mobile, a Chinese provider of services to mobile app developers, raised $77 million in its IPO. It priced 9.1 million shares at $8.50 (low end of range), and will trade on the Nasdaq (JG). Goldman Sachs (Asia) was lead underwriter. Shareholders include IDG-Accel (11.1% pre-IPO stake) and Fidelity (7.9%). www.jiguang.cn

Endava, a London-based provider of outsourced IT development services, raised $127 million in its IPO. The company priced 6.3 million shares at $20, versus original plans to offer 5.6 million shares at $17-$19. It reports $20 million of net income on $219 million in revenue for the nine months ending March 30, 2018, and will trade on the NYSE (DAVA). Morgan Stanley was lead underwriter. www.endava.com

Liquidity Events

Facebook (Nasdaq: FB) paid around $100 million to acquire Redkix, an Israeli team messaging startup that had raised over $10 million from Salesforce Ventures, Wicklow Capital and SG VC. http://axios.link/1c2f

Hammond, Kennedy, Whitney & Co. sold ProAct Services, a Ludington, Mich.-based environmental treatment solutions provider, to Evoqua Water Technologies (NYSE: AQUA). www.evoqua.com

Novelis has agreed to buy Aleris, a Cleveland-based maker of rolled aluminum products, for $2.6 billion (including debt). Sellers include Oaktree Capital Management, Apollo Management and Sankaty Advisors. http://axios.link/d2JT

Slack has agreed to acquire (and shut down) two competing products from Atlassian (Nasdaq: TEAM), which will receive an undisclosed amount of equity in the collaboration software unicorn. http://axios.link/2Ggr

The Timkin Co. (NYSE: TKR) agreed to buy Rollon Group, an Italian maker of engineered linear motion products that is expecting $140 million in 2018 sales, from Chequers Capital and IGI Private Equity. www.rollon.com

More M&A

⛽ BP (LSE: BP) is buying most of BHP Billiton's (ASX: BHP) U.S. onshore holdings for $10.5 billion. Axios energy reporter Ben Geman has more on this blockbuster.

Eastman Kodak (NYSE: KODK) is considering a sale of its flexible-packaging unit, which could garner more than $400 million, per WSJ. http://axios.link/Aj6z

Hyatt Hotels (NYSE: H) has expressed interest in acquiring Spain’s NH Hotel Group (BME: NHH), which already received a $2.9 billion takeover offer from Thailand’s Minor International. http://axios.link/Sbed

Wells Fargo (NYSE: WFC) is seeking buyers for its Eastdil Secured real estate brokerage unit, per the WSJ. http://axios.link/QynL


Root Ventures, a San Francisco-based firm focused on hardware and automation, closed its second fund with nearly $77 million in capital commitments. http://axios.link/rOiF

Final Numbers
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Data: Yahoo! Finance; Chart: Axios Visuals
Dan Primack

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