Nov 1, 2018

Axios Pro Rata

By Dan Primack
Dan Primack

Countdown: 4 days until the premiere of Axios on HBO. It's like Game of Thrones, but with way more dragons. Sunday at 6:30 pm ET, and then again at 11:30 pm.

Top of the Morning

Private equity firms rarely sue their limited partners, let alone well-heeled limited partners. But that's exactly what's happening between San Francisco-based Northgate Capital and Indian outsourcing giant Tech Mahindra, according to court documents.

  • June 2015: Tech Mahindra commits to invest $40 million into a fintech-focused fund being raised by Northgate.
  • September 2016: Northgate calls $1.04 million, in order to cover expenses. It is the first capital call, and does not relate to an investment. Tech Mahindra doesn't pay.

Seems at first like a cut-and-dry contract violation, but then you need to factor in the major personnel turnover at Northgate, which was originally founded in 2000 by former NFL players Brent Jones and Tommy Vardell.

  • In between Tech Mahindra's commitment and Northgate's call, both Jones and Vardell left their full-time roles at Northgate.
  • Their departures were at first denied by The Capital Partnership, an overseas investment firm that had acquired a majority stake in Northgate from another third party.
  • This mattered because the limited partnership agreement included a keyman clause related to the departure of Jones, Vardell and a third person who had already bailed. Tech Mahindra claims it didn't receive the notice to which it was entitled and that its non-payment came after it learned the truth.
  • Tech Mahindra also alleges that Northgate didn't make a good-faith effort to find other investors, as it had been promised, while Northgate claims Tech Mahindra initially refused to pay because it claimed to have not received Indian regulatory approvals that it actually had received.

Complicating things is the matter of Hosein Khajeh-Hosseiny, who was promoted from Northgate managing partner to CEO once The Capital Partnership assumed control. He also was listed as a sole keyman in the LPA, but left this past summer.

  • His departure doesn't affect the LPA, per se, but Tech Mahindra wants him to testify in-person at an arbitration hearing.
  • Khajeh-Hosseiny agreed to testify tomorrow (Nov. 2), saying it was best for his schedule. But when the broader arbitration hearing commenced this past Monday, Khajeh-Hosseiny's lawyer said he was overseas and would be unavailable indefinitely.
  • That lawyer tells me that Khajeh-Hosseiny, a British citizen who already provided hours of testimony via a taped deposition, is stuck in London, awaiting administrative approval of his travel visa. He had expected to have it by now, but doesn't.

Tech Mahindra is asking for Khajeh-Hosseiny to be held in contempt of court — and it was his non-appearance that moved all of the relevant court docs from private arbitration into the public sphere.

📬 Open question: The midterms are just a few days away. Do you expect the results to impact your business, either positively or negatively? Let me know via dan@axios.com. If you prefer to be kept anonymous, just let me know.

🎧 Pro Rata Podcast: On the new episode I chat with Salesforce CEO Marc Benioff, over his support for a controversial San Francisco ballot initiative that would raise taxes on local companies, in order to fund anti-homelessness efforts. Listen here.

The BFD
Source: Giphy

Apple (Nasdaq: AAPL) has held preliminary talks about investing in bankrupt broadcaster iHeart Radio, in an effort to boost its streaming music service, per the FT.

  • Why it's the BFD: Because terrestrial radio still holds strategic value in a digital streaming age.
  • Bottom line: "Despite iHeartMedia’s financial difficulties, it remains the largest radio broadcaster in the US, operating more than 850 stations across the country. That makes it valuable to the music industry and its promoters, especially when it comes to breaking new acts or building awareness of the latest releases." — Anna Nicolaou & Tim Bradshaw, FT
Venture Capital Deals

Neo4j, a San Mateo, Calif.-based provider of graph databases, raised $80 million in Series E funding. One Peak Partners and Morgan Stanley Expansion Capital co-led, and were joined by return backers Creandum, Eight Roads and Greenbridge Partners. www.neo4j.com

🐱 Dapper Labs, the Vancouver-based consumer blockchain company behind Cryptokitties, raised US$15 million in new VC funding. Venrock led, and was joined by Andreessen Horowitz, GV, Samsung NEXT, Union Square Ventures, William Morris Endeavor and aXiomatic.

🚑 IntelyCare, a Quincy, Mass.-based provider of workforce management software for post-acute healthcare facilities, raised $10.8 million in Series A funding. Leerink Revelation Partners led, and was joined by Longmeadow Capital and return backer LRVHealth. www.intelycare.com

Marvrck, a Boston-based influencer marketing startup, raised $5.8 million in Series B funding from GrandBanks Capital and Kepha Partners. http://axios.link/oWnl

Leap, a Chicago-based startup that helps digital brands launch experiential retrial stores, raised $3 million in seed funding. Costanoa Ventures led, and was joined by Equal Partners and Brand Foundry Ventures. www.leapinc.co

King Children, a custom eyewear startup, raised $2 million from Great Oaks VC, RBC Venture Partners, Gen Z Capital and Casper co-founder Neil Parikh. www.kingchildren.com

Private Equity Deals

Cerberus agreed to buy Singapore-based SGI Frontier Capital. http://axios.link/kMQ0

Lee Equity Partners invested in McLarens, a Norcross, Ga.-based insurance services provider. www.mclarens.com

Platinum Equity agreed to buy the water care business of Lonza (Swiss: LONN) for $630 million. http://axios.link/nBrC

🚑 Veritas Capital and Elliott Management are nearing an agreement to buy Athenahealth (Nasdaq: ATHN), the Watertown, Mass.-based healthcare software company in which Elliott already holds a 1.4% stake, per Bloomberg. http://axios.link/pVVb

🚑 Warburg Pincus completed its previously-announced carve-out of DKSH’s (Swiss: DKSH) healthcare business in China for around $100 million. http://axios.link/DAcL

Public Offerings

🚑 Axonics Modulation Technologies, an Irvine, Calif.-based developer of minimally-invasive sacral neuromodulation, raised $120 million in its IPO. It priced 8 million shares at $15, versus plans to offer 6.7 million at $14-$16, for an initial market cap of $400 million. The company will trade on the Nasdaq (AXNX), used BofA Merrill Lynch as lead underwriter, and had raised over $140 million from firms like Andera Partners (14.44% stake), Longitude Venture Partners (12.88%), Gilde Healthcare (12.16%), Advent Life Sciences (9.09%), NeoMed (8.1%), Legend Capital, Edmond de Rothschild Investment Partners and Cormorant Asset Management.

🚑 Orchard Therapeutics, a British gene therapy startup that recently bought a drug portfolio from GlaxoSmithKline, raised $200 million in its IPO. The company priced 14.3 million shares at $14, compared to plans to offer 13.3 million shares at $14-$16. J.P. Morgan was lead underwriter, and Orchard will trade on the Nasdaq (ORTX). Shareholders include F-Prime (29.3% pre-IPO stake), GlaxoSmithKline (17.9%), Deerfield Management (6.7%), RA Capital Management and Venrock.

🚑 Twist Bioscience, a San Francisco-based startup focused on synthetic DNA, raised $70 million in its IPO. The company priced 5 million shares at $14 (low end of range), for an initial market cap of $373 million. It will trade on the Nasdaq (TWST), used JPMorgan as lead underwriter and had raised around $280 million from firms like Arch Venture Partners (14.8% stake), Illumina (14.8%), Tao Capital Partners (7.7%), Fidelity (5.7%), Paladin Capital Group (4.9%), Foresite Capital Management and Yuri Milner.

Liquidity Events

American Tower (NYSE: ATC) agreed to buy a majority stake in Indian mobile tower business ATC Telecom Infrastructure from IDFC Private Equity and Tata Teleservices (which will retain a minority stake) for $397 million. http://axios.link/sRCw

• Deutsche Private Equity said it’s considering a sale process for its 36% stake in First Sensor (DE: SISG), a German maker of electronic sensors used in the industrial, medical and automotive sectors. http://axios.link/XTrZ

More M&A

Encana (TSX: ECA) agreed to buy Texas-based Newfield Exploration (NYSE: NFX) for around $4.2 billion in an all-stock deal. http://axios.link/7nhn

• LaSalle Investment Management agreed to buy Latitude Management Real Estate Investors, which manages around $1.2 billion in credit funds. http://axios.link/yCfY

• PepsiCo (Nasdaq: PEP) acquired Health Warrior, a Richmond, Va.-based maker of plant-based snack bars. http://axios.link/6BI8

• TP ICAP (LSE: TCAPI) is in advanced talks to Houston-based brokerage buy Axiom Commodity Group, per Reuters. http://axios.link/UOI3

Fundraising

CVC Capital Partners is targeting $1.5 billion for its second tech growth equity fund, per Financial News. http://axios.link/CX5D

Full In Venture Partners is raising between $150 million and $200 million for a debut fund, per Bloomberg. The New York-based firm’s founders are Elodie Dupuy (ex-Iconiq), Jess Davis (ex- Insight Venture Partners) and Eric Tonkyn (ex- Bridgewater Associates). http://axios.link/vX5b

Peloton Capital Management has launched as a Canadian middle-market buyout firm with longer hold times than typical private equity. Its co-founders are, Steve Faraone and Mike Murray (ex-Ontario Teachers’ Pension Plan) and Stephen Smith (co-founder of First National Financial). http://axios.link/Ehu7

It's Personnel

Marten Abrahamsen quietly left Coatue Management, in order to join The Chernin Group as a partner.

Marc Baliotti joined AE Industrial Partners as a senior managing director. He previously was with GSO Capital. www.aeroequity.com

Sean Gallary has quietly left The Carlyle Group's AlpInvest business, where he led an effort to buy minority stakes in third-party alternative investment firms. No word yet on future plans.

Industry Ventures promoted Lindsay Sharma to managing director and Amir Malayery to principal. www.industryventures.com

Mary Pang joined Cambridge Associates as global head of private clients. She previously was a managing director and senior banker with JP Morgan Private Bank. www.cambridgeassociates.com

Final Numbers
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Data: Contribution amounts are from the Center for Responsive Politics as of Oct. 16, 2018; the company list is from Fortune 500; and company sectors are from Yahoo Finance and original research; Chart: Harry Stevens / Axios
Dan Primack