Oct 7, 2019

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

Illustration: Lazaro Gamio / Axios

Private equity takeovers result in significant job losses, according to a landmark new study by Josh Lerner of Harvard Business School and Steve Davis of the University of Chicago.

  • Why it matters: Private equity regularly defends its employment record by citing a 2011 study by the same two academics.

The new report finds average job losses of 4.4% in the two years after a company is bought by private equity, relative to control companies. This is up from less than 1% in the earlier study. It also finds average, per worker wage decreases of 1.7%.

It also finds significant differences based on the type of buyout, which is not something the researchers previously examined:

  • Employment falls 13% in buyouts of publicly-traded companies, relative to controls.
  • Employment falls 16% in divisional carve-outs.
  • Employment rises 13% in buyouts of privately-held companies (non PE-backed).
  • Employment rises 10% in buyouts of private equity-backed companies.

Per the authors:

"We find that the real-side effects of buyouts on target firms and their workers vary greatly by deal type and market conditions... This conclusion cast doubts on the efficacy of 'one-size-fits-all' policy prescriptions for private equity."

The report's big silver lining for private equity is around productivity, which is found to rise an average of 8%, compared to controls. This should help the industry's argument that it's about much more than financial engineering.

Methodology: Lerner and Davis constructed a data-set based on the U.S. Census Bureau’s Longitudinal Business Database, which is derived from IRS records and for which they needed to receive special access. They then used Capital IQ and other databases to match up the LBD employment records with nearly 10,000 deals from between 1980 and 2013 (earlier report was for 1980-2005).

The study will be made public later this week.

The BFD
Source: Giphy

OYO, an India-based budget lodging company, said it is raising $1.5 billion in Series F funding at a $10 billion valuation.

  • Why it's the BFD: This reflects how the WeWork debacle won't necessarily stop investors from valuing non-software startups as if they were software startups.
  • Investors: Founder and CEO Ritesh Agarwal will invest $700 million, as part of previously-announced plans to spend $2 billion to increase his stake from 10% to 30%. Return backers include SoftBank, Lightspeed Venture Partners, and Sequoia India.
  • Bottom line: "Agarwal, who founded Oyo in 2013, has built it into India’s second-most valuable startup. Its service covers 1.2 million rooms in over 80 countries, including 590,000 rooms in China. It entered the U.S. earlier this year and now has 7,500 rooms in 60 cities." — Saritha Rai, Bloomberg
Venture Capital Deals

Next Insurance, a Palo Alto-based digital insurer for small businesses, raised $250 million in Series C funding from Munich Re. www.next-insurance.com

Tier Mobility, a Berlin-based e-scooter rental company, raised $60 million in Series B funding co-led by Goodwater Capital and Mubadala Capital. http://axios.link/pbJx

DeepRoute, a self-driving vehicle startup with offices in China and California, raised $50 million in “pre-Series A funding.” Fosun RZ Capital led, and was joined by GoldenSand Capital, Yunqi Partners, Ventech China and Green Pine Capital Partners. www.deeproute.ai

🚑 AI Medical Service, a Tokyo-based developer of endoscopy image analysis software, raised $43 million in Series B funding from Globis Capital Partners, World Innovation Lab and the Sony Innovation Fund. http://axios.link/q4iP

CityLift, an Oakland-based provider of automated parking lifts, raised $22.5 million in Series C funding from Dundon Capital Partners. www.cityliftparking.com

• Celigo, a San Mateo, Calif.-based “integration-as-a-service” startup, raised $20 million in Series B funding. NewSpring Capital led, and was joined by Blossom Street Ventures and return backer TVC Capital. www.celigo.com

Private Equity Deals

Bridgepoint agreed to buy Vermaat Groep, a Dutch catering and hospitality services company. www.vermaatgroep.nl

Cinven agreed to buy National Seating & Mobility, a Franklin, Tenn.-based provider of rehab and mobility solutions, from Court Square Capital Partners. www.nsm-seating.com

Platinum Equity is in talks to buy TruckPro, a Cordova, Tenn.-based heavy-duty truck parts distributor, for around $500 million from Harvest Partners, per Bloomberg. http://axios.link/TN0d

🚑 WestView Capital Partners acquired RSi, a Columbia, S.C.-based provider of revenue cycle management services to hospitals and health systems. www.receivable-solutions.com

Public Offerings

Three companies plan to price IPOs on U.S. exchanges this week: BioNTech, Vir Biotechnology, and HBT Financial. http://axios.link/AYQA

Kaspi.kz, owner of Kazakhstan’s third-largest lender, pulled plans for a London IPO, citing market conditions. http://axios.link/4m2a

PropertyGuru, a Singapore-based property listings firm backed by KKR, filed to raise around A$245 million in an Australia IPO. http://axios.link/6wM8

Tigermed, a Shenzhen-listed clinical research services firm, is considering a Hong Kong float that could raise between $500 million and $700 million, per Bloomberg. http://axios.link/8Sme

Liquidity Events

InsightSquared, a Boston-based sales analytics company that’s raised $50 million in VC funding, acquired Olono, an Austin, Texas-based sales activity management platform that had raised over $8 million from backers like ATX Venture Partners, Capital Factory, Lontra Ventures, and Wildcat Venture Partners. http://axios.link/u883

KidPass, a VC-backed subscription service for kids activities, bought Mommy Nearest, an online content site for millennial parents that had raised $2.5 million from Rizk Ventures. http://axios.link/Uovt

Vista Equity Partners is considering a sale of up to a 50% stake in Finastra, a British financial services software maker, at an enterprise value north of $10 billion, per Bloomberg. http://axios.link/Znvc

More M&A

Dialog Semiconductor (DE: DLGS) agreed to buy Creative Chips, a German maker of semiconductors for IoT devices, for upwards of $103 million ($80m upfront). http://axios.link/0gHw

Sam Ben-Avraham, a veteran retail investor, is leading a $220 million takeover offer for bankrupt luxury retailer Barneys New York, per Bloomberg. http://axios.link/S4nh

Sanabil Investments, a unit of Saudi Arabia’s sovereign wealth fund, reportedly acquired a 49% stake in Connecticut-based consulting firm Richard Attias & Associates. http://axios.link/4Zoe

Fundraising

83North, a VC firm with offices in London and Tel Aviv, raised $300 million for its fifth fund. http://axios.link/Rcmb

Final Numbers
Source: Intralinks 2019 M&A Leaks Report

More from Intralinks:

  • The 2018 drop was entirely driven by a decrease in Asia-Pacific deal leaks from 10.8% to 7.9%, while leaks rose in both the Americas (7.1% to 7.6%) and Asia-Pacific (5.4% to 5.8%).
  • Despite that ranking, Hong Kong had highest regional leak mark at 17%. The U.S. remained in third place (8.6%) while the U.K. was tightest ship (3.8%).
  • TMT deals were the leakiest, while energy and power deals leaked the least.
  • Leaked deals continued to have much higher takeover premiums, and more rival bids, than did non-leaked deals.
Dan Primack

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