Sep 13, 2017

Axios Pro Rata

You're invited to an Axios event tomorrow evening in Washington, D.C., to discuss the challenges and opportunities facing women in business. Participants include Donna Harris (co-founder of 1776), Kathryn Petralia (co-founder and ops chief of Kabbage) and Penny Pritzker (founder of PSP Capital Partners and former U.S. Commerce Secretary). RSVP by going here.

Top of the Morning

The White House doesn't want to close the carried interest tax loophole for private equity. Or for venture capital. Or for real estate partnerships. Or for oil and gas. Or timber. So rest easy, all of you fund managers who get nonsensical tax breaks on your fees for service.

(Disclaimer: Unless you're a hedge fund manager who can't figure out how to recharacterize yourself as a private equity fund or pass-through entity).

To be clear, I'm not reflecting actual tax policy put forth by the Administration, since there still isn't any. Instead, I'm listening to Treasury Secretary Steve Mnuchin.

In April we noted how Mnuchin, when asked by Fox News' Tucker Carlson about carried interest, responded with explicit mention of how the loophole would be closed for "hedge fund managers." I kind of thought that he might be using shorthand there for a general TV audience, but he repeated the phrasing yesterday for a more sophisticated financial audience. Here is the exchange with Andrew Ross Sorkin, from the CNBC Institutional Investor Delivering Alpha conference:

Sorkin: One of the other issues, which matters a bit in most part to this audience has been the issue of carried interest and what rate that gets taxed at. The President talked for a long time about of closing that loophole. Does that get closed or changed under your tax plan?

Mnuchin: The President's been very clear that for hedge funds they will not have the benefit of carried interest. One of the things that we are working on is, as it relates to other entities that do create jobs, whether it's in different sectors, we want to make sure that we encourage jobs. So that's something we're still working on.

Sorkin: This is where it gets complicated, because partnership accounting is difficult. And then you get into oil and gas, you get into real estate, private equity. How do you separate them out?

Mnuchin: Well, the good news is we have over a hundred people at the Treasury working on this. We have a lot of people at the House and the Senate. I know this issue is incredibly important to everybody in this room. It's less important to the American public and creating jobs.

This isn't shorthand. It's intended policy, and makes little sense from either a philosophical or revenue perspective. If you believe carried interest should be taxed as ordinary income because it is a fee for service (as I do), then that should be true for both hedge funds and other types of investment partnership. If not, then keep the current system for everyone. In terms of revenue, hedge fund carry is a drop in the bucket compared to something like real estate, or even private equity. Perhaps Mnuchin doesn't think it's terribly important because he knows that White House policy will, indeed, not be terribly important to Treasury.

• Wrapped up: In May we reported that Bain Capital was oversubscribed on its twelfth flagship buyout fund. Now Bloomberg reports that Fund XII is closed, with $8 billion from outside limited partners and another $1.4 billion from firm employees (i.e., a total of $9.4 billion). Axios has since confirmed with a source familiar.

• Codified: Kia has learned that Zetta Venture Partners plans to add a clause to upcoming term sheets that explicitly addresses the issue of sexual harassment. The San Francisco-based firm is still working out the exact language with its attorneys at Gunderson Dettmer, but managing director Mark Gorenberg says it will look something like:

"Within 90 days after the initial closing, the Company shall adopt and distribute to all employees an Anti-Harassment Policy in a form approved by the Board."

• What to watch: Social Capital's blank check acquisition vehicle is expected to price its IPO tonight. If successful, the SPAC then would work to bring a "unicorn" or two public via reverse merger. Kia wrote about it while I was on vacation. I'm highly skeptical of why a promising unicorn would go this route but, if successful, this could join Spotify's (possible?) direct listing as solutions to the recent dearth of VC-backed tech IPOs.

• Where in the World? This Saturday I'll be doing a pair of fireside chats at Harvard Business School's annual tech conference. One will be with SoftBank Vision Fund's Deep Nishar, and the other with Founder Collective's Eric Paley. Look forward to seeing some of you there.


The founding family that controls high-end retailer Nordstrom (NYSE: JWN) reportedly has picked private equity firm Leonard Green & Partners to take it private, with a formal bid expected within the next few weeks. Shares in the Seattle-based company climbed more than 6% in aftermarket trading, giving it a market cap of nearly $7.8 billion (it was around $7.4b when the Nordstrom said in early June that it was open to a sale process).

  • Why it's the BFD: Private equity keeps taking stabs at big physical retailers, despite data suggesting that they're catching a falling knife. Just today, for example, Sycamore Partners closed its $6.9 billion Staples purchase.
  • Key number: 31, which is the percentage of outstanding stock held by the controlling family. This also corresponds to the typical equity slug in large private equity deals, and that's before Leonard Green's $1 billion participation. In other words, post-transaction Nordstrom might not face quite the same leverage load that has encumbered PE-backed rivals like Neiman Marcus.
Venture Capital Deals

🚑 BridgeBio Pharma, a developer of genetically-targeted therapies via a corporate partnership model, has raised $135 million in new VC funding. Viking Global Investors and existing backer KKR co-led the round, and were joined by AIG, Aisling Capital, Cormorant Capital, Janus Funds and insider Perceptive Advisors. Per the PR pitch: "BridgeBio Pharma is a lab-less biotech company running out of a three-story Victorian home in Palo Alto."

• TNG Fintech, a Hong Kong-based developer of a digital wallet platform, has raised $115 million in Series A funding. NewMargin Capital led the round, and was joined by KBR Capital Partners and Nogle Group.

• FreshMarket, a Chinese online fresh food ordering platform, has raised around $44 million in new VC funding led by Tiantu Capital.

• Nasuni, a Natick, Mass.-based provider of enterprise file services, has raised $38 million in new funding led by Goldman Sachs Growth Equity. The company previously raised more than $80 million from Flybridge Capital Partners, North Bridge Venture Partners, Sigma Partners and Dell Technologies Capital.

🚑 Sophia Genetics, a Swiss biotech AI startup aimed at detecting genomic variants, has raised $30 million in Series D funding. Balderton Capital and 360 Capital Partners co-led the round, and were joined by Invoke Capital and Alychlo.

🚑 Basecare, a Chinese maker of devices for embryonic pre-implantation genetic screening, has raised $14 million in Series B funding from undisclosed investors.

• Bossa Studios, a British publisher of massively multiplayer online games, has raised $10 million in new VC funding led by Atomico.

🚑 Ennovabio, a Chinese drug startup focused on treating brain glioma, has raised $10 million in vc funding led by HighLight Capital.

🚑 Paragon Genomics, a Hayward, Calif.-based provider of upfront target enrichment and library preparation workflows for net-gen sequencing, has raised $8 million in Series A funding. Cowin Venture Capital and Fosun Industrial Co. co-led the round, and were joined by Cloudstone Venture, HEDA Ventures and Wisemont Capital.

• Signet Accel, a Columbus, Ohio-based healthcare data interoperability startup, has raised $8 million in Series A funding led by Edison Partners.

• Infostellar, a Tokyo-based provider satellite antenna sharing platform, has raised $7.3 million in Series A funding. Airbus Ventures led the round, and was joined by WERU Investment, D4V, Sony Innovation Fund and return backers FreakOut Holdings and 500 Startups Japan.

• Ori, a Boston-based developer of robotic interior "transformation" systems, has raised $6 million in Series A funding led by Khosla Ventures.

• Happy Returns, a Los Angeles-based provider of an in-person retail returns network, has raised $4 million in Series A funding. Upfront Ventures led the round, and was joined by Lowercase Capital and Brian Spaly.

• GenVid, a New York-based provider of interactive streaming of e-sports broadcasts, has raised $2.5 million in new VC funding. March Capital Partners led the round, and was joined by OCA Ventures.

• Camera IQ, a developer of marketing and advertising experiences for smartphone cameras, has raised $2.3 million in seed funding. Shasta Ventures led the round, and was joined by Presence Capital, Greycroft Tracker Fund, Brilliant Ventures and Act One.

• Moteefe, a London-based social commerce platform for custom clothing, has raised £1.75 million in seed funding from backers like Livingbridge, Force Over Mass Capital, Fuel Ventures and Ascension Ventures.

Private Equity Deals

🚑 Affinity Equity Partners and The Blackstone Group are interested in bidding on Australian radiology company I-Med, which is currently owned by EQT Partners, according to The Australian.

⛽ Capital Dynamics has purchased two fully-developed solar project sites in Fresno County, Calif. from Solar Frontier Americas Development. No financial terms were disclosed.

• Gem Containers, a London-based tank container leasing and management company, has raised an undisclosed amount of private equity funding from Crestline Investors.

• Invus has invested $48 million for a minority equity stake in Bizagi, a London-based provider of enterprise digital transformation software.

• Mason Wells has acquired L.B. White Co., an Onalaska, Wis.-based manufacturer of heating equipment and parts for the global swine, poultry and construction markets. No financial terms were disclosed.

• Paarl Equity and Operando Partners have acquired ICP Group, a German provider of prepaid card and mobile phone payment services, plus prepaid and collection services for the German Autobahn toll system. No financial terms were disclosed.

• Riverside Partners has acquired Calero Software, a Rochester, N.Y.-based provider of communications lifecycle management software. No financial terms were disclosed.

• SouthPac Partners and Skidmore Development Group have acquired Cinnaroll Bakeries, a Calgary-based cinnamon roll maker under the Baker Boys and CinnZeo brands. No financial terms were disclosed.

Public Offerings

⛽ Howard Midstream Partners, a San Antonio, Texas-based limited partnership that owns and operates midstream energy infrastructure assets in Texas and Pennsylvania, has filed for a $200 million IPO. It plans to trade on the NYSE under ticker symbol HMP, with Barclays listed as left lead underwriter.

Liquidity Events

• Baring Private Equity Asia has relaunched the sale process for the assurance unit of Australian risk management company SAI Global, according to Bloomberg. Greenhill & Co. is managing the auction, which could garner more than A$500 million.

• The Carlyle Group has hired Morgan Stanley to find a buyer for South Korean security systems company ADT Caps, according to Reuters. A sale could garner around $4 billion.

⛽ Tailwater Capital has agreed to sell Align Midstream, a provider of midstream services to producers in East Texas and North Louisiana, to Enable Midstream Partners (NYSE: ENBL) for around $300 million.

• Tonka Bay Equity Partners has sold Corwil Technology Corp., a Milpitas, Calif.-based provider of outsourced integrated circuit assembly and test services, to Integra Technologies. No financial terms were disclosed.

• Zomato, an India-based restaurant search and discovery service, has acquired Indian food delivery service Runnr for an undisclosed amount. Zomato has been valued at more than $1 billion by VC firms like Info Edge, Sequoia Capital and Vy Capital. Runnr had raised nearly $30 million from backers like Nexus Venture Partners, Blume Venture Advisors and Yuri Milner.

More M&A

• Advanced Info Service, Thailand's largest telco, has agreed to acquire a 56% stake in local Internet services provider CS Loxinfo for around $79 million.

• ASR, a listed Dutch insurer, has agreed to acquire the Dutch operations of Italy's Generali (Milan: GASI) for €143 million.

• Bayer AG (DB: BAYN) has sold 19 million shares in Covestro (DB: 1COV) for €1.2 billion, cutting its stake in the German plastics business down to 31.5%.

• Bunge (NYSE: BG) has agreed to acquire a 70% stake in IOI Loders Croklaan, a Malaysian palm oil producer, for $946 million.

🚑 Centene Corp. (NYSE: CNC) has agreed to acquire Fidelis Care, a provider of health insurance to over 1.6 million New York residents, for $3.75 billion.

⛽ Royal Dutch Shell said that it is in the process of selling its 20% stake in Iraq's West Qurna 1 oil field.


• Francisco Partners is raising upwards of $3.25 billion for its fifth fund, per a public pension memo.

• The Riverside Company has secured $312 million for its fifth European buyout fund, which is targeting upwards of $450 million, per an SEC filing.

It's Personnel

• Erik Falk has joined Star Mountain Capital as a senior advisor. He led private credit at KKR until earlier this year, and currently is with Magnetar.

• Frits van Paasschen, former CEO of Starwood Hotels and Resorts, has joined TPG Capital as a senior advisor.

• Elizabeth de Saint-Aignan has joined Jump Capital's growth equity group as a partner. She previously was a principal with TA Associates.

• David Snider is joining Bain Capital Ventures as a New York-based executive-in-residence. He is a onetime BCV associate who currently is chief financial officer at real estate tech company Compass.

Final Numbers

Deals for EU companies by a non-EU acquirer are down for their third consecutive year, according to Thomson Reuters. Inside the year-to-date numbers:

  • UK companies remain the most attractive targets for non-EU buyers, representing 40% of inbound volume.
  • The U.S. leads the buyside chart at 45%, followed by China with 15%.
  • Tech companies account for 17.6% of deal volume, followed in popularity by real estate (17%) and healthcare (15.6%).