May 26, 2020

Axios Pro Rata

By Dan Primack
Dan Primack

🖥️ You're invited: Tomorrow I'll moderate a virtual live event on the state of small business, featuring interviews with Kwame Onwuachi, owner and head chef of Kith and Kin, and Ann Patchett, best-selling author and co-owner of Parnassus Books. Register here.

Top of the Morning

Illustration: Eniola Odetunde/Axios

Car rental giant Hertz filed for Chapter 11 bankruptcy on Friday, ostensibly felled by a pandemic that dramatically lowered demand at its airport counters.

  • Under the hood: Hertz is a Frankenstein of financial engineering, beginning with its leveraged buyout in 2005 and continuing long after its private equity owners cashed out.

History: Clayton Dubilier & Rice led a $14.8 billion purchase of Hertz from Ford Motor Co. in late 2005. The deal included just $2.3 billion of equity, split equally with the Carlyle Group and Merrill Lynch's private equity unit, and leveraged $6.9 billion of financing against its fleet.

  • Six months later it completed a $1 billion dividend recap, meaning the private equity firms de-risked while the company re-levered.
  • Hertz went public less than a year after the buyout. Leading into the IPO, it had a debt-to-asset radio of nearly 95% and very little cash on hand.
  • In 2012 the company overpaid to buy smaller rivals Dollar and Thrifty, and in 2013 the private equity firms completely exited.
  • Following an accounting scandal that dated back to 2011, activist investor Carl Icahn began to invest. At the time of bankruptcy, he was the company's largest shareholder with nearly a 39% stake.
  • In 2016, Hertz spun off its equipment rental company into a separate, stand-alone public company.

What to know: Hertz made money by renting cars, but it was more in the car-leasing business. Or, more specifically, creating special purpose vehicles that would issue debt to buy cars, then leasing those cars and renting them out.

  • All the while it would pay coupons on the asset-backed securities, hoping to turn profits via the rentals combined with vehicle resale.
  • Plus, resale prices have fallen sharply during the pandemic, and will come under further pressure if Hertz creditors force partial fleet liquidation.

Here's how the FT's Sujeet Indap summarized things:

"Hertz is basically a bank that rents cars. This structure reduces the overall cost of capital but when the music stops, look out."

The bottom line: Hertz elevated the Wall Street shell game that originally helped finance its 2005 takeover, without apparently noticing that the original operators had left town.


Illustration: Sarah Grillo/Axios

Apeel Sciences, a Santa Barbara, Calif.-based developer of rot-reduction coatings for produce, raised $250 million in new funding led by GIC at a valuation north of $1 billion.

  • Why it's the BFD: If you buy avocados at Kroger, or at the largest grocery chains in Germany or Denmark, you're getting one with an Apeel coating. It's also now being applied to other fruits like organic apples and limes, and soon to vegetables like asparagus and cucumbers.
  • Other investors were Viking Global Investors, Upfront Ventures, Tao Capital Partners, Rock Creek Group, Oprah Winfrey, and Katy Perry.
  • The bottom line: "COVID-19 has shown how tightly wound and stretched our food system is, and food waste acts as an enormous tax on it." — James Rogers, Apeel Sciences founder and CEO, to Axios
Pro Rata for Kids

Today’s project is for your kid(s) to create a beach inside of their quarantined house. Obviously not with sand or sea, but "beach chairs," towels, beach toys, and maybe even a couple of big lamps to replicate the sun. The more creative the better.

  • Per usual, please send me photos of what they come up with.
Venture Capital Deals

🚑 Insitro, a “machine-learning driven” drug discovery startup, raised $143 million in Series B funding. Andreessen Horowitz led, and was joined by T. Rowe Price, BlackRock, Casdin Capital, HOF Capital, WuXi AppTec, and return backers Arch Venture Partners, Foresite Capital, GV, Third Rock Ventures, Two Sigma Ventures, and Alexandria Venture Investments.

Bolt, an Estonian on-demand transportation company, raised €100 million in convertible note funding from Naya Capital Management at a €1.7 billion valuation.

Commonwealth Fusion Systems, a Cambridge, Mass.-based nuclear fusion startup, raised $84 million from backers like Temasek and Equinor.

Scandit, a Swiss enterprise barcode scanning solutions, raised $80 million in Series C funding. G2VP led, and was joined by Atomico, GV, Kreos, NGP Capital, Salesforce Ventures, and Swisscom Ventures.

Bluecore, a New York-based provider of marketing automation tools, raised $50 million in Series D funding. Georgian Partners led, and was joined by FirstMark Capital and Norwest Venture Partners.

Platform Science, a La Jolla, Calif.-based fleet management platform, raised $42 million in Series B funding. Prologis led, and was joined by Daimler, 8VC, NewRoad Capital Partners, Schematic Ventures, and Cambridge Capital.

🚑 Oncology Analytics, an Atlanta-based provider of data analytics for oncology services groups, raised $28 million in Series C funding. Baird Capital led, and was joined by Oak HC/FT, McKesson Ventures, and The Blue Venture Fund.

🚑 CalciMedica, a La Jolla, Calif.-based biotech focused on inflammatory diseases, raised $15 million in Series C funding. Valence Life Sciences led, and was joined by Bering Capital, Mesa Verde Venture Partners, and return backer Sanderling Ventures.

Looking Glass Factory, a Brooklyn-based developer of 3D holographic display tech, raised $7.5 million in new funding, per an SEC filing. Backers include Foundry Group and Uncork Capital., an Australian online mortgage marketplace, raised A$5 million from backers like Equity Venture Partners.

PXL Vision, a Swiss provider of identity fraud protection software, raised $4.7 million in seed funding led by SIX Fintech Ventures.

🚑 Thriva, a London-based provider of at-home blood tests, raised £4 million in new Series A funding. Target Global led, and was joined by Guinness Asset Management and Pembroke VCT.

Alice&Bob, a Paris-based developer of a fault-tolerant quantum computer, raised $3.3 million from Elaia Partners and Breega.

Datch, a Los Angeles-based “voice-visual” assistant for industrial use, raised $3.2 million in seed funding. Blue Bear Capital led, and was joined by Stage Venture Partners, Tuhua Ventures, Lorimer Ventures, Predictive Venture Partners, and Plug and Play Ventures.

Delman, an Indonesian dig data management and analytics startup, raised $1.6 million in seed funding led by Intudo Ventures.

Private Equity Deals

AddSecur Group, a Swedish portfolio company of Castik Capital Partners, acquired U.K.-based fleet management firm Connexas from Horizon Capital.

Apax Partners agreed to invest $550 million for convertible preferred stock in vehicle remarketing site KAR Global (NYSE: KAR), at a 42% conversion premium to Friday’s closing price.

CVC Capital Partners completed its £120 million purchase of a 28% stake in rugby tourney operator Pro14 Rugby.

KKR and Axel Springer partnered on a bid for eBay’s (Nasdaq: EBAY) classifieds unit, which could fetch between $8 billion and $10 billion, per Bloomberg. Adevinta and Naspers also made offers, while Blackstone Group, Permira, and Hellman & Friedman reportedly are considering a joint bid.

KKR and Alberta Investment Management completed their purchase of a 65% stake in the C$6.6 billion Coastal GasLink pipeline from TC Energy (TSX: TRP).

KKR acquired a majority stake in French commercial real estate property firm Etche from Groupe BMF.

Nordic Capital agreed to buy Swedish insurer Max Matthiessen from Willis Towers Watson (Nasdaq: WLTW).

Warburg Pincus increased its stake in Singapore-based real estate fund manager ARA Asset Management from 30.7% to 48.7%.

Public Offerings

Palantir Technologies expects to public within a year, CEO Alex Karp told "Axios on HBO." See clip.

🚑 Burning Rock Biotech, a Chinese developer of DNA sequencing tech for oncology, filed for a $100 million IPO. It plans to trade on the Nasdaq (BNR) with Morgan Stanley as lead underwriter, and has raised nearly $200 million from firms like Northern Light VC (13.7% pre-IPO stake), Sequoia Capital China (9.1%), CMB International (8.8%), LYFE Capital (7.9%), GIC (6.1%), and Providence Equity Partners.

🚑 Pliant Therapeutics, a South San Francisco-based developer of fibrosis treatments, set IPO terms to 6 million shares at $14-$16. It would have an initial market cap of $469 million, were it to price in the middle, and plans to trade on the Nasdaq (PLRX) with Citigroup as lead underwriter. The company has raised over $280 million in VC funding from firms like Third Rock Ventures (32.3% pre-IPO stake), Eventide Asset Management (9.3%), Redmile Group (7.8%), Cowen Healthcare (7.7%), and Novartis (6.2%).

🚑 Vaxcyte, a Foster City, Calif.-based developer of pneumococcal vaccines, filed for a $100 million IPO. The pre-revenue company plans to list on the Nasdaq (PCVX) with BofA as lead underwriter, and raised VC funding from firms like Abingworth, Longitude Venture Partneres, TPG, Frazier Life Sciences, Pivotal bioVentures, Janus Henderson, and RA Capital Management.

Warner Music Group, a music recording and publishing company owned by Len Blavatnik's Access Industries, set IPO terms to 70 million shares at $23-$26. It would have an initial market cap of nearly $12.5 billion, were it to price in the middle, and reports $48 million of net income on $2.3 billion in revenue for the six months ending March 31, 2020. The company plans to trade on the Nasdaq (WMG), with Morgan Stanley leading a group of 28 participating banks.

Liquidity Events

Guy Laliberte, founder of Cirque du Soleil, said he will try to buy back the live events company form TPG Capital, Fosun Group, and Caisse de depot et placement du Quebec.

Genstar Capital sold IAS, an Austin, Texas-based provider of marketing and underwriting of vehicle protection products, to iA Financial Group (TSX: IAG).

🚑 The Riverside Co. agreed to sell ActivStyle, a Minneapolis-based distributor of incontinence products, AdaptHealth (Nasdaq: AHCO).

More M&A

Liquidnet Holdings, a New York-based dark pools operator, is exploring a sale that could value the company at around $1 billion, per Bloomberg.


Alexia Ventures, a new Brazilian early-stage VC firm, is raising up to $80 million for its debut fund, per SEC filings.

Aquiline Capital Partners, a New York-based private equity firm focused on financial and business services, raised $2 billion for its fourth fund.

Falcon Investment Advisors raised $1.24 billion for its sixth private credit fund, which is targeting a total of $1.38 billion, per an SEC filing.

Lime Rock New Energy, a Connecticut-based growth equity firm focused on renewable energy tech, is raising $600 million for its debut fund, per an SEC filing.

Thoma Bravo is raising upwards of $16.5 billion for its fourteenth flagship buyout fund, per an SEC filing. It also is raising up to $3.5 billion for its third mid-market fund.

It's Personnel

Renata Malavazzi joined Paine Schwartz Partners, a food chain-focused private equity firm, as general counsel and chief compliance officer. She previously was a partner with Kirkland & Ellis.

Michael Pia joined Texas A&M Foundation as chief investment officer. He previously was with Teacher Retirement System of Texas as a managing director of strategic partnerships and research.

Miguel Zurita, managing partner and co-CIO of Altamar Capital, was named president of Spain’s VC and PE trade association.

Final Numbers
Source: Eaton Partners survey of 71 limited partners in alternative investment funds, taken between 5/13/20-5/19/20.
Dan Primack

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