Oct 5, 2017

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning

• Never mind: During his Tuesday visit to storm-ravaged Puerto Rico, President Trump told Fox News:

"You know, they owe a lot of money to your friends on Wall Street, and we're going to have to wipe that out. You can say goodbye to that."

The surprise suggestion of D.C. eliminating the Commonwealth's $74 billion of municipal debt understandably spooked the bond market, driving Puerto Rico's benchmark bonds down from a minuscule 44 cents on the dollar to a microscopic 30 cents on the dollar. But then came White House OMB director Mick Mulvaney yesterday, telling Bloomberg not to take his boss either seriously or literally:

"We are not going to pay off those debts. We are not going to bail out those bond holders."

• Feed up: When Toys "R" Us filed for Chapter 11 bankruptcy last month, there was a lot of talk about how the company's private equity owners were out the $1.3 billion they invested back in 2005. But it's not exactly true. Specifically, I've calculated at least $180 million that the retailer paid its sponsors in management and advisory fees, not inclusive of an $81 million transaction slug nor fees and interest related to subsequent debt financings.

Assuming the equity check was split evenly among the three sponsors — Bain Capital, KKR and Vornado — it would work out to around $433 million each. Bain has an abnormally high GP commit of 10%, so that means Bain partners paid out around $43 million. But the fund received around $61 million in management and advisory fees related to the deal, which puts it in the black. LPs, of course, were wiped clean. KKR's relevant fund had a 57.5% offset for such fees but a smaller GP commit, so it too brought back more than it sent out. Some alignment of interests.

  • Caveats: Yes, private equity funds should be judged portfolio-level, and both relevant funds here performed well. Moreover, the sponsors spent tens of thousands of hours working on Toys "R" Us, and LPs knew the offsets (or lack thereof) upon investing. But...
  • Bottom line: We've seen a strong move toward 100% advisory fee offsets in recent years, caused both by LP agitation and SEC scrutiny. Situations like Toys "R" Us are a stark reminder why that trend should continue and never backslide.

• Price talk: Some new pricing info from a pair of recent deals with undisclosed financial info:

  1. Last week we reported that the price of Ikea's purchase of on-demand chore platform TaskRabbit was "south of $75 million." That was accurate, but we've since gotten word that it is actually south of $50 million.
  2. An SEC filing suggests Vista Equity Partners plugged around $372 million of equity into its recent purchase of app testing company Applause, which had raised around $110 million from backers like Goldman Sachs, QuestMark Partners and Scale Venture Partners.

• The rise of pre-seed: Last week I wondered about the emergence of "pre-seed" venture capital, based on the arrival of both Hustle Fund and Afore Capital. Kia explains that today's seed rounds are yesterday's Series A rounds, and pre-seed is the old seed.

  • Why now? Early and seed-stage firms have been raising larger funds, seed investors expect more traction, there are many more copycat startups and VCs are taking longer to write checks.
  • Data point: In Q2 2017, the median U.S. seed deal was $1.6 million, up from $0.6 million in 2014, according to research firm PitchBook.

• Scheduling note: I will be on vacation from 4:08pm this afternoon until around midnight. Go Sox and Pats!


Merlin Entertainments (LSE: MERL) has approached SeaWorld Entertainment (NYSE: SEAS) about a possible investment, as first reported yesterday by Bloomberg. SeaWorld shares spiked in the aftermarket on the news, increasing its market cap at one point to nearly $1.5 billion.

  • Why it's the BFD: Sea World's reaction to this approach may give some insights into its level of desperation. four years after the Black Fish documentary. Reports are that it wants to sell the entire company, but Merlin likely is only seeking the Busch Garden parks given its internal policy against keeping marine mammals in captivity. If it proceeds with Merlin, that means Sea World isn't expecting suitors for the whole package.
  • Key number is 23. That's the per share price that China's Zhonghong Zhuoye Group paid earlier this year to buy a 21% stake in Sea World from The Blackstone Group. Yesterday, Sea World shares closed at just $14.11.
  • Bottom line: "The offer comes as SeaWorld... struggles to stem declines in sales and the stock price of the Orlando-based park owner once famous for its killer whales. For Merlin, a deal by the operator of the London Eye and Madame Tussauds waxworks would mark a continuation of its strategy to expand internationally to cope with a drop in day-trippers to the British capital following terrorist attacks in London and Manchester." — Bloomberg
Venture Capital Deals

🚑 Palleon Pharmaceuticals, a Waltham, Mass.-based developer of cancer checkpoint drugs, has raised $47.6 million in Series A funding from SR One, Pfizer Ventures, Vertex Ventures HC, Takeda Ventures and AbbVie Ventures. http://axios.link/3r3G

• Secret Escapes, a British members-only luxury travel club, is finalizing what likely would be a £52 million Series D round led by Temasek, according to TechCrunch. http://tcrn.ch/2y1GBXy

• PremFina, a British provider of financing software for insurance brokers, has raised $36 million in new VC funding. Rakuten and Draper Esprit co-led the round, and were joined by Thomvest Ventures, Emery Capital, Rubicon Venture Capital and Talis Capital. https://bloom.bg/2klNKxh

• Bluecore, a New York-based brand and retail marketing automation platform, has raised $35 million in Series C funding. Norwest Venture Partners led the round, and was joined by return backers Georgian Partners, FirstMark Capital and Felicis Ventures. http://tcrn.ch/2hNwUXb

• Glovo, a Barcelona-based on-demand delivery startup, has raised €30 million in Series B funding. Rakuten Capital and Cathay Innovation were joined by return backers Seaya Ventures, Entreé Capital, Caixa Capital Risk, and Bonsai Venture Capital. http://tcrn.ch/2g95hUY

• FogHorn Systems, a Mountain View, Calif.-based provider of edge software for industrial and commercial IoT applications, has raised $30 million in Series B funding. Intel Capital and Saudi Aramco Energy Ventures co-led the round, and were joined by Honeywell Ventures and return backers March Capital Partners, GE, Dell Technologies Capital, Robert Bosch Venture Capital, Yokogawa Electric Corporation, Darling Ventures and The Hive. www.foghorn-systems.com

• Featurespace, a UK-based adaptive behavioral analytics startup, has raised £16.5 million in new VC funding. Highland Europe led the round, and was joined by Worldpay, Invoke Capital and return backer Touchstone Innocations. www.featurespace.com

• TripActions, a Mountain View, Calif.-based provider of business travel solutions, has raised $12.5 million in new Series A funding from insiders Lightspeed Venture Partners and Zeev Ventures (bringing the round total to $27m). http://axios.link/gFOS

🚑 3T Biosciences, a stealthy oncology startup, has raised more than $12 million in seed funding from backers like Peter Thiel and Sean Parker, per CNBC. http://cnb.cx/2yqPtHI

• 21Buttons, a Barcelona-based social commerce app for fashion (i.e., European Poshmark), has raised $10 million in Series A funding. Kibo Ventures led the round, and was joined by JME VC and return backers Samaipata Ventures, Breega Capital, 360 Capital Partners, Banc Sabadell Venture Capital, Sputnik and Mediaset. http://tcrn.ch/2gcfvE4

• Energage (f.k.a. WorkingplaceDynaics), an Exton, Penn.-based provider of employee engagement solutions, has raised $10 million in new funding led by NewSpring Growth. www.energage.com

• Grateful Ventures, an online media startup focused on lifestyle content, has raised $10 million from Gannett Co. (NYSE: GCI). http://reut.rs/2xk0H0I

• ThinkCERCA, a Chicago-based education platform for creating critical thinking content, has raised $10 million in Series B funding. Scott Cook and Signe Ostby led the round, and were joined by Plum Alley Investments, Great Oak Venture Partners, Amicus Capital, Jeff Weiner, TAL Education Group and Follett Knowledge Fund. www.thinkcerca.com

• Urgent.ly, a Vienna, Va.-based digital roadside assistance platform, has raised $10 million in Series B funding. American Tire Distributors led the round, and was joined by return backers Verizon Ventures and Forté Ventures. www.Urgent.ly

• Zefo, an India-based used furniture and appliances marketplace, has raised around $9 million in Series B funding from Sequoia Capital India, Helion Venture Partners and Beenext. http://axios.link/IOUb

🚑 BroadSpot Imaging, a Richmond, Calif.-based provider of ophthalmic diagnostics, has raised $7.5 million in Series A funding. Phoenix Venture Partners led the round, and was joined by Camino Real Capital Partners. www.broadspotimaging.com

• Pensa, a Mountain View, Calif.-based provider of SaaS for delivering virtual data centers, has raised $4 million in Series A funding led by March Capital Partners. www.pensa.ai

• Clearsurance, a Newburyport, Mass.-based crowdsourced review platform for the insurance agency, has raised $4 million in Series A funding from backers like Davis Capital Partners. www.clearsurance.com

• Fuel50, a Los Angeles-based provider of career path software, has raised $2.5 million in Series A funding co-led by Rincon Venture Partners and Bonfire Ventures. www.fuel50.com

Private Equity Deals

🚑 Healthcare Bluebook, a Brentwood, Tenn.-based provider of healthcare price and quality transparency solutions., has raised an undisclosed amount of growth equity funding from Primus Capital Funds. www.healthcarebluebook.com

• Roark Capital Group has acquired International Car Wash Group, a UK-based operator of car washes in 900 locations across 14 countries, from TDR Capital for an undisclosed amount. www.icwg.com

• Steele Compliance Solutions, a San Francisco-based portfolio company of Bregal Sagemount, has acquired Compliance Wave, a Red Bank, N.J.-based provider of compliance micro-training content. No financial terms were disclosed. www.steeleglobal.com

• Stella Environmental Holdings, a Houston-based portfolio company of Hidden Harbor Capital Partners, has acquired Rackleff Enterprises, a Statesboro, Ga.-based transfer station management company. No financial terms were disclosed. www.stellaenv.com

🚑 TSG Consumer Partners has agreed to acquire LuckyVitamin, a Norristown, Penn.-based ecommerce company for vitamins and nutritional supplements, from GNC Holdings (NYSE: GNC). No financial terms were disclosed.

🚑 The Vistria Group has acquired St. Croix Hospice, an Oakdale, Minn.-based provider of hospice services, from Clearview Capital Group. www.vistria.com

Public Offerings

🚑 Rhythm Pharmaceuticals, a Boston drugmaker focused on treating genetic obesity, raised $120 million in its IPO. The company priced 7 million shares at $17, compared to plans to offer 6.67 million shares at $14-$16. It will trade on the Nasdaq under ticker symbol RYTM, while Morgan Stanley was listed as left lead underwriter. Shareholders include NEA (22.75% pre-IPO stake), Third Rock Ventures (20.76%), MPM Capital (13.54%), OrbiMed (13.28%), Pfizer (7.24%) and Baker Brothers (6.07%). www.rhythmtx.com

Liquidity Events

Dialog Semiconductor of Germany has agreed to acquire Silgeo Technology, a Santa Clara, Calif.-based maker of configurable mixed-signal chips, for upwards of $306 million (including $276m upfront in cash). Silego has raised around $8 million in VC funding from firms like US Venture Partners, Storm Ventures and Weston Presidio Capital. http://reut.rs/2wyA0Rf

• Navient (Nasdaq: NAVI) has agreed to acquire Earnest, a San Francisco-based online provider of student loan refinancing services, for $155 million in cash. Earnest had raised over $120 million in VC funding from firms like Maveron, Wildcat Venture Partners, FJ Labs, Correlation Ventures, Working Lab Capital, Correlation Ventures, Cross Creek Advisors, FinSight Ventures, Fabrice Grind, Andreessen Horowitz, Spectrum 28 and Adams Street Partners. http://on.wsj.com/2y1w8f7

More M&A

• A. Schulman (Nasdaq: SHLM), an Ohio plastics maker with a market cap of around $1.1 billion (plus $1b in debt) is seeking a buyer, according to the WSJ. http://on.wsj.com/2xgP9WU

• ADP (Nasdaq: ADP) has acquired Global Cash Card, an Irvine, Calif.-based digital payments company, for an undisclosed amount. www.adp.com

Nippon Life Insurance is in talks to acquire a majority stake in the Japanese unit of MassMutual Financial Group, per Reuters. http://reut.rs/2fNqqmX


• Greenbriar Equity Group, a private equity firm focused on transportation, is raising upwards of $1 billion for its fourth fund, per an SEC filing. www.greenbriarequity.com

It's Personnel

• Greg Fleming, a former top Merrill Lynch and Morgan Stanley exec, has agreed to become CEO of newly-formed Rockefeller Capital Management. http://on.wsj.com/2y1iEjb

• Mark Kraynak has joined Aspect Ventures as an entrepreneur-in-residence. He previously was senior VP and general manager of Imperva's (Nasdaq: IMPV) enterprise business. www.aspectventures.com

• Aymerik Renard has joined Hardware Club as a general partner. He previously was a director with Western Digital Capital. www.hardwareclub.co

Dan Primack