May 6, 2019

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Source: Giphy

Private equity is still gunning for mom and pop investors.

That's the big takeaway from Friday's news that SoftBank is considering an IPO for its $100 billion Vision Fund, which would require some regulatory jujitsu to avoid U.S. regulatory prohibitions on non-accredited investors buying into alternative investment funds.

  • My guess is that SoftBank's lawyers can work their way around the SEC, particularly given that the current rules seem to codify a distinction without a difference.
  • Retail investors can already buy into special purpose acquisition companies, which act like concentrated buyout funds (albeit with slightly more shareholder protections). They also can invest in publicly-traded private equity firms, which are little more than a collection of opaque underlying funds.

Even if SoftBank doesn't figure this out — or simply opts against it — there are others working toward similar ends.

  • Most notable is the rowing cohort of "GP stake" funds, such as Dyal Capital and Goldman Sachs' Petershill.
  • The are funds that buy passive, minority positions in other, privately-held private equity firms. They primarily generate returns via firm cash-flows (i.e., a cut of underlying fund fees), but there isn't yet a way to fully exit.
  • One possibility is that enough of these firms will launch so that a true secondary market emerges, but there also is talk about trying to bring one of these funds public. Almost a quasi-ETF of private equity funds, like how SoftBank Vision would create a quasi-ETF of tech unicorns.

The bottom line: Private equity remains constrained by its present inability to tap retail investors and defined contribution plans. It has no interest in settling for that status quo.


📅 It's not just Uber: 13 companies plan to go public this week on U.S. exchanges, which could make it the busiest IPO week in over three years, per Renaissance Capital:

The other 12 are raising $1.5 billion and include six biotechs, a government contractor, an industrial engineering firm, a Texas bank, a post office REIT, a Russian job site, and a rugged phone maker. Two blank check companies also plan to raise $350 million.

But, but, but... One company slowing its IPO plans is DouYu, a Chinese live game-streaming platform whose roadshow was slated to launch today. The company, which said it would seek $500 million, reportedly has put the float on hold due to President Trump's weekend threat to increase tariffs on Chinese goods.

  • DouYu filed to list on the NYSE (DOYU) with Morgan Stanley as lead underwriter, while backers include Tencent and Sequoia Capital China.

Warren Buffett took out his favorite heavy bag on Saturday, saying at Berkshire Hathaway's annual meeting that private equity fund returns are worse than they might appear. His specific complaint was that funds include committed but un-invested capital when calculating management fees, but exclude those commitments when calculating internal rates of return (IRRs).

“We have seen a number of proposals from private equity funds where the returns are really not calculated in a manner that I would regard as honest."
  • Buffett is correct that IRR is an easily-gamed metric.
  • Most sophisticated limited partners know the issues with IRR, which is why they use public-market equivalents. For example, PE gatekeeper Cambridge Associates introduced its version of a PME back in 2013.

🎧 Pro Rata Podcast digs into what the end of Game of Thrones will mean for both event TV and HBO. I'm joined by Recode's Peter Kafka. Listen here.

  • Also, take a listen to our February episode with a ride-hail driver who was helping to organize protests against Lyft and Uber in Los Angeles. Plans now are for a nationwide ride-hail driver strike this Wednesday, with Uber planning to price its IPO on Thursday night and begin trading Friday.
Source: Giphy

Occidental Petroleum (NYSE: OXY) increased the cash portion of its $38 billion takeover offer for Anadarko Petroleum (NYSE: APC) from 50% to 78%.

  • Why it's the BFD: Because this effectively removes the need for Occidental shareholder approval, following public opposition from major backers like T. Rowe Price (2.8% stake) and Carl Icahn (reportedly building a position). That leaves things in the hands of Anadarko's board, which hasn't yet moved off its endorsement of a $33 billion bid from Chevron (NYSE: CVX).
  • Concurrent: Occidental also agreed to sell Anadarko's African assets to France's Total SA for $8.8 billion, assuming a completed Occidental/Anadarko merger. It also said it would cover the $1 billion termination fee that Anadarko would owe Chevron.
  • Bottom line: "An Occidental-Anadarko accord would be a stunning rebuff for Chevron CEO Mike Wirth just 15 months into his tenure at the head of the world’s third-largest oil explorer by market value. Sunday’s emergence of Total as an Occidental ally pits two of the world’s supermajor oil drillers on opposite sides of the industry’s biggest takeover battle in years." — Bloomberg
Venture Capital Deals

Bigbasket, an Indian online grocer, raised $150 million from investors like Alibaba Group, CDC Group and Mirae-Naver.

SendBird, a Redwood City, Calif-based provider of chat API and messaging SDK for in-app chat and messaging, raised $50 million in new Series B funding (round total now $102m). Tiger Global led the extension, and was joined by round lead Iconiq Capital.

Thunes, a Singapore-based B2B payments startup, raised $10 million in Series A funding led by GGV Capital.

Otrium, a Dutch online fashion retailer focused on unsold stock, raised €7 million in Series A funding led by Index Ventures.

PeopleGrove, a San Francisco-based platform that matches students with mentors and alumni, raised $4.7 million in Series A funding. Reach Capital led, and was joined by Bisk Ventures, CollabFund, GSV, Launch Capital, Riverpark Ventures and University Ventures.

Crusoe Energy Systems, a Denver-based flare migration startup, raised $4.5 million in seed funding. Bain Capital Ventures and Founders Fund Pathfinder co-led, and were joined by Wicklow Capital, Winklevoss Capital and Dragonfly Capital Partners.

Private Equity Deals

🚑 Arsenal Capital Partners acquired Hopebridge, a Kokomo, Ind.-based provider of behavioral health centers for children with autism spectrum disorder, from backers like Baird Capital.

Artisan Design Group, a Southlake, Texas-based portfolio company of The Sterling Group, acquired Lake Forrest, Calif.-based Vintage Design (flooring) and Nu Wood (cabinetry).

🚑 Blue Sea Capital acquired Krueger-Gilbert Health Physics, a Towson, Md.-based diagnostic medical physics consultant, from Anacapa Partners.

Garda World Security, a Canadian portfolio company of Rhone Capital, said it is no longer considering a takeover offer for British security company G4S (LSE: GFS).

Gridiron Capital bought Colibri Group, a Warren, Penn.-based provider of online learning solutions to licensed professionals in regulated end markets, from Quad-C Management.

Hellman & Friedman and The Blackstone Group said they will not make a new offer for a majority stake listed German online classifieds company Scout24 if their current €4.9 billion offer fails. They also won’t reduce the shareholder approval floor from 50% plus one vote.

Hellman & Friedman completed its previously-announced $11 billion take-private acquisition of Ultimate Software, a Weston, Fla.-based provider of human capital management cloud software.

• KPS Capital Partners agreed to pay $490 million to buy Life Fitness, a Rosemont, Ill.-based maker of commercial fitness equipment and game tables, from Brunswick Corp. (NYSE: BC).

🚑 OrthoFi, a Denver-based provider of CRM and revenue cycle management software for the orthodontic specialty industry, raised funding from Accel-KKR.

Public Offerings

🚑 Avantor, a Center Valley, Penn.-based lab supplies and services company owned by New Mountain Capital, set IPO terms to 154 million shares at $18-$21. It would have a fully-diluted market value of $8.6 billion, were it to price in the middle, and plans to trade on the NYSE (AVTR) with Goldman Sachs as lead underwriter.

Bharti Airtel, India’s second-largest wireless carrier, is launching a London IPO for its Africa unit, per Bloomberg. The float could raise around $1 billion at a $5 billion market cap.

Yunji, a Chinese social e-commerce platform, raised $121 million in its IPO. The company priced 11 million shares at $11, versus plans to offer 13.5 million shares at $11-$13, and closed its first day of trading at $14.15. The company reported an $8 million net loss on $1.9 billion in sales for 2018, while shareholders include Eastern Bell Venture Capital (13.7% pre-IPO stake) and Trustbridge Partners (7.3%).

Liquidity Events

💪 Crunch Fitness, a New York-based gym chain owned by Angelo Gordon and New Evolution Ventures, hired Citigroup to explore strategic options that could include a sale, per the WSJ.

Gen Cap America sold Alpha Technics, an Oceanside, Calif.-based maker of precision thermal measurement solutions for medical and industrial customers, to TE Connectivity (NYSE: TEL).

More M&A

Banco Bradesco of Brazil agreed to buy BAC Florida Bank for $500 million.

Long-Term Asset Partners has withdrawn its unsolicited A$2.38 billion takeover offer for Australian bulk grain handler GrainCorp (ASX: GNC).

Park Hotels & Resorts (NYSE: PK) agreed to buy Chesapeake Lodging Trust (NYSE: CHSP) for $2.7 billion in cash and stock, or $31.71 per share (8% premium over Friday’s closing price).

Siemens is considering strategic options for its gas and power unit, including a possible IPO or merger, per Reuters.


TPG raised $1.6 billion for its first Tech Adjacencies fund, which will provide liquidity to tech company founders, early investors and employees. It also will engage in primary, structured equity investments.

It's Personnel

Vance Scott joined turnaround firm AlixPartners as a managing director focused on the energy industry. He previously was with EY-Parthenon Group.

Final Numbers
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Reproduced from a chart by Joseph Brusuelas; Chart: Axios Visuals
Dan Primack