Term Sheet — Thursday, November 19

Nov 19, 2015

Square doesn't get the circle

Square, the digital payments company led by Twitter CEO Jack Dorsey, priced its IPO last night. And it didn't go terribly well, with the $9 per share price coming in below the proposed $11-$13 offering range. A bunch of notes on this:

The numbers: Square raised $243 million by pricing 27 million shares at $9 each, giving it an initial market cap of around $2.9 billion. Its initial fully-diluted value is $4.28 billion. Both are well short of the $6 billion or so that Square was last valued at by private market investors in its Series E round. Those folks will be 'made whole' via a ratchet that grants them extra common shares, although the Series D folks also are underwater at $9 per share (without any such anti-dilution protections).

The other numbers: We don't yet know where Square will actually open, where it will close today or where it will close once the lock-up eventually expires. In other words, we're working with very incomplete data when it comes to drawing long-term conclusions about the broader implications here.

Oh, even more numbers: Square's private stock sale prices were:
Series A: $0.21627
Series B: <$1
Series C: $5.79817
Series D: $11.014
Series E: $15.46345

But... Square becomes the third tech startup valued at $1 billion or more to go public in 2015 -- following Box and Pure Storage. All three have disappointed in various ways, which will not help encourage other 'unicorns' to file their S-1 docs. It also could further chill the later-stage investing market, where mutual and hedge funds have largely been investing as IPO optionality. If you can get large allocations and similar prices at IPO, why take the extra risk of investing privately?

The big mo: As we've written previously, IPO pricing (and first-day trades) matters, in part, because it helps set a narrative about if your company is on the rise or the decline. That impacts employee morale and a company's chances of recruiting top talent from elsewhere.

Related: A bunch of VCs said on Twitter last night that media folks like yours truly were paying too much attention to the low IPO price, and too little attention to how a $2.9 billion company was created in six years (and created a product/service that was virtually unthinkable at the time). Mission over money. Okay, but money also matters. That's why Square and others have offered such generous salaries and perks to employees -- using later-stage funding from investors who now may be reevaluating their investment strategies.

All of that said: Yes, it makes sense for Square to have taken the low price. Do the IPO, get it behind you and get back to work. IPO postponements have a funny habit of becoming permanent.

• Good for you, bad for me: Companies and private equity firms are doing a much better job keeping their acquisition talks under wraps, according to a new report from Intralinks and the Cass Business School.

They found that just 6% of mergers and acquisitions in 2014 involved a leak prior to a public announcement, compared to 8.8% in 2013 and a six-year average of 7.4%. In fact, 2014 represents the lowest level of leaks since Intralinks and Cass began keeping track in 2009, over which time it has charted more than 4,400 global transactions. Read more by going here.

• Sacramento stuff: As we've previously discussed, CalPERS held both a private equity workshop and its monthly investment committee meetings earlier this week. But neither one resulted in the release of how much the pension giant has paid out in carried interest -- a data-set that CalPERS has said will come in November. Now I'm hearing next week is more likely, perhaps so that CalPERS can dump it right before Thanksgiving when few people are paying attention.

Two things to remember on this: (1) It remains inexplicable that CalPERS claims to have been unable to calculate how much it paid in carried interest over the years (prior to sending out new info requests to its general partners). (2) If the number does get picked up by media folks, it almost certainly will be misinterpreted due to its staggering size. Carried interest is not like other private equity fees. The more CalPERS has paid in carry, the better its own private equity performance.

THE BIG DEAL

• Pfizer (NYSE: PFE) is closing in on an agreement to acquire Ireland-based Botox maker Allergan (NYSE: AGN) for upwards of $150 billion. At $380 per Allergan share -- the high end of reported negotiations -- the offer would represent a 22% premium to yesterday's closing price.

This deal would be structured as a tax inversion, and comes as the WSJ reports that the U.S. Treasury Department will publish "targeted guidance" on such deals either today or tomorrow.

VENTURE CAPITAL DEALS

•  TutorGroup, a China-based online language learning platform, has raised around $200 million in Series C funding at a valuation north of $1 billion. New investors include GIC, the Russia-China Investment Fund, Goldman Sachs and Silverlink Capital. Existing shareholders in the company -- which soon plans to expand its educational offerings -- include Alibaba Group, Temasek, Qiming Venture Partners, SBI Holdings and CyberAgent Ventures. www.iTutorGroup.com

•  PlanGrid, a San Francisco-based startup that lets architects and construction workers access blueprints from mobile devices and edit them like a group document, has raised $40 million in Series B funding. Tenaya Capital led the round, and was joined by return backers Sequoia Capital, YC Community and Northgate. www.plangrid.com

•  PresenceLearning Inc., a San Francisco-based provider of online speech and occupational therapy services for K-12 students, has raised $25 million in Series C funding. Catalyst Investors led the round, and was joined by return backers Birchmere Ventures, Blue Heron Capital, Catamount Ventures, and New Markets Venture Partners. www.presencelearning.com

•  UrbanClap, an Indian platform for helping consumers find service providers, has raised $25 million in Series B funding. Bessemer Venture Partners led the round, and was joined by return backers SAIF Partners and Accel. Read more.

•  Umbel, an Austin, Texas-based customer data platform, has raised $20 million in a first closing of its Series B round led by Cielo Private Equity. www.umbel.com

•  OpenHouse Reality Inc., a Santa Monica, Calif.-based real estate agent recommendation engine, has raised $13.5 million in Series A funding co-led by Triangle Peak Partners and March Capital Partners, according to the WSJ. Read more.

•  Townsquared, a San Francisco-based private network platform for local business owners, has raised $5.26 million in new VC funding from August Capital and Floodgate. www.townsquared.com

•  Cinematique, a New York-based “touchable video platform,” has raised $3.5 million in new VC funding led by Pumori Capital. www.cinematique.com

PRIVATE EQUITY DEALS

•  Exponent Private Equity has completed its acquisition of BBI Group, a UK-based provider of diagnostic products to multiple industries, from Alere Inc. (NYSE: ALR) for $115 million. www.alere.com

•  Mister Car Wash, a Tucson, Ariz.-based car wash chain owned by Leonard Green & Partners, has acquired Aurora, Colo.-based Auto Spa Express for an undisclosed amount. www.mistercarwash.com

IPOs

Match Group, the online dating business whose properties include Match .com and Tinder, raised $400 million in its IPO. The company priced 33.33 million shares at $12 per share (low end of $12-$14 range), for an initial market cap of around $3 billion. It will trade on the Nasdaq under ticker symbol MTCH, while J.P. Morgan, Allen & Co. and BofA Merrill Lynch served as lead underwriters. The company, which will remain majority-owned by IAC/InterActiveCorp, reports $49 million of net income on nearly $484 million in revenue for the first six months of 2015. Read more.

EXITS

•  Evolution1, a wholly-owned subsidiary of Wex Inc. (NYSE: WEX), has acquired Benaissance, an Omaha, Neb.-based SaaS company focused on the healthcare premium billing, payment and workflow management markets. The deal is valued at $80 million. Sellers include McCarthy Capital. www.benaissance.com

•  Lightspeed, a Montreal-based cloud point-of-sale platform for retailers and restaurants, has acquired Amsterdam-based e-commerce software provider SEOShop for an undisclosed amount. Lightspeed has raised over US$120 million in VC funding from Accel, iNovia Capital, Caisse de dépôt et placement du Québec and Investissement Québec. Sellers include Henq Invest. www.lightspeedpos.com

OTHER DEALS

•  Charles River Labs (NYSE: CRL) has acquired Oncotest, a German oncology drug discovery contract research organization. The deal is valued at around €34 million in cash, plus the possibility of an additional €2 million in earnouts. www.oncotest.com

•  Delta Air Lines (NYSE: DAL) has agreed to acquire upwards of another 32% stake in listed Mexican carrier Grupo Aeromexico at a 52% premium. Delta already held a 4.1% stake in Aeromexico, plus direct and indirect options to acquire an additional 12.7%. Read more.

•  IDI Inc. (NYSE: IDI) has agreed to acquire Fluent Inc., a New York-based provider of digital marketing and customer acquisition solutions, for around $235 million in cash and stock ($100m cash). www.fluentco.com

•  Martin Shkreli, the controversial CEO of Turing Pharma, has led an investor group that acquired more than half the outstanding shares of KaloBios (Nasdaq: KBIO), a South San Francisco-based cancer drug company that just days ago said it would wind down operations due to drug development setbacks. KaloBios shares spiked more than 800% on the acquisition news. Read more.

•  MediaMath, a New York-based operating system for marketers and ad agencies, has completed an acqui-hire of Spree7, a German provider of digital media programmatic implementation services. No financial terms were disclosed. MediaMath has raised over $100 million in VC funding from Spring Lake Equity Partners, Akamai Technologies, Safeguard Scientifics, Catalyst Investors and Observatory Capital. www.mediamath.com

FIRMS & FUNDS

•  Alibaba Group (NYSE: BABA) formally unveiled a pair of funds to support entrepreneurs in Hong Kong and Taiwan, under the umbrella of the Alibaba Hong Kong Young Entrepreneurs Foundation. The Hong Kong-focused fund is capitalized with $130 million, while the Taiwan-focused fund comes in at $306 million. Read more.

•  BlackRock said that it will wind down a $1 billion macro hedge fund called BlackRock Global Ascent. Read more.

MOVING IN, UP, ON & OUT

•  Jim Doehrman has joined Sierra Ventures as an operating partner. He previously was CFO of both XTime (acquired by Cox Automotive) and Gracenote (acquired by Sony). www.sierraventures.com

•  Susie Huang has been named head of Americas M&A at Morgan Stanley. She has been with the bank since 1984, most recently as vice chair of investment banking. Huang succeeds Robert Eatroff, who recently agreed to become head of corporate development at Comcast. Read more.

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