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Term Sheet — Tuesday, February 23

Feb 23, 2016

Random Ramblings

Several New York media outlets last week reported on $125,000 in recent campaign donations made by California-based private equity executive Robert Smith and his wife to Eric Schneiderman, the state attorney general who in 2012 subpoenaed at least a dozen PE firms over possible tax-dodging activity. On the surface it looked pretty bad, particularly given that Smith and his out-of-state colleagues from Vista Equity Partners are some of Schneiderman's largest backers, having previously contributed another $182,000 since 2010.

After investigating the situation, however, I've found no evidence of conflict.

Schneiderman's 2012 investigation was related to something called "fee waivers," a controversial strategy through which private equity fund managers lower their tax bills by reclassifying management fees (on which they pay ordinary income tax rates) as fund commitments (on which they would pay capital gains rates, assuming investment profits). You may recall this being raised as a national issue during the 2012 presidential race, due to the use of "fee waivers" by Mitt Romney's former firm, Bain Capital.

The case is currently under court seal, but multiple sources tell me that Schneiderman's legal standing was something called the New York False Claims Act. This particular rule is specific to New York-based entities or, in the case of alleged tax fraud, those paying substantial state taxes in New York. So a firm like Bain Capital ― which is based in Boston but has a satellite office in New York ― was subpoenaed. Vista Equity Partners ― whose offices are in California, Illinois and Texas ― was not (even though it has allowed for the use of fee waivers).

In other words, Vista's exclusion was about basic geography rather than generous campaign contributions.

Moreover, a source familiar with the investigation says that it never ultimately went very far, in large part because outside counsel for the private equity firms attested to having designed fee waivers in the first place, thus making it much tougher to pin false claims on the firms themselves (which had to have "knowingly" flouted the law).

So why is an out-of-stater contributing so much to a New York AG in the first place?

Sources say that Robert Smith and Schneiderman met several years ago via a mutual friend, and bonded over a love of jazz music and various other nonprofit endeavors. For example, Schneiderman is a supporter of the Louis Armstrong House Museum in Queens where Smith sits on the board, and both have the same photo of Armstrong hanging in their offices. The two men also each attended a New York City gala for The Opportunity Network last year, and Smith's wife is said to have particular interests around foster care and human trafficking ― two issues around which Schneiderman has taken strong stands.

"To avoid even the appearance of a conflict between the duties of his office and the need to raise campaign contributions, every contributor to Attorney General Schneiderman’s campaign committee is vetted and required to certify that they and the entities they own or control have no matters currently pending before, or recently resolved, by his office," says Damien LaVera, communications director for the AG's office. "A full and complete review of Eric Schneiderman’s record would paint a clear picture of an Attorney General who will go after anyone who tries to take advantage of New Yorkers no matter how rich or powerful they are, or to whom they have given political contributions."

THE BIG DEAL

•  ResMed (NYSE: RMD) has agreed to acquire Brightree, a Georgia-based provider of business management and clinical software to the post-acute care market, from Battery Ventures for $800 million.

Battery originally acquired a control stake in Brightree in 2008. No financial terms of that deal were ever disclosed, although the firm rarely invests more than $20 million in that type of transaction. Moreover, Battery said in a press release that Brightree’s revenue was $8 million at the time of its original investment, and now stands at $113 million (in part thanks to six add-on acquisitions that did not include additional cash from Battery).

In other Battery news, the firm this morning announced that it has closed its eleventh flagship fund with $650 million in capital commitments, plus a $300 million sidecar fund to support larger deals. Read more.

VENTURE CAPITAL DEALS

•  Razer, a Carlsbad, Calif.-based maker of interactive gaming hardware, has raised $75 million in Series C funding at around a $1.5 billion valuation from firms like Digital Grid (Hong Kong) Technology Co. TechCrunch reports that the final round could be much larger. Existing Razer shareholders include IDG-Accel China Capital Fund. Read more.

•  Namely, a New York-based HR software platform for mid-market companies, has raised $30 million in Series D funding. Sequoia Capital led the round, and was joined by Matrix Partners, True Ventures and Greenspring Associates. Read more.

•  Team8, an Israeli cybersecurity startup, has raised $23 million in Series B funding. AT&T, Accenture, Nokia, Mitsui & Co. and Temasek were joined by returns backers Cisco, Alcatel-Lucent, Bessemer Venture Partners, Marker and Innovation Endeavors. Read more.

•  Reflektion, a San Mateo, Calif.-based provider of real-time individualized commerce solutions, has raised $18 million in Series B funding. Battery Ventures led the round, and was joined by Hasso Plattner Ventures and Intel Capital. www.reflektion.com

•  MasterClass, an online education platform whose vocational classes have been taught by such celebrities as Kevin Spacey (acting) and Christina Aguilera (singing), has raised $15 million in Series B funding. NEA led the round, and was joined by Javelin Venture Partners, Bloomberg Beta, Novel TMT Ventures, Advancit Capital, WME Ventures, Harrison Metal, Downey Ventures and individual angels. Read more.

•  Raw Pressery, a home delivery service for cold-pressed juices in India, has raised $4.5 million in Series B funding. Backers include Sequoia Capital, Saama Capital and DSG Consumer Partners. www.rawpressery.com

•  Mintos, a Latvian operator of a P2P loan marketplace, has raised €2 million in seed funding from Skillion Ventures. www.mintos.com

•  Routific, a Vancouver-based provider of route optimization software, has raised C$1.2 million in seed funding from firms like Pallasite Ventures and FireStarter Fund. www.routific.com

PRIVATE EQUITY DEALS

•  Audax Group has acquired Preferred Compounding, a Barberton, Ohio-based custom rubber compounder. No financial terms were disclosed, except that the deal was supported via a senior secured unitranche credit facility from a program jointly managed by Antares and LStar Capital. Sellers include Wingate Partners. www.preferredrubber.com

•  Black Bear Diner, a Redding, Calif.-based family dining franchise concept with 75 units in eight western states, has secured an undisclosed amount of funding from PWP Growth Equity. www.blackbeardiner.com

•  Brookfield Infrastructure Partners and Qube Holdings (ASX: QUB) are in preliminary talks on a joint takeover offer for Australian ports operator Asciano (ASX: AIO), over which the two sides have been competing. The proposed joint offer could value Asciano at A$9.28 per share, compared to an existing high bid of A$9.17 per share (total value of US$6.3billion) from Qube, Global Infrastructure Partners, the Canada Pension Plan Investment Board and CIC Capital. Read more.

•  CountryWide Broadband and Seaport Capital have agreed to acquire the assets of iTV-3 Inc., an all fiber-to-the-premises system serving Central Illinois communities like Peoria and Urbana, from Highland Ventures Ltd. No financial terms were disclosed. www.itv-3.com

•  EagleRider, a Los Angeles-based “motorcycle experience” company, has secured an undisclosed amount of growth equity funding from Main Post Partners. www.eaglerider.com

•  Lucid Energy Group, a Dallas-based full-service midstream provider, has secured a $350 million initial equity commitment from EnCap Flatrock Midstream. www.efmidstream.com

•  Modere, a Springville, Utah-based retailer of health and wellness products, has agreed to acquire the assets of SAVI Health International LLC, a Salt Lake City-based health and nutritional supplement company. No financial terms were disclosed. Modere is a portfolio company of Z Capital Partners. www.modere.com

•  Shutterfly Inc. (Nasdaq: SFLY) said that it received takeover interest from an unidentified private equity firm, but that it isn’t currently in deal negotiations. The digital photo site has a current market cap of around $1.4 billion. Read more.

•  Spring & Sprout Dental Holdings, a pediatric dental platform sponsored by Huron Capital Partners, has acquired Philadelphia-based Rich Orthodontics. No financial terms were disclosed. www.springandsprout.com

IPOs

•  Doosan Bobcat Inc., a South Korean manufacturer of construction machinery, is planning a Seoul IPO for later this year that could value the company at more than $2 billion. Read more.

•  Syndax Pharmaceuticals Inc., a Waltham, Mass.-based developer of entinostat as a combination therapy in multiple cancer indications, has set its IPO terms  to 4.4 million shares being offered at between $14 and $16 per share. It would have an initial market cap of around $261 million, were it to price in the middle of its range. The pre-revenue company plans to trade on the Nasdaq under ticker symbol SNDX, with Morgan Stanley and Citigroup serving as co-lead underwriters. Syndax has raised over $170 million in VC funding -- including an $80 million Series C round last year -- from firms like Domain Associates (19.6% pre-IPO stake), MPM Capital (16.7%), Fidelity (11.2%), Delos Investments (9.1%), RMI Investments (7.5%), BlackRock (5.3%), EcoR1 Capital, OrbiMed Advisors, Jennison Associates, Tavistock Life Sciences, Arrowpoint Partners, Cormorant Asset Management, BioMed Ventures, RusnanoMedInvest and Forward Ventures. www.syndax.com

EXITS

•  Bain Capital has agreed to sell Brakes Group, a European foodservice distributor, to Sysco Corp. (NYSE: SYY) for approximately $3.1 billion (including repayment of $2.3b in Brakes Group debt). Read more.

•  North Bridge Growth Equity has sold Contact Solutions, a Reston, Va.-based provider of real-time, contextual customer care solutions, to Verint Systems Inc. (Nasdaq: VRNT). No financial terms were disclosed. www.contactsolutions.com

OTHER DEALS

•  Activision Blizzard (Nasdaq: ATVI) has completed its previously-announced $5.9 billion acquisition of King Digital, the Ireland-based maker of the casual mobile game Candy Crush. The $18 per share deal represented a 20% premium to King’s stock prior to the IPO. www.king.com

•  Reform Holdings is in talks to joined ChemChina’s $43 billion takeover offer for Swiss agricultural chemical and seed maker Syngenta (SWX: SYNN), according to Bloomberg. Read more.

•  Synacor (Nasdaq: SYNC) has acquired Technorati, an early tech blog aggregator and directory that has since transformed into a programmatic ad busines. No financial terms were disclosed. Read more.

•  Time Inc. (NYSE: TIME) is among several suitors with preliminary interest in acquiring the core Internet business of Yahoo Inc. (Nasdaq: YHOO), according to Bloomberg. Read more.

•  United Technologies (NYSE: UTX) has rejected a $108 per share takeover offer from Honeywell International (NYSE: HON), which would have created an industrial behemoth worth nearly $150 billion. There are no further merger talks expected. Read more.

FIRMS & FUNDS

No firm or fund news this morning.

MOVING IN, ON & UP

•  Jordan Ormont said that he is leaving Kleiner Perkins Caufield & Byers, where he has been since 2008 as a partner focused on HR strategy for portfolio companies. No word yet on his future plans. www.kpcb.com

•  Julie Riewe, former co-chief of the SEC’s asset management enforcement unit, has joined Debevoise & Plimpton as a partner in the law firm’s corporate and regulatory defense practice. Read more.

•  Adam Schwarzchild has joined UBS as an executive director of financial sponsors, according to Reuters. He previously was with Deutsche Bank. UBS also has hired Michael O’Donovan (ex-KKR Capital Markets) as a managing director of equity capital markets. Read more.

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