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Term Sheet — Friday, October 14

Oct 14, 2016

Random Ramblings

The largest private equity fund ever raised was by The Blackstone Group in 2006, with $21.7 billion in capital commitments. Until last night, when SoftBank announced that it is in the process of raising a $100 billion fund focused on the global technology sector.

I know that Term Sheet is known to occasionally have typo troubles, but this isn't one of those times. $100 billion. As you might imagine, we've got a bunch of notes on this:

Details: This is not yet a done deal, but rather a memorandum of understanding between SoftBank and the Public Investment Fund of the Kingdom of Saudi Arabia (PIF). Under terms of the MOU, SoftBank will commit up to $25 billion over five years, while PIF will contribute $45 billion over the same time period. SoftBank also is in talks with other third-party investors for the remaining $30 billion slug. It will be called the SoftBank Vision Fund, and based in London (a curious choice, given how some other PE firms have moved European staff out of the UK after the Brexit vote).

Team: SoftBank Vision Fund will be led by Rajeev Misra, SoftBank's head of strategic finance. Two sources say that Misra was the driving force behind this fund, which was entirely conceived and executed after the exit of former SoftBank president (and de facto investment boss) Nikesh Arora back in June. Other staffers include new hires Nizar Al-Bassam (ex-Deutsche Bank) and Dalinc Ariburnu (Goldman Sachs), plus existing team members like Alex Clavel (ex-Morgan Stanley) and Ervin Tu (Goldman Sachs). Not participating is Ming Ma, who just left SoftBank to join ride-hailing company Grab (a SoftBank portfolio company) as president.

Structure: My understanding is that SoftBank Vision Fund has a "very traditional" private equity structure, which I take to mean something like 2 and 20. If you strip out the GP commitment, that would initially mean a whopping $1.5 billion in annual fees ($900m from PIF alone).

Strategy: SoftBank isn't saying too much about targets, although it sounds like this will be a combination of growth equity and buyout deals (the latter possibly with leverage, thus increasing its buying power even further). I wonder if Twitter could end up in its crosshairs, although that may be viewed as too much of a turnaround vs. growth play. The bigger question, however, is if SoftBank is trying to corner this market at the exact wrong time from a valuation perspective ― and if its entry will only further drive up tech prices in the short term.

•  Dead garden leave: Mike Harden, a co-founder and senior partner with San Francisco-based ARTIS Ventures, has agreed to a one-year ban from working with his firm, as part of a settlement with the SEC over insider trading by one of his former employees at an affiliated hedge fund. Harden's current portfolio company board seats include Juicero, Practive Fusion, Chefs Feed and Stringify. You can read the full story by going here.

•  Breaking: Just as Term Sheet was going to press, Morningstar (Nasdaq: MORN) said that it will buy PitchBook Data for $225 million. More on this in Monday's edition...

•  Tax talk: There has been some discussion about how Donald Trump's plan to change the tax treatment of carried interest (from capital gains to higher ordinary income rates) could be side-stepped via another Trump proposal that would reduce rates on income that comes via pass-thru entities. Wilbur Ross, a longtime private equity exec and Trump economic advisor, said to Bloomberg yesterday that those affected by the carry bump would not benefit from the pass-thru cut, although it's not clear exactly why not.

•  Trump talk: Continued radio silence from Peter Thiel and his spokesman. Not even a "no comment." On the other hand, Thiel's anti-Gawker attorney Charles Harder did yesterday send a legal threat to People Magazine, on behalf of Melania Trump.

•  That's So Mavens: Last month we discussed how the massive Yahoo hack could negatively affect the company's agreement to be acquired for $6.4 billion by Verizon. Now it seems that Verizon is publicly agreeing.

Specifically, Verizon general counsel Craig Silliman told reporters that his company has "reasonable basis" to consider the breach to be a material event, which theoretically gives Verizon the opportunity to bail. I say "theoretically" because a Delaware court would have to agree, and that's about as likely as the Cleveland Browns winning this year's Super Bowl (technically possible, but no sane person would bet on it).

Three notes on this: (1) It's interesting that Silliman is going with the material effect argument, rather than a misrepresentation (i.e., that Yahoo knew about the breach when it signed the deal, but didn't tell Verizon). That suggests that Yahoo legitimately learned about the hack subsequent to signing the deal. (2) Given the improbability of succeeding in Delaware court, this is likely just a renegotiation strategy by Verizon, and perhaps suggests that Yahoo has been resistant to the idea of slashing $1 billion or so off the purchase price. (3) The "reasonable basis" suggests that there has been a significant drop-off in Yahoo user activity.

•  Have a great weekend... Go Pats!

THE BIG DEAL

•  Iora Health, a Boston-based primary care company, has raised $75 million in Series D funding. Temasek led the round, and was joined by return backers .406 Ventures, Flare Capital Partners, F-Prime Capital, GE Ventures, Khosla Ventures, Polaris Partners and Rice Management Company. Read more.

VENTURE CAPITAL DEALS

•  mParticle, a New York-based customer data platform "built for mobile,", has raised $17.5 million in Series B funding. Bain Capital Ventures led the round, and was joined by return backer Social Capital. www.mparticle.com

•  Webscale Networks, a Mountain View, Calif.-based provider of, has raised $12 million in Series A-1 funding. Mohr Davidow Ventures led the round, and was joined by Benhamou Global Ventures, Grotech and Silicon Valley Bank. www.webscalenetworks.com

•  Veeba Food Services, an India-based specialty food ingredients manufacturer, has raised $6 million in third-round funding from Saama Capital and Verlinvest. www.veeba.in

•  Virgil Security Inc., a Manassas, Va.-based developer of cryptography software for app developers, has raised $4 million in Series A funding. KEC Ventures led the round, and was joined by Bloomberg Beta, Blu Venture Investors, Charge Ventures, NextGen Venture Partners, Sparkland Capital, and Working Lab Capital. www.virginsecurity.com

•  Returnly, a Larkspur, Calif.-based return platform for e-commerce purchases, has raised $3.2 million in new VC funding. Index Ventures led the round, and was joined by SV Angel, FJ Labs, Mundiventures and individual angels. Read more.

•  Baroo, a Boston-based pet concierge operating in urban luxury multifamily properties, has raised $2.25 million in seed funding. Birchaven Group led the round, and was joined by Crimson Peak, Krillion Ventureds, Sueco and Jeff Bussgang’s The Graduate Syndicate. www.baroo.co

PRIVATE EQUITY DEALS

•  Apollo Global Management is nearing a final agreement to purchase the Australian coal assets of Anglo American (LSE: AAL) for more than $1 billion, according to Reuters. Read more.

•  Argand Partners has acquired Sigma Electric Manufacturing, a Garner, N.C.-based provider of small, technically-complex metal components to the North American commercial infrastructure, power transmission and industrial products markets. No financial terms were disclosed. www.sigmaelectric.com

•  BC Partners and Indian pharma company Lupin have been short-listed for the medical skin cream business of Bayer, which could be valued at around €1 billion, according to Reuters. Read more.

•  CIC Partners has acquired a majority stake in Activa Resources LLC, a San Antonio, Texas-based oil and gas company focused on acquiring legacy oil and gas fields and applying new optimization technology. No financial terms were disclosed. www.cicpartners.com

•  Genesis Park, a Houston-based private equity firm, has acquired the assets of Texas Monthly magazine for $25 million for Emmis Communications Corp. (Nasdaq: EMMS). www.texasmonthly.com

•  Niteo Products LLC, a car wash products company owned by Highlander Partners, has acquired certain assets of AP Formulators Inc., a South Houston, Texas-based formulator of car wash chemicals. No financial terms were disclosed. www.niteoproducts.com

•  Nordic Consulting, a Madison, Wis.-based health IT consulting company, has secured an undisclosed amount of equity funding from Silversmith Capital Partners. The deal is being referred to as a minority recap. Existing Nordic Consulting shareholders have included HLM Venture Partners, Kaiser Permanente Ventures, SV Life Sciences and Health Enterprise Partners. Read more.

•  Prospect Medical Holdings, a portfolio company of Leonard Green & Partners, has acquired the assets of Greater Waterbury Health Network, owner and operator of 20 hospitals and 140 clinics and outpatient centers. No financial terms were disclosed, except that Prospect plans to invest in capital over the next seven years for facilities development and improvement. www.waterburyhospital.org

•  Valagro SpA, an Italy-based maker of biostimulants and specialty nutrients, has raised an undisclosed amount of growth equity funding from Metalmark Capital. www.valagro.com

IPOs

•  No IPO news this morning.

EXITS

•  Fortress Investment Group has hired Barclays and Morgan Stanley to find a buyer for Florida East Coast Railway Corp., a coastal freight operator Fortress acquired for around $3.5 billion in 2007, according to Bloomberg. Read more.

•  PepsiCo (NYSE: PEP) is in advanced talks to buy KeVita, an Oxnard, Calif.-based maker of probiotic drinks, from KarpRelly and SPK Capital, according to Reuters. Read more.

•  Rockbridge Growth Equity has sold Triad Retail Media, a St. Petersburg, Fla.-based provider of digital retail media advertising, to Xaxis, a New York-based programmatic audience company owned by WPP PLC (LSE: WPP). No financial terms were disclosed. www.xaxis.com

•  RSP Permain (NYSE: RSSP) has agreed to acquire Silver Hill Energy Partners, a Dallas-based oil and gas company focused on the Permian Basin, for $2.4 billion in cash from Silver Hill shareholders like Kayne Anderson and Ridgemont Equity Partners. Earlier reports suggested that Diamondback Energy Inc. (Nasdaq: FANG) had been nearing a deal. Read more.

•  Vincente Capital Partners has sold VXi Corp., a Dover, N.H.-based maker of noise-cancelling headsets, to Denmark’s GN Audio. No financial terms were disclosed. www.vxicorp.com

OTHER DEALS

•  Xerox (NYSE: XRX) is being sued by shareholder Dan Deason, who seeks to block the company’s plan to spin off its document outsourcing business into a separate, publicly-traded company. Read more.

FIRMS & FUNDS

•  Ardian has launched a mid-market direct private equity business in North American, in partnership with Seven Mile Capital Partners, and plans to raise a dedicated fund of between $500 million and $600 million, according to Private Equity International. Read more.

•  Kayne Anderson Capital Advisors has closed its seventh flagship energy private equity fund with approximately $2 billion in capital commitments. www.kaynecapital.com

MOVING IN, UP AND ON

•   Matt Grimm has stepped down as a principal with Mithril Capital Management, which he had joined in late 2014 after six years as an engineer with Palantir Technologies. No word yet on his future plans.

•   Martin Lorentzon is transitioning from chairman to vice chairman of music streaming service Spotify, with his fellow co-founder and company CEO, Daniel Ek, assuming the chairman role. Read more.

•   Ming Maa has joined Grab, a Singapore-based ride-hailing app, as president. He previously was with SoftBank, where he worked on investments such as the Tokyo-based company’s Series D and Series F deals with Grab. www.grab.com

•   Sen. Elizabeth Warren (D-MA) is publicly asking PResident Obama to replace SEC chair Mary Jo White, saying that White is not doing enough to protect investors. Read more.

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