On deals and dealmakers.
EXITS AND CONFLICTS
NYC Tech: Awhile back I had promised to provide updated deal data comparing exits for startups from NYC, LA and Boston. We can’t compare deal value of M&A exits since so many of the prices are not confirmed. For example, Oracle’s acquisition of Moat, reportedly for $850 million, did not disclose an official deal value.
The deal volume data shows a fairly even mix of exits between the three cities. New York has consistently had the most exits by volume, with LA and Boston close behind. (Turn on images to see the chart.)
But IPOs are anyone’s game. From 2014 through mid-April of this year (when the data was compiled), Los Angeles has topped New York and Boston in IPO exit money:
New York could potentially change that pattern this year, if IPO candidates like Spotify, WeWork and Blue Apron all go public at or above their current valuations, but the timing on those deals is still iffy. (Stockholm-based Spotify’s U.S. headquarters is in New York so I’m counting it. Here’s our initial analysis on Spotify’s direct listing plans.)
NYC M&A: Before WeWork, Spotify and Blue Apron go public, NYC’s three consumer-facing IPOs are poised to go on buying sprees. This year each company hired an experienced dealmaker to help it snap up tech and tech talent.
• Last month WeWork hired Emily Keeton, former co-head of M&A at IAC, as its head of M&A. In March WeWork bought a visitor registration startup called Welkio.
• In May Spotify hired Sheila Spence, SVP of corporate development at WPP, as its VP of corporate development. In the last three months the company has snapped up four startups: MightyTV, Mediachain, Sonalytic, and Niland. Expect more to come.
• In January, Blue Apron hired Sid Banthiya, a director at Credit Suisse, to be its head of corporate development. In March the company bought BN Ranch.
Here’s why this is meaningful to venture investors, especially the ones that have backed New York-based companies: On the surface, a talent sale to another startup isn’t much to brag about. But a mediocre deal can turn into a winner if the acquiring company goes public soon after at a premium.
I wrote about this after Twitter’s IPO in 2013. Twitter had purchased 29 companies by the time it went public, using stock to buy most of them. As such, investors in those companies became Twitter stockholders and watched their stock double in a matter of months. An example I gave at the time:
Bluefin Labs sold to Twitter for $80 million in February 2013. Twitter’s paper valuation was just under $10 billion for secondary sales; its last institutional round had placed its valuation at $9.25 billion. Eight months later, Twitter’s valuation more than doubled in the public markets, topping $20 billion. Bluefin investors Softbank Capital, Time Warner Investments, Acadia Woods Partners, Redpoint Ventures, Jim Pallotta, Brian Bedol, Dan Gilbert, Lerer Ventures and Kepha Partners, as well as the company’s founders, all did pretty well in the deal.
For investors, selling a portfolio company to a successful pre-IPO startup is almost as good as investing directly in the pre-IPO startup to begin with. For startups, it may mean choosing the private “soft landing” option over a publicly traded acquirer, which is presumably already fairly valued by public market investors or more likely to use cash.
Put another way, if one of your portfolio companies must sell for a mediocre return, I suggest getting to know Emily, Sheila and Sid.
Conflict: Yesterday at the Code conference, Andy Rubin confirmed that his new smartphone company, Essential, wasn’t able to raise money from SoftBank’s Vision Fund because of a conflict of interest with one of the Vision Fund investors. As WSJ has reported, that investor is Apple.
This marks a shift from the tech industry’s incestuous, conflict-ridden coop-etition mode of investing to date. Take the ride-hailing market. As I wrote in January:
Everyone involved – Apple, Didi, Uber, SoftBank, Alibaba, Grab, Lyft, Ola, ARM Holdings, 99, Google, is in some way connected by investment to a competitor, a supplier, an investor or an ally. In some cases, all of the above. With the Vision Fund, this tangled web raises more questions about conflicts of interest (and even outright conflicts). It would be especially ugly if SoftBank decides to use the fund for acquisitions. I’m told Apple and the other investors will not be active LPs in the Vision Fund, which is an important distinction.
Turns out even passive investors cause conflicts. That presents a real challenge for SoftBank, which has to somehow deploy $93 billion (soon to be $100 billion) in capital commitments. Apple isn’t the only strategic (or strategic-ish) investor in the Vision Fund. Qualcomm, Foxconn, and Larry Ellison’s family office have all invested.
THE LATEST FROM FORTUNE...
• Top U.S companies urge Donald Trump to stay in the Paris climate deal.
• Intel’s new head of PC chips faces renewed competition.
• How to make electric cars go more mainstream.
• A common purpose for business.
• Uber’s $708 million loss.
• Meg Whitman says HPE has to reconsider its “tier one” business.
Wilbur Ross and the sugar barons. Restoring humanity to finance. Female venture capitalists are not more likely to invest in women. The empty storefronts of Bleecker Street. Ethics waivers. The startup offering $8,000 blood transfusions from teens to people who want to fight aging. A deal that excludes private equity.
• Tuandaiwang, a China-based peer-to-peer lending platform, raised $262 million in new funding at a $1.46 billion valuation. China Minsheng Investment Group led the round, and was joined by Beijing Yisheng Innovation Technology and Beihai Hongtai Investment. Read more.
• Bicycle Therapeutics, a U.K.-based biotherapeutics company, raised 40 million pounds ($51.4 million) in Series B funding. Vertex Ventures HC led the round, and was joined by Cambridge Innovation Capital and Longwood Fund. Existing investors Novartis Venture Fund, SROne, SVLS, and Atlas Venture participated.
• GameMine, a Los Angeles-based mobile game publisher, raised $20 million in Series A funding. Palisades Venture Capital led the round.
• Gamevice, a Simi Valley, Calif.-based maker of a gamepad controller, raised $12.5 million in Series A funding. TransLink Capital and California Technology Ventures led the round, and were joined by investors including BAM Ventures, TYLT Ventures and Kevin Chou.
• RiskRecon, a Salt Lake City, Utah-based SaaS provider of vendor security assessments and insights, raised $12 million in Series A funding. Dell Technologies Capital led the round, and was joined by F-Prime Capital Partners and General Catalyst.
• Arcadia Power, a Washington, D.C.-based company making clean and solar energy, raised $6 million in Series A funding. Energy Impact Partners led the round, and was joined by investors including BoxGroup and Wonder Ventures.
• Apptegy, a Little Rock, Ark.-based education-focused digital communication platform developer, raised $5.7 million in funding from Five Elms Capital.
• Yoobic, a London-based provider of an enterprise app for retailers to monitor in-store operations, raised $5.3 million in Series A funding. Felix Capital led the round.
• Concord, a San Francisco-based contract management platform, raised $3.7 million in funding. Alven Capital led the round, and was joined by Streamlined Ventures and Cota Capital.
• Julie Desk, a Paris-based AI virtual assistant startup, raised €2.5 million ($2.8 million) in new funding, according to TechCrunch. Investors include SIDE Capital, Entrepreneur Venture, and SAAS Lab. Read more.
• TRVL.com, an Amsterdam-based peer-to-peer travel booking platform raised $2.7 million in funding from undisclosed investors.
• eVisit, a Gilbert, Ariz.-based telemedicine software startup, raised $2 million in funding. Investors include Kickstart Seed Fund, Arizona Founders Fund, and Jeremy Andrus.
• Hubble, a London-based office space rental startup, raised £1.2 million ($1.5 million) in new funding, according to TechCrunch. Firestartr led the round, and was joined by 500 Startups, Maxfield Capital, and Concrete. Read more.
HEALTH AND LIFE SCIENCES DEALS
• Bright Health, a Minneapolis, Minn.-based health insurance product provider, raised $160 million in a Series B funding. Greenspring Associates led the round, and was joined by investors including Greycroft Partners, Redpoint Ventures and Cross Creek Advisors. Existing investors New Enterprise Associates, Bessemer Venture Partners and Flare Capital Partners participated.
• InventisBio, a Shanghai-based biotechnology company, raised $19 million in Series B funding. OrbiMed Asia Partners led the round, and was joined by Lilly Asia Ventures.
• Hyalex Orthopaedics, a Boston-based medical device startup, raised $16 million in Series A funding. Canaan Partners led the round, and was joined by Osage University Partners and Johnson & Johnson Innovation.
• Inthera Bioscience, a Switzerland-based biopharmaceutical company, raised 9.6 million euros ($10.7 million) in Series A funding. Investors include Merck Ventures, Aglaia BioMedical Ventures and Novo Seeds.
• Alesi Surgical Limited, a U.K.-based provider of minimally invasive surgery technologies, raised 6 million euros ($6.7 million) in funding. Investors include Panakes Partners, Earlybird Venture Capital, IP Group plc and Finance Wales Limited.
PRIVATE EQUITY DEALS
• Apax Partners agreed to to acquire 3M’s (NYSE: MMM) electronic monitoring business, part of 3M’s Traffic Safety and Security Division, for $200 million.
• PRO EM Party & Event Rentals, which is backed by Dos Rios Partners, acquired Partytime-HDO Productions, a Niles, Ill.-based events-focused tenting, flooring, lighting and fabric design provider. Financial terms weren’t disclosed.
• SK Capital Partners acquired a majority of Tri-Tex Co, a Canada-based specialty chemicals manufacturer, through a recapitalization. Financial terms weren’t announced.
• SK Capital Partners acquired D.B. Western Inc – Texas, a LaPorte, Texas-based technology-driven producer of formaldehyde and derivatives. The company will be renamed Foremark Performance Chemicals. Financial terms weren’t announced.
• Charter Communications (NasdaqGS:CHTR) rejected an acquisition offer from Verizon (NYSE:VZ), according to the New York Post. The offer, which was valued at more than $100 billion, was reportedly turned down because it was too low and Charter was not ready to sell. Read more.
• Japan’s SoftBank Group Corp (TSE:9984) will let the $14 billion merger between OneWeb, an Arlington, Va.-based satellite startup, and peer Intelsat SA (NYSE:I) fall through, after failing to get enough of Intelsat creditors to back it, according to Reuters. Read more.
• PPG Industries (NYSE:PPG) will not launch a formal bid for Dutch rival Akzo Nobel (ENXTAM:AKZA) after repeated informal offers were rejected, according to Reuters. In April, PPG had proposed a takeover deal then worth about 26.3 billion euros ($29.5 billion), or 95 euros per share. Read more.
• Cowen Inc. (NASDAQ:COWN) acquired Convergex Group, a New York-based brokerage and trading-related services provider, for $100.7 million.
• Aquiline Capital Partners acquired OSG Billing Services, a Ridgefield Park, N.J.-based billing and customer communications provider.
• TEGNA Inc. completed the previously announced spin-off of Cars.com, creating two publicly traded companies: TEGNA (NYSE:TGNA), a media company; and Cars.com (NYSE:CARS.WI), a digital automotive marketplace.
• Infor acquired Birst, a San Francisco-based cloud business intelligence and analytics platform. Financial terms weren’t disclosed.
• Stitch Fix, a San Francisco-based internet clothing retailer, has hired Goldman Sachs and J.P. Morgan for an IPO, according to people familiar with the matter to Reuters. The first e-commerce IPO in two years, Stitch is going for an offering that would value it at between $3 billion to $4 billion. Its backers include Benchmark, Baseline Ventures, and Lightspeed Capital. In 2016, the company posted sales of $730 million, and its third year of profitability.
• Byline Bancorp, a Chicago-based financial firm filed for an IPO to raise $75 million Wednesday. The company had 57 bank branches and $2.2 million in loans and leases by the end of 2017’s first quarter. Pre-offering, MBG Investors I holds nearly 47% of the bank, ECR Holdings with 8%, and Fambeck Servicios Financieros del Exterior with 7%. Bank of America and Keefe Bruyette and Woods are acting as joint bookrunners of the deal. Specifics of the deal have yet to be disclosed. The company plans to list on the NYSE under “BY.”
• Esquire Financial, a Jericho, New York-based bank, is seeking an IPO of $40.5 million. Sandler O’Neill is the lead underwriter. The company held a loan portfolio worth $289.5 million by the end of 2017’s first quarter, and has no branches. Gapstow Capital Partners’ CJA Private Equity Financial Restructuring Master Fund I, LP holds 9.8% of the company pre-offering, and Wolfson Equities holds about 6.3%. Specifics of the deal have yet to be disclosed. The company plans to list on the Nasdaq under “ESQ.”
• Allied Irish Banks, whose collapse helped push Ireland into bailout territory in 2010, will be at the center of one of the largest U.K. IPOs in the past 20 years, according to the Financial Times. Ireland’s Department of Finance revealed that it would sell roughly 25% of the bank, which was nationalized seven years earlier. More details on the IPOs pricing are expected to come mid-June.
• Silver Oak Services Partners, sold iSystems Intermediate HoldCo, a Burlington, Vt.-based HR software developer, to Asure Software (NASDAQ:ASUR). The aggregate consideration transaction was $55 million.
• Lariat Partners sold WestFeeds, a Billings, Mont.-based animal feed and nutritional products company, to Ridley USA. Financial terms weren’t disclosed.
• Trive Capital sold AGM Automotive, a Troy, Mich.-based automotive interior products developer, to Flextronics International USA Inc. Financial terms weren’t disclosed.
• Seaboard Folding Box Company, a portfolio company of Charter Oak Equity, has acquired Imperial Packaging, a Pawtucket, R.I.-based maker of folding cartons, packers, tags and inserts. Financial terms weren’t disclosed.
FIRMS + FUNDS
• CVC Capital Partners, a U.K.-based private equity firm, raised 16 billion euros ($18 billion) for its flagship fund, Fund VII.
• Eurazeo, a Paris-based private equity and venture capital firm, has launched Eurazeo Brands, which will invest in American and European consumer brands. The firm has allocated $600 million to $800 million for investments for the next three to five years. Eurazeo Brands has named Jill Granoff as CEO.
• Abris Capital Partners, Warsaw, Poland-based private equity firm, raised €225 million ($252 million) in funding for its third buyout fund.
• Richard Kim joined FIRSTavenue as a principal. Previously, Kim was at Heungkuk Securities.
• Kevin Bitterman joined Atlas Venture as a partner. Previously, Bitterman was at Polaris Partners.
• Epiris promoted Owen Wilson and Ian Wood to investment partners. Nicola Gray has been promoted to investment director.
• Grace Kim joined Pine Brook as a principal on its investor relations team. Previously, Kim was at Arsenal Capital Partners.