October 24, 2016
Random Ramblings

The presidential election is just two weeks away, the Chicago Cubs made the World Series (versus Cleveland, no less) and the biggest national headlines this past weekend were about something else entirely: AT&T agreeing to buy Time Warner for $85.4 billion.

For now, let's leave aside all the lazy talk about how this is destined to become AOL-Time Warner Part Duex, just because it's a mega-merger involving Time Warner and a distribution+content thesis. This thing might also prove to be a colossal mess but, if so, it's unlikely to be for the same reasons (namely the obscene overvaluation of AOL just before dial-up died and the broader dotcom bubble burst).


Instead, here are some notes from sources familiar with the deal:

Origin story: AT&T CEO Randall Stephenson has long said privately that if he could buy any company, it would be Time Warner (he considered Disney to be too big a bite). And that interest was only elevated by AT&T's prior purchase of DirectTV, which gave AT&T additional delivery pipes without a steady flow of proprietary content. So AT&T contacted Time Warner back in August, with Dallas-based Stephenson flying to New York City to meet with Time Warner CEO Jeff Bewkes. This was also a 1:1 proprietary deal, rather than an auction process.

Why now? We're not supposed to be talking about this deal today. The companies originally were on track to finalize their agreement shortly after the election, which would have saved them this past weekend's stump scrutiny (Trump, for example, said the deal must be blocked ― while Tim Kaine expressed serious reservations). But then came a Bloomberg leak last Thursday, which caused the two companies to rapidly accelerate their time table.

Regulatory risk: Yeah, it's huge. The two companies are expressing all sorts of confidence about how they don't really have overlapping businesses, but here's how you know they're actually worried: AT&T only has to pay $500 million to Time Warner if regulators block the deal. This is the same AT&T that agreed paid Deutsche Telekom a whopping $4 billion when that $39 billion deal collapsed under regulatory pressure -- explicitly because it had so few concerns that such pressures would be brought to bear. You could certainly argue 'once bitten twice shy' here, but could also say that this smaller termination fee reflects some real fears.

Applause? Bewkes has been getting kudos for the deal, given that he spurned an $85 per share takeover offer two years ago from 21th Century Fox (AT&T is paying $107.50 per share, whereas 21st Century hinted it would go as high as nearly $100). But my Fortune colleague Steve Gandel says the applause is undeserved. From Steve: "Bewkes spent the past two years buying back stock, reducing the share count from around 894 million shares two years about to just under 800 million shares today. That's why Time Warner shareholders are getting a higher per share price in the AT&T deal. The "extra" $7.50 a share Time Warner shareholders are getting translates into an additional $5.9 billion in value, but Bewkes spent around $10 billion buying back stock. Not to mention the fact that Time Warner's earnings basically went no where over those two years, and so did its stock, while the market climbed 8% higher. Boo!"

Next? This deal is expected to take a couple of years to get done (again, assuming it does get done), but it shouldn't take that long for M&A reverberations. Expect lots of smaller distribution+content deals, albeit not necessarily in the same direction (could Disney/Netflix reemerge?).

New fund alert: Initialized, the seed-stage venture firm led by former Y Combinator partner Garry Tan, has quietly closed on $102 million for its new fund compared to its $100 million target (and has hard commitments for $115 million hard cap).

It also has added Alina Libova - who previously led tech investments for Tamares Group -- as a general partner alongside Reddit co-founder Alexis Ohanian (who is less day-to-day on Initialized than either Tan or Libova). Initialized also includes new marketing partner Kim-Mai Cutler, who also plans to remain as an occasional contributor to TechCrunch.

Tan says that the difference between Initialized and other seed and early-stage firms is a focus on initial build rather than broader scale. "There are lots and lots of great VCs out there who can help bring a company from 20 employees to 2,000 employees, which is incredibly important. But, with both me and Alexis having been YC partners, our whole bread-and-butter is helping a company go from zero employees to 20… It's that nine-to-18 month gap in which founders have to graduate from seed to Series A, where so many of them die."

Getting there: Questa Capital Management, a healthcare VC and growth equity firm launched late last year by Ryan Drant (ex-NEA) and Bradley Sloan (ex-Parthenon Capital), disclosed in an SEC filing that the target for its debut fund is $250 million. It doesn't list any amount sold, but word is that Questa already has held a first close on more than $100 million.

Publishing note: Tomorrow will be the final Term Sheet written by yours truly. So we'll have a bunch to discuss...

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 Eaze, a San Francisco-based on-demand platform for medicinal marijuana, has raised $13 million in Series B funding from Fresh VC, DCM and Tusk Ventures. Read more.

 Nozomi Networks, a Menlo Park, Calif.-based provider of cybersecurity and operational visibility for industrial control systems, has raised $7.5 million in Series A funding. GGV Capital and Lux Capital co-led the round, and were joined by return backer Planven Investments.

Honeycomb, a UK-based TV and video ad management platform, has raised £3 million in Series A funding led by Beringea. Read more.

Joymode, a Los Angeles-based rental platform for "experience" items (camping tents, etc.), has raised $3 million in VC funding. Homebrew led the round, and was joined by Collaborative Fund, Lowercase Capital, Founders Collective, TenOneFund, Slow Ventures, Sherpa Capital and individual angels like Scott Belsky and Emil Michael.

Weengs, a UK-based packaging and shipping service for small retailers, has raised £2.2 million in VC funding. Backers include LocalGlobe, Seedcamp and Cherry Ventures. Read more.


 Advent International has completed its previously-announced acquisition of Fort Dearborn Co., an Elk Grove, Ill.-based provider of prime labels for the consumer goods industry, from KRG Capital Partners. No financial terms were disclosed, although earlier media reports suggested an $800 million price-tag.

American Midstream Partners LP (NYSE: AMID) has agreed to acquire JP Energy Partners LP (NYSE: JPEP) for $8.63 per common unit (14.5% premium to Friday's closing price). The combined Houston-based midstream energy company would be valued at around $2 billion. ArcLight Capital Partners holds stakes in both companies. Read more.

Boston Logic, a Boston-based SaaS platform for real estate brokerages, has raised an undisclosed amount of growth equity funding from Providence Strategic Growth.

Cinven has completed its previously-announced $1.4 billion purchase of Bioclinica, a Newtown, Penn.-based provider of clinical trial services and technology to contract research organizations and drug companies, from JLL Partners and Water Street Healthcare Partners.

EQT Partners has agreed to acquire a majority stake in Utimaco GnbH, a German provider of cybersecurity and compliance solutions, from Pinova Capital, BIP Investment Partners and company management. No financial terms were disclosed, except that Utimaco generates around €40 million in annual revenue.

EQT Partners has completed its previously-announced take-private acquisition of Press Ganey Holdings, a South Bend, Ind.-based healthcare performance improvement company, for about $2.35 billion.

 French Connection Group (LSE: FCCN), a UK-based fashion retailer, has received takeover interest from Neuberger Berman and a mix of European and U.S. private equity firms, according to The Telegraph. Read more.

Genesys Aerosystems, a Mineral Wells, Texas-based provider of avionics systems for military and civil aircraft, has raised an undisclosed amount of private equity funding from McNally Capital.

Greenbriar Equity Group has acquired Frauscher Sensor Technology, an Austria-based provider of train tracking solutions for the global railway signaling industry. No financial terms were disclosed.

HomeVi SAS, a French portfolio company of PAI Partners, has agreed to acquire Spanish elder care company SARquavitae from Palamon Capital Partners. No financial terms were disclosed, except that Palamon said the sale represented a 3x return and around €140 million in proceeds for its investors.

Hoover Container Solutions, Ferguson Group, and CHEP Catalyst & Chemical Containers, three providers of container solutions products in the energy, petrochemical, and general industrial markets, have completed their previously-announced merger. The resulting company is called HooverFerguson Group, and will be 50/50 owned by Brambles Ltd. (owner of Ferguson and CCC) and private equity firm First Reserve (owner of Hoover). No financial terms were disclosed.

KKR and Mid Europa Partners have teamed up to bid on a group of Eastern European beer brands being sold by Anheuser-Busch InBev, according to Reuters. The portfolio, which includes Pilsner Urquell in Czech Republic and Tyskie and Lech in Poland, also may receive bids from Advent International and Asian brewers Asahi Group and China Resources. Read more.

LDiscovery LLC, a McLean, Va.-based provider of e-discovery services, has agreed to acquire Eden Prairie, Minn.-based Kroll Ontrack from Kroll Inc. for approximately $410 million in cash. LDiscovery is a portfolio company of The Carlyle Group and Revolution Growth.

PaySimple, a Denver-based provider of payment and business service software, has secured a $115 million investment from Providence Strategic Growth. Part of the proceeds were used to cash out existing PaySimple shareholder Susquehanna Growth Equity. Read more.

Rubicon Oilfield International, a Houston-based portfolio company of Warburg Pincus, has acquired all outstanding shares of Logan International Inc. (TSX: LII), a Calgary-based provider of oilfield intervention and production tools, for around C$54 million.

Warren Equity Partners has acquired a majority stake in IPC Lydon LLC, an Avon, Mass.-based provider of maintenance, repair and upgrade services to the material handling, power generation, wastewater treatment and general industrial markets. No financial terms were disclosed. Seller Jay Cashman Inc. will retain a "significant" minority equity stake.

Water Street Healthcare Partners has invested in The Access Group, a Berkeley Heights, N.J.-based provider of healthcare communications and consulting services. No financial terms were disclosed.


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 J.W. Childs has agreed to sell Esselte Group Holdings, a European office products company, to ACCO Brands Corp. (NYSE: ACCO) for $333 million in cash.

Platinum Equity has agreed to sell Mactac Americas LLC, a Stowe, Ohio-based maker of pressure-sensitive labels, to Lintec Corp. (Tokyo: 7966) for approximately $375 million.


 Netflix (Nasdaq: NFLX) plans to launch an $800 million senior note offering, primarily to acquire and develop content assets. Read more.

 Rockwell Collins (NYSE: COL) has agreed to acquire Florida-based aircraft interiors maker B/E Aerospace (Nasdaq: BEAV) for $62 per share in cash and stock, or a total of $8.3 billion (including $1.9b in assumed debt). Read more.

 SS&C Technologies Holdings Inc. (Nasdaq: SSNC) has acquired Salentica, a Toronto-based provider of CRM solutions. No financial terms were disclosed.

 TD Bank (TSX: TD) and TD Ameritrade Holding (Nasdaq: AMTD) have agreed to acquire Scottrade Financial Services, a St. Louis-based online brokerage and bank, for approximately $4 billion. Read more.


 Francisco Partners has closed its first "Agility Fund," a private equity vehicle targeting smaller tech deals, with $600 million in capital commitments.


 5AM Ventures, a life sciences-focused VC firm, has made several new hires: David Allison (ex-Versant Ventures) as a principal, Joe Victor (ex-CEO of Startide Sciences) as a venture partner and Rebecca Lucia (ex-Prospect Venture Partners) as chief financial officer.

 Baochi Nguyen has joined IDG Ventures USA as VP of marketing. She previously served as interim VP of marketing at both Simply Hired and Krux Digital, before which she led social strategy for RingCentral.

Federico Pena, a Wells Fargo board member and chair of the firm's corporate responsibility committee, has resigned as an advisor to private equity firm Vestar Capital Partners, in the wake of Wells Fargo's fake accounts scandal. Read more.

 Lydia Xu has joined Baird as a managing director and head of China investment banking. She previously was a managing director with BDA Partners.

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