Hello, Erin Griffith here filling in while Dan is out for the next two weeks. Please direct your announcements, feedback and insights to me here: firstname.lastname@example.org or on Twitter: @eringriffith.
Some notes to kick off your Wednesday:
• Fortune’s recent cover story, penned by Allan Sloan, titled “Positively un-American,” took a critical stance—to put it mildly—on tax inversion deals by American corporations. In short, the U.S. is poised to lose $19.5 billion in tax revenue by 2024 at the current rate of corporations moving their tax bases overseas. As a result of the story, Sloan was invited to testify before the Senate Committee on Finance yesterday. You can read his entire testimony at Fortune.com, but here are a few choice excerpts:
I consider inversions to be a threat not only to the public fisc, but to the public psyche. … One of the things I find most disconcerting about inversions is that many people aren’t scared of them enough. These are something entirely different from the tax dodges I’m going to describe in a bit. They’re different from the income-shifting games that companies like Apple and Caterpillar play that have gotten so much attention. Inversions have the potential to totally undermine the corporate tax system, because we’re beginning to see the dynamic change from “what’s an inversion?” to “sign me up.”
We’ve now got a tidal wave of inversions—or we will have them unless the people at the podium in this room and your colleagues do something about it. Quickly. Inversions beget inversions, both for competitive reasons and because there’s now a critical mass of players such as corporate raiders (who like to call themselves “investor activists”) who care only about getting a stock’s price up today; investment bankers who get fees from these deals; and all sorts of hangers-on.
Sloan isn’t alone in this sentiment — a number of members of Congress offered strong opinions, even calling inversions “a virus.” CEOs from several companies in the process of inverting were invited to testify, but none did. Two more quick notes on the topic:
(1) The auction for GlaxoSmithKline’s mature and off-patent drugs is being touted as attractive to U.S. drugmakers because of its potential to become a tax inversion deal. Inversions are driving M&A.
(2) On a panel at Fortune’s Brainstorm tech conference last week, Silver Lake Managing Partner Mike Bingle weighed in on inversions: “There’s definitely a sense of agita and nervousness that, if more and more companies pursue that strategy, the window may close and you’re going to feel bad,” he said.
• Illiquid Till Exit: Sure, startups face compliance and cap table issues when they open up the secondary share sale floodgates, as I outlined in my column Monday. Beyond that, reader Nick alerted me to another thorny, little-known tax issue that comes up. It doesn’t surface until years later, when the companies start turning a profit. Share sales at astronomical valuations can come back to haunt a startup. He writes:
If you have a greater than 50% aggregate ownership change over a rolling three year period, then section 382 of the Internal Revenue Code essentially limits the use of your net operating loss (NOL) carryforwards.
In other words, you can wipe away taxes paid on profits in one year if you’ve operated at a loss in years prior. But if you’ve sold more than half of your stock in the last three years, you don’t get to take those losses. That means higher taxes for tech and pharma startups that generate huge losses in early years. Nick again:
This is a somewhat circular problem because the free cash flows of the business drive the valuation (at least in part). Therefore, high future cash taxes = less future free cash flows = lower valuations. No one knows tax, so there is not a chance in hell the 22-year-old modeling out projected future income is factoring this into their valuations.
• Conflicting stories: Just so you don’t think Term Sheet only covers taxes, here’s some splashy startup M&A talk. Google has considered buying Spotify, the Wall Street Journal reports, according to one source. But talks broke down on price — Google was looking at a potential buyout of a foreign company for $4 billion to $5 billion, WSJ writes, but Spotify wanted $10 billion.
Wait wait, actually no, Google has not considered buying Spotify, Recode reports, according to several sources. “Never a price, never a negotiation, never anything.” Okay! Either way, the move would be a curious one for the search giant: Google has been working on a music streaming service within its YouTube division. Although — the plot thickens — Chris LaRosa, the YouTube exec in charge of the music service, left the company this week amid delays in getting it launched.
Spotify launched in the U.S. three years ago at Fortune’s Brainstorm Tech conference. Last week, returning to the event, CEO Daniel Ek responded to the constant IPO speculation about his company, noting that “it’s not really a focus.”
“The funny thing is, we’ve been saying this in interviews for two years,” he said. “I don’t understand the quarterly capitalism of Wall Street and I don’t think its good if you’re trying to build something for the long term.”
• Clarifying: A lot of you had liked yesterday’s guest column about the changing nature of venture capital, but despite my attempt at labeling, a number of people thought I wrote it. Yesterday’s column was by Mark Suster of Upfront Ventures. Find him on Twitter here: @Msuster.
THE BIG DEAL
• CIT Group will pay $3.4 billion for OneWest Bank, a bank created in 2009 from the failed lender IndyMac. The deal will result in a more than 2x return for Steven T. Mnuchin (through Dune Capital Management), Michael Dell, George Soros, John Paulson and J.C. Flowers. www.owb.com/
VENTURE CAPITAL DEALS
• AppDynamics, a San Francisco-based provider of app analytics, raised $120 million in growth financing ($50 million of which is debt provided by Silicon Valley Bank) led by Battery Ventures, ClearBridge Investments and Sands Capital. Existing investors Greylock Partners, Lightspeed Venture Partners, Kleiner Perkins Caufield & Byers, and Institutional Venture Partners also participated. The company disclosed that its valuation is greater than $1 billion. www.appdynamics.com/
• Glow Digital Media a London-based mobile ad platform, has raised $7 million in venture funding from Notion Capital and White Star Capital, with participation from existing investors Project A Ventures and Avonmore Developments. thisisglow.com/
• Quantifind, a startup that analyzes purchase intent, raised $12 million in funding led by Comcast Ventures and Iris Capital, with participation from existing investors AME Cloud Ventures, Andreessen Horowitz, Comcast Ventures, Iris Capital, Redpoint Ventures and U.S. Venture Partners. The company has raised a total of $23 million in funding. quantifind.com/
• Taulia, a San Francisco-based loan startup, has raised $27 million in Series D funding led by QuestMark Partners with participation from existing investors including Trinity Ventures, Matrix Partners, Lakestar and DAG Ventures. The round values the company at $200 million, according to Venture Capital Dispatch. www.taulia.com/en/
• EdgeWave, a San Diego-based cybersecurity company, raised $6 million in Series A funding from TVC Capital. www.EdgeWave.com
• Global Uprising, a Cottonwood Heights, Utah outdoor supply company doing business under the name Cotopaxi, has raised $3 million in venture funding from Forerunner Ventures, New Enterprise Associates, Lerer Ventures and others. cotopaxi.com/
• Solexel, a Silicon Valley-based solar energy company, has raised $31 million in venture funding from GAF, a roofing materials company, alongside existing investors Kleiner Perkins Caulfield & Byers, Technology Partners, DAG Ventures, Gentry Ventures, Northgate Capital, GSV Capital, Jasper Ridge Partners, and Spirox. www.solexel.com/
• Yuantiku, a Bejing-based edtech startup, raised $15 million in Series C financing from existing investors Matrix Partners China and IDG. The round values the company at $125 million, according to TechNode. yuantiku.com/
• Timehop, a New York-based social media app, has raised a $10 million Series B round of funding led by Shasta Ventures with participation from Spark Capital and OATV. timehop.com/
• Supersonic, a Tel Aviv and San Francisco-based mobile advertising platform, has raised $15 million in funding led by SAIF Partners, a China-based venture firm, with participation from existing investor Greylock. The company has raised a total of $23.3 million. www.supersonicads.com/
• Canva, a Sydney-based design site, has raised $3.6 million in funding led by Founders Fund and Shasta Ventures, with participation from existing investors Matrix Partners, Blackbird Ventures, and Square Peg Capital. www.canva.com/
• Peerlyst, a San Francisco-based social network for IT professionals, has raised $3 million in venture funding led by Hummer Winblad Venture Partners and Illuminate Ventures. www.peerlyst.com/
• Synlogic Inc., a Cambridge, Mass-based biotechnology company developing ways transform microbes into therapeutics, has raised $29.4 million in a Series A round of funding led by Atlas Venture and New Enterprise Associates. www.synlogictx.com/
• Beanstalk, a Salt Lake City-based maker of tax software for small and medium-sized businesses, raised $2 million in seed funding led by New Enterprise Associates, with participation from Epic Ventures, Deep Fork Capital and Jim Engebretsen. www.beanstalkhq.com/
• FreshBooks, a Toronto-based startup makes a accounting software for small businesses, has raised $30 million in venture funding led by Oak Investment Partners with participation from Atlas Venture and Georgian Partners. The company has bootstrapped its way to 150 employees prior to this investment. www.FreshBooks.com
• Sunrise, a calendar app based in New York, has raised $6 million in Series A funding from Balderton Capital and existing investors. calendar.sunrise.am/
• LifeNexus, developer of a health information-related mobile platform called iChip, raised a Series A funding round led by private equity firm Camden Partners and strategic investors Cambia Health Solutions and Mosaic Health Solutions, Inc. ichip.com/
• TipRanks, an Israeli startup which grades the performance of financial analysts, has raised $3 million in venture funding from Eliot Spitzer, who has joined the company’s board, and other investors. www.tipranks.com/
• AvantCredit, an online lender based in Chicago, ha raised $75 million in financing led by Tiger Global Management. The company also acquired a $200 million in credit facility, bringing its total equity and debit raised to $300 million. www.avantcredit.com/
• Social Point, a Barcelona-based mobile gaming developer that is profitable and on track to surpass $100 million in revenue this year, has raised $30 million in venture funding led by Highland Capital Partners Europe with participation from existing investor Idinvest. Prior investors Nauta Capital, BBVA and “to a minor extent” the founders have sold a portion of their holdings in this round. www.socialpoint.es/
• Privacy Analytics Inc., an Ontario-based data anonymization startup, raised $3.5 million in venture funding led by Vanedge Capital, a Vancouver-based venture capital fund. www.privacyanalytics.ca
• Graphene Frontiers, a Philadelphia-based graphene technology company, has raised $1.6 million in “Series Seed B” funding led by Trimaran Capital Partners with participation from R2M Investments and WEMBA 36 Angels. graphenefrontiers.com/
• BEW Global, a Greenwood Village, Colo.-based information security startup, has raised $14 million in a new round of funding from Frontier Capital. www.bewglobal.com/
• Beehive Industries, a Lincoln, Neb.-based asset and infrastructure management software company, has raised $2.5 million in Series A financing led by Advantage Capital Partners. www.beehiveindustries.com/
PRIVATE EQUITY DEALS
• Service King Collision Repair Centers, a Dallas, Texas-based auto repair chain owned by The Carlyle Group, has agreed to sell itself to Blackstone Group. The Carlyle Group, which invested in the company in 2012 through its Carlyle U.S. Equity Opportunity Fund and Carlyle Strategic Partners Fund III L.P., will retain a minority stake. The deal is expected to close this quarter and terms were not disclosed. www.serviceking.com/
• NTE Energy, a power developer and energy services provider, has raised an investment of undisclosed size for three natural gas-fired power plants from Capital Dynamics and Wattage Finance, LLC, backed by an affiliate of Guggenheim Partners, LLC. www.nteenergy.com/
• Max Property Group, the St. Helier, Jersey-based real estate investment company, has agreed to sell its assets to Marina Topco, a real estate fund operated by Blackstone Group, for GBP 414 million ($707 million). maxpropertygroup.com/
• Fastsigns International, a Dallas, Texas-based sign company with 550 locations in the U.S., has agree to sell itself to Levine Leichtman Capital Partners for an undisclosed amount of capital. The deal marks the fourth investment from Levine Leichtman Capital Partners V, L.P. www.fastsigns.com/
• Aurelius Group, a German buyout firm, will acquire Scholl Footwear, a UK-based division of Reckitt Benckiser Group, for an undisclosed amount. In 2013, the division generated EUR 90 million ($121 million) in revenue. www.drschollsshoes.com
• Royal Bank of Scotland, the state-owned British lender, has put Ulster Bank, its Irish unit, up for sale with KKR and Blackstone circling as likely suitors, according to the Irish Examiner. The deal would value the unit at between EUR 500 million and EUR 2.5 billion ($673 million-$3.4 billion). www.ulsterbank.com/
• WH Group Ltd., a Chinese pork producer backed by CDH investments, will relaunch its IPO plans, with a listing that seeks more than $2 billion, valuing the company at $11.7 billion. The company, which acquired Smithfield Farms, previously attempted to go public with a $5 billion to $6 billion raise in April, hiring a record 29 banks to handle the process, but pulled that effort. Morgan Stanley and Bank of China International are handling the process this time. www.wh-group.com/
• Delivery Hero, a Berlin-based online food ordering site, has acquired ClickDelivery, a Bogota-based online food ordering service, for an undisclosed amount. The company had raised an undisclosed amount of funding from Axon Partners Group, netting the firm a 4x return. http://clickdelivery.com/
• Teradata, a Dayton, Ohio-based big data warehousing company, (NYSE: TDC), acquired two data software companies today: Revelytix, a Sparks, Md.-based company, and Hadapt, a Cambridge, Mass.-based company backed by Atlas Venture, Bessemer Ventures Partners and Norwest Venture Partners. Terms were not disclosed.
• LinkedIn has acquired Bizo, a San Francisco-based B2B marketing platform, for $175 million, in a deal consisting of 10% stock and 90% cash. The company previously raised at least $16 million in venture funding from Venrock, Crosslink Capital, Bessemer Venture Partners, Vulcan Capital and Ascent Venture Partners, and $12.5 million in debt financing. www.bizo.com/
• First American Payment Systems, a Fort Worth, Texas-based payment processing company, has agreed to sell itself to an investment group led by Ontario Teachers’ Pension Plan. The company was acquired by buyout firm Lindsey Goldberg in 2003. www.first-american.net/
• PetSmart Inc., a publicly traded pet store chain based in Phoenix, Arizona, has retained JPMorgan Chase to evaluate sale options at the behest of activist investor Jana Partners and Longview Asset Management. The company is anticipated to attract offers from private equity firms. www.petsmart.com/
FIRMS & FUNDS
• Centerbridge Partners LP, is raising $5.75 billion for distressed investments and corporate buyouts for its third fund, Centerbridge Capital Partners III LP, according to Bloomberg. The effort follows Centerbridge’s second fund, a $4.4 billion vehicle raised in 2011. www.centerbridge.com/
• VTTI Energy Partners LP, a UK-based owner and operator of crude oil and refined product terminals, set the terms of its IPO. The company will raise $350 million, selling 17.5 million units in the $19 to $21 range, valuing it at $821 million at the midpoint. The company was formed by Vitol Tank Terminals International. www.vtti.com
• JPMorgan Chase is in talks to sell half of its private equity arm’s $4.5 billion in assets, operating under the buyout arm One Equity Partners, to Lexington Partners and The Carlyle Group’s AlpInvest Partners, according to several reports. Earlier this month, One Equity Partners announced it would raise capital for its next fund independently of the bank. www.oneequity.com/
• Sofinnova Ventures, a Menlo Park-based biotech venture firm, closed Sofinnova Venture Partners IX, L.P. at its hard cap of $500 million in commitments. http://
MOVING IN, UP, ON & ON
• Grace Rhee Kim has joined Arsenal Capital Partners as a principal in investor pelations. Previously Kim was a principal of business development at Providence Equity Partners. http://www.arsenalcapital.com/
• Jesse Krynak, and David McFarland have been promoted to Vice President at First Reserve. Each joined the Houston-based firm in 2010. https://www.firstreserve.com/
• Susan Bihler has been promoted to vice president at New York-based growth equity firm Catalyst Investors. She joined the firm in 2009. www.catalystinvestors.com/
• Ed Arulanandam has joined Blue Water Energy as a senior member of the investment team, from his prior post at Riverstone Holdings, according to LBOWire. www.bluewaterenergy.com/