This morning's big news is that The Blackstone Group has decided to spin off its M&A and restructuring advisory business into a separate, stand-alone public company that will be led by former Morgan Stanley banker Paul Taubman. More specifically, it will be merged into PJT Partners, an independent boutique that Taubman launched several years ago, but which he only really began staffing up this past summer. Also included in the spin will be Blackstone's fundraising unit, Park Hill Group (which raises funds both for Blackstone and third-party managers).
I'm still trying to digest this, while also trying to determine if I should split this newsletter into separate publications called Term and Sheet (I'm a sucker for the latest fashion). But some initial notes:
1. It is important to realize that Blackstone wasn't an investment firm that later branched into M&A advisory. It began life as an M&A advisory, which later branched into investing. Perhaps that helps explain why none of its rivals -- including publicly-traded ones like Carlyle and KKR -- ever expanded into the M&A advisory business.
2. The primary explanation by Blackstone for the split is that the M&A business had been hampered by potential conflicts of interest with the investment side, even though the firm has historically taken great pains to say that appropriate firewalls are in place. My former colleague Katie Benner wrote a few hours before the formal announcement that a split could make sense because Blackstone's advisory business is growing much more slowly than is the rest of Blackstone (despite the recent M&A boom), with a 14.6% gain last year compared to the overall firm's 63.9% growth. Seems to me that these two rationales are in sync with one another.
3. Why now? The inherent conflict between M&A and investing has always been present at Blackstone (for example, Blackstone's restructuring group wasn't even allowed to bid for the Lehman business), but it has been exacerbated in recent years by the accelerated growth of GSO Capital Partners and the formation of Blackstone's $5 billion Tactical Opportunities program. More and more, advisory was being told it couldn't try for certain business because GSO or Tac Opps might seek to participate on the buyside.
4. Blackstone shareholders, led by Steve Schwarzman, will hold a 65% stake in the new company, once the spin is finalized (expect that to occur in Q1 2015). The Blackstone advisory biz generated $380 million for the year ending 6/30/14 (excluding related capital markets revenue).
5. The new firm will not have any restrictions on its future ability to launch an investment program of its own, and such a move would not be surprising to Blackstone. There also is no scheduled share sale plan for Blackstone execs, when it comes to divesting of stock in the new firm.
6. Blackstone did not attempt to bring Taubman in house.
7. In a voicemail to Blackstone staffers, Schwarzman told them that successful firms like theirs are sometimes are victims of their own success, and the success of their investment areas.
• Personnel scoop: Brian McLoughlin has quietly stepped down as a partner with Los Angeles-based venture capital firm Upfront Ventures. His last day was Wednesday.
McLoughlin had been with Upfront since 2002 (when it was still known as GRP Partners), with a focus on financial technology companies. His next job will be as a venture partner with Fintech Collective, a New York-based firm that focuses on seed and early-stage investments in the financial services industry. He also will serve as a special advisor to Thayer Street Partners, with a focus on later-stage financial tech and enterprise SaaS opportunities.
Upfront currently is investing out of a $200 million fund raised last year, on which McLoughlin was one of four general partners. It appears that he has been replaced as a GP by Greg Bettinelli, who joined the firm last year as a venture partner but became a fulltimer in early 2014. The firm’s other three partners are Mark Suster, Steven Dietz and Yves Sistrron. In an email to friends and colleagues, McLoughlin wrote: “I remain a good friend of Upfront Ventures and continue to be an investor in the Upfront funds.”
• Strange bedfellows: Carl Icahn resumed two of his favorite pastimes yesterday: Advocating for an Apple share buyback and insulting Marc Andreessen. In terms of the latter, it seems Icahn hasn't yet moved beyond his accusations earlier this year that Andreessen was self-dealing when it came to eBay's partial spinoff of Skype. Or maybe he simply didn't like that Andreessen had referred to him as an "evil Captain Kirk" the prior day on CNBC.
Either way, Icahn said of the venture capitalist: "Andreessen, he's screwed more people than Casanova... Yet, he goes and he takes this attitude that he's on the high moral ground and he just is as annoying as hell, to me, that a guy like that is still on this board after what the hell he did at Skype."
What's kind of fascinating to me is that Icahn's argument on Apple is that the company is underpriced, based on P/E ratios. It's almost the exact same argument Andreessen and some of his colleagues have been making about the tech market at large, when arguing against the idea of a tech valuation bubble.
As for the 'Casanova' dig, Andreessen declined to respond. For now...
• VC valuation #1: Yesterday’s largest VC deal was that Peel, a Mountain View, Calif.-based smart remote control app, had raised $50 million in Series D funding from Alibaba Group. VC Experts dug up the Delaware filings, which show that the valuation was north of $400 million (which is more than 3x the company’s Series C round valuation).
• VC valuation #2: One of the largest VC deals from Wednesday was that Blockchain, a UK-based Bitcoin wallet provider, had raised $30.5 million in funding led by Lightspeed Venture Partners and Wicklow Capital. Word is that it was a highly-competitive round where the post-money was in the ballpark of $150 million. As one source said: “Everyone with an interest in Bitcoin who wasn’t already in Coincase or Xapo wanted to lead it.”
• Deal Data: Global M&A activity now totals $2.8 trillion so far in 2014, which is up 58% over YTD 2013, according to Thomson Reuters. This includes more than $100 billion for the healthcare equipment sector, which is its highest-ever YTD tally. Global private equity activity is at $435.2 billion (up 51%), while U.S. private equity activity is at $207 billion (up 32%).
• In memoriam: George Reichenbach, managing partner of Braemar Energy Ventures and an initial partner with Advent International, passed away on Monday at the age of 85. A very smart and generous man who continues to champion investments in the cleantech sector long after the tourists had moved on. A memorial service will be held today at 2pm, at the Trinitarian Congregational in Concord, Mass. In lieu of flowers, his family asks that gifts in his memory be sent to the Carlisle Conservation Foundation, P.O. Box 300, Carlisle, MA 01741. Rest in peace George.
• Correction: In yesterday's column on public pensions investing in alternatives, I incorrectly stated the S&P 500's gain between 7/1/13 and 6/30/14. The accurate figure is 21.38%. I had used 16.99%, which was for the S&P 1500. Apologies. In context of the piece, New Jersey's private equity performance bested both of them.
ar ending June 30, 2014. That trailed the S&P 500 for the same period, which came in at 16.99%. But that alternatives nu
• Have a great weekend... Go Pats!
THE BIG DEAL
• Symantec (Nasdaq: SYMC) announced that it will split its data storage business from its cyber-security arm, forming a pair of publicly-traded companies. Read more.
VENTURE CAPITAL DEALS
• BitFury Group, a Bitcoin infrastructure and transaction processing company, has raised $20 million in VC funding. Backers include Bill Tai, Bob Dykes and existing shareholder Georgian Co-Investment Fund. www.bitfury.org
• MyHealthDirect, a Nashville, Tenn.-based provider of healthcare appointment booking solutions, has raised $8 million in new equity and debt funding. The equity came from existing investors Chrysalis Ventures and Arboretum Ventures, while the debt came from Ares Capital Corp. www.myhealthdirect.com
• Totspot, a Mountain View, Calif.-based social marketplace for buying and selling used children’s fashion, has raised $1.8 million in seed funding led by GGV Capital. www.totspot.me
• BizEquity, a Wayne, Penn.–based online provider of business valuation services, has raised $5.1 million in VC funding from Frost Brooks. www.bizequity.com
• 10 Minutes With, a London-based career matchmaking platform for recent graduates, has raised $4 million in new VC funding. No investor identities were disclosed. www.10minuteswith.com
• Zenedge, a San Jose, Calif.-based provider of web application security infrastructure, has raised $3.5 million in Series A funding. Backers include Yehuda Neuberger, Fred Sorkin and Andrew Malik. www.zenedge.com
• BrightFunnel, a San Francisco-based predictive analytics cloud for B2B marketers, has raised $2.5 million in seed funding. Backers include Resolute Ventures, Bloomberg Beta, Crosslink Capital and Tekton Ventures. www.brightfunnel.com
• mParticle, a New York-based mobile data platform, has raised $1.5 million in new seed funding. Backers include Battery Ventures, Harbinger Capital and return backer Bowery Capital. The company previously raised $4.5 million from Bowery, Google Ventures and Greylock Partners. www.mparticle.com
PRIVATE EQUITY DEALS
• Aquiline Capital Partners has agreed to acquire a majority stake in Worley Claims Services, a Hammond, La.–based provider of claims adjustment and related services. No financial terms were disclosed. Sellers include Seaport Capital. www.aquiline-llc.com
• Channel Technologies Group, a portfolio company of Blue Wolf Capital Partners, has acquired Materials Systems Inc., a Littleton, Mass.-based maker of piezecomposite sonar transducers and arrays for defense and commercial customers. No financial terms were disclosed. www.channeltechgroup.com
• CVC Capital Partners and KKR have been joined by Brazilian food maker BFR in their joint bid for Kuwait Food Co., according to Bloomberg. The final deal could be valued at around $4.3 billion, with BFR reportedly interested in Kuwait Food’s food manufacturing unit. Read more.
• Veritas Capital has completed its previously-announced $310 million acquisition of BeyondTrust Software Inc., a Phoenix-based provider of account management and vulnerability management software. Sellers include Insight Venture Partners and Blue Cloud Ventures. www.beyondtrust.com
• Dave & Buster's, a Dallas-based restaurant and arcade chain owned by Oak Hill Capital Partners, raised $94 million in its IPO. The company priced 5.88 million shares at $16 per share (low end of $16-$18 range), for an initial market cap of approximately $625 million It will trade on the Nasdaq under ticker symbol PLAY, while Jefferies and Piper Jaffray served as lead underwriters. Dave & Buster’s reports around $2 million in net income on $636 million in revenue for its fiscal year ending Feb. 2, 2014, compared to $9 million of net income on $608 million in revenue for the year-earlier period. It previously filed for an IPO in 2011 (withdrawn in October 2012), and earlier this year sought buyers in a failed auction process. www.daveandbusters.com
• Diplomat Pharmacy Inc., a Flint, Mich.-based specialty pharmacy focused on customers with chronic diseases, raised $173 million in its IPO. The company priced 13.3 million shares at $13 per share (below $14-$16 range), for an initial market cap of approximately $656 million. It will trade on the NYSE under ticker symbol DPLO, while Credit Suisse and Morgan Stanley served as lead underwriters. The company reported $1.7 million of net income on $466 million in revenue for Q1 2014. Shareholders include Janus Funds and T. Rowe Price. www.diplomat.is
• Advantage Partners has hired Citigroup to find a buyer for its control stake in Teleguam Holdings LLC, a telecom and pay-TV provider in Guam, according to Reuters. The deal could be valued at more than $300 million. www.gta.net
• RoundTable Healthcare Partners has agreed to sell Tower Holdings Inc. to Impax Laboratories Inc. (Nasdaq: IPXL) for $700 million in cash. Tower is the parent company of CorePharma, a Middlesex, N.J.-based developer and manufacturer of “complex branded and generic pharmaceutical products with high barriers to entry.” www.roundtablehp.com
• Vision Capital has agreed to sell Fletchers Group, a UK-based group of bakeries, to Finbury Food (AIM: FIF) for approximately £56.0 million. www.fletchersbakeries.co.uk
• Auxilium Pharmaceuticals (Nasdaq: AUXL) has accepted a sweetened $2.4 billion takeover offer from Endo International (Nasdaq: ENDP). Auxilium previously had agreed to acquire Canadian biotech company QLT Inc. (Nasdaq: QLTI) in a tax inversion transaction, but that transaction has now been terminated. www.auxilium.com
• Kindred Healthcare Inc. (NYSE: KND) has agreed to acquire Gentiva Health Services Inc. (Nasdaq: GTIV) for approximately $1.8 billion (including assumed debt), or $19.50 per share in cash and stock. This represents around a 50% premium to Kindred’s original offer for Gentiva, an Atlanta-based provider of home healthcare and hospice services. Read more.
• Norges Bank Investment Management, Norway’s sovereign wealth fund, has acquired London’s Bank of America Merrill Lynch Financial Centre from Singapore’s GIC for £582.5 million.
• Time Warner Cable (NYSE: TWC) shareholders have approved the company’s pending $45 billion case to Comcast (Nasdaq: CMCS). The transaction still requires regulatory approval.
FIRMS & FUNDS
• The Cambridge Retirement System, the $1.1 billion public pension system for Cambridge, Mass., has voted to increase its private equity allocation to 9%, according to Dow Jones. It previously was at 7.5%, which also included a timber allocation. www.cambridgeretirementma.gov
• Landmark Partners has acquired a portfolio of LP stakes in private equity funds from the Lehman Brothers bankruptcy estate, according to peHUB. The portfolio is valued at between $500 million and $600 million. Read more.
• Linden LLC, a Chicago-based private equity firm, has begun talking to LPs about a third fund that could be targeted at between $500 million and $600 million, according to peHUB. www.lindenllc.com
MOVING IN, UP, ON & OUT
• Philip Bassett is stepping down as Permira's head of investor relations at year-end, according to Private Equity International. He has been with the London-based private equity firm since 1995, and will be succeeded by deputy Chris Davison. www.permira.com
• Investcorp said that founding CEO Nemir Kirdar will retire on June 30, 2015. He will be succeeded by a three-person chief executive team: Mohammed al-Ardhi, Mohammed al-Shroogi and Rishi Kapoor. www.investcorp.com
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