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Term Sheet — Thursday, December 4

Random Ramblings

2014 has been a record year for global M&A activity in the oil and gas sector, sparked in part by the U.S. fracking boom. But what will happen to deal-making now that crude prices have dropped more than 30% since mid-June, due largely to massive oversupply that soon could cause the price of gasoline to fall below $2.50 per gallon (or even below $2)?

To begin, there certainly seems to be some historical correlation between oil prices and oil deal activity. Just look at the run-up in both prices and M&A through 2007, followed by a 2008 drop — and then the subsequent increases from 2009 through this past summer. It’s not a perfect match, but it’s close enough to suggest that the M&A market is not divorced from the oil market’s price cycles.

So what does this mean for future M&A in the oil and gas sector? Four thoughts, based on numerous conversations over the past couple of days with industry deal professionals:

1. Waiting game: Despite the aforementioned correlation, it’s unlikely that we’ll see any immediate chill to new deal announcements. Almost any transaction closing during the remainder of 2014 is likely to have been in the works for several months, if not longer. Yes, securing leverage for new energy deals is pretty difficult right now, but the general rule is to expect at least a one-quarter lag when determining whether macro factors are having an impact on new deal activity. Lags do work both ways, however, which means that a present-day slowdown in new deal formation would likely show up in Q1 and Q2 2015, even if there is an intervening oil price lift.

2. Overall deal activity will decrease: The big impediment to new deals right now is price. Not oil price, but how falling oil prices affect valuations. Many owners, assuming they’re not distressed, will not be satisfied with 20% or 30% haircuts to what they could have gotten for their assets just five months ago. Oil prices will rebound, they’ll believe, and selling at a bottom is foolhardy. Buyers, on the other hand, see valuation from the exact opposite side. Not only should they be paying 20% or 30% less than back in June, but possibly even deeper discounts given that oil prices have been falling steadily for several months. This sort of buyside/sellside disconnect happens almost whenever there is major downward macro pressure — regardless of industry — and it chills new deal activity.

3. We’ll see less investment from big oil: A lot of big exploration and production companies are panicking right now, trying to pinch every penny in order to hit some semblance of quarterly earnings projections. One of the first things to go is new spend. Not only on R&D investments — both internal and external via venture capital — that could help save the companies money in the long-term, but also on M&A that isn’t immediately accretive. Given that much of the big-money M&A activity has been for non-producing assets, it’s hard to see a lot of new activity in that space. It’s possible that there could be some oilfield services consolidation but that gets hampered by the aforementioned valuation disagreements (exacerbated by the fact that some strategic buyers don’t want to “sell” their stock on the cheap to acquired companies).

4. Where we will see increased M&A: There have been countless new E&P companies formed over the past few years focused on fracking, largely following the same model: A team of E&P veterans get private equity backing to acquire undrilled land on a shale formation, and then get to work. In many of these cases, however, only some of the acquired acreage is considered primary. The rest is fringe and, at current prices, is unlikely to get drilled. It’s this land that could soon hit the open market, particularly given that many of the PE-backed platforms also have serious debt to service. It’s the one case where asset owners will swallow hard, and then accept discounted offers.

• Touchdown: Interesting new firm announcement this morning, as a group of ex-Comcast Ventures and DFJ Frontier pros have launched an outsourced platform for creating corporate venture capital groups (although it prefers the term ‘partner’ to ‘outsource’). It’s called Touchdown Ventures, and already has signed Apollo Education Group (Nasdaq: APOL) as its first partner, forming a platform called Apollo Education Ventures to back ed startups. I’m also told that it has signed at least two more corporations – including from the retail and digital entertainment sectors – that will be announced in early 2015.

• Personnel scoop: Stéphane Chevrier has left Newbury Partners, the private equity secondaries firm he joined just one year ago as a managing director. No word yet on what happened, except that his last day of work was Tuesday and his work emails now bounce back as undeliverable.

Chevrier was listed as one of five partners on Newbury’s third fund, which closed earlier this year with $1.1 billion in capital commitments. Prior to joining the Connecticut-based firm, he served as founder and managing partner of Equifin Alternative Investments. Before that, he was a managing director with AXA Private Equity (now known as Ardian).

• Trend Watch: Huge week for online lending world. LendingClub is expected to price its IPO later this week, OnDeck just set IPO terms and AvantCredit raised $250 million in new VC funding.

• From the mouths of The Donalds: Last year I wrote about a new crowdfunding site called FundAnything, which was mostly notable because of its affiliation with Donald Trump. Then I followed up by noting that Trump didn’t seem to be keeping up his end of the partnership, through which he was supposed to contribute to new FundAnything campaigns each week and promote those choices via Twitter.

Yesterday I noticed that Trump had effectively disappeared from the site altogether, and that he hadn’t tweeted about it since this past March. So I rang up his office, and received the following statement from Trump: “We helped a lot of people and gave away a lot of money, but it took too much of my time and too much time to raise the money. Now I do it directly.”

No additional details, such as how it’s faster/easier to find and donate to worthy causes offline than via a crowdfunding platform that is designed to streamline that very process.

THE BIG DEAL

• AvantCredit, a Chicago-based online consumer loan provider, has raised $225 million in Series D funding. Tiger Global Management and August Capital co-led the round, and were joined by new investors DFJ Growth, RRE Ventures, KKR & Co. and Peter Thiel. www.avantcredit.com

VENTURE CAPITAL DEALS

• GrabTaxi, an automated smart-phone taxi booking platform in Southeast Asia, has raised $250 million from SoftBank Corp. GrabTaxi previously raised over $80 million in VC funding from Vertex Venture, GGV Capital, Tiger Global Management, Qunar.com and Hillhouse Capital Group. Read more.

• Kaminario, a Newton, Mass.-based provider of all-flash array storage for “midrange enterprises,” has raised $53 million in private funding. Silicon Valley Bank and Lazarus Hedge Fund were joined by return backers Sequoia Capital, Pitango, Globespan, Tenaya and Mitsui & Co. The company now has raised a total of $128 million. www.kaminario.com

• Maxwell Health, a Boston-based HR platform for managing benefits and promoting employee health, has raised $26.4 million in new VC funding. Adams Street Partners led the round, and was joined by Cambia Health Solutions, Schooner Capital, Brothers Brook, Annox Capital and return backers like Tribeca Venture Partners and Lerer Hippeau Ventures. Read more.

• Allena Pharmaceuticals Inc., a Newton, Mass.-based developer of non-systemic oral protein therapeutics to treat metabolic and orphan diseases, has raised $25 million in Series B funding. HBM Partners led the round, and was joined by Pharmstandard International and return backers Frazier Healthcare, Third Rock Ventures and Bessemer Venture Partners. www.allenapharma.com

• ThreatStream, a Redwood City, Calif.-based provider of a threat intelligence platform, has raised $22 million in Series B funding. General Catalyst Partners led the round, and was joined by Institutional Venture Partners and return backers Google Ventures and Paladin Capital Group. www.threatstream.com

• WhipClip, a mobile TV sharing app co-founded by former Demand Media CEO Richard Rosenblatt, has raised more than $20 million in new VC funding at a valuation north of $100 million. Backers include Raine Ventures, Institutional Venture Partners, William Morris Endeavor,  Ziffren Brittenhanm LLP, Greycroft and Peter Guber, Steve Bornstein, Gordon Crawford, Thom Weisel, Scooter Braun and Ron Zuckerman. www.whipclip.com

• Shoes of Prey, a New York-based website where women can design their own shoes, has raised $5.5 million in Series A funding led by Khosla Ventures. www.shoesofprey.com

• APICloud, a Beijing-based cross-platform mobile app cloud service provider, has raised $5 million in Series A funding led by Northern Light Venture Capital. www.apicloud.com

• MarketInvoice, a UK-based online lending platform that lets businesses sell outstanding invoices directly to investors, has raised £5 million in VC funding from Northzone Ventures and Paul Forster (co-founder and ex-CEO of Indeed.com). www.marketinvoice.com

• CloudOne, an Indianapolis-based startup that helps “companies make their things for the Internet of Things,” has raised $4.5 million in Series D funding led by Plymouth Ventures. www.oncloudone.com

• ChangeTip, a social media tipping platform, has raised $3.5 million in seed funding. Pantera Capital led the round, and was joined by such firms as Bold Start Ventures, DCG, CryptoCurrency Partners and 500 Startups. www.changetip.com

• Chute, a San Francisco-based platform for brands and publishers to leverage real-time visual content, has raised $3 million in second-round funding, according to a regulatory filing. The company previously raised more than $7 million from Foundry Group, Freestyle Capital and U.S. Venture Partners. www.chute.com

• NexDefense, an Atlanta-based provider of cybersecurity solutions for automation and control systems, has raised $2.4 million in new VC funding led by Mosley Ventures and Buckhead Investment Partners. www.nexdefense.com

• Shift Technology, a Paris-based provider of insurance fraud detection solutions, has raised €1.4 million in seed funding from Iris Capital and Elaia Partners. www.shift-technology.com

• SkillSurvey, a Wayne, Penn.-based provider of cloud-based talent lifecycle management solutions for HR professionals, has raised an undisclosed amount of growth equity funding from Primus Capital. www.skillsurvey.com

PRIVATE EQUITY DEALS

• AssuredPartners, a Lake Mary, Fla.-based insurance brokerage platform owned by GTCR, has acquired Baronsmead Partners LLP, a London-based provider of insurance to investment fund managers. No financial terms were disclosed. www.assuredptr.com

• The Carlyle Group has completed its previously-announced acquisition of a 75.05% stake and operational control of Southeast PowerGen, a portfolio of six natural gas-fired power plants in Georgia, from ArcLight Capital Partners and GIC. No financial terms were disclosed. www.carlyle.com

• CVC Capital Partners has agreed to acquire a control stake in Sky Betting and Gaming, the online gambling business of British satellite television operator Sky (LSE: SKY). The deal includes a £600 million upfront payment and up to another £120 million in potential earnouts, and values Sky Betting and Gaming at around £800 million. Read more.

• Fortum (Helsinki: FUM1V) has received multiple bids for its Swedish power grid assets, which could be valued at around $7.4 billion, according to Reuters. Bidders include Borealis, Macquarie Group and Cheung Kong Infrastructure Holdings. Read more.

• Rockbridge Growth Equity has acquired Robb Report, a Malibu, Calif.–based luxury lifestyle content company. No financial terms were disclosed. www.robbreport.com

• Sundrop Farms Holdings Ltd., an Australia-based provider of “sustainable agriculture for the arid world,” has raised an undisclosed amount of growth equity funding from KKR. Reuters puts the investment at around $100 million. www.sundropfarms.com

IPOs

• OnDeck, a New York-based online platform for small business lending, has set its IPO terms to 10 million shares being offered at between $16 and $18 per share. It would have an initial market cap of $1.12 billion, were it to price in the middle of its range. The company plans to trade on the NYSE under ticker symbol ONDK, with Morgan Stanley listed as left lead underwriter. It reports a $14.4 million net loss on nearly $108 million in revenue for the first nine months of 2014, compared to an $18.7 million net loss on $42 million in revenue for the year-earlier period. OnDeck has raised over $170 million in VC funding, from firms like RRE Ventures (15.4% pre-IPO stake), Institutional Venture Partners (14.4%), Village Ventures (10.8%), SAP Ventures (10.1%), First Round Capital (6.5%), Google Ventures (6.3%) and Tiger Global (6%). www.ondeck.com

 

EXITS

• BTG PLC (LSE: BTG) has acquired PneumRx Inc., a Mountain View, Calif.–based interventional pulmonology company. The deal is valued at upwards of $475 million, including a $230 million up-front cash payment. PneumRx had raised VC funding from such firms as Forbion Capital Partners, Endeavour Vision, included Adams Street Partners, Telegraph Hill Partners Alta Partners, and Spray Venture Partners www.pneumrx.com

OTHER DEALS

• Best Buy (NYSE: BBY) has agreed to sell its Chinese business, Five Star, to Chinese real estate firm Zhejiang Jiayuan Group. No financial terms were disclosed. Read more.

• NextEra Energy Inc. (NYSE: NEE) has agreed to acquire Hawaiian power supplier Hawaiian Electric Industries Inc. (NYSE: HE) for around $2.63 billion in cash and stock. Read more.

• Unilever PLC (NYSE: ULVR) said that it plans to form a standalone company to house its “spreads” business, which includes Bertolli margarine. The new company will be 100% owned by Unilever, and called Unilever Baking, Cooking & Spreading. Read more.

 

FIRMS & FUNDS

• Cendana Capital has raised $50 million  for its latest fund-of-funds focused on seed-stage and early-stage VC firms.

• Formation 8, a Silicon Valley-based VC firm, has closed its second fund with $500 million in capital commitments. Partner Jim Kim says that the fund was between 2x and 3x oversubscribed. www.formation8.com

• Monashees Capital, a Brazil-based early-stage VC firm, is raising upwards of $140 million for its seventh fund, according to a regulatory filing. www.monashees.com.br

• New Leaf Venture Partners, a healthcare-focused VC firm, is raising two new funds, according to regulatory filings. The New York-based firm is raising upwards of $375 million for its next flagship fund, and also seeking an undisclosed amount for its first-ever growth fund. www.nlvpartners.com

• Xfund, an early-stage VC firm affiliated with Harvard University, has closed its second fund with $100 million in capital commitments. Limited partners include Accel Partners, Breyer Capital and New Enterprise Associates. Read more.

 

MOVING IN, UP, ON & OUT

• The Carlyle Group has promoted India-based managing director M. Shankar Narayanan to co-head of its Asia private equity business, according to Reuters. Read more.

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