Random Ramblings
I was wrong.
For some of you, just screenshot those words and send it to me the next time you disagree with a column. For everyone else, let me explain:
When private equity firms were first required by Dodd-Frank to register with the SEC, I was largely ambivalent. On the one hand, I did not believe that private equity posed the sort of systemic risk that financial reform was designed to eradicate (i.e., the rules weren't needed). On the other hand, I felt that all of the private equity industry teeth-gnashing was exaggerated. Sure it would be inconvenient, but registration was really a drop in the compliance cost bucket for most firms (and perhaps would serve as a bulwark against more extensive regulation).
But here was my big mistake: I actually believed that most private equity firms were complying with their own limited partnership agreements. Yup, smack me with the naivete hammer.
As we all know by now, the SEC believes it has found legal violations or material weakness in over half of the firms it has examined. Some of these misdeeds seem to be small, resulting in a few thousand dollars of overcharge here or there. But some are larger and, for LPs with extensive private equity portfolios, it all adds up. These violations also seem to have certain LPs wondering aloud if they can even trust the asset class anymore (even though we aren't seeing much allocation reduction... at least not yet). And, yes, it sounds like enforcement actions are forthcoming.
In short, private equity registration has turned out to be a very big deal.
After the law was passed, some private equity execs warned me about unintended consequences. Specifically, that certain small-market and mid-market firms would have to lay off junior staff in order to cover the extra compliance costs. Maybe they really believed it. Or maybe they were really freaked out about other unintended consequences (i.e., LPs learning about their raw deal).
What is particularly troubling right now, of course, is that there are GOP-led (and PE industry-backed) congressional efforts to repeal private equity registration requirements. Even Dodd-Frank namesake Barney Frank has expressed an openness to increasing the AUM threshold from the current $150 million.
Several years ago, I would have been on board with such repeal. After all, it was a misguided rule to begin with. But not today. The genie is out of the bottle, even if it isn't the genie we were expecting.
I was wrong. And being wrong again wouldn't make any of this right.
• Real estate trend watch: I heard a few times yesterday about how Massachusetts startups are being priced out of Kendall Square, due to a confluence of big biotech and big tech (Google, MSFT, etc) taking up the available space. Some are heading to urban areas like the Boston seaport, but I've got to wonder how long it is until some bite the bullet and return to the Rt. 128 suburbs where the local tech (and VC) industry thrived in the 1980s and 1990s.
• Boston Get Liquid: 580 of you already have purchased tickets to our next Liquidity Event, which will take place on Feb. 24 at the New England Aquarium in Boston. That means we've already raised more than $8k for a local nonprofit. Be sure to join us by going to: http://GetLiquidBoston.eventbrite.com
Big thanks to our sponsors: Citizens Bank, Choate Hall & Stewart, .406 Ventures, Murray Devine, DraftKings and FKA (firm formerly known as Atlas Venture). Be sure to get your ticket today.
• Have a great weekend...
THE BIG DEAL
• Rocket Internet has acquired a 30% stake in Germany-based food delivery service Delivery Hero for approximately $568 million. Read more.
VENTURE CAPITAL DEALS
• HelloFresh, a global recipe kit delivery service, has raised $126 million in Series E funding from return backers Rocket Internet and Insight Venture Partners. Read more.
• FreeCharge, an India-based provider of online prepaid mobile recharge services, has raised $80 million in new VC funding from firms like Valiant Capital Management and Tybourne Capital Management. Existing backers include Sequoia Capital, Sofina and RuNet. www.freecharge.in
• Armetheon Inc., a Menlo Park, Calif.-based developer of mid-to-late-stage cardiovascular drugs, has raised $24.3 million in Series B funding co-led by Hercules Bioventure Partners and Capital TEN II. www.armetheon.com
• AuraSense Therapeutics, a Skokie, Ill.-based developer of “spherical nucleic acid” gene regulation and immune modulation strategies, has raised more than $18 million in Series C funding. No investor information was disclosed. www.aurasensetherapeutics.com
• Civitas Learning, an Austin, Texas-based provider of SaaS-based predictive analytics, has raised $16 million in new VC funding. Rethink Education led the round, and was joined by return backers Austin Ventures and Emergence Capital. www.civitaslearning.com
• TrialReach, a London-based provider of clinical trial information, has raised $13.5 million in Series B funding. Smedvig Capital led the round, and was joined by return backers Amadeus Capital Partners and Octopus Investments. www.trialreach.com
• Greenlight Planet, a Riverside, Ill.–based distributor of solar energy products for off-grid homes in the developing world, has raised $10 million in new funding led by Fidelity Growth Partners India. www.greenlightplanet.com
• PicsArt, a mobile community “empowering creatives to make beautiful images,” has raised $10 million in Series A funding from Sequoia Capital. www.picsart.com
• Orig3n Inc., a Boston-based provider of pluripotent stem cell storage, has raised $3.1 million in new VC funding. Backers include Hatteras Venture Partners, Harris & Harris Group, KTB and Mountain Group Capital. www.orig3n.com
• AirTame, a Danish maker of a wireless device for connecting devices and computers to screens, has raised $1.4 million in seed funding from Seed Capital and Libratone-founder Tommy Andersen. www.airtame.com
PRIVATE EQUITY DEALS
• Abraaj Group and TPG Capital have agreed to acquire a majority stake in Saudi Arabia-based fast-food chain Kudu, according to Reuters. The deal is believed to be for approximately $400 million. Read more.
• Battery Ventures has acquired Enviance, a Carlsbad, Calif.-based provider of cloud-based environmental, health and safety management software. No financial terms were disclosed. www.enviance.com
IPOs
• Advanced Accelerator Applications SA, a French developer of molecular imaging and molecular therapy products, has postponed its IPO. The company plans plans to trade on the Nasdaq under ticker symbol AAAP, with Citigroup and Jefferies serving as lead underwriters. It reports a $1.37 million net loss on around $45.5 million in revenue for the first six months of 2014. Shareholders include HBM Healthcare Investments (7.9% pre-IPO stake), Life Science Capital (6.8%) and Carpefin (5.6%). www.adacap.com
• Aleris Corp., a Beachwood, Ohio-based maker of aluminum product manufacturing and recycling, has withdrawn its IPO registration. It had originally filed in April 2011, and most recently had set terms to 31.25 million common shares being offered at between $15 and $17 per share (giving it a market cap of around $1.8 billion, at $16 per share). J.P. Morgan, Barclays and Deutsche Bank were serving as co-lead underwriters. Aleris was acquired out of bankruptcy early last year by lenders Oaktree Capital Management (56.9% pre-IPO stake), Apollo Management (17.4%) and Sankaty Advisors (9.6%). It previously had been acquired for $3.3 billion by TPG Capital in 2006. www.aleris.com
• Columbia Pipeline Partners LP, a Houston-based LP formed by NiSource (NYSE: NI) to own and operate of midstream pipelines and storage assets, raised $1.1 billion in its IPO. The company priced 46.8 million shares at $23 per share (above $19-$21 range), and will trade on the NYSE under ticker symbol CPPL. Barclays, Citigroup and BofA Merrill Lynch served as lead underwriters.
• Easterly Government Properties, a Washington, D.C.–based REIT focused on office properties leased to the US government, raised $180 million in its IPO. The company priced 12 million shares at $15 per share (middle of $14-$16 range), and will trade on the NYSE under ticker symbol DEA. Citigroup, Raymond James and RBC served as lead underwriters.
• Nexvet Biopharma, an Australian developer of biological drugs for companion animals, raised $40 million in its IPO. The company priced 4 million shares at $10 per share (below $13-$16 offering range), for an initial market cap of approximately $111 million. It plans to trade on the Nasdaq under ticker symbol NVET, while BofA Merrill Lynch and Cowen & Co. served as lead underwriters. Shareholders include One Funds Managemen (11.9% pre-IPO stake), Ute Holdings (11.6%), Bushranger Funding (11.4%), Adage Capital Partners (11.2%), Foresite Capital (10%), Irrus Investments (9.1%) and AustralianSuper (6.3%). www.nexvet.com
• Wowo Ltd., a Chinese e-commerce platform for local entertainment and lifestyle services, has set its IPO terms to 6 million shares being offered at between $9 and $11 per share. The company plans to trade on the Nasdaq under ticker symbol WOWO, with Axiom serving as sole underwriter. Wowo reports a $32 million net loss on $21 million in revenue for the first nine months of 2014, compared to a $21 million net loss on $28 million in revenue for the year-earlier period. Shareholders include Zero2IPO and CDH Investments. www.55tuan.com
EXITS
• AdvancePierre Foods, a Cincinnati-based maker of packaged sandwiches and other protein snacks, is talking to banks about a sale process that could value the company at more than $2 billion (including debt), according to Reuters. AdvancePierre Foods is owned by Oaktree Capital Group. Read more.
• Apollo Global Management is exploring either a sale or IPO for U.S. indoor water park operator Great Wolf Resorts Inc., according to Reuters. Goldman Sachs and Deutsche Bank are managing the dual-track process. Read more.
• Clayton, Dubilier & Rice has cut its ownership stake in British discount retailer B&M European Value Retail (LSE: BME) from 28.4% to 17.4%, via the sale of 120 million shares at 3290 pence per share (total of $582 million). www.bandmretail.com
OTHER DEALS
• Ball Corp. (NYSE: BLL) is in talks to acquire British aluminum can maker Rexam PLC (LSE: REX) for upwards of $6.5 billion. Read more.
• Groupon Inc. (Nasdaq: GRPN) is in talks to sell its majority stake in South Korea’s Ticket Monster Inc., according to the WSJ. Groupon bought the position for $260 million in late 2013, but the new deal could value the overall company at around $1 billion – perhaps structured as some sort of partnership that involves private equity. Read more.
• The London Stock Exchange Group said that it is launching a sale process for Russell Investments, the asset management arm of the Frank Russell Co. business it acquired just last year for $2.7 billion. Reuters reports that the deal could be valued at around $1.4 billion. Read more.
• PGi (NYSE: PGI) has acquired Modality Systems Ltd., a UK–based Microsoft Lync services and software firm. No financial terms were disclosed. No financial terms were disclosed. www.pgi.com
Verizon Communications (NYSE: VZ) has agreed to sell wireline assets to Frontier Communications Corp. (Nasdaq: FTR) for $10.54 billion in cash. It also has agreed to sell over $5 billion worth of cell towers to American Tower Corp. (NYDSE: AMT). Read more.
• W.R. Grace (NYSE: GRA) said that it will split into two companies: One that includes its catalysts and materials technologies unit, and the other the includes its construction and packaging business. Read more.
• Zealot Networks, a Los Angeles-based digital media company for multi-platform revenue and distribution services, has acquired Converge Media Group, a talent management, creative and production services media company. No financial terms were disclosed. www.zealotnetworks.com
FIRMS & FUNDS
• Madison Dearborn Partners, a Chicago-based buyout firm, is raising upwards of $3.75 billion for its seventh fund, according to regulatory filings. www.mdcp.com
MOVING IN, UP, ON & OUT
• Sarah Alexander has stepped down as a managing director with Abraaj Group, according to peHUB. Alexander is the founding president and former CEO of the Emerging Markets Private Equity Association, who left in 2013 to join Abraaj. Read more.
• Tom Baker has joined the California State Teachers’ Retirement System as a private equity portfolio manager. He previously was with CalPERS. Read more.
• Ray Costa has joined Benefit Street Partners, the credit affiliate of Providence Equity Partners, as a managing director. He previously was with Deutsche Bank Securities as a managing director and co-head of credit trading in North America. www.provequity.com
• China International Capital Corp. plans to name Bi Mingjian as CEO, according to Bloomberg. Mingjian is CICC’s former investment banking chief, who left in late 2005 and currently serves as a partner with private equity firm Hopu Investment Management. Read more.
• Barry Gold and Joshua Herlands have joined ORIX Americas as a managing director and associate director, respective, with a focus on infrastructure investments. Gold previously was a senior advisor to M. Klein & Co., while Herlands had been with Captona Partners. www.orix.com
• Raj Shah has agreed to join private equity firm Nordic Capital as a London-based partner. He had been serving as Goldman Sachs’ co-head of EMEA healthcare investment banking. www.nordiccapital.com
• David McNiff has stepped down as a senior investment officer with Cornell University’s endowment, according to Dow Jones. No word yet on his future plans. www.cornell.edu
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