Term Sheet — Friday, July 24
Cyrus Sanati here filling in for Dan who remains missing. If you have any knowledge as to his whereabouts, please email me at firstname.lastname@example.org or hit me up via twitter @BeyondBlunt. A big thanks to Erin Griffith for covering Term Sheet this week as the staff was out searching dive bars for Dan. She will be back for an encore performance next Friday as I will be headed to Egypt for the opening of the “new” Suez Canal. More on that later when I actually figure out what I will be doing there except melting in the desert.
• The FT is turning Japanese:
The sale of the Financial Times to Nikkei, the Japanese media conglomerate, has many scratching their heads – especially me. Well, we know why Pearson, the FT’s parent company, is selling the salmon-colored daily: they need the money. Textbook sales, Pearson’s bread and butter, just isn’t as lucrative as it once was (or ever will be again). Owning a media company, hungry for cash, just didn’t make sense for the company anymore.
No, what is truly perplexing about the deal is the purchase price: £844 million, which in “real” money equates to $1.37 billion.
That’s billion – with a “B.” Seriously. $1.37 billion.
Now, I like the FT. I read it often and I have many friends who work there. Heck, I even seriously considered working there myself a few years back.
But $1.37 billion?
Indeed, the number shocked even the snobbiest of FT’ers I spoke with last night (early morning). These are people who truly believe London is the center of the financial universe and that the FT is by far the best newspaper, not just the best financial newspaper, in the whole wide world. No, seriously, they really do think this way.
But while these FT’ers are clearly delusional, they aren’t total dummies. They understand valuation and no matter how you slice this deal, $1.3 billion is hard to justify. Consider that the Washington Post sold a couple of summers ago to Amazon founder Jeff Bezos for $250 million, a mere fifth of what the FT just fetched. That was followed later in the summer of 2013 with the sale of the Boston Globe from The New York Times for just $70 million (it paid $1.1 billion for the paper in 1993). And then there was the 2010 sale of Newsweek Magazine to Sidney Harman for the symbolic price of $1.
But value isn’t derived just off goodwill and history alone – it is based on the future earnings potential of the company. When it was acquired, Newsweek was hemorrhaging cash and ended up costing its owners millions of dollars in future losses. When Bezos bought the Washington Post, its operating revenue was in a tailspin, down 44% in the last six years - with little hope of improvement.
Yet while the FT truly outperforms those failing rags, it isn’t printing money, either. Pearson was nice enough yesterday to finally breakout just how much the parts of the newly carved out FT Group contributed to the company’s bottom line last year – a pitiful £24 million, or $37 million, in adjusted operating income.
Now, it’s great that the newspaper made a profit– many don’t. But compare that to the sales price. Based on that, the company was sold at a whopping 35 times earnings. Scrub out pensions, cash and tax and you get 28 times earnings, according to Deutsche Bank.
The FT may have a decent webapp, but it’s hardly a high-growth tech company worthy of such a lofty valuation. Other publically traded media companies, such as the New York Times, are valued at around 10 to 12 times their adjusted earnings, less than half what the FT just fetched.
So is the FT really worth it? Unlike other newspapers or online news outlets, the FT derives the bulk of its cash through subscription fees, not ads. That’s a huge distinction – one that truly separates the paper from other media companies. While the FT’s audience isn’t huge, it is rich enough to pay the high subscription costs that go with getting the Pink paper (The FT estimates average subscriber income at $250,000 with 13% being millionaires). If it continues to increase its paid digital readership, as it has done over the last two years successfully, then the FT’s lofty valuation begins to make a little more sense.
Not a lot of sense, just a little more sense.
How much do you think the FT is worth? Tweet at me the number @BeyondBlunt
• KKR hit one out of the park – eni blows sky high.
The private equity giant reported a second-quarter profit yesterday of $376.3 million, (78 cents a share), which was up from $178.2 million (43 cents a share), during the same time last year.
The firm’s second-quarter economic net income (Eni), which includes all the “unrealized gains,” from its investments as well as cash earnings, hit a record $840 million (88 cents per share) which is up strongly from the $501.6 million (57 cents per share), during the same time last year. This topped analyst estimates, which had Eni coming in marketedly lower at 62 cents a share. Eni is up 77% from the same period last year thanks to boost in carried interest earned from its sale of Biomet during the quarter.
• Dot-Bomb Redux?
Venture capital-backed companies raised more than $32 billion in the second quarter of this year across 1,819 deals, bringing the total capital raised by VC-backed companies globally to a mind-blowing $59.8 billion for the first half of 2015, according to Venture Pulse Q2 '15 the first in a quarterly VC report series from KPMG International and VC data company CB Insights. The surge in second quarter funding represents a 49% increase over the first two quarters of 2014.
Regionally, North America continues to lead global venture capital activity, according to the report, with $37.5 billion invested in the first half of the year. Funding is now on pace to surpass 2014's high by more than 25 percent
• Election Update – Trump threatens to pull a Perot while Clinton could face criminal charges.
Donald Trump says the Republican Party better shape up or he’ll leave and run as an independent candidate.
“The RNC has not been supportive. They were always supportive when I was a contributor. I was their fair-haired boy,” the business mogul told The Hill. “The RNC has been, I think, very foolish.”
Meanwhile, Democratic frontrunner, Hillary Rodham Clinton, is facing more heat from “EmailGate.” The New York Times reports that the two inspectors’ generals looking into the matter have asked the Justice Department to open a criminal investigation into whether sensitive government information was mishandled in connection with Ms. Clinton’s personal email account. This comes after the two inspectors told the State Department that Ms. Clinton’s private account contained “hundreds of potentially classified emails.”
Yesterday's Term Sheet incorrectly identified a Baltimore-based ecommerce company which raised $3.2 million in venture funding as EventRebels. The correct company name is SalesWarp.
THE BIG DEAL
• Anthem said this morning it will buy rival health insurance giant Cigna in a deal valued at $54 billion. The acquisition is just the latest in a string of high-profile mergers in the health insurance industry. Aetna announced just a few weeks ago that it was acquiring Humana for $37 billion.
The government is largely expected to sign off on the mergers even though it will bring the number of nationwide insurance companies down from five to three. The consolidation in the industry is due largely to the Affordable Care Act (Obamacare), as the law sets limits on the amount of profit insurance companies can earn. READ MORE
**The email sent out this morning incorrectly said that Anthem was buying Aetna; In actuality, Anthem is buying Cigna. Aetna is acquiring Humana.
VENTURE CAPITAL DEALS
• Rubicon Global, the so-called "Uber" for trash, is about to raise a fresh $50 million, according to Breakingviews columnist, Jeffrey Goldfarb. This comes barely six months after the company closed on a $30 million funding round, which included funds from Salesforce.com's Chief Executive Marc Benioff. The story, which is behind the evil Breakingviews paywall, also notes that Brent Callinicos , Uber's former CFO, will be joining Rubicon's board in his first job since leaving the ride sharing app.
• AdAgility, a leading provider of personalized, on-site and mobile, cross-selling solutions, raised $1.6M. Tim & Todd McSweeney led the investment with participation from existing investor Boston Seed Capital. READ MORE
• VoltDB raised a $9.8 million round of funding to extend its SQL in-memory database. The round was led by strategic investors with participation from existing investors Kepha Partners and Sigma Prime www.voltdb.com
• Leadspace, raised $18 million in new funding in a bid to "solidify its position as a market leader in the B2B predictive analytics space." The latest round of funding was led by Battery Ventures with participation from other previous investors. READ MORE
• SutroVax, the biopharmaceutical vaccine company, raised $22 million in a Series A financing. SutroVax is developing vaccines for infectious disease targets. The funding round was led by Abingworth, the international investment group, with participation from Longitude Capital, Roche Venture Fund and CTI Life Sciences Fund. SutroVax says it will use the funds to advance multiple vaccines in its pipeline through pre-clinical proof of concept. READ MORE
• MedGenome, a leading provider of genomics research based in India, received a $20 million investment from Sequoia Capital in a Series B funding round. READ MORE
JETS JETS and More JETS - but not Jet.com, like, private planes.
• Beacon, a subscription-based all-you-can-fly private plane service, announced that it has completed $7.5 million in Series A and other financing led by Romulus Capital with participation from MiVentures, Western Technologies Investment, and several other early stage investors. www.flybeacon.com
• JetSmarter, the mobile application that offers instant pricing and availability for private jets worldwide, says it raised $20 million from a group of "influential" investors with its most recent Series B raise. Some investors include: Members of The Saudi Royal Family, world-renowned music and entertainment moguls, a London-based private equity fund, and High Net Worth Individuals, including top c-level executives from companies such as Goldman Sachs and Twitter. www.jetsmarter.com
PRIVATE EQUITY DEALS
• LeasePlan, a global fleet management company owned by Volkswagen and Fleet Investments, was sold to a group of private equity investors for €3.7 billion ($4 billion). The PE shops included TDR Capital, Goldman Sachs and Danish pension fund ATP.
• UK bookmakers Ladbrokes and Gala Coral Group said they were merging on Friday. The deal would create a £2.3 billion business, making it the UK's largest betting company. Gala Coral is owned by a group of private equity companies, including Apollo, Anchorage and Cerberus. Consolidation seems to be afoot in the UK gaming sector. Last week, online bookmaker 888 Holdings beat out rival GVC Holdings in a bidding war for Bwin.party, another betting company, in a deal worth about £898 million. READ MORE
• Solar Power, Inc. a China-based photovoltaic ("PV") developer, said it will sell its stake in Gelliwern Farm, a UK-based solar project with 6.24 megawatts, to a fund managed by BlackRock
No IPOs are scheduled to trade today :(
• Standard Chartered sold a portfolio of private equity investments worth $700 million to Goldman Sachs Asset Management (GSAM) and alternatives manager LGT Capital Partners, according Financial News.
• Ares Management, the Los Angeles-based alternative asset manager with $87 billion in AUM, says it is merging with Kayne Anderson Capital Advisors, the U.S. energy and energy infrastructure investor with $26 billion in AUM. The new asset manager will be known as Ares Kayne Management and will have a combined $113 billion in AUM. The asset manager will focus on five key areas: Tradable Credit, Direct Lending, Energy, Private Equity and Real Estate
The two companies will continue to manage their existing funds and operate under their existing brand names. www.aresmgmt.com
• Centro, a software company specializing in digital advertising, said it acquired GraphScience, which creates software that helps marketers harness social media data to create personalized ads on Facebook. www.centro.net
• News America Marketing, a subsidiary of News Corp, said it acquired Checkout 51, the mobile coupon company, for an undisclosed amount. www.newsamerica.com
FIRMS & FUNDS
• DCM Ventures, a Menlo Park, Calif.-based venture capital firm, closed its second Android-focused investment fund, “A-Fund II.” with $100 million in capital commitments. http://www.dcm.com/
MOVING IN, UP, ON & OUT
• It’s yet another executive departure for Twitter, with Rita Garg jumping ship to join Zenefits, the $4.5 billion human resources software startup, where she will be the company’s first VP of business development. Garg was director of global business development at the microblogging site. www.zenefits.com
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