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Term Sheet — Friday, August 7

Random Ramblings

After market close on Wednesday, Fitbit reported earnings that destroyed Wall Street estimates. Q2 2015 revenue of $400 million not only topped the $320 million analyst consensus, but was nearly fourfold what the fitness tracking device maker had generated in Q2 2014. Adjusted earnings per share were $0.21, compared to estimates of $0.07. International revenue climbed around 250% year-over-year.

And then the stock began to… utterly tank, ending yesterday down 13.63% from Wednesday’s closing price.

Yes, Fitbit is still very highly-valued with a $9.19 billion market cap and a $44.60 per share stock price that more than doubles its $20 IPO price, but why did traders sell off a company that, on paper, seemed to have done everything right?

One explanation could be that there was a percentage point miss on gross margin, but the more troubling rationale came from CNBC’s Jim Cramer. He put the blame on Fitbit CEO James Park’s performance during the earnings call and, in particular, Park’s refusal to get specific on such things as new product launches. “This is one where the numbers were superb, but when we speak with the CEO, you can’t run your company like a private company when you’re public,” Cramer said.

Given that Fitbit’s quantitative performance should not have caused the stock price dive, I’ll accept Cramer’s qualitative reasoning. And it is the sort of thing that will make it even less likely that big, VC-backed tech companies go public until they are virtually forced to do so.

I’ve given unicorn CEOs grief in the past for not taking their companies public, echoing Bill Gurley’s analogy about how star college athletes don’t shy away from the pros because of added scrutiny. But the Fitbit experience gives credence to the paranoia, as Park appears to have done everything right except for exhibiting the proper bedside manner with entitled stock analysts.

Yes, Park will need to change up his phone etiquette for the sake of his company and its shareholders. But if Wall Street would like more of these high-growth startups to go public, perhaps it should also take a good, hard look in the mirror.

• Political stuff: Last night’s GOP presidential debate included just a small bit of economy talk, and virtually nothing substantial. Guess we’ll have to wait until the field winnows down a bit. In the meantime, worth noting that Hillary Clinton yesterday stopped by the San Francisco offices of food delivery startup Munchery — which is one of the on-demand companies that classifies its drivers as employees (i.e., W-2) as opposed to contractors (1099). You might recall that Clinton took some swipes at the latter structure during her first big economic policy speech last month.

• Private equity loses its man in Washington: Steve Judge is stepping down as president and CEO of the Private Equity Growth Capital Council, a role he assumed in mid-2011 after the ouster of the lobbying group’s founding president and CEO, Doug Lowenstein.

Per Bloomberg, Judge wrote the following in a letter to member firms: “The first term of the next Administration is likely to produce action on all of our most important issues, including comprehensive tax reform. The Council must have a CEO committed to serve throughout this period.” No word yet on Judge’s successor.

• Have a great weekend…


• Apollo Global Management has agreed to acquire a majority stake in asset management AR Global Investments for $378 million up-front (including $200m of cash), plus possible earn-outs. The deal is expected to double Apollo’s real estate assets under management to around $27 billion. Apollo also announced that it will acquire the wholesale distribution business of RCS Capital for $25 million. Read more.


• JenaValve Technology Inc., an Irvine, Calif.-based maker of transcatheter aortic valve repair systems, has raised $26.5 million in Series C funding. RMM and Valiance co-led the round, and were joined by Atlas Venture, Edmond de Rothschild Investment Partners, Gimv, Legend Capital, NeoMed Management and VI Partners.

• Portr, a London-based on-demand luggage delivery service, has raised £3.3 million in Series A funding.


• ACG Materials, a Norman, Okla.-based portfolio company of H.I.G. Capital, has acquired Art Wilson Co., a Carson City, Nev.-based miner, processor and marketer of anhydrite, gypsum and limestone products. No financial terms were disclosed.

• BDT Capital Partners has agreed to acquire a majority stake in Alliance Laundry Systems, a Ripon, Wis.-based maker of commercial laundry equipment, from the Ontario Teachers’ Pension Plan (which will retain a minority stake). No financial terms were disclosed.

• The Carlyle Group and Huo’s Group have agreed to acquire a control stake in China’s Tongyi Lubricants from Royal Dutch Shell. No financial terms were disclosed. Read more.

• Claims Management Holdings LLC, a Chicago-based portfolio company of SE Capital, has acquired Eagle Adjusting Services Inc., a Noblesville, Ind.-based property and casualty claims adjusting company. No financial terms were disclosed.

• Marlin Equity Partners has agreed to acquire AdvancedMD, a South Jordan, Utah-based provider of cloud software for physician practices, from ADP (Nasdaq: ADP). No financial terms were disclosed.


• Philadelphia Energy Solutions, a Philadelphia-based oil refinery owned by The Carlyle Group, has postponed an IPO that had been expected to price this week. The company had filed to sell 15.15 million shares at between $15 and $18 per share, and trade on the NYSE under ticker symbol PESC. BofA Merrill Lynch and Credit Suisse are serving as lead underwriters. The company reports $156 million in net income on $10.25 billion in revenue for the first nine months of 2014.


• Atkore International Group Inc., a Harvey, Ill.-based maker of electrical raceway products that is owned by Clayton Dubilier & Rice, announced that it will shut down its steel fence framework and sprinkler pipe businesses, resulting in 317 layoffs.

• Comverse (Nasdaq: CNSI) has completed its previously-announced acquisition of Acision, a UK-based provider of mobile messaging and engagement services. The deal was valued at upwards of $245 million in cash, stock and earnouts. Sellers included Access Industries, Atlantic Bridge Capital and HarbourVest

• H.I.G. Capital has sold AR Metallizing, a Belgium-based provider of metallized packaging products, to Japan’s Nissha Printing Co. (Tokyo: 7915). No financial terms were disclosed. Harris Williams & Co. managed the process.


• Capital One Financial Corp. (NYSE: COF) is in exclusive talks to acquire General Electric’s (NYSE: GE) U.S. healthcare finance unit, according to Reuters. Read more.

• IBM (NYSE: IBM) has agreed to acquire Merge Healthcare Inc. (Nasdaq: MRGE), a Chicago-based provider of medical imaging management solutions that will be merged into IBM’s Watson group. The deal is valued at around $1 billion in cash, or $7.13 per share (31.79% premium on Wednesday’s closing price). Read more.

• Zebra Technologies Corp. (Nasdaq: ZBRA) has acquired both ITR Mobility (mobile consulting & software dev firm) and iFactr (mobile platform) from St. Paul, Minn.-based ITR Group Inc. for an undisclosed amount. B. Riley & Co. managed the process.


• Cherubic Ventures, a Taipei-based seed and early-stage VC firm that also has offices in San Francisco and Beijing, is raising upwards of $42 million for its second fund, according to a regulatory filing.


• Brian Davis has joined Golub Capital as a Charlotte-based managing director, where he will work on non-sponsored deals in the firm’s middle-market lending group. He previously was with TPG Capital, where he led a deal-sourcing group for TPG Growth.

• Michelle Goldberg, a partner with Ignition Partners, has joined the board of Plum Creek Timber Company Inc. (NYSE: PCL).

• Adam Goodman has joined Intermediate Capital Group (LSE: ICP) as a managing director in the firm’s U.S. private debt group. He previously was head of mezzanine investments for MetLife.

• Andrew Kurzon has joined law firm Foley & Lardner as a Boston-based partner focused on private equity fund formation and transactions. He previously was special counsel at WilmerHale.

• Catharine Merigold, managing partner of Vista Ventures, has joined the board of AeroVironment Inc. (Nasdaq: AVAV).

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