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Term Sheet — Friday, October 2

October 2, 2015, 2:02 PM UTC

Friday Feedback

The sky is gray, the labor market keeps slumping and Twitter still doesn't have a permanent CEO. In other words, it's time for some Friday Feedback:

First up are some replies to yesterday's column about the exclusive honey badger club. Stanley leads us off: “Just stop it. Valuations are important, but you’re elevating them to the be all and end all. What about revenue? Or, even better, earnings? I’d bet that's a much smaller list.”

Chris sounds a similar concern: “Almost none of these ‘unicorns’ are profitable and many of them have negative unit economics, meaning they actually lose money on each transaction or otherwise have negative gross profit. That companies with this profile are frequently valued at anything, let alone over a billion dollars, should be setting off alarm bells all over the place that disaster is looming. But nobody seems to care and, even worse, many (mostly younger) people in the industry argue it's good for companies to lose huge sums of money because that means they are investing in growth. If there are positive unit economics and positive gross profit and they are building a wide moat for the future (i.e., Amazon), that can be true. But that doesn't describe most of these companies. They’re just spending their money to create growth in fake metrics and hoping for a greater fool.”

Matt: “I’m sure you’re getting emails from people stressing out over how a lot of these companies lose tons of money and don’t have a real path to IPO. From an investment perspective, though, that’s mostly a problem for the mutual funds and other crossover investors who will barely notice if these companies go to zero. By the time a company has raised >$1b, the VCs have usually pulled out money on the secondary market. They still have exposure, but even a total wipeout wouldn’t be as devastating to the smaller investors as it may appear (except for future fundraises).”

 Paul on the Jeb Bush tax plan: "Private equity investors would be fine under Bush's tax plan because of his proposed cuts to individual rates, and their companies will be fine because of the proposed corporate rate cuts. But the leveraged buyout model itself might not make as much sense, which might mean smaller deals and a big advantage for PE firms that historically have emphasized (sometimes exclusively) equity over debt when making acquisitions."

 A couple of emails related to Advent International dropping the preferred return from its new fund. Jack: “It’s a small point but the preferred return does affect the IRR an LP receives. This is because it affects the timing of cashflows received by the LP as the waterfall works itself through (the LP gets more cash flows earlier in a higher preferred return structure). For a mediocre fund this will make a reasonable difference in IRR.”

Frank: The use of an 8% hurdle rate is not related to prevailing interest rates or the perceived "risk free" rate of return on US government bonds, it is instead the actual historical average long term return from the S&P 500, including dividends. Since a private equity fund is basically an alternative to investing in equities on a levered basis, it is completely appropriate to have an 8% hurdle rate. In fact, it should really be closer to 11 or 12%. The facts are that if it had been possible back in the early 80's to simply buy a 4-1 Levered S&P ETF, the returns would have far out preform all but the top 1% of PE funds, and 95% of all the VC Funds.

 Have a great weekend...


 Albertsons, the Cerberus Capital Management-owned supermarket giant that completed its acquisition of Safeway earlier this year, has set its IPO terms to 63.5 million shares being offered at between $23 and $26 per share. It would have an initial market cap of around $11.64 billion, were it to price in the middle of its range.

The company plans to trade on the NYSE under ticker symbol ABS, with Goldman Sachs listed as left lead underwriter (18 total banks). Albertsons reports a $358 million net loss on nearly $58 billion in pro forma revenue for the 12 months ending June 20, 2015.


 Euroscreen, a Belgium-based drug developer initially focused on women’s health, has raised €16 million in Series B funding. SFPI-FPIM was joined by Fund+, Capricorn Health-Tech Fund and return backers Vesalius Biocapital II Partners, SRIW SA and BNP Paribas Fortis Private Equity.

 ZeeMee, a Mountain View, Calif.-based college application platform, has raised $5.8 million in Series A funding led by BlueRun Ventures, according to TechCrunch. Read more.

 HonkMobile, a Toronto-based app for finding and paying for parking, has raised C$3 million in seed funding led by Impression Ventures.


 Ardian said that it has entered into exclusive negotiations to acquire Solina, a Brittany, France-based provider of food ingredient mixes, from IK Investment Partners. No financial terms were disclosed, except that Solina generated over €305 million in 2014 revenue.

 CCMP Capital Advisors has agreed to acquire Shoes for Crews, a West Palm Beach, Fla.-based provider of footwear to food service industry workers, from AEA Partners. No financial terms were disclosed, but an earlier report suggested that AEA was seeking upwards of $700 million.

 Confie Seguros, a personal insurance company focused on Hispanic consumers, has made several acquisitions: TS Insurance Group (Alabama), All Florida Insurance Group (Green Acres, Fla.), Schmitt & Kraft (Buffalo, N.Y.) and Dunlap & Bajak (Buffalo). No financial terms were disclosed. Confie Seguros is a portfolio company of ABRY Partners.

 Novolex, a Hartsville, S.C.-based portfolio company of Wind Point Partners, has acquired Wisconsin Film & Bag, a Shawano, Wis.-based maker of custom polyethylene bags and films. No financial terms were disclosed.

 Olympus Partners has completed its acquisition of Liqui-Box, a Richmond, Va.-based provider of liquid packaging systems, from The Sterling Group. No financial terms were disclosed.


 Advanced Accelerator Applications SA, a French developer of molecular imaging and molecular therapy products, has filed for a $75 million IPO. The company previously filed for a $100 million IPO in November 2014, but withdrew the registration this past February. It again plans to trade on the Nasdaq under ticker symbol AAAP, with Citigroup and Jefferies serving as lead underwriters. Shareholders include HBM Healthcare Investments (9.4% pre-IPO stake).

 I-MED Radiology Network, an Australian X-ray services provider owned by EQT Partners, has canceled an A$500 million IPO due to “volatility in global markets,” according to Reuters. Read more.


 Berry Plastics Group (NYSE: BERY) has completed its $2.45 billion acquisition of Avintiv (f.k.a. PGI Specialty Materials), a Charlotte, N.C.-based maker of polymer-based nonwoven materials for such products as diapers, from The Blackstone Group.

 Linsalata Capital Partners has agreed to sell Eatem Foods Co., a Vineland, N.J.-based maker of broth and sauce bases, to Archer Daniels Midland Co. (NYSE: ADM). No financial terms were disclosed.

 NewSpring Capital has sold its stake in Raritan Inc., a Somerset, N.J.-based provider of IT infrastructure management solutions, to Legrand (Paris: LR). No financial terms were disclosed.


 Anbang Insurance Group Co. (China) is “in the lead” to acquire Fidelity & Guaranty Life (NYSE: FGL), an Iowa-based annuities and life insurance company, according to Reuters. Fidelity & guaranty has a current market cap of around $1.5 billion. Read more.

 Kloeckner & Co. (DB: KCOG) has acquired American Fabricators, a Nashville, Tenn.-based precision sheet metal fabrication company. No financial terms were disclosed, except that American Fabricators has annual revenue of around $30 million. Read more.

 Mondelez International Inc. (Nasdaq: MDLZ) has hired Goldman Sachs and J.P. Morgan to find a buyer for its European cheese and grocery business, which could be valued at around $3 billion, according to Reuters. Read more.

 PMC-Sierra Inc. (Nasdaq: PMSCS), a Santa Clara, Calif.-based chipmaker with a market cap of around $1.3 billion, has hired an unidentified financial advisor to find a buyer, according to Bloomberg. Read more.


 The AARP and J.P. Morgan Asset Management have formed a $40 million investment fund focused on companies that “improve the lives of people 50-plus.” Read more.

 Charterhouse Capital Partners, a UK-based private equity firm, reportedly has held a €1.5 billion first close for its tenth fund, which is targeting a total of €3 billion. Read more.

 RRJ Capital has closed its third fund with $4.5 billion in capital commitments, with the WSJ reporting that this is the largest-ever fund raised by an Asian private equity firm. Read more.

 Shamrock Capital Advisors, a Los Angeles-based growth equity firm, is raising its fourth fund, according to a regulatory filing. No target was provided. Shamrock currently is investing out of a $400 million fund raised in 2010.

 Trident Capital is raising $200 million for a new “growth” fund, according to a regulatory filing.


 Daniel Hullah and Dhiraj Malkani have quietly stepped down as partners with RockPort Capital Partners, a cleantech-focused venture capital firm that has not successfully raised a new fund since 2008. Hullah, who doubled as RockPort’s chief operating officer, recently took as job as VP of marketing and strategy and interim CFO of Solar Universe, a RockPort-backed residential and commercial network of solar installers. Malkani has joined the investment team of Saudi Aramco. Read more.

 Alfred Spector has joined $28 billion quant hedge fund manager Two Sigma as chief technology officer and head of engineering. He previously was with Google as VP of research and special initiatives.

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