It has been more than three years since the Federal Reserve and FDIC issued leveraged loan guidance to banks, suggesting that any debt-to-EBITDA ratios in excess of 6x (for most industries) is too high.
And, for a while, it seemed that the suggestion was being taken to heart by Wall Street, thus causing financing heartburn among buyout firms. Deals above 6x did, of course, get done — but often were pitched by lenders as particularly solid exceptions to their rules. But, according to private equity sources, those exceptions eventually expanded into "baskets" of exceptions. And, as time went on, banks stopped talking about exceptions altogether.
Pitchbook reports that debt-to-EBITDA multiples for private equity deals with U.S. targets in 2016 has hit a whopping 6.8x. S&P LDC reports a global average of 5.36x for Q1 2016, although the figure did top 6x in the third quarters of both 2015 and 2014. Moreover, S&P LDC data shows that large-market deals typically have higher leverage ratios than do mid-market deals, with the Q1 16 large-market figure hitting 5.6x (and, remember, that's a mean, not a median).
Or, put another way, both lenders and private equity firms are regularly ignoring the Fed's guidance — and appear to be easily getting away with it (likely because no individual deal is likely to present a systemic risk, and loan syndication makes the "baskets" more like a sieve).
• Beating a benefits horse: Yesterday we discussed how some former Zenefits employees might have legitimate rescission claims against the company, based on its recent share repricing. We've now heard from a company spokeswoman, who shared two new pieces of information:
(1) "No former Zenefits employees have approached us on this issue" of rescission. (2) Any investor who participates in/signs the share repricing agreement releases their legal claims not only against the company and its executives, but also against its directors and other investors.
• Speaking (even more) of Zenefits: Parker Conrad, the Zenefits co-founder and former CEO who has been accused by the company of creating a stealthy piece of software to bypass state regulations, is quietly working on a new startup that could compete with at least parts of Zenefits.
This development isn't new news (others have reported it before), but we've gotten a bit more granular detail of Conrad's plans (which are, admittedly, still fairly embryonic).
The goal is to solve the enterprise pain-point of onboarding new employees. Specifically, all of the time wasted by corporate IT and HR in helping a new employee set up all required pieces of software (e.g., Box, Slack, Concur, health insurance portals, etc.). Conrad wants new employees to be able to sit down at their desk on day one with a new device that already is preloaded with all the relevant technology, including the necessarily permissions, which his startup would configure and deliver.
Conrad declined comment.
• Mid-market move: Elizabeth Burgess stepped down as a senior partner with Altus Capital Partners, the mid-market private equity firm she co-founded in 2003. No word yet on her future plans.
Altus managing partner Russ Greenberg says that the departure does not reflect plans to begin raising a third fund, as the firm is only around 70% committed out of its $200 million second fund -- saying that marketing couldn't begin until that figure hits 90%. It's also worth noting that Altus today announced that Heidi Goldstein has been promoted to partner. Greenberg's brother, Greg, is now the firm's sole senior partner.
• Running start: Forerunner Ventures has quietly closed its third fund with $122 million in capital commitments. The news was first disclosed in an SEC filing, and confirmed by firm founder Kirsten Green, who says the investment strategy remains focused on early-stage commerce companies. The San Francisco-based firm's second fund was capped at $75 million (including a $20m extension).
• Coming attractions: We're less than a week away from the start of Fortune Brainstorm Tech, our annual confab in Aspen for top tech executives, investors and thinkers. Yesterday we announced a new session on the intersection of sports, technology and media, which will be moderated by yours truly. The participants will be: Kevin Tsujihara, chairman and CEO of Warner Brothers; Maverick Carter, co-founder and CEO of SpringHill Entertainment/Uninterrupted; and Draymond Green of the Golden State Warriors.
Brainstorm Tech is sold-out, but we'll be live-streaming many of the sessions (including the one I just mentioned) at Fortune.com. Get the full agenda by going here.
THE BIG DEAL
• Darktrace, a London-based provider of enterprise cybersecurity software, has raised $65 million in growth equity funding. KKR led the round, and was joined by TenEleven Ventures, SB ISAT Fund (affiliate of SoftBank) and return backer Summit Partners. www.darktrace.com
VENTURE CAPITAL DEALS
• HourlyNerd, a Boston-based freelancer marketplace, has raised $22 million in Series C funding. General Catalyst Partners led the round, and was joined by Highland Capital Partners, GE Ventures, Mark Cuban, Greylock Partners and Bob Doris (Accanto Partners). The company previously raised more than $11 million. Read more.
• Twistlock, a San Francisco-based provider of security solutions for virtual containers, has raised $10 million in Series A funding. TenEleven Ventures led the round, and was joined by Rally Ventures and return backer YL Ventures. www.twistlock.com
• Veriflow, a San Jose, Calif.-based provider of network breach and outage prevention solutions, has raised $8.2 million in Series A funding. Menlo Ventures led the round, and was joined by return baker NEA. www.veriflow.com
• Homee, a Los Angeles-based home décor app, has raised $5 million in Series A funding from Founders Fund and Sean Rad (Tinder CEO). Read more.
PRIVATE EQUITY DEALS
• Convenience Valet, a portfolio company of Weinberg Capital Group, has acquired Mendex Merchandising, a Melrose Park, Ill-based provider of branded health and beauty care products. No financial terms were disclosed. www.cvalet.com
• Equistone Partners Europe has acquired a majority stake in Camusat Group, a French provider of maintenance and installation of telecom infrastructure networks. No financial terms were disclosed. Sellers include MBO Partenaires. www.camusat.com
• Gryphon Investors has acquired CORA Health Services Inc., an operator of operator of outpatient physical therapy services with a focus on the Southeastern U.S. No financial terms were disclosed. www.gryphoninvestors.com
• Kingswood Capital Management has acquired AVAD LLC, a Sherman Oaks, Calif.-based distributor of audio and video solutions focused on the commercial and residential custom installation markets, from Ingram Micro (NYSE: IM). No financial terms were disclosed. www.avad.com
• KKR has agreed to acquire Epicor Software Corp., an Austin, Texas-based provider of sales and supply chain management software, from Apax Partners. No financial terms were disclosed. www.epicor.com
• Mountain Capital Management, a Houston-based private equity firm, has agreed to acquire the oil and gas subsidiary (Compass Production Partners) of HRG Group Inc. (NYSE: HRG) for $145 million. www.hrggroup.com
• RoundTable Healthcare Partners has completed its previously-announced $150 million take-private acquisition of Symmetry Surgical Inc., a Nashville, Tenn.-based maker of reusable, reposable, and single-use surgical instrumentation and specialty devices. No financial terms were disclosed. www.symmetrysurgical.com
• Valet Waste, a Tampa, Fla.-based portfolio company of Ares Management and Harvest Partners, has acquired Simple Turns, a Denver-based provider of carpet cleaning, painting, porter services, apartment cleaning and turn services to the multifamily housing industry. No financial terms were disclosed. www.valetwaste.com
• Line Corp., a South Korean messaging app provider, has set its IPO terms to 35 million shares being offered at between $28.50 and $32.50 per share. It plans a dual listing on the NYSE and Tokyo Stock Exchange, with Morgan Stanley and Nomura serving as co-lead underwriters. Read more.
• SGN, the Los Angeles-based gaming company led by ex-MySpace CEO Chris DeWolfe, has acquired TinyCo, a San Francisco-based mobile game studio. No financial terms were disclosed. TjnyCo had raised around $38 million in VC funding from firms like Andreessen Horowitz and Pinnacle Ventures. Read more.
• Ventas Inc. (NYSE: VTR) has agreed to acquire a portfolio of 23 operating life sciences and medical properties from The Blackstone Group for around $1.5 billion. As part of the deal, Ventas and the seller – a Blackstone portfolio company called Wexford Science & Technology LLC – will jointly develop new projects. Read more.
• Alibaba (NYSE: BABA) has acquired Wandoujia, a Chinese app store for Android devices, for a reported $200 million. Read more.
• Google (Nasdaq: GOOG) has acquired Moodstocks, a French developer of mobile image recognition software, for an undisclosed amount. Read more.
• Medivation (Nasdaq: MDVN) said yesterday that it now is open to a possible sale, and that it will engage in takeover talks with Sanofi (which tried to buy the company for $9.3 billion earlier this year, but was rejected). Medivation also is allowing Pfizer and Celgene to conduct due diligence. Read more.
• Melrose Industries PLC (LSE: MRO) has agreed to acquire Nortek Inc. (Nasdaq: NTK), a Providence, R.I.-based maker of heating and cooling systems for residential and commercial buildings. The deal is valued at $1.44 billion in cash, or $856 per share (38% premium). Read more.
FIRMS & FUNDS
• Edison Partners has closed its eighth growth equity fund with $275 million in capital commitments. www.edisonpartners.com
• NextGen Growth Partners, a Chicago-based private equity firm focused on the lower middle-markets, has held a $22.25 million first close on its debut fund. www.nextgengp.com
• TriGuard Management LLC of Irvine, Calif. has raised more than $660 million for its seventh private equity secondaries fund. Read more.
• Trivest Partners, a Miami, Fla.-based private equity firm focused on founder and family-owned businesses, has closed its sixth fund with $225 million in capital commitments. www.trivest.com
MOVING IN, ON & UP
• Jeremy Cross has joined Cadwalader, Wickersham & Taft LLP as a London-based partner in the law firm’s fund finance practice. He previously was with King & Wood Mallesons. www.cadwalader.com
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