Term Sheet — Monday, August 1

The big news today is Uber China’s $35 billion deal with local rival Didi Chuxing. A couple of quick notes:

In a blog post, Uber CEO Travis Kalanick did not admit the obvious: After burning through $1 billion a year for the last two years, Uber failed in China. He spun it as “building both Amazon and Alibaba at the same time.” But we all know the truth.

Fortune’s Scott Cendrowski’s argues that buying Didi was Uber’s only way out of the market.

Meanwhile Dan, who is on vacation but cannot be kept away from a big story, noted on Twitter that this is one hell of a consolation prize for losing in China. He argued it could end up looking like Alibaba did for Yahoo. (To be clear: Yahoo invested far less into Alibaba at a smaller valuation. And for Uber’s sake, let’s hope the company doesn’t follow in Yahoo’s footsteps.)

• Whither Anti-Uber Alliance? There are some strange bedfellows in the ridesharing category, and this deal further complicates things. Remember when Apple invested in Didi a few months back? Now, through Didi, Apple owns a piece of Uber. Remember who else owns a piece of Uber? Apple’s #1 rival, Google. Oh, and all three of them are working on their own self-driving cars. Meanwhile, the deal means Didi is the only company with common investment from Tencent, Alibaba and Baidu.

But the most awkward relationship here has to be the one between Didi and Lyft. In September of last year, Didi announced a partnership with Lyft. Didi invested $100 million into Lyft as part of the deal. A few months later, they formed the global “Anti-Uber Alliance” alongside Ola (the Uber of India) and Grab (the Uber of SouthEast Asia). The plan was to share technology, local market knowledge, and business resources.

I haven’t yet heard back from Lyft on whether that alliance will continue in light of today’s news. If anything, Uber-Didi creates an incentive for Uber to ensure Lyft survives as a viable competitor. The existence of a sizable #2 player keeps Uber safe from antitrust scrutiny.

Unicorn M&A: A few weeks ago, when SoftBank announced its deal for ARM Holdings, I noted that 2016 was the year of big crazy tech deals, but none for the big unicorns, which are too expensive for most buyers. (Dollar Shave Club was not a unicorn before its acquisition.) Deals like SoftBank-ARM, Microsoft-LinkedIn, Verizon-Yahoo, even Oracle-Netsuite and Tesla-SolarCity, are keeping investment bankers busy. But they have to make unicorn investors nervous. Save some cash for our portfolio companies!

Despite all the high profile mega-mergers, deal volume for tech M&A is down 19% this year. Only two billion-dollar startups have sold so far, according to CB Insights: Lazada and Jasper.

The Uber-Didi news, while extremely unique to the region, might also be a sign of things to come. If bloated, over-funded, overvalued startups are too expensive to sell and too unprofitable to go public, why not use that expensive stock to merge with one another?

It’s significant that Kalanick, the most competitive, hard-charging, winner-take-all startup CEO, has conceded a loss. That concession may inspire other startup CEOs hoping to follow in Uber’s footsteps and be more pragmatic about their own businesses.

I predict after the inevitable shakeout of meal kit and food delivery startups, we’ll see the biggest ones merge. Competition is one reason for startup mergers. Regulatory hurdles, like the one Uber faced in China, or the one behind the rumored merger of FanDuel and DraftKings, is another.

THE BIG DEAL

• Didi Chuxing will merge with the Chinese subsidiary of Uber in a deal valued at $35 billion. Uber will receive 5.89% of the combined company with preferred equity interest equal to a 17.7% stake in Didi Chuxing. Baidu and other Chinese shareholders will receive a 2.3% stake in Didi and Didi gets a minority stake in Uber. Cheng Wei, founder and chairman of Didi Chuxing, will join the board of Uber. Travis Kalanick, founder of Uber, will join the board of Didi Chuxing. Read more.

VENTURE CAPITAL DEALS

•Matific, an Israel-based developer of educational games for children, has raised $45 million from existing investor Leon Kamenev. www.matific.com/us/en-us/

•PhishMe, a Virginia-based cybersecurity startup, has raised a $42.5 million Series C round of venture funding led by existing investor Paladin Capital Group, with participation from Bessemer Venture Partners. phishme.com/

•Blacklane, a German rideshareing app, has raised a Series C round of funding of an undisclosed size from existing investor Daimler AG. Read more.

•Healthkart.com, a Gurgaon, India-based health product e-commerce site, has raised a $12 million Series E round of funding from existing investors Sequoia Capital India, Omidyar Network and Kae Capital. www.healthkart.com/

•PacketSled, a San Diego-based cybersecurity startup, has raised $5 million in Series A funding led by Keshif Ventures with participation from Blu Ventures and JHS Ventures. packetsled.com/

•The Outline, a digital media startup founded by Josh Topolsky, has raised $5 million from RRE Ventures, Advancit Capital, Boat Rocker Ventures and Nextview Ventures. www.theoutline.com/index.html

PRIVATE EQUITY DEALS

•KKR, Apollo, and Carlyle Group are contemplating a potential $40 billion buyout of Hewlett Packard Enterprise, according to The Information. Read more.

• A consortium of Chinese investors has agreed to acquire Playtika, a social and mobile gaming company based in Herzliya, Israel, from Caesars Interactive Entertainment for $4.4 billion. The consortium includes China Minsheng Trust Co., CDH China HF Holdings Company Hony Capital Fund, and Yunfeng Capital, Jack Ma’s private equity fund. Read more.

•Advent International has agreed to acquire inVentiv Group Holdings, a pharmaceutical research firm based in Burlington, Mass., alongside existing investor Thomas H. Lee Partners. The deal values the company at $3.8 billion, ending speculation that the company would go public. inventivhealth.com

•The Carlyle Group (Nasdaq: CG) has agreed to acquire WellDyneRx, Inc., a privately-held U.S.-based pharmacy benefit manager based in Englewood, Colo. Terms were not disclosed. www.welldynerx.com/

•Advent International Corp, KKR & Co, Clayton, Dubilier & Rice, TPG Capital, Onex Corp and Thomas H. Lee Partners are planning to make bids for the Save-A-Lot business of supermarket chain Supervalu, according to Reuters. The deal could be worth as much as $1.8 billion. Read more.

•Bevolution Group, a Chicago-based provider of beverage products backed by Highlander Partners, has acquired Dr. Smoothie Brands, a provider of beverage concentrates. Terms were not disclosed. drsmoothiebrands.com

•Emergency Communications Network (ECN), a, Ormond Beach, Fla.-based provider of software for communications, has acquired MIR3, a provider of communications to business and government clients.  ECN is owned by Veritas Capital. Financial terms of the transaction were not disclosed. ecnetwork.com/

IPOs

No IPO news today. 

EXITS

•Blackstone Group, TPG Capital, Carlyle Group and Permira Advisers have sold their ownership of NXP Semiconductors, which they owned through the sale of Freescale for $17.6 billion. The firms sold Freescale to NXP in 2015. www.nxp.com/

•NextEra Energy (NYSE: NEXWU), a Juno Beach, Fla.-based power company, will buy Energy Future Holdings and its controlling stake in Dallas-based power producer Oncor, in an $18.4 billion deal. www.energyfutureholdings.com

OTHER DEALS

•Tesla Motors (NASDAQ: TSLA), a Palo Alto-based electric car company, has made a formal offer to acquire San Mateo-based solar energy company SolarCity (NASDAQ: SCTY) for $2.6 billion. Tesla CEO Elon Musk is chairman and a major shareholder of SolarCity. The deal represents a 3.4% premium to SolarCity’s closing share price on Friday. SolarCity’s shares have risen around 26% since the deal was announced in June. Read more.

•The Marketing Group, a UK-based marketing firm, is buying Augustus Group and its subsidiary Imagine Group, a reality TV production company based in Asia, for €43.2 million Euros, or $48.3 million. www.hongkong-companies-index.com

•Wasserman, a Los Angeles-based sports agency, is acquiring Mondial Promotion, a Paris-based soccer agency, for an undisclosed amount. Read more.

•Futurity First Financial Corporation, a Hartford, Conn.-based insurance distribution company, has acquired M3 Financial, a New York City-based annuity IMO. Terms of the deal were not disclosed. www.m3financial.nyc

•Chronos Solutions, a real estate financial services provider based in Coppell, Texas, has acquired UPF Services, a Spokane Valley, Wash.-based provider of technology for real estate and mortgage industries, for an undisclosed amount. upfservices.com

•Verizon Communications (NYSE, NASDAQ: VZ) has agreed to acquite Fleetmatics (NYSE: FLTX), a Dublin-based provider of technology for mobile workforces, for $2.4 billion. www.fleetmatics.com/

•Teads, a France-based video advertising platform, has raised $47 million in debt from BNPP, Bank of China, HSBC, Banque Palatine, and BPI. teads.tv/en/

•China is considering merging its biggest steel producers, Hebei Iron & Steel Group and Shougang Group, and Shanghai Baosteel Group and Wuhan Iron & Steel Group, into two entities in the north and south respectively, according to Bloomberg. Read more.

•Interactive Intelligence Group (NASDAQ: ININ), an Indianapolis, Ind.-based call center technology company, has hired Union Square Advisors to explore strategic alternatives, according to Reuters. Read more.

•Praesidian Capital Europe, a provider of debt and growth capital in the United Kingdom and Northern Europe, is investing £8 million of first lien debt in EMC Advisory Services Limited, a claims management firm in Exeter, UK. www.praesidian.com

FIRMS & FUNDS

•Technology Crossover Ventures has closed its ninth fund, TCV IX, with $2. 5 billion in commitments. The firm’s prior fund, a 2014 vintage, had $2.2 billion in commitments. www.tcv.com/

MOVING IN, ON & UP

•Partners Capital has named Colin Pan, a partner in the London office and the firm’s head of manager research, its chief investment officer. Euan Finlay, Brendan Corcoran, and Richard Scarinci were also promoted to partners, and David Shushan has been named managing director in the firm’s Boston office. partners-cap.com

•CreditEase, a Chinese Fintech company, has appointed Anju Patwardhan as venture partner for its Fintech investment fund. Patwardhan joins the company from Standard Chartered Bank, where she served as global chief innovation officer. english.creditease.cn

Share today's Term Sheet:
http://fortune.com/newsletter/termsheet