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Maybe this time: The so-called blank check company wasn’t much of a hit with the venture capital community two years ago, when cash was still gushing from the private market spigot.
But things have changed. Large startups need cash. SoftBank isn’t pushing up valuations quite like it used to. An uncertain economy has virtually halted the IPO market. In this strange and fast-changing environment, is it time for the blank check company—a fund intended to acquire an unknown company at a later date and take it public via merger, and ultimately a bet on the holding company’s investing acumen—to shine?
Social Capital Hedosophia II, the second such company co-founded by outspoken investor Chamath Palihapitiya (and third of his to go public), is expected to price today and list on Tuesday, assuming markets stay level. Hedosophia II previously filed to raise $345 million.
Palihapitiya’s first blank check company, founded in 2017, was billed as a novel way for companies to go public. It was different than a rigid conventional IPO process that featured barriers—such as when existing investors could cash out after an offering—startups liked to gripe about. But the blank check company didn’t get the same word-of-mouth impact in the venture capital community as did direct listings, which reduce banking fees, offer an exit to existing shareholders, but raise no additional capital for the company itself. Eventually Palihapitiya’s firm acquired a headline-grabbing (but not-exactly startup) target: Virgin Galactic.
Fast forward to mid 2020 and a pandemic with an unknown end date is ravaging the globe (and the global economy). Suddenly a potential $345 million cash infusion sounds mighty attractive. Sources tell Fortune that venture capitalists are once again reaching out to ask about the blank check companies, which helped sister company Hedosophia III gain a $720 million warchest as it seeks an acquisition abroad. (Hedosophia II is expected to seek a company within the U.S.)
An acquisition isn’t guaranteed to happen. First, the Hedosophias will have to find a company in a relatively small universe that will take hundreds of millions. (Remember: the cash won’t swallow the company, but be used in exchange for a stake in it.) It will have to convince shareholders or new buyers that the deal is a good idea. It will also have to convince unicorns that being under the public eye in return for cash is a good deal. (Indeed in 2017, many unicorns were also reaching out about the process.) Perhaps the biggest risk of all is time: Blank check companies usually have up to two years to secure an acquisition target. Who knows what the world will look like in one, two, or 18 months?
Whatever the case, in this environment, unicorns are hungry for cash.
A cancelled flight: Aerospace company Boeing has abandoned plans to acquire an 80% stake in Brazil-based Embraer’s commercial jet unit for $4.2 billion.
Boeing and Embraer have been in talks for a deal since 2017—but three years later, a maelstrom has exploded onto the scene. The coronavirus has decimated the airline travel and paused manufacturing in the aerospace and defense industry, adding to Boeing’s woes following scandals around two 737 Max crashes that killed 346 people. Now, amid a financial downturn, Boeing may be seeking federal aid—which could make a multi-billion dollar acquisition look extraneous even extravagant at a time when the public is throwing stones at airlines for seeking bailouts after years of buybacks.
In a he-said-she-said that is becoming increasingly the norm in these uncertain times: Boeing says that Embraer failed to meet conditions of the deal by the April 25 deadline. Embraer meanwhile is hitting back, saying the deal was wrongfully terminated due to Boeing’s own reputational and financial issues, adding they plan to “pursue all remedies.”
In short: Don’t be surprised to find more M&A breakdowns in hard hit sectors, including energy, travel, and retail.
The Bill and Melinda Gates Foundation: As the world focuses on Covid-19, other innovations will stall. The world’s wealthiest charity with over $40 billion under management is directing its firepower toward the global pandemic, the Microsoft founder told the Financial Times. An ultimately noble and necessary effort—but it also means progress in HIV and polio-related efforts, areas of its focus, will take a backseat.
VENTURE DEALS
- Compass Pathways, a London, U..K-based mental health care company focused on psilocybin, raised $80 million in Series B funding. Investors include ATAI Life Sciences, the McQuade Center for Strategic Research and Development, Founders Fund, Able Partners, Camden Partners Nexus, Perceptive Advisors, Skyviews Life Science, and Soleus Capital.
- ROME Therapeutics, a Cambridge, Mass.-based biotechnology company targeting repeatome in drug development, raised $50 million in Series A funding. GV, ARCH Venture Partners and Partners Innovation Fund were the investors.
Airtable, a San Francisco-based maker of collaborative software is speaking with investors about raising at least $50 million in a round that would value the business at between $2.5 billion and $4 billion, per the Information. Read more.
- - Actym Therapeutics, a Berkely, Calif.-based immuno-oncology company, raised $34 million in Series A funding. Boehringer Ingelheim Venture Fund and Panacea Venture led the round, and were joined by investors including Illumina Ventures, Korea Investment Partners, and JLo Ventures.
- Templafy, a Copenhagen-based provider of enterprise document creation, raised $25 million in Series C funding. Insight Partners led the round.
- Clever Care Health Plan, a Little Saigon, Calif.-based provider of Medicare Advantage health plans fitting to cultural needs, raised $20 million in Series A funding. Norwest Venture Partners led the round, and was joined by Global Founders Capital.
- Bijak, a New Delhi, India-based B2B platform for agricultural commodities, raised $12 million in Series A funding. RTP Global led the round, and was joined by investors including Omnivore, Omidyar Network, Sequoia India’s Surge, and Better Capital. Read more.
- Auditoria.AI, a Santa Clara, Calif.-based company employing AI in finance process automation, raised $6 million in funding. Neotribe Ventures, Engineering Capital, and Firebolt Ventures led the round.
- Tinvio, a Singapore-based commerce platform, raised $5.5 million in funding. Surge, Global Founders Capital, and Partech were among the investors.
- Relish, a Westchester, N.Y.-based relationship training app for happier, healthier romantic relationships, raised $5 million in Series A funding. Bessemer Venture Partners led the round and was joined by investors including Trinity Ventures and Bullpen Capital.
- SimpliRoute, a Chile-based startup optimizing delivery routes with ML, raised $3 million in Series A funding. TheVentureCity led the round.
- Varden, a Melbourne-based company converting waste material from sugarcane into packaging product, raised $2.2 million in funding from Horizon Ventures. Read more.
PRIVATE EQUITY
- American Pacific Group in partnership with Joe Falsetti of Dana Holdings acquired SaltStick, a Malibu, Calif.-based electrolyte replenishment supplement maker. Financial terms weren't disclosed.
- Stirling Square Capital Partners acquired Assistansbolaget Försäkring Sverige, a Swedish roadside assistance provider. Read more.
- Verdane partnered to merge Conscriptor, a Swedish developer of medical journal documentation services, and Max Manus, a Scandiadvian speech recognition company. Read more.
OTHERS
- Twin River Worldwide Holdings (NYSE: TRWH) agreed to acquire Eldorado Shreveport Resort and Casino and the Mont Bleu Resort Casino & Spa, based in Shreveport, La. in Lake Tahoe, Nev. respectively, from Eldorado Resorts for $155 million. Twin River also agreed to acquire Bally's Atlantic City Hotel & Casino for $25 million in cash from Caesars Entertainment and Vici Properties.
- Speedcast International, an Australian satellite-communications company that connects cruise ships and oil rigs to the internet, filed for bankruptcy protection in the U.S.
- Cinemex Holdings USA, a Miami, Fla.-based operator of 41 CMX Cinemas locations in 12 states, filed for chapter 11 protection. Read more
- Diamond Offshore Drilling, a Houston-based contract drilling company, filed for Chapter 11 bankruptcy protection. Read more.
- Rewe, a German supermarket chain, is looking for takeover candidates. Read more.
- Imperial Brands, a U.K.-based tobacco company, is offloading parts of its premium cigar business to focus on vaping and pay down debt. The company is selling assets worth 1.23 billion euro ($1.33 billion). Read more.
IPOs
- ADC Therapeutics SA, a Switzerland-based biotech focused on antibody therapies for cancer, re-filed to raise $100 million. It posted revenue of $2.3 million and losses of $116.5 million in 2018. Auven Therapeutics (42.8% pre-offering) and AstraZeneca (7.1%) back the firm. It plans to list on the NYSE as “ADCT.” Read more.
- Ebang International, a Zhejiang, China-based maker of equipment for cryptocurrency mining, filed to raise $100 million. It posted revenue of $109.1 million and loss of $10 million in 2019. It plans to list on the NYSE or the Nasdaq as “EBON.” It previously sought to raise in Hong Kong. Read more.
EXITS
- Hg agreed to acquire a stake in smartTrade Technologies, an Aix-en-Provence, France-based multi-asset electronic trading solution, from Keensight Capital and Pléiade Venture. Financial terms weren't disclosed.
F+FS
- The Ontario Municipal Employment Retirement System raised $750 million for a venture capital fund to back early-stage technology companies in North America and Europe. Read more.
PEOPLE
- Flexstone Partners, an affiliate of Natixis Investment Managers, hired Kristof van Overloop as a Director.
