M&A wrap: IPO update, Paul Hastings, Peter Thiel, LinkedIn, Richard Branson, UnitedHealth, KKR, 1-800 Contacts, Compass Diversified, TH Lee

Register now


Life sciences and biotech issuers, along with special purpose acquisition companies, dominated the first-half 2020 IPO market, according to a report from Paul Hastings. SPACs have accounted for nearly half of the proceeds raised in all initial public offerings in 2020. "The SPAC IPO market remains very active with Approximately 57 Deals with a median deal size of $300 million and an average deal size of $417 million for SPAC deals completed through the end of August with more than 30 deals pricing in July and August alone," according to the report. Some recent SPACs include: Bridgetown LLC, backed by PayPal co-founder Peter Thiel, filing to raise $575 million; LinkedIn founder Reid Hoffman and Zynga founder Mark Pincus raising $600 million in a vehicle called Reinvent Technology Partners; and Virgin Group founder Richard Branson seeking $400 million for VG Acquisition Corp. "The number of SPACs in the market has also led private companies to pursue a three-track process, since in addition to pursuing a traditional IPO or sale transaction, those companies are now able to also consider an acquisition by a SPAC as an alternative path to going public and exiting the investment," the report adds.

DEAL NEWS
Healthcare giant UnitedHealth Group Inc. (NYSE: UNH) is in advanced talks to acquire DivvyDose, an online pharmacy startup, according to Bloomberg News. UnitedHealth is in discussions to pay about $300 million for Illinois-based DivvyDose. Traditional health insurers are increasingly diversifying into other healthcare service businesses, including care delivery, pharmacy benefits and technology. Read the full story from Bloomberg: UnitedHealth reportedly in talks to buy pharmacy startup DivvyDose.

The coronavirus pandemic has disrupted entire industries in 2020, but perhaps none so much as healthcare. Contained in one industry is the global competition to develop test, manufacture and distribute a Covid-19 vaccine in record time and the fight to save patients from a virus that has infected more than 5 million people and killed more than 190,000 in the U.S. alone. The healthcare industry is also developing Covid-19 treatments; producing, administering and interpreting tests; and adapting new technologies and better methods for healthcare delivery and interaction with patients. For the full story, see: Covid-19 vaccines, tests and treatments spur healthcare M&A deals.

KKR & Co. is buying contact lens retailer 1-800 Contacts from AEA Investors. The deal values 1-800 Contacts at more than $3 billion, according to Bloomberg News. The number of people using the company’s two online eye-exam apps at least tripled at the peak of the shutdown. Read the full story by Bloomberg: KKR Buys 1-800 Contacts From AEA.

Compass Diversified (NYSE: CODI) is buying BOA Technology Inc., a maker of outdoor athletic wear and accessories such as boots and shoes for snowboarding, cycling and mountain climbing, for $454 million. "With significant potential for future growth across its major product categories, an in-depth understanding of consumer needs and preferences and efficient product development processes, we believe BOA is uniquely positioned to capitalize on the many opportunities ahead and increase market share across key industries," says Elias Sabo, CEO of Compass Diversified. Harris Williams advised BOA.

Thomas H. Lee Partners and Frazier Healthcare Partners have acquired Adare Pharmaceuticals, a contract development and manufacturing organization and provider of advanced pharmaceutical technologies, from TPG Capital. RBC Capital Markets and Kirkland & Ellis advised the buyers. Debevoise & Plimpton advised the sellers.

Odyssey Investment Partners is buying ProPharma Group from Linden Capital Partners. The target offers regulatory and compliance services to pharmaceutical, biotechnology and medical device customers. Jefferies, Latham & Watkins, Smith Anderson are advising Odyssey.

Palladium Equity Partners has acquired a majority stake in Trachte USA from MPE Partners. Trachte provides engineered building hardware such as steel structures, transmission substations and fire protection pumps. Stephens Inc., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. advised Trachte. Stifel and Greenberg Traurig advised Palladium.

Warburg Pincus has invested in GA Foods, a provider of meals for seniors, children, the military and for disaster relief efforts. JMP Securities and Burns & Levinson LLP advised GA Foods. Cleary Gottlieb Steen & Hamilton LLP advised Warburg Pincus.

Vector Capital has invested Patron Technology. The latter offers cashless payment and contactless ticket scanning technology for live events, along with streaming software for virtual events.

PEOPLE MOVES
Andrew Baldwin has been hired as a partner at Luminate Capital Partners. He was previously with Western Technology Investment. Luminate was founded by former Silverlake partner Hollie Haynes.

CORONAVIRUS IMPACT
Teladoc’s $18.5 billion acquisition of Livongo results from the combination of two of the largest publicly-traded virtual care companies; and is the third-largest acquisition of a U.S. company this year. Among other deals, direct-to-consumer telehealth company Thirty Madisonraised $47 million from partners including Johnson & Johnson,Humana invested $100 million into Heal, and telehealth startup Ro raised $200 million in a new round of funding; all strong signals to investors that digital health is beginning to disrupt the market. See full coverage: Soaring demand for virtual healthcare services in the pandemic fuels M&A.

Aligning the expectations of buyers and sellers is difficult during periods of economic uncertainty, and especially during the Covid-19 pandemic when business operations are being disrupted by social distancing and government-mandated closures. Due to this broader market turmoil, earnouts, which involve tying some portion of deal consideration to post-closing performance, are taking on a new level of importance in constructing M&A transactions. See the full story: How to use earnouts to adjust to the Covid-19 M&A landscape.

Today’s private equity firms face greater risk and uncertainty when evaluating potential portfolio acquisitions, in light of the Covid-19 pandemic. While things like market size and product quality are still important factors, private equity firms must also gauge a portfolio company’s character and ability to withstand economic turbulence. Read the full article: Agility matters: 4 signs PE firms should examine when considering acquisitions.

Car dealerships saw a drop in sales during the height of the pandemic from the slowdown in production with less people driving, and that impacted some deals. For example, Asbury Automotive Group Inc. (NYSE: ABG) originally backed away from its $1 billion acquisition of Park Place Dealerships. However, citing a pickup in business, Asbury revived the deal for $735 million. Now some dealmakers are predicting robust sector dealflow in the second half of 2020. Mergers & Acquisitions spoke with Erin Kerrigan, managing director of auto dealership-focused investment bank Kerrigan Advisors about deal trends in the industry. Read the full story: M&A among car dealers expected to reach record levels in the second half of the year.

With everything from Broadway to indoor dining closed, people are starved for entertainment. Enter mobile gaming. Despite restrictions slowly easing, mobile games are expected to see strong interest in the long-term and game makers are looking for acquisitions to keep their portfolios fresh. “There’s a lot of supply of great companies out there, big, small and different categories in different regions of the world," Zynga CEO Frank Gibeau recently told investors. He pointed out that Zynga has the cash to make more deals and will continue to look for them. "So, consolidation is obviously underway in the interactive category. We’re actively participating in growth through finding partnerships with companies out there. Scale is going to be increasingly important in mobile.” Read the full story: Quarantine drives M&A in mobile gaming.

The construction software industry is fragmented, and there is a growing demand for technology that will help contractors, drawing deal activity particularly from strategic buyers. One company that is active in the sector is Autodesk Inc. (Nasdaq: ADSK), which recently aquired Pype. Pype's software helps automate construction projects. Mergers & Acquisitions spoke with Sidharth Haksar, Autodesk's director of corporate development about the Pype deal. Read the full story: Autodesk seeks construction software deals during pandemic.

Deal activity in the cybersecurity sector is being driven by a combination of rising cyber threats and more people working from home. Earlier in 2020, Francisco Partners and Vector Capital-backed cybersecurity company WatchGuard Technologies acquired network security provider Panda Security. Mergers & Acquisitions spoke with WatchGuard CEO Prakash Panjwani about the Panda deal and M&A trends in the sector. "The security market will continue to experience significant consolidation throughout 2020 and beyond," says Panjwani. "This has been and will continue to be driven by customer needs. As the volume and sophistication of security threats continue to grow, vendors will answer with innovative new solutions. At the same time, the security expertise and resources required to deploy and manage those solutions will continue to be scarce." Read our full coverage: Work from home and increasing cyber threats will drive cybersecurity M&A.

While the novel coronavirus has reshaped the U.S. economy and the healthcare industry, pharmaceutical manufacturing has proven resilient—both in terms of business durability and its increasingly critical role in the global response to the virus. Covid-19 crystalized the U.S. dependence on overseas manufacturing for finished dose products as well as the active pharmaceutical ingredients necessary to produce life-saving medications. Read the full article: Why investors need to consider pharmaceutical manufacturing services.

EQUALITY AND INCLUSION
Bank of America Corp. invested $50 million in three Black-owned banks as part of its $1 billion pledge over four years to advance racial equality. The second-largest U.S. lender took equity stakes of about 5% in three minority depository institutions: First Independence Corp. in Detroit, Liberty Financial Services Inc. in New Orleans and SCCB Financial Corp. in Columbia, South Carolina. The bank also laid out plans for other initiatives aimed at promoting racial and economic equality, including $200 million allocated to direct equity investments in Black- and Hispanic-owned businesses. Read the full story by Bloomberg News: BofA invests $50 Million in black-owned banks in equality drive.

Ten private equity firms have pledged to each create and post five board seats to make them available to minority and women candidates, participating in an initiative to increase diversity on company boards of directors. Aurora Capital Partners, Clearlake Capital, Genstar Capital, Grain Management, Hellman & Friedman, Hg, Insight Partners, K1 Investment Management, TA Associates and Vista Equity Partners have committed to the board initiative announced by Diligent Corp., provider of company governance software and a portfolio company of Clearlake and Insight. Read our full coverage: Clearlake, Insight, Vista and other private equity firms create 50 new board roles for diverse candidates.

Portfolia Rising America Fund "invests directly in early and growth-stage companies in the U.S. led by people of color and/or LGBTQ founders, or products and services that cater to these markets," says investment partner Lorine Pendleton in a Q&A with Mergers & Acquisitions. "These are founders, ecosystems, products and services historically overlooked by traditional venture capitalists but positioned for significant growth and profitability." The firm is led by five women of color. In addition to Pendleton, the firm's leaders are: Noramay Cadena, co-founder and managing partner of MiLA Capital; Daphne Dufresne, a managing partner of GenNx 360 Capital Partners; Juliana Garaizar, an angel investor; and Karen Kerr, executive managing director at GE Ventures. "We believe that strength lies in differences and seek out entrepreneurs and startups who are using shifting demographics and their own diversity of experience and thought to create innovation that offers outsized opportunities for returns and impact." The fund had its first close earlier in 2020 and has made two investments to date: The first investment is in MoCaFi, a fintech startup founded by Wole Coaxum, a former JPMorgan Chase commercial banking executive and entrepreneur, who is African American. "MoCaFi offers a mobile-first banking platform that brings digital banking products to underbanked or unbanked communities (an 88 million U.S. market), allowing them to build credit and financial mobility," Pendleton explains. The second investment is in a women’s tele-medicine network. For more, read the full interview: Led by 5 women of color, Portfolia Rising America Fund backs mobile banking and women's telemedicine startups.

"As stewards of capital we have an outsized role in determining which businesses to support," says Mina Pacheco Nazemi of Barings Alternative Investments. "As asset allocators, we need to hold ourselves accountable. I can do more. Will you join me?" Dealmakers begin to weigh in, as Gerge Floyd's death sparked two weeks of Black Lives Matter protests against police brutality and racial injustice. Read the story: "Justice doesn’t just happen. It requires action, dedication and accountability," says one private equity investor.

MORE FEATURED CONTENT
Mergers & Acquisitions, the oldest trade publication serving the dealmaker community, has been acquired by Middle Market Information LLC from Arizent. Started in 1965 as Mergers & Acquisitions: a Dealmakers Journal, M&A’s print and digital magazine, news website, daily email newsletters and social media channels inform private equity firms, strategic acquirers, investment banks and other deal intermediaries on breaking news, emerging trends, and rising stars in the industry. Middle Market Information, a B2B data and information company, says M&A will retain its core values of providing quality intelligence to discerning professionals in the dealmaking community. “We are delighted to have an opportunity to invest in and grow Mergers & Acquisitions, a brand that’s been trusted by dealmakers for over 55 years,” said Middle Market Information CEO Jim Beecher. “This industry needs an independent voice that can deliver thoughtful analysis and deep coverage of both private equity and corporate deal activity. Through our website, www.themiddlemarket.com, and our publication, we will build upon the foundation of the brand and deliver an even better experience for the community in the coming months and years.” Editor-in-Chief Mary Kathleen Flynn adds: "The new challenges M&A and private equity professionals are facing in 2020 underscore the need for the trusted, insightful editorial content we produce at Mergers & Acquisitions and themiddlemarket.com. We've built a great foundation under Arizent, and we're looking forward to growing and extending our brand further with Jim and Middle Market Information." See full coverage: Middle Market Information LLC buys Mergers & Acquisitions publishing brand.

Mergers & Acquisitions is recognizing nine dealmakers as the 2020 Rising Stars of Private Equity:

  • David Farsai, Principal, Mainsail Partners, who is the first at the firm to rise from associate to principal
  • Andrea McGuirt, Senior Associate, Palladium Equity Partners, who established a strategy for sourcing and executing opportunities in the current deal environment
  • Molly Fitzpatrick, Vice President, Rallyday Partners, who led three investments and a divestment for the new PE firm
  • Jenny Zhang, Vice President, Investments, Grain Management, who helps portfolio companies in the telecom infrastructure sector find organic growth opportunities
  • Ross Stern, Principal, Summit Partners, who played a role in nearly $1.3 billion worth of healthcare company investments
  • Arjun Mehta, Vice President, Bregal Sagemount, who has made eight platform investments and seven add-on acquisitions
  • Miguel Tejeda, Vice President, Motive Partners, who stands out for his investment acumen and ability to distill complicated concepts and processes
  • Clara Jackson, Principal, TA Associates, who has become a trusted supporter during the pandemic to help portfolio companies remain sustainable
  • KJ McConnell, Principal, GTCR, who played a leading role in about 10 of the group’s last dozen deals

These outstanding up-and-coming investment professionals have been excelling during a period of profound change in the U.S. and in the world. The publication of this list comes at a pivotal moment in time. The country is beginning to open up after three months of quarantine from the coronavirus, while a second wave picks up steam in the Sun Belt from South Carolina to California and including Texas. Dealmaking under quarantine while working from home has proved challenging, to say the least.Social justice issues have taken on fresh urgency. There is heightened awareness of systemic racial injustice and police brutality against Blacks after the deaths of George Floyd and many others. Meanwhile, the U.S. Supreme Court ruled recently that, “An employer who fires an individual merely for being gay or transgender defies the law.” On immigration policy, the Court recently put the brakes on dismantling the Deferred Action for Childhood Arrivals, or DACA. Meanwhile, the President is asking the Court to overturn the Affordable Care Act, also known as Obamacare.

Click here for full coverage of Mergers & Acquisitions' 2020 Rising Stars of Private Equity.

In the challenging times we face now, it’s more important than ever to come together as a community and recognize the people and companies that excel and lead. We invite you to join us in honoring the 2019 winners of Mergers & Acquisitions’ M&A Mid-Market Awards. In contrast with the volatile coronavirus-driven conditions unfolding in 2020, the dealmaking environment of 2019 was remarkably stable. Among the PE firms benefitting from the auspicious fundraising climate was Vista Private Equity, which raised a $16 billion fund – the largest technology-focused PE fund ever raised. Mergers & Acquisitions is honoring Vista founder and CEO Robert F. Smith with our 2019 Dealmaker of the Year award. In addition to leading his firm’s unprecedented fundraising, Smith excelled in philanthropy. When he spoke at the commencement of Morehouse College, he announced he would pay off all the student loans of the HBCU’s 2019 graduates, providing a helping hand in the student debt crisis facing many U.S. families. The financial services sector saw a lot of consolidation in 2019. Piper Jaffray wins our 2019 Deal of the Year for buying Sandler O’Neill to form Piper Sandler, which instantly became a leading investment bank in the financial services sector. And Stifel wins our 2019 Investment Bank of the Year for growing dramatically and making several acquisitions. Read our full awards coverage: Meet the winners of Mergers & Acquisitions’ M&A Mid-Market Awards.

To celebrate deals, dealmakers and dealmaking firms, Mergers & Acquisitions produces three special reports every year: the M&A Mid-Market Awards; the Rising Stars of Private Equity; and the Most Influenital Women in Mid-Market M&A. For an overview of what we're looking for in each project, including timelines, see Special reports overview: M&A Mid-Market Awards, Rising Stars, Most Influential Women.

Editor's Note: M&A wrap is a bi-weekly column, published on Mondays and Thursdays

For reprint and licensing requests for this article, click here.