M&A wrap: Uber, Lime, Neiman Marcus, Jump, Wynnchurch, Western Forge & Flange, CoImmune, Formula Pharmaceuticals, Nixon Peabody, Rising Stars
Meeting other dealmakers and building relationships are essential activities in the middle market. Most dealmakers – especially those in business development roles – typically spend a large percentage of their time on the road, conducting one-on-one meetings, attending conferences, going out for meals and engaging in bonding activities, like playing golf or going to a ball game. So what do you do when you’re quarantined and face-to-face meetings are out of the question? For Work from Home (WFH) strategies, Mergers & Acquisitions turns to eight prominent dealmakers from private equity firms, investment banks, lenders and law firms. “This turbulence will pass, and dealmaking professionals are immeasurably better positioned than most in our society to weather this storm and to take advantage of the opportunities that recovery will present,” says Christopher Keefe (pictured), practice group leader of corporate group, Nixon Peabody.
“I miss the excitement of a great conference; wearing my nice clothes, early morning breakfasts, the one-on-ones, drinks with my women ‘tribe,’ and dinner at a steakhouse, even though I am a vegan,” says Amy Weisman, managing director, business development, Sterling Investment Partners. “Zoom from home, while effective, does not replace being on the road; the airport meal-on-the-run, the frustrating iPhone tracking of my Uber, the friendly handshake of a banker, and the in-person deal discussions that generate new ideas.” In some respects, it is easier to build relationships, explains Nanette Heide, partner, co-chair, private equity group, Duane Morris. “For the first time, we all have a common social thread – stay at home. Under normal circumstances, we would meet someone and look for that common thread. It is now readily apparent and an easy topic of discussion and all seem interested in sharing experiences in this stay-at-home environment. Further, meeting folks over a video conference from their home is immediately humanizing.” Emotional Quotient (EQ) is "more important than ever during trying times,” says Jeremy Holland, managing partner, origination, The Riverside Co. “It’s critical to remember that the dealmaker on other side of the (now figurative) deal table is a person, too. They have good and bad days and presumably know many people in high-risk categories, potentially even themselves. Being extra thoughtful about each interaction is important." Read our full coverage: Dealmaking under quarantine: 8 private equity and M&A pros share strategies while social distancing.
Sophia Popova Summit Partners, Pavan Tripathi of Bregal Sagemount and Christine Wang of Francisco Partners were among the 10 individuals Mergers & Acquisitions named the 2019 Rising Stars of Private Equity. Who should be on our list for 2020? We have opened up the nomination process, and we are seeking individuals who are full-time private equity investors and whose best days are yet to come. These are the folks you predict will one day play a key leadership role at your PE firm – or will head up their own. New for 2020: This year, we will be taking a close look at how Rising Stars candidates are performing in the face of the Coronavirus Pandemic, how they are excelling in dealmaking while Working from Home and how they are helping portfolio companies pivot to the future New Normal. Send in nominations by Friday May 22.
Ride-share company Uber is leading a $170 million investment in Lime, the bikes and scooter-sharing business, along with Alphabet, Bain Capital Ventures, GV and other investors. As part of the investment, Lime has acquired Uber’s own micromobility business, Jump. According to Lime, in almost all markets where Lime and Uber operate, users will be able to sign in via app to both Lime and Uber services. Lime has also promoted Wayne Ting to CEO from global head of operations and strategy. Earlier this week, Uber announced plans to lay off 3,700 full-time employees and incur $20 million in severance costs because of the coronavirus crisis.
The coronavirus crisis and crushing debt has forced Dallas-based Neiman Marcus Group Inc., the luxury department store chain, to file for Chapter 11 protection from creditors while it reorganizes under federal bankruptcy laws. The bankruptcy petition filed in Houston calls for creditors to take control of the chain and to let it stay in business while management works out a recovery plan. The company, led by CEO Geoffroy van Raemdonck, said it has support from a substantial majority of its creditors, who will put up $675 million to get it through the bankruptcy court process and $750 million in exit financing. The company expects to emerge from bankruptcy in early autumn, with $4 billion cut from its $5.5 billion debt load -- the legacy of a 2013 leveraged buyout by current owners Ares Management Corp. and the Canada Pension Plan Investment Board.
Elliott Management Corp., Fidelity Management & Research Co., Bluescape Energy Partners and other mutual funds are investing $1.4 billion in Houston-based CenterPoint Energy Inc. (NYSE: CNP). Centerpoint will use the money to de-lever its balance sheet and execute a five-year $13 billion capital investment program. The $1.4 billion equity investment includes $725 million in mandatory convertible preferred shares and $675 million in common shares.
St. Louis-based middle-market PE firm Wynnchurch Capital has acquired Western Forge & Flange Co., a Texas-based provider of forging, heat treating, machining and metallurgical testing of pipe flanges and forgings to petrochemical, nuclear and military markets. Terms were not disclosed. Capstone Headwaters advised on the deal.
CoImmune Inc. has acquired Formula Pharmaceuticals Inc. to add a leukemia treatment technology to the therapies it is developing. The technology, called CAR-CIK, was developed by the Tettamanti Foundation of Monza, Italy. The merger was accompanied by a $6 million lead investment by Italian entrepreneurs Dr. Lucio Rovati, Aldo Fumagalli and Beppe Fumagalli in CoImmune’s financing to fund the CAR-CIK program. Rovati is CEO of the FIDIM Group. Advisors on the deal included Mediobanca, Cole Schotz, Morgan Lewis Bockius and NASaW Avvocati.
Vancouver, Canada-based digital content creator Thinkingbox has acquired AntiSocial Solutions, a social media and digital strategies company in Vancouver and Toronto. The deal is Thinkingbox’s third acquisition since December 2019, following deals for Welikesmall and Aarra. As part of the deal, AntiSocial’s co-founder and CEO Daryl Louie will become head of strategy at Thinkingbox and co-founder and chief operating officer Alex Chan will be head of production.
The enterprise values of private middle-market companies dropped 7.5 percent in the first quarter, according to Lincoln's Quarterly Middle Market Index, which is based on a database of more than 2,000 portfolio companies, primarily owned by private equity firms. That compares to a 16 percent drop for the S&P, indicating that private companies are outpacing public companies. Private companies were having their best quarter in years prior to the coronavirus crisis, says Lincoln International, the Chicago-based investment banking advisory firm that calculates the index. “The Covid-19 impact on the middle market is not yet fully felt and will not be until companies' performance subsequent to the start of Covid-19 is disclosed,” says Ron Kahn, Lincoln managing director. “Until there is more visibility on the future performance of these companies, private equity groups and lenders will be cautious before deploying capital." Declines were felt across all industries, with tech and healthcare faring slightly better than consumer and industrials. Decreases in the prices of oil resulted in the energy sector declining by 18 percent, the largest of any industry in the Lincoln index.
Fraud rates could be 10 percent to 12 percent with the $660 billion Paycheck Protection Program, the massive federal effort to assist small businesses hurt by the coronavirus crisis. Those estimates, which are based on initial reviews of loan files at dozens of banks, are roughly consistent with what has happened after other disasters. In the aftermath of Hurricane Rita and Hurricane Katrina, a government audit found that around 16 percent of applicants for federal disaster assistance used invalid information. If 10 percent of the PPP’s funding went to fraudsters, taxpayers would be defrauded by tens of billions of dollars. Read the full story: Bankers fear massive borrower fraud in PPP.
How much employee monitoring is okay, and when does it cross a line? During a quarantine, banks rely on technology to monitor employees as best they can. They track productivity, watch for signs of fraud and even look for signs of burnout and stress. Some monitor employees’ instant messages and emails; some use monitoring technology from companies like InterGuard, Teramind and Time Doctor. Still others have employees turn on their web cameras in the morning and leave them on all day. And companies are thinking about Covid-19 monitoring when employees return to work: measuring body temperature, watching for social-distancing rule violations, even potentially ordering blood tests to make sure contagious people go back home. Read the full story: Is the coronavirus giving banks an excuse to spy on employees?
The Covid-19 pandemic turned America—a nation long committed to easy mobility—upside down. Driving has dramatically declined and new vehicle production has ground to a halt, leaving no doubt that the impact on M&A within this space will go well beyond this black swan event. The impact on the automotive aftermarket—and the prospects for the industry in the months and years ahead—make for a particularly compelling case study. While the automotive aftermarket space is certainly not immune to the coronavirus, we are seeing that companies with a strong direct-to-consumer (DTC) e-commerce foundation and those catering to enthusiasts are faring better than others. Read the full story: Auto parts sellers turn to e-commerce, as coronavirus quarantine keep drivers off the roads.
Volkswagen, Ford Motor Co. (NYSE: F), Toyota Motor Corp. (NYSE: TM), General Motors Co. (NYSE: GM) and Daimler have recently shut down plants due to the coronavirus pandemic. Volkswagen has canceled its full-year forecast because of the shutdown. J.D. Power expects U.S. auto sales this year to fall between 12.5 and 14.5 million vehicles, a decrease from around 16.5 million to 17 million cars and trucks before the coronavirus outbreak. Meanwhile other businesses are looking to restructure, as car sales drop. For example, Tata Motors Ltd., the owner of Jaguar Land Rover, plans to separate its cars business from trucks and buses, as the company seeks partners for a unit that has been hurt by the pandemic. Tata Group bought the maker of the Jaguar XE sedan and the Land Rover Discovery sport utility vehicle from Ford in 2008 for $2.3 billion. The impact is also hurting pending auto deals. And car dealerships are feeling the brunt from the slowdown in production and sales too. Read the full story: Automakers struggle with quarantine forcing people to work from home.
The Federal Reserve has taken unprecedented actions to stabilize U.S. financial markets and keep credit flowing in the wake of the coronavirus pandemic. On March 3 it announced its first emergency interest rate cut since the 2007-2009 financial crisis; it further slashed the federal funds rate to zero on March 15 while at the same time urging banks to lend via the discount window. It also used its emergency lending powers under the Federal Reserve Act to prepare credit facilities to rescue flailing markets, something it had not done since the financial crisis. Over a decade ago, the Fed created six credit facilities and used its emergency lending powers to provide financial assistance to AIG, Bear Stearns, Citigroup and Bank of America. In less than two months this year, the Fed has announced 11 different credit facilities, all intended to support the flow of credit to households and businesses that may have encountered financial difficulties as a result of the coronavirus. Read the full story: Cheat sheet: 8 ways Fed is using emergency powers to counter pandemic
The coronavirus pandemic will change the world and how we live in it profoundly, with dramatic shifts in how we gather and meet, work and learn, make products and distribute them. But exactly how the transformations will play out in the middle market is difficult to discern. Several recent reports and surveys aim to provide a sense of direction. Read the full story: Coronavirus crisis is changing everything, including private equity and M&A.
To explore how the coronavirus is affecting the middle market, Mergers & Acquisitions interviews dealmakers from Alvarez & Marsal, Merrill Corp., M33 Growth, M-III Partners, Paul Hastings and the Riverside Co. Read our full coverage: “Brace for impact,” say private equity firms to portfolio companies about the coronavirus.
The coronavirus pandemic has already quashed a number of previously announced deals, including Xerox’s hostile takeover bid for HP. More deals are expected to fail, as companies focus on preserving cash and ensuring debt access just to make it through the challenging economic cycle. The auto, retail, restaurant, travel and manufacturing sectors have been particularly hit hard, as they face declining sales and location closures. Automotive manufacturers are restructuring their businesses, and car dealerships are seeing fewer people walk in the door.
For more, read our full coverage: 5 derailed deals: HP, TGI Fridays among those losing buyers during coronavirus crisis.
Deal structures are changing, especially in terms of what happens after a deal is completed. Read our story: How to manage post-closing disputes in M&A as a result of the coronavirus.
Covid-19 is forcing M&A practitioners to assess appropriate risk allocation mechanisms to address the impact of the virus on global business operations, including Representations and Warranties Insurance (RWI). Read the guest article: How the coronavirus forces dealmakers to assess effectiveness of RWI policies.
As consumer spending and business investment is declining, we expect a slowdown in private equity transaction volume. Read the story: Private equity deals will slow down, as global economy stalls amid coronavirus pandemic.
For more on how to cope with these challenging times, see: Coronavirus contingency planning checklist for the middle market.
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.
Once venture capital-backed startups themselves, today’s tech giants know a thing or two about VC seed money. It’s fitting that many of them have created corporate venture capital groups of their own. These CVCs help their owners experiment and nurture new technologies and ideas in the early stages, without requiring the commitment of an acquisition. The CVC strategy often augments a company’s research and development efforts as well as complementing its M&A strategy. Middle-market dealmakers would be wise to track the VC investments of the five companies we highlight: Amazon.com Inc. (Nasdaq: AMZN), Google (Nasdaq: GOOG), Intel (Nasdaq: INTC), Microsoft Corp. (Nasdaq: MSFT) and Salesforce.com Inc. (NYSE: CRM. Read our full coverage: Venture forth: How five of the biggest tech companies explore new territory through early-stage investments.
In a period of accelerating technology innovation and investment, it’s critical to stay aware of new technologies, offerings, data and analytics types and business models in your space, and adjacent spaces. Most companies are looking for ways to get better and earlier access to the startup space. While corporate venture capital (CVC) is only one method, it can be a fairly powerful one. Read full coverage: How corporations can benefit from VC investments in technology
Houlihan Lokey, Lincoln International, Jefferies Financial Group, William Blair and Piper Sandler Cos. rank as the top five most active M&A investment banks in 2019, based on the volume of completed private equity-backed deals in the U.S., according to PitchBook. Besides advising on M&A deals, the investment banks on the top 10 list also had a busy year with acquisitions of their own in 2019, including two acquisitions by Houlihan Lokey and three by Stifel Financial. Piper Sandler Cos., was created when Minneapolis-based Piper Jaffray Cos. acquired New York-based Sandler O’Neill & Partners in a deal representing more than half of Piper Jaffray’s $930 million market capitalization. The firm also had another acquisition in 2019 and sold a company to exit the traditional asset management business. See our full coverage: Top investment banks for PE-backed deals in 2019: Houlihan Lokey led the pack.
Audax, HarbourVest and Genstar ranked as the top three most active private equity firms in 2019, based on the volume of completed deals in the U.S., according to PitchBook. Three companies tied for fourth place: Abry, Carlyle and Shore Capital. Where were these PE firms looking for deals? Eight of the firms on our list name the software and technology sector among their top investment targets, and seven put healthcare companies on their priority list. Financial services and consumer services are each named by five of the firms as industries they focus on, with four naming business services companies. Fundraising from investors in 2019 led to two notable fund launches earlier in 2020: KKR’s Global Impact Fund and HarbourVest’s $2.6 billion HarbourVest Fund XI. See our full coverage: Top private equity firms in U.S. deals in 2019: Audax Private Equity ranked No. 1.
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.