May 22nd, 2019

DealBook Briefing: Qualcomm Violated Antitrust Law

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The company suppressed competition in the smartphone chip market and then charged excessive licensing fees, a federal judge has ruled, according to the WSJ.

“Qualcomm’s licensing practices have strangled competition” in key parts of the modem chip market, the judge, Lucy Koh of the U.S. District Court in San Jose, wrote. That “harmed rivals, O.E.M.s, and end consumers in the process,” she added.

The company must now negotiate or renegotiate licensing agreements with its customers so that they don’t contain unfair tactics, according to the WSJ. Qualcomm must also be monitored for the next seven years to ensure that it complies with the remedies.

Qualcomm is considered the industry leader in essential wireless modem chips, an ever-more-important position as the race to develop next-generation 5G wireless networks accelerates.

The case has been closely watched since a similar lawsuit between Apple and Qualcomm was settled last month. Apple’s willingness to back down was seen as a sign of how far ahead Qualcomm is on 5G modem chips.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.

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• And the U.S. “has sharply slowed approvals for the nation’s semiconductor companies to hire Chinese nationals for advanced engineering jobs” in a bid to protect U.S. know-how, the WSJ reports.

“China poses an economic, technological and geopolitical threat that cannot be left unchecked,” in the eyes of the Trump administration, Ms. Swanson and Mr. Wong write.

Fears of a tech cold war are real. Pony Ma, the head of the Chinese tech giant Tencent, said that he was “constantly watching whether the trade war will turn into a tech war,” according to a CNBC translation of remarks that he made recently. “If we don’t continue to work hard on basic research and key technologies, our digital economy will just be a high-rise built on sand.” China still relies heavily on imported computer chips.

And Huawei is scrambling to find allies. Yesterday it “implored European governments to resist American pressure,” according to the WSJ. (Europe, the Middle East and Africa generated 28 percent of Huawei’s revenue last year.) Unnamed U.S. officials told Bloomberg that their European counterparts were coming around to the Trump administration’s thinking about Huawei and national security.

President Xi Jinping of China warned his country to get ready for a protracted trade fight with the U.S., Alex Stevenson of the NYT writes.

“There is a new long march, and we should make a new start,” Mr. Xi told a cheering crowd yesterday at the start of a domestic campaign meant to rally China. The Long March of 1934 was a pivotal moment in the history of China’s Communist Party that led to Mao Zedong seizing power from Nationalists.

Mr. Xi did not specifically mention trade, but his comments appear to be the strongest signal yet that Beijing no longer expects a deal with the U.S. any time soon.

Beijing is stirring up nationalist fervor in other ways, too. Chinese state media has compared the trade war to the Korean War, in which Chinese troops fought American forces.

U.S. companies are girding themselves for long-term pain. Several American retailers are taking steps to avoid raising prices because of tariffs on Chinese imports. One, Kohl’s, also lowered its financial guidance for the rest of the year.

The I.R.S. has no choice but to honor congressional requests for President Trump’s tax returns unless he invokes executive privilege to protect them, according to a draft legal memo written by agency staffers, Alan Rappeport of the NYT reports.

That appears to contradict Treasury Secretary Steven Mnuchin, “who has refused to comply with Democrats’ requests because they lack a ‘legitimate legislative purpose,’ ” Mr. Rappeport writes. “Mr. Mnuchin said he made his decision after consulting with lawyers from the Treasury Department, the I.R.S. and the Justice Department.”

The draft memo was written last fall, an I.R.S. spokesman told the NYT. “The current I.R.S. commissioner, Charles P. Rettig, and its chief counsel, Michael Desmond, were not aware of it until this week,” Mr. Rappeport adds. “The memo was not sent to the Treasury Department.”

“It is not the official position of the I.R.S.,” the spokesman said.

Mr. Mnuchin is scheduled to testify this morning before the House Financial Services Committee, “and is likely to be grilled by Democrats about the decision not to hand over the returns,” Mr. Rappeport writes.

Morgan Stanley, Goldman Sachs and JPMorgan Chase have long dominated the business of taking companies public. But after Uber and Lyft’s flawed debuts, rivals are circling, the FT finds.

The three banks claimed 55 percent of tech I.P.O. underwriting fees last year, the data provider Refinitiv says, from an estimated total of more than $400 million. Morgan Stanley and Goldman Sachs (along with Bank of America) were Uber’s lead underwriters; JPMorgan (and Credit Suisse) were Lyft’s.

Rivals say the Uber and Lyft failures are cause for a shake-up. Uber has never traded above its I.P.O. price of $45 a share, and Lyft is down 23 percent from its I.P.O. price of $72 a share.

“The quality of deal execution” is being questioned by companies and venture capitalists, David Hermer, the head of equity capital markets at Credit Suisse, told the FT.

But I.P.O. candidates may prefer to play safe. Morgan Stanley, Goldman and JPMorgan are plugged into Silicon Valley, and have the broadest connections with potential investors in almost all offerings.

“You are not going to do something crazy” if you choose a “tried and true” adviser, said Howard Lerman, who picked Morgan Stanley to lead the I.P.O. of his company, Yext, in 2017.

In newly filed accusations, McDonald’s employees have described repeated sexual harassment and then punishment for speaking out, Melena Ryzik of the NYT writes.

• “The Time’s Up Legal Defense Fund, formed last year to extend the muscle of the #MeToo movement beyond Hollywood, has taken aim at sexual harassment on the fast food chain’s assembly lines.”

• With the American Civil Liberties Union and the labor group Fight for $15, it has “announced the filing of 23 new complaints against McDonald’s — 20 sent to the Equal Employment Opportunity Commission; three filed as civil rights lawsuits; and two suits stemming from previous allegations.”

• Workers accuse McDonald’s of “gender-based discrimination, sexual harassment in the workplace and retaliation for speaking up.”

• “McDonald’s is a strategic target. The restaurant industry has one of the highest rates of workplace sexual harassment; in one survey, 40 percent of female fast food workers said they had experienced it.”

• “The company’s dominant role in the economy makes the campaign a major test of the legal and labor power of the #MeToo movement.”

Avon, once a giant in the cosmetics industry, has agreed to sell itself to a Brazilian rival, Natura Cosmeticos, according to press reports. The transaction could be announced as soon as today.

The all-stock deal would be valued at about $2 billion, according to the FT, citing unnamed sources. Natura would own about 76 percent of the combined business.

Natura already owns the Body Shop and Aesop brands, and has sought to expand globally.

“The deal would mark the end of the independence of an icon of 20th-century business, which has fallen on hard times as consumer tastes and buying habits have shifted,” the WSJ notes. Avon, which became a powerhouse through door-to-door sales, lost ground to online sales, which it was slow to embrace.

Avon had already spun out its North American business, which was sold in April to LG Household & Health of Korea for $125 million.

One big winner: Cerberus Capital Management, which controlled Avon’s North American unit and has a big stake in the remainder of the business.

The White House is vetting Judy Shelton, a conservative economist who favors changing interest-rate policy, for a seat on the Fed board.

President Trump plans to nominate Brent McIntosh, the Treasury Department’s general counsel, as its undersecretary for international affairs.

The Trump administration is expected to name Ken Cuccinelli, the former attorney general of Virginia, as its immigration policy coordinator.

The investment firm Silver Lake has hired Barrett Karr, the chief of staff for the House minority leader, Kevin McCarthy, as its head of government relations.

Deals

• Chinese regulators unwinding Anbang’s property portfolio have reportedly received bids of over $5.8 billion for its U.S. luxury hotels. (FT)

• British Steel will file for bankruptcy after talks between the U.K. government and the owner broke down. (BBC)

• Lions Gate is reportedly interested in selling the cable channel Starz to CBS. It may then sell itself to MGM. (CNBC)

• Investors in TransferWise, the European payments start-up, are selling some of their holdings at a $3.5 billion valuation. (FT)

• French companies have been using the European Central Bank’s easy-money policies to buy assets — just not in Europe. (WSJ)

• The celebrity chef Jamie Oliver has put almost all his British restaurants into bankruptcy. (NYT)

Politics and policy

• President Trump dashed hopes for a bipartisan infrastructure bill by telling Congress to pass a trade agreement with Mexico and Canada first. (NYT)

• A California lawmaker has proposed extra tax breaks for film productions relocating from states that passed abortion bans, including Georgia and Alabama. (CNBC)

• Tax plans proposed by several Democrats would cost less than Mr. Trump’s tax cuts but deliver more to the middle class, according to an analysis by a liberal think tank. (NYT)

• Ben Carson, the secretary of the Department of Housing and Urban Development, confused the term “real estate owned,” or R.E.O., homes with Oreo cookies at a hearing yesterday. (Politico)

• New York State lawmakers voted to let state prosecutors pursue charges against individuals pardoned for similar federal crimes. (NYT)

Boeing

• Europe’s aviation regulator set three conditions for Boeing’s 737 Max 8 plane to fly again, signaling a growing rift among global agencies. (FT)

• A Boeing official examining a previous Max 8 crash reportedly dismissed the risk of the scenario now suspected of triggering the Ethiopian Airlines disaster this spring. (WSJ)

Brexit

• Prime Minister Theresa May of Britain offered lawmakers what she called a “new Brexit deal,” with a chance of a second referendum. (NYT)

• The pound has fallen amid growing fears of a disorderly no-deal Brexit later this year. (WSJ)

Tech

• Google will now require clearance from companies advertising abortion services in the U.S., Britain and Ireland. (NYT)

• The company also stored some corporate users’ passwords insecurely for 14 years. (Verge)

• Alex Stamos, Facebook’s former security chief, said that Mark Zuckerberg has too much power and should step down as C.E.O. He suggested Microsoft’s president, Brad Smith, as a replacement. (Business Insider)

• The U.S. Postal Service is testing autonomous trucks. (WSJ)

• Amazon is sucking up A.I. talent in Germany and “gamifying” warehouse work. (Politico, Business Insider)

• To rein in tech monopolies, maybe we need to rethink what a monopoly is. (NYT Op-Ed)

Best of the rest

• JPMorgan Chase investors are questioning executive pay at the bank. (FT)

• Why workers without college degrees are fleeing big cities. (NYT)

• An unanswered question about Robert Smith’s promise to pay off Morehouse graduates’ student loans: Who’ll cover the tax? (WaPo)

• The S.E.C. wants stock exchanges to justify their rising data fees. (FT)

• Craig Wright, who claims to be Satoshi Nakamoto, the inventor of Bitcoin, filed to copyright the original Bitcoin white paper. Also: A Peter Thiel-backed crypto startup paid out a 6,567 percent return. (CoinTelegraph, Bloomberg)

• Tesla poached a social media manager from Britain’s Museum of English Rural Life after his tweets impressed Elon Musk. (FT)

Thanks for reading! We’ll see you tomorrow.

You can find live updates throughout the day at nytimes.com/dealbook.

We’d love your feedback. Please email thoughts and suggestions to business@nytimes.com.

May 22nd, 2019

Shares of Saudi shopping mall giant slip

DUBAI — One of Saudi Arabia’s largest initial public offerings (IPO) in five years has slipped below expectations as it debuted on the Tadawul, the country’s stock exchange, Wednesday morning.

Shares of Saudi shopping mall operator Arabian Centres were trading at 24.5 riyals ($6.53) at 10:30 a.m. in Riyadh, after initially debuting at 26.1 riyals just after the bourse opened.

The price fell below the retail giant’s initial pricing at 26 riyals per share, which was at the bottom of its indicative range, compared with a price range of 26 to 33 riyals per share for 95 million shares being sold. The company had been aiming to raise 2.8 billion riyals ($747) million.

Arabian Centres’ share sale was the kingdom’s third biggest since Saudi bank National Commercial raised $6 billion in 2014, according to Refintiv data. But before the launch it was being talked up as possibly the largest IPO in the country in five years.

Future plans

Arabian Centres Company — which operates, develops and owns 19 malls across 10 cities in Saudi Arabia — is owned by Fawaz Alhokair Group, whose majority shareholder is Saudi billionaire Fawaz Alhokair.

The 17-year-old shopping mall operator had a revenue of $576 million in 2018, up from $511 million in 2016. Its future plans include the opening of four more malls and one extension in the coming 12 months, according to the company.

Omar Al Mohammedy, CEO of Fawaz Alhokair Group, spoke to CNBC about the IPO the week prior and emphasized the importance of Saudi Arabia’s social and economic liberalization plans to the expansion of his business.

“Vision 2030 presents a tremendous opportunity for us,” he told CNBC’s Dan Murphy in Abu Dhabi, referencing the economic diversification plan spearheaded by Crown Prince Mohammed bin Salman to reduce Saudi Arabia’s reliance on oil revenue.

“One of the vision policy objectives is to improve the quality of life for Saudi citizens and Saudi residents. This includes many entertainment initiatives. One example that directly helps our business is cinemas.”

Saudi Arabia legalized movie theaters in late 2017 for the first time in more than 35 years as part of a drive to open up notoriously conservative social norms in the Islamic monarchy.

“We’re launching 15 cinemas across our existing 19 assets and we’ll have more cinemas in our growth assets,” the CEO continued. “Many of these policy objectives allow us to add concepts that in the past we could not add, whether it’s across entertainment, or fine dining, so we’re excited that there is significant room for us to give a hungry Saudi consumer the product that they demand.”

—Reuters contributed to this story

May 21st, 2019

How data analytics is transforming operational due diligence

It comes as no surprise that the market for PE acquisitions continues to be robust. Global deal value increased from $594.54 billioon in 2015 to $825.77 billion in 2018 and that’s nothing compared with the predictions for 2019.

Buoyed by low interest rates, an eager supply of deal financing and a prolonged period of economic growth, PE has plenty of dry powder and has proved to be resistant to the impact of trade wars, tariffs and political uncertainty. However, not all factors are positive: Valuation multiples remain high and there’s considerable competition among PE firms to find and acquire those elusive “diamonds in the rough.” At the same time, corporate “strategics” looking for suitable acquisitions to support their growth, are offering a viable alternative for firms considering sale.

With these competitive factors, how can PE firms gain an advantage over their competitors, make smarter buying decisions, and speed up the value creation process? The answer lies in operational due diligence (ODD), paired with the advanced capabilities of data analytics in assessing target companies. Recent advancements in technology are allowing for automation to drive intelligent data processing and deeper insights to help PE firms determine with confidence where the opportunities for value creation lie.

The importance of TVO operational due diligence
Total Value Optimization (TVO) operational due diligence, based on a foundation of data analytics, cuts through the noise and gets straight to the facts which sound decision-making is based on. This helps PE firms identify target companies, analyze their potential and implement the necessary cross-functional processes to accelerate time-to-value creation. PE firms across all industries are increasingly making use of data analytics and operational due diligence to:

· Identify and screen fast-growth businesses

· Determine with confidence where the opportunities for value creation lie

· Quickly identify potential deal breakers and underlying commercial risks

Due diligence provides fast, accurate visibility of the financial information PE firms need. What differs with a total value approach is its ability to identify supply chain and operations-oriented value creation opportunities both pre-and post-acquisition. This enables PE executives to quantify EBITDA improvements, together with working capital risks and opportunities. These are coupled with an implementation road map for the first 180 days and beyond, with an emphasis on quick wins to support positive internal rates of return (IRRs) in year one.

How data is transforming the ability to identify value
One of the most significant opportunities to impact the success of due diligence is understanding how to leverage data. In today’s market, the ability to tap into the volume and variety of big data can provide private equity stakeholders with the competitive edge in operational due diligences. With the ever-increasing availability of data, analytics can help PE executives understand the value drivers that identify revenue and profitability opportunities. In recent years, we’ve seen the emergence of several data analytics tools which are capable of significantly accelerating the process. These tools allow data extracted from multiple entities to be organized, assembled, cleansed and visualized. Automation and AI have also dramatically improved the ability to review thousands of files and contracts, targeting keywords and insights.

Data analytics can also help unlock exploratory insights, looking at data available on demand through public sources, market subscriptions, and social media. This allows for performance benchmarking of external trends, helping provide guidance on the potential value of cost reductions, generating cash and enabling growth. Giving a more strategic role to data analytics can increase accuracy in valuation of the target and improve management. This ultimately results in better portfolio value.

Driving value throughout the PE lifecycle
While many PE executives are realizing the value of technology throughout the operational due diligence process, less adept companies are continuing down the well-worn acquisition path. In today’s world, this could mean losing out to their smarter and more nimble competitors who are already using data analytics and artificial intelligence to generate and close more transactions, earn higher rates of return, and lower risk.


Photo credit: Adobe Stock

May 21st, 2019 May 21st, 2019 May 21st, 2019

M&A wrap: CD&R, Mod, Broadridge, TPG, Riverside, Rsing Stars


Photo credit: Mod Pizza

Clayton, Dubilier & Rice has invested $150 million in fast-casual pizza chain Mod Super Fast Pizza Holdings to help accelerate the target’s growth. Mod is the number one chain in the fast-casual pizza category by U.S. store count with 433, according to the company, which is planning on opening 1,000 locations over the next five years. Mod is known for making individual artisan-style pizzas with any combination of 30 toppings for one price. “Mod has made important investments in online and mobile app ordering, innovative digital marketing strategies and customer loyalty programs and leads its competition in virtually all relevant customer satisfaction scores,” says CD&R partner Paul Pressler. MOD was founded in 2008 in Seattle by entrepreneurs who are known for building Seattle Coffee Co. and Carluccio’s. Dealmaking in the restaurant sector, including pizza, is very active. In 2019, fomrer NBA star Shaquille O’Neal said he is going to invest in nine Papa John’s International Inc. (Nasdaq: PZZA) restaurants. In 2017, Cleveland Avenue LLC, a venture capital firm started by former McDonald’s Corp. (NYSE: MCD) CEO Don Thompson, acquired PizzaRev. PizzaRev uses a “craft your own” approach to pizza, which is cooked in three minutes in a 900-degree stone oven. In 2016, Panda Restaurant Group Inc., one of the largest privately held fast casual Asian restaurant operators, acquired a minority stake in Pieology Pizzeria, which calls itself “the Chipotle of pizza” by letting customers build their own pizzas. The advisor to CD&R is Kirkland & Ellis, and J.P. Morgan (NYSE: JPM) served as Mod’s placement agent.

Just 2 more days to nominate candidates for Rising Stars. Deadline approaches for Mergers & Acquisitions’ 2019 Rising Stars of Private Equity. Last year, we named 11 PE investors to the list, including Ethan Liebermann, who was recently promoted from principal to director of TA Associates, and Jennifer Roach Pacini, a vice president of Yellow Wood Partners. We look for 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. There is no age cutoff. We publish the list online in July and in the July/August issue of the magazine. The deadline for nominations is end of day Thursday, May 23, 2019. Nominations will be accepted only through our online form. There is no fee.

CLICK HERE TO NOMINATE A RISING STAR OF PRIVATE EQUITY
Click here for the 2018 Rising Stars of Private Equity.

DEAL NEWS
Broadridge Financial Solutions Inc. (NYSE: BR) is buying RPM Technologies, a provider of wealth management software, from Bayshore Capital Inc. for $300 million. Broadridge is being advised by RBC Capital Markets and RPM is being advised by Canaccord Genuity Corp.

Varian Medical Systems is acquiring Cancer Treatment Services International from TPG Growth for $283 million. The target owns and operates a network of cancer treatment facilities across India and South Asia. Ropes & Gray represented Cancer Treatment.

The Riverside Co.-backed Shaker International, a data provider for recruiting, has merged with Montage. Montage provides software and technology that helps companies interview and hire better candidates, faster. Montage is backed by Baird Capital, Beringea, GCI and Plymouth Growth Partners. Montage was advised by Lightning Partners.

The Riverside Co. has invested in Naturally Slim. The target is a digital health platform focused on helping participants reduce metabolic syndrome, lose weight and lead healthier lives.

Littlejohn & Co.-backed furniture manufacturer Brown Jordan International has acquired Castelle Furniture.

Bison has acquired Cobalt Environmental Solutions, a water infrastructure services provider, from Blue Sage Capital. The sellers were represented by Queen Saenz + Schutz PLLC.

Calera Capital-backed laundry services provider ImageFirst has acquired a majority stake in Faultless Healthcare Linen.

Madison Dearborn Partners LLC and HPS Investment Partners are increasing their stakes in U.K. insurance broker Ardonagh Group.

HCSC Ventures has led a Series C $42 million fund round in Solera Health.

Heritage Commerce agreed to buy Presidio Bank for $200 million. Read the full story: Pricey San Francisco bank deal could motivate others to sell.

PEOPLE MOVES
Maarten Meurs has joined investment bank William Blair as a managing director, where is helping the firm grow its western European presence. Meurs was previously with ABN Amro.

Brian O’Reilly was hired by middle-market investment firm Graycliff Partners as a managing director. O’Reilly was previously with CVC Credit Partners, and he is responsible for sourcing and evaluating portfolio investments for Graycliff’s dedicated credit fund.

Candice Turner has joined Grant Thornton as a principal to lead its M&A tax practice in the Northeast. She was most recently with KPMG.

Josh DuClos, Eric Kauffman and Mehdi Khodadad have joined law firm Sidley Austin. They were previously with Cooley and focus on private equity.

FEATURED CONTENT
Technology is revolutionizing the healthcare industry and fueling an explosion of transactions. Some of the most promising areas of innovation are: big data, medical devices, revenue cycle management, Software-as-a-Service and payment processing. “Healthcare IT is the largest cottage industry in the world,” says Sam Hendler, who leads healthcare IT deals at Harris Williams. “Healthcare IT is a highly fragmented, multi-billion-dollar market with thousands of companies focused on different $250 million to $500 million sub-markets. Savvy investors see there is an opportunity to aggregate assets and build platforms of scale. It’s an incredibly exciting time in healthcare IT.” For an in-depth look at five technologies driving M&A in healthcare, see Healthcare’s must-have technologies. And for recent transactions that showcase the trends, see 5 private equity-backed healthcare IT deals.

For more on how technology is driving M&A and private equity investments see:
Smart cities, IoT, AI, robots, edge computing will fuel next wave of tech M&A.
Why private equity firms still love technology
10 private equity firms share strategies for tech M&A.

Genstar Capital, Audax and HarbourVest ranked as the top U.S. private equity firms of 2018, based on volume of completed deals, according to PitchBook. Check out Mergers & Acquisitions’ profiles of 21 firms that led the league tables. Top private equity firms: Genstar, Audax, HarbourVest.

Also see: Top investment banks in PE-backed deals: KPMG, Houlihan, GS, William Blair.

At least two-thirds of U.S. homes have at least one pet, and people are spending more money on their pets than ever, driving M&A across the entire pet care sector. Read the full story: Demand for animal health products and services rises, driving deals.

Excelled. Innovated. Inspired. That’s what the eight winners of Mergers & Acquisitions’ 12th Annual M&A Mid-Market Awards did in 2018. Our awards honor the leading dealmakers and deals that set the standard for transactions in the middle market. In addition to Nike, award winners include: Fortive, TA Associates, the Riverside Co., Harris Williams, Monroe Capital, Goodwin and Luminate Capital Partners’ Hollie Haynes. Read our full coverage: Meet the winners of the M&A Mid-Market Awards: Nike, Fortive, TA, Harris Williams.

Mergers & Acquisitions has named 36 leaders the 2019 Most Influential Women in Mid-Market M&A, including Kainos Capital’s Sarah Bradley, Kayne Anderson Capital Advisors’ Nishita Cummings and Pelham S2K Managers’ Venita Fields. All 36 are outstanding dealmakers both inside and outside of their firms. This year, we asked the featured dealmakers to tell their own stories through Q&As, including their advice for women. Related: Meet the 2019 Most Influential Women in Mid-Market M&A.

Read more about Mergers & Acquisitions’ three annual special reports, including the M&A Mid-Market Awards, the Rising Stars of Private Equity, and the Most Influential Women in Mid-Market M&A.

EVENTS
ACG Chicago hosts the Midwest Capital Connection, at The Marriott Downtown Magnificent Mile, May 21-22.

ACG New York, ACG Boston and ACG Philadelphia are holding the Industrial Conference with Value Creation at the Infor in New York on June 6. The event is part of the Northeast Industry Tour.

ACG Minnesota hosts the the Upper Midwest ACG Capital Connection at the Renaissance Minneapolis Hotel, The Depot, June 10-11.

ACG Boston brings together 700-plus dealmakers for DealFest Northeast and DealSource Select 2019 at the Cyclorama and the State Room, June 12-13.

Exponent Women hosts the Annual Exchange, which brings a trusted network of women dealmakers together for a focused day of robust content and networking, at Second in New York, on July 11. The Exchange provides attendees with opportunities to establish new connections, reinforce existing ones and absorb timely and relevant knowledge from industry leaders.


Demitri Diakantonis

Demitri Diakantonis

Demitri Diakantonis joined SourceMedia in 2015 and serves as Managing Editor of Mergers & Acquisitions. He covers all aspects of middle-market dealmaking, with a focus on strategic buyers and the consumer and retail sectors, and writes The Buyside column.


Mary Kathleen Flynn

Mary Kathleen Flynn

Mary Kathleen Flynn joined SourceMedia in 2011, serving as the Editor-in-Chief of Mergers & Acquisitions. MK oversees the brand’s content on all media platforms, including website, e-newsletters, video, slideshows, podcasts and print.


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May 21st, 2019

DealBook Briefing: What a Digital Iron Curtain Could Mean for Tech

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A grace period in corporate America’s freeze-out of Huawei might not help the tech company very much.

• Last week, the Commerce Department said that U.S. companies would need special permission to sell some products to Huawei and other Chinese companies.

• Yesterday, companies including Google, Qualcomm and Broadcom were reported to have frozen their supply of components and software to the Chinese technology giant.

• Late yesterday, the Commerce Department said it would grant 90-day permissions for transactions needed to support handsets and equipment Huawei had already sold.

The reprieve “doesn’t mean much,” Ren Zhengfei, Huawei’s founder, said. He added that the company could “not easily” exclude U.S. chips from its devices, “but if there is a supply shortage, we have a backup.” He also said: “The current practice of American politicians underestimates our strength.”

What happens next?

• The exceptions suggest the move has “always been for leverage in the trade talks,” Derek Scissors, a scholar at the American Enterprise Institute, told the WSJ. If he’s right, it could be over as soon as it’s started.

• But the Trump administration has spoken repeatedly about blunting China’s tech development, citing issues like intellectual property theft and cyberespionage. And China has already threatened to retaliate. So don’t rule out a long and bitter fight.

Here’s one worst-case scenario:

• In a tech cold war, China would create “a digital Iron Curtain” that would keep out much of the world, Li Yuan of the NYT writes. “The United States and many other countries, goes this thinking, will in turn block Chinese technology.”

• That could hurt both sides, Tim Culpan of Bloomberg Opinion argues.

• It could also slow down development and deployment of new technologies like 5G wireless networks, which benefit from global economies of scale.

The chairman of the Federal Communications Commission, Ajit Pai, said yesterday that he would back T-Mobile’s $26 billion takeover of Sprint. But he isn’t the only official who has to sign off.

Mr. Pai’s support followed several promises from T-Mobile: to expand its wireless broadband to cover rural areas, to build a big national 5G network and to sell its Boost Mobile prepaid wireless service.

A vote by the full F.C.C. is expected soon, probably along party lines. Republicans, including Mr. Pai, have a majority on the commission.

That means T-Mobile and Sprint cleared a major hurdle in creating a wireless carrier with more than 125 million customers. It would immediately become a strong competitor to AT&T, which has 148 million, and Verizon, which has 118 million.

But Justice Department staffers are less convinced. They reportedly want to block the deal. Citing an unnamed source, David McLaughlin of Bloomberg writes, “The remedies proposed by the wireless carriers earlier Monday don’t go far enough to resolve the department’s concerns that the deal risks harming competition.”

T-Mobile and Sprint are trying to assuage those concerns. The department’s decision rests with Makan Delrahim, the antitrust chief — and the F.C.C. and Justice Department have never publicly disagreed about a merger.

The Federal Reserve chairman said in a speech yesterday that growing business debt could hurt the U.S. economy — but that, for now, the financial system can handle it.

Nonfinancial corporate debt has hit $6.2 trillion, Jeff Cox of CNBC writes. The issuance of leveraged loans — which are made to low-rated, highly indebted companies — has swelled to $1.4 trillion, while lending standards have loosened over time, Sam Fleming of the FT notes.

Mr. Powell sees “reason to pause and reflect” for both businesses and investors, according to Nick Timiraos and Andrew Ackerman of the WSJ. His main concern: In an economic downturn, debt-burdened companies would struggle.

He’s not the only one. Janet Yellen, the former Fed chair, and officials at the Bank of England and the International Monetary Fund have raised similar concerns.

But Mr. Powell says it’s not a crisis yet. “Parallels to the mortgage boom that led to the global financial crisis are not fully convincing,” he said.

More: The Fed still isn’t sure how to deal with persistently low inflation.

A federal judge ruled yesterday that President Trump’s accounting firm must turn over his financial records to Congress. But the fight is far from over, Charlie Savage of the NYT reports.

This was an early test of Mr. Trump’s vow to stonewall “all” subpoenas by House Democrats. The president’s legal team has argued that the lawmakers’ demand was harassment with no legitimate legislative purpose.

The judge disagreed. Amit Mehta of the U.S. District Court of the District of Columbia said that Democrats’ justification for the subpoenas — to examine whether foreigners are in a position to use business dealings with the president to exert influence over American policymaking — was valid.

But the Trump team will keep fighting Democratic lawmakers. In addition to appealing Judge Mehta’s decision, Mr. Trump hopes to prevent the former White House counsel, Don McGahn, from testifying before Congress. (Mr. McGahn will not appear today, risking being held in contempt of Congress.)

Five years ago, Europe’s central banks took the big step of using negative interest rates to revive their economies. But that has become a crutch, Brian Blackstone of the WSJ writes.

• Negative rates flip lending on its head: Commercial banks pay to keep their money in central banks, and some customers pay to deposit cash, which should incentivize borrowing and spending and discourage saving. Over time, rates are supposed to go positive again.

• But that hasn’t happened in Europe. “Central banks haven’t been able to wean their economies off them,” Mr. Blackstone writes. “No major bank that introduced negative rates during Europe’s debt crisis has turned main policy rates positive again.”

• Some banks report that major depositors want to park physical cash in vaults. That avoids the negative rates on electronic deposits — “but also does no good to the economy.”

• “The negative-rate policy’s ineffectualness is a sign of just how weak Europe’s economic engines are, and how vulnerable. The policy threatens pensions, creates the risk of real-estate bubbles and doesn’t fully quell the specter of deflation.”

• And it means that central banks will have “little ammunition to cushion the next downturn with the conventional tool of interest-rate reductions.”

Helge Lund, the chairman of BP, outlined in an FT op-ed today why it is in the interest of the company’s shareholders for the oil giant to respond to climate change:

“Running a large multinational company in such an unstable environment would become increasingly difficult: How could we plan and develop strategies for the future knowing at some point the world will have radically to change course, but not knowing when or how?”

Such messages deserve healthy skepticism, as fossil-fuel companies have long talked about climate change while doing little about it.

But BP’s message appears to be part of a bigger shift in the way corporations think about the climate, as Amy Harder of Axios recently pointed out:

• “Companies across virtually all sectors of the economy, including big oil producers, are beginning to lobby Washington, D.C., to put a price on carbon dioxide emissions.”

• And that’s against the backdrop of an administration “that may not welcome such a shift.”

Snap named Derek Anderson, its vice president of finance, as C.F.O. and Lara Sweet, its interim C.F.O., as its head of human resources.

Deutsche Bank has hired Gil Ahrens from Wells Fargo as its head of venture capital and emerging growth company coverage, and Tracy Mehr from Jefferies as a managing director in leveraged finance, covering software.

Y Combinator promoted Geoff Ralston, one of its partners, to president. Sam Altman will step down as chairman but will remain as an adviser.

NBC News hired Chris Berend from CNN as the head of its digital operations. Nick Ascheim, who previously ran the division, will take a new, as-yet unspecified role within NBCUniversal.

Deals

• Legg Mason will reappoint Nelson Peltz to its board to avoid a proxy fight. (WSJ)

• Goldman Sachs said that it’s in talks to buy B&B Hotels from the investment firm PAI Partners. (Reuters)

• Silicon Valley says Wall Street just doesn’t understand its long-term focus. The figures say otherwise. (CNBC)

• Slack wants its stock ticker symbol to be “WORK” instead of “SK.” (Business Insider)

• British Steel is reportedly on the brink of insolvency. (BBC)

Politics and policy

• The Environmental Protection Agency is reportedly planning to change how it calculates the health risks of air pollution, making it easier to drop climate change rules. (NYT)

• The fate of Philadelphia’s soda tax could hinge on local elections today. (NYT)

• Senator Kamala Harris of California proposed a way to close the gender pay gap: requiring companies to certify that men and women are paid equally. (NYT)

• President Trump’s demands to investigate political opponents has intensified debate about potential abuses of power. (NYT)

• Kris Kobach has 10 demands if he’s to be the White House immigration czar, including 24-hour access to a government plane and an assurance of becoming Homeland Security secretary by November. (NYT)

Trade

• One of the biggest backers of President Trump’s push to protect American Steel is Canadian. (NYT)

• Trade tensions between the U.S. and China put corporations in a tricky position: Toyota, for instance, only dared announce deals in China after it had unveiled investments in the U.S. (Reuters)

Tech

• Amazon’s shareholders will vote on whether to push the tech giant to examine the human rights and financial risks of facial recognition. (NYT)

• Here’s an in-depth look at how much data Facebook collects from your smartphone. Also: the company’s facial recognition privacy setting is still missing for some users, almost 18 months after it was announced. (Intercept, Consumer Reports)

• Here are the start-ups that are trying to make your kitchen redundant. (FT)

• The F.T.C. is reportedly widening its antitrust investigation into Broadcom over potential abuse of dominance in the Wi-Fi chip sector. (Bloomberg)

• Google Glass still exists, and just got an update. (Verge)

Best of the rest

• New York’s attorney general opened an inquiry after an NYT report revealed that thousands of immigrant taxi drivers had been left in crushing debt. (NYT)

• By August, Ford will have cut 7,000 jobs in two years. (NYT)

• Goldman Sachs hired Mazars as the accounting firm for its European arm, after regulators there have sought to break the stranglehold of the Big Four firms. (FT)

• Why people from higher social classes get away with incompetence. Perhaps relatedly: Why big companies pay C.E.O.s for good performance — and bad. (NYT, WSJ)

Thanks for reading! We’ll see you tomorrow.

We’d love your feedback. Please email thoughts and suggestions to business@nytimes.com.

May 20th, 2019

Be very careful with Luckin Coffee’s IPO

CNBC’s Jim Cramer revealed Monday that he has a “hard pass” on newly-public Luckin Coffee.

That’s because initial public offerings of Chinese-owned companies have brought too much pain, he said. Luckin, the Beijing-based chain that wants to surpass Starbucks as the biggest coffee chain in that country, surged as much as 50% after opening at $25 on Friday.

The stock ended Monday’s session under $19 per share.

“Unless we’re talking about a terrific company with a tried-and-true track record, you need to be very careful about Chinese IPOs because this cohort has been very tough to own,” the “Mad Money” host said.

Of the 31 Chinese IPOs that listed on U.S. markets for the first time in 2018, 21 of those stocks are below where their deals priced, Cramer said. Two dozen of the companies have lost money from their first trade, he added.

Furthermore, the group, on average, is down 22% from their first trades, he continued.

“Those are terrible odds, people. And the Chinese IPOs from the class of 2019 have fared even worse,” Cramer said. “Luckin Coffee seems to be following the exact same pattern: Big initial spike followed by rapid sell-off. And even down here, I wouldn’t be a buyer. It’s just way too risky.”

Get Cramer’s full insight here

Get out

A customer exits a Luckin Coffee outlet in Beijing, China, on Tuesday, Jan. 15, 2019.

Gilles Sabrie/Bloomberg | Bloomberg | Getty Images

Investors should be wary of claims that China will foot the bill for higher tariffs, Cramer said. Rather, those costs will fall on American consumers, and investors should adjust their portfolios accordingly.

“As long as President [Donald] Trump believes that the Chinese are the ones who pay the price, he’s going to keep taking a hard-line approach to these negotiations, and that means your portfolio should have as little exposure to China as possible, ” he said.

Portfolio managers have found the market to be a tough place to shop for stocks as Wall Street sorts out the safe names and reassess earnings forecasts for companies affected by the U.S.-China trade war, Cramer said. He also warned that current uncertainty will be the “new normal” until the world’s two largest economies come to some sort of agreement.

That explains the roughly 84-point drop on the Dow Jones Industrial Average Monday, the 0.67% fall on the S&P 500 and the 1.46% loss on the Nasdaq Composite, he said.

Go deeper here

Searching for the best

The WhatsApp messaging app is displayed on an Apple iPhone on May 14, 2019 in San Anselmo, California. Facebook owned messaging app WhatsApp announced a cybersecurity breach that makes users vulnerable to malicious spyware installation iPhone and Android smartphones. WhatsApp is encouraging its 1.5 billion users to update the app as soon as possible.

Justin Sullivan | Getty Images News | Getty Images

Cramer ranked the top social media stocks.

“If you want some social media exposure, here’s what you get: You got Facebook … it’s No. 1, ” the host said. “Twitter is a distant second. Pinterest a close third, and then the inconsistent Snap [is] welcome to the show to tell us why they deserve to be higher in our newfound power rankings. “

More on Cramer’s social media rankings here

Game on

Strauss Zelnick, CEO of Take Two Interactive.

Adam Jeffery | CNBC

Video game stocks have been plagued by new competition that has changed the nature of the industry. Take-Two Interactive saw its market share take a hit, even after the launch of its popular Red Dead Redemption 2 in October.

CEO Strauss Zelnick told Cramer that the video game holding company has unlocked a new engine of growth in recurring consumer spending, which now makes up 40% of business.

“That will continue to grow because consumers now are engaged over the course of the year, not just at the time you have one big release,” he said.

Catch the full interview here

The Biden effect

Democratic U.S. presidential candidate and former Vice President Joe Biden addresses a campaign rally in Cedar Rapids, Iowa, April 30, 2019.

Jonathan Ernst | Reuters

Cramer suggested that investors load up on managed care stocks, as long as Joe Biden‘s presidential bid looks hopeful.

The former vice president emerged last month as the front-runner to be the Democratic Party’s 2020 presidential nominee, Cramer said. A veteran U.S. senator from Delaware, Biden distinguishes himself from the crowded field of hopefuls and left-leaning candidates when it comes to health care.

“Unlike Bernie Sanders or Elizabeth Warren or Kamala Harris, Biden’s against ‘Medicare for All,’ ” the host said.

Read more here

Cramer’s lightning round: I feel bad if you own Intrexon — It’s a loser

In Cramer’s lightning round, the “Mad Money” host zips through his thoughts on callers’ stock picks.

Intrexon Corp.: “This is a loser and I don’t want to hear about it. I feel bad if you own it, but it’s a loser.

Iridium Communications Inc.: “[CEO] Matt Desch. I thought he did a great job. I like the stock. It’s got a niche business that I didn’t believe in. I was wrong, he was right. It’s a winner.”

Wayfair Inc.: “This is a rough market right now and Wayfair is the kind of stock that’s not necessarily the best thing to buy at this moment. I do think the company has tremendous growth.”

Disclosure: Cramer’s charitable trust owns shares of Facebook.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

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Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com

May 20th, 2019

T-Mobile-Sprint Merger Wins Approval of F.C.C. Chairman

“That is as much of a concern as it always was,” Craig Moffett, a founder of the research firm MoffettNathanson, said. He added that it would be a mistake to assume that Mr. Pai’s recommendation “suddenly makes the deal a slam dunk.”

The Justice Department’s top antitrust regulator, Makan Delrahim, has had to review a flurry of mergers since moving into the job several years ago. He sued AT&T, unsuccessfully, to block it from buying Time Warner. Around the same time, he approved the Walt Disney Company’s deal to acquire the bulk of Rupert Murdoch’s 21st Century Fox, barely six months after the transaction was announced. It was a relatively speedy turnaround for an acquisition that might normally take at least a year.

The Justice Department would have to review the concessions offered to the F.C.C. and determine whether they were adequate to satisfy antitrust concerns. Mr. Delrahim generally favors what are called structural remedies to such transactions, which typically involve divestitures. The proposed Boost sale could be meant to address that issue.

T-Mobile and Sprint announced their plans to merge in April 2018, and Mr. Legere and Marcelo Claure, Sprint’s executive chairman, have been on a charm offensive since then in hopes of securing approval for the deal.

Mr. Legere has made numerous visits to the F.C.C. and the Justice Department, documenting his activity on social media. A month after the merger was announced, Mr. Claure was a host of a fund-raiser for Representative Marsha Blackburn, a Tennessee Republican who was running for Senate. Ms. Blackburn, a longtime supporter of the telecommunications industry, was elected to the Senate in November.

Lawmakers have expressed concern over Mr. Legere’s Washington forays, including the dozens of stays by him and other T-Mobile executives at the Trump International Hotel in the city. Some lawmakers have suggested that the companies were trying to buy the Trump administration’s support.

T-Mobile and Sprint have denied doing anything inappropriate to curry favor with administration officials, and Mr. Pai cited their pledges on 5G service, increasing access to broadband internet in rural areas and finding a buyer for Boost Mobile as the reasons he supported the merger.

May 20th, 2019

Pricey San Francisco bank deal could motivate others to sell

A recently announced bank merger in San Francisco could cause the area’s remaining community banks to consider their futures.

Heritage Commerce in San Jose, Calif., agreed on Friday to buy Presidio Bank in San Francisco for $200 million in stock.

Heritage regarded the $906 million-asset Presidio an attractive, like-minded bank, Walter Kaczmarek, the $3.1 billion-asset company’s president and CEO, said during a conference call to discuss the deal.

“When you look at the scarcity of community business banks here in the Bay Area, it makes this transaction even more compelling,” Kaczmarek said. “We were highly motivated when we heard there was an opportunity to do something.”


The deal, which priced Presidio at 206% of its tangible book value, will likely trigger more deals as more banks look to buy smaller rivals in the area, said Timothy Coffey, an analyst at FIG Partners.

While it is unclear which banks will emerge as buyers or sellers, Coffey said he is watching banks like TriCo Bancshares in Chico, Calif., which bought FNB Bancorp in San Francisco in 2017, and the $2.5 billion-asset Bank of Marin Bancorp in Novato, Calif. Avidbank Holdings in San Jose, Calif., is another bank that Coffey listed.

California Bancorp, the parent of the $1 billion-asset California Bank of Commerce in Lafayette, Calif., is another bank to watch.

Rising prices for bank deals could spur more announcements, said Steven Shelton, California Bancorp’s president and CEO, though he added that the banks must also have the right alignment to agree to a merger.

“Sometimes … you get a price that works,” said Shelton, whose bank bought Pan Pacific Bank in 2015. “It’s not about getting the highest price, but about partnering with the right bank.”

Though some industry observers believe Bank of Marin would be a good fit for California Bancorp, Shelton said he is focused on building a pure business bank.

A Bank of Marin spokesperson declined to discuss the speculation.

Presidio’s premium is encouraging to other potential sellers, said Robert Bolton, president of Iron Bay Capital. Lower-cost deposits will garner demand and will command a higher price, he said.

Heritage-Presidio “was a good all-around deal and appears to be well received,” Bolton said.

Bolton said there will be more deals across California with higher multiples occurring in the most vibrant markets.

San Francisco is a strong market due to low unemployment, significant job creation and rising investment in new businesses, Coffey said. At the same time, area banks typically are strong deposit franchises.

The area’s 2% unemployment rate in April was better than California’s 3.9% rate and the 3.3% national rate, according to the Labor Market Information Division of the California Employment Development Department.

“Valuations are high, but the economy you’re buying into, and the bank you’re buying, offer better overall quality than other markets,” Coffey said.

Kaczmarek said as much during his company’s conference call.

Heritage and Presidio “are both lucky to be in a very vibrant community in San Francisco,” Kaczmarek said. The market “is not only very vibrant today, but is forecast to have strong demographic growth, both with business and household formation, for many years.”

May 20th, 2019

Biotech IPO performance pokes holes in Silicon Valley’s theory for waiting so long to go public

Start-ups’ fears of being strong-armed to focus on short-term profits is one reason some are opting to stay private. But those fears may be overblown, if the historical performance of money-losing biotechs is any indication.

Much like consumer tech companies going public in 2019 — biotech companies rarely make money going into their stock-market debuts. Public-market investors have historically embraced them anyway.

Between 2001 and 2017, only 6% of biotech companies were profitable at the time of their initial public offering, according to analysis by Jay Ritter, finance professor at the Warrington College of Business at the University of Florida. Yet, during the same time frame the average three-year buy-and-hold return for more than 350 biotech companies that went public was 36.3% — beating the market by 14.0%.

“We’ve had hundreds of biotech companies going public in recent years where everybody knows that they’re not going to have any revenue from product sales for years,” Ritter told CNBC. “And there’s no pressure for them to cut their short term losses — as long as they’ve got viable scientific research.”

For the biotech firms that went public between 1980 and 2017, on average, they rose 12.1% on the first trading day, according to Ritter’s analysis. Over the next three years, they then returned an average of 25.7%. While biotech IPOs still under-performed the broader market by 6%, they fared better than the average IPO. Public offerings in general under-performed broader markets by 19% in the 3 years after listing.

“I think a lot of it is talk rather than actual evidence that if a company doesn’t achieve short-term profitability quickly, corporate raiders and activist investors swoop in and boot out management,” Ritter said. “I just don’t see a lot of evidence of that occurring.”

The nation’s top tech investors have voiced frustration about the public market’s focus on near-term profits. A new Silicon Valley stock exchange, backed venture capitalist Marc Andreessen among others, was approved earlier in May. According to its website, the mission is to provide a “market that reduces short-term pressures and encourages a steady cycle of innovation and investment in long-term value creation would benefit companies and their investors alike.”

Firms listed on the so-called LTSE may be required to abide by certain rules, like a potential ban on tying executive pay to the short-term financial performance.

The rise of money-losers

Last year, more than 85 percent of tech companies that went public had negative earnings per share, according to Ritter’s analysis. This year, Uber and Lyft were the poster children for that money-losing business model.

Uber, the biggest IPO since Alibaba, reported an operating loss of $3 billion in 2018 after losing more than $4 billion the previous year. Its ride-hailing rival Lyft reported a net loss of about $1 billion last year. Its adjusted loss per share was $9.02 for the first-quarter. Shares of Uber have been under pressure since listing in May but have recovered most of those losses. The stock is down about 2% since listing in May, while Lyft has dropped by 25% since its IPO.

Billionaire investor Mark Cuban, and owner of the NBA’s Dallas Mavericks, told CNBC last week that Uber’s disappointing debut was “not a surprise” because the ride-hailing company waited too long to go public.

“I just think we’re seeing a reflection of the Silicon Valley ethos in the public market. The whole attitude was wait, wait, wait, wait, wait,” Cuban said.

Cuban said by waiting, they lost the momentum early companies typically have. Cuban invested $1 million in Uber’s main competitor Lyft, which Cuban said also stayed private too long.

“They just waited too long,” Cuban said. “I don’t think you could have expected anything different … the reality is you’re nine years in and you’re still having to buy your revenue. That’s not a good sign.”

Plenty of private funding

There are a few reasons these companies are staying private longer. A decade-long, low-interest rate environment has forced investors to look for returns elsewhere. And in 2012, the JOBS Act raised the threshold of private shareholders from 500 to 2,000, allowing companies to stay private until they reach that limit.

But the key reason they’re able to stay private is because of a seemingly endless honey pot of venture capital and private equity money. Softbank — Uber’s biggest investor —has flooded private markets with billions in funding. Its $100 billion Vision Fund has deployed about $80 billion in capital. That in turn has pushed valuations to record highs.

“SoftBank’s size is unprecedented and it surely contributes to visibility and validation of high-valuation late-stage private financing,” said Yale School of Management Associate Dean Kyle Jensen. “Because of the enormous amount of private capital available, most companies can stay private longer.”

However, Jensen said these start-ups will continue to face pressure to go public from employees who see the bulk of their net worth locked up in stock and options that would be easier to liquidate if the company were public.

As demand increases, prices for these private companies are steadily rising. The average valuation for venture-capital backed companies is up to $260 million in 2019, according to data from PitchBook. That’s more than double the value from 2011, and more than 8 times what these companies were valued in 2002. The total deal count also jumped to 3,718 last year — a 370% rise from 2002, according to PitchBook’s data.

Source: PitchBook

Price to sales ratios, which are calculated by taking a company’s market capitalization and dividing it by the company’s total sales or revenue over the past year, are also on the rise. By that metric, prices have more than doubled for these companies since 1980, according to Ritter’s analysis.

To be sure, biotech’s business model is starkly different from ride-hailing, social networks, or software companies. The reason they’re unprofitable often has to do with regulatory approvals. They can’t make money on new drugs until they’re approved by the U.S. government agencies.

They often feel the heat to go public for different reasons — like needing to raise money for those expensive clinical drug trials. Historically, the biotech sector has also been a gamble. Investors bid up the Nasdaq Biotechnology Index in the late 1990s, only to see it lose half of its value in 2000.

Regardless of the industry, Ritter said investors are still eager to pay for future profits.

“I think it is pretty clear that both private market investors and public market investors are willing to to fund growth in companies and have them focus on growth rather than short-term profitability — provided there’s a story there that continues to make sense,” he said.

May 20th, 2019 May 20th, 2019

M&A wrap: Lowe’s, Boomerang, Vista, Thoma Bravo, Clearlake, Dish, Kelso, Rising Stars


Photo credit: Bloomberg News

Home improvement retailer Lowe’s Cos. (NYSE: LOW) has acquired retail analytics firm Boomerang Commerce. The deal will help Lowe’s improve its data-driven pricing and merchandise assortment decisions. Boomerang’s technology offers retail analytics services that processes product and pricing datasets and converts them into insights. The acquisition will assist Lowe’s in modernizing and digitizing the company’s approach to pricing. “One of the key components of our transformation here at Lowe’s is to modernize our technology,” says Lowe’s chief information officer Seemantini Godbole. “Pricing and assortment planning have been identified as strategic areas in need of modernization. And when we find the right assets available to buy and advance our strategy, we’ll do that.” Strategic buyers in the retail sector are relying on data to improve their operations. For example, Nike Inc. (NYSE: NKE) is making new bold moves through M&A to gain more insights to how its customers shop and what they need. In 2018, Nike bought Zodiac Inc., a consumer data analytics firm. Zodiac uses data models, customer analytics, and behavioral analysis to predict the future behaviors of individuals. Nike won Mergers & Acquisitions’ 2018 M&A Mid-Market for Strategic Buyer of the Year for its tech acquisition strategy. Cleary Gottlieb represented Lowe’s.

As the private equity industry matures, more of its leaders are focusing on building legacies in philanthropy. On May 19, Robert F. Smith, the founder of Vista Equity Partners, announced in a commencement address at Morehouse College that he would pay off the student loans of every member of the class of 2019. “On behalf of the eight generations of my family that have been in this country, we’re gonna put a little fuel in your bus,” Smith said during a speech to the Atlanta college’s graduating class. “My family is going to create a grant to eliminate your student loans,” Smith added, according to a Twitter post by Morehouse College, an historically black college or university, or HCBU, for men. “This is my class, 2019. And my family is making a grant to eliminate their student loans,” he was quoted as saying. An official at Morehouse told a local news station that the gift was worth about $40 million. There are almost 400 graduating seniors in the class. Smith, the richest black person in the U.S. with a net worth of $4.5 billion on the Bloomberg Billionaires Index, had already announced a $1.5 million gift to Morehouse. In February, José E. Feliciano, the co-founder and managing partner of Clearlake Capital Group LP, and his wife Kwanza Jones announced a $1 million to Bennett College, a women’s HCBU in Greensboro, North Carolina. And earlier in May, Orlando Bravo, managing partner of private equity firm Thoma Bravo and founder of the Bravo Family Foundation, announced he will contribute $100 million to his foundation to promote entrepreneurship and economic development in Puerto Rico, where Bravo was raised, and his family still lives.

Deadline approaches for Mergers & Acquisitions’ 2019 Rising Stars of Private Equity. Last year, we named 11 PE investors to the list, including Ethan Liebermann, who was recently promoted from principal to director of TA Associates, and Jennifer Roach Pacini, a vice president of Yellow Wood Partners. We look for 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. There is no age cutoff. We publish the list online in July and in the July/August issue of the magazine. The deadline for nominations is end of day Thursday, May 23, 2019. Nominations will be accepted only through our online form. There is no fee.

CLICK HERE TO NOMINATE A RISING STAR OF PRIVATE EQUITY
Click here for the 2018 Rising Stars of Private Equity.

DEAL NEWS
DIsh Network Corp. (Nasdaq: DISH) is purchasing EchoStar’s broadcast satellite service business for $800 million. Advisors to Dish include: Bank of America Merrill Lynch and Sullivan & Cromwell.

Kelso & Co. is buying J.S. Held LLC, a consulting and insurance claims management firm for the construction sector, from Lovell Minnick Partners. Advisors to the sellers include: William Blair and Morgan, Lewis & Bockius LLP. The legal advisor to Kelso is Debevoise & Plimpton.

ParkerGale has acquired a majority stake on editing and media management software company EditShare.

Shamrock Capital has made an investment in DeCurtis Corp., a software services provider for cruise lines, theme parks and restaurants. Q Advisors advised DeCurtis.

Huron Capital-backed Pueblo Mechanical & Controls has acquired HVAC services provider Westover Corp.

For more deal announcements, see Weekly wrap: Goldman Sachs, Kian, Lee Equity.

For more on PE fundraising, see PE fundraising scorecard: Advent, Bloomfield Capital, Cloverlay, TH Lee.

PEOPLE MOVES
Robert Katz has joined law firm Latham & Watkins as a partner. Previously with Shearman & Sterling, Katz focuses on private equity and M&A.

Violetta Kokolus was hired by law firm Ropes & Gray as a partner. Most recently with Dechert, Kokolus advises clients on IP, data privacy and cybersecurity aspects of M&A.

FEATURED CONTENT
At least two-thirds of U.S. homes have at least one pet, and people are spending more money on their pets than ever, driving M&A across the entire pet care sector. Read the full story: Demand for animal health products and services rises, driving deals.

Tech dominates dealmaking. The technology, media and telecom, or TMT, sector accounted for about 40 percent of total private equity deal volume and one-third of total capital invested by PE firms over the last five years, according to EY Private Equity. Read our full coverage: Smart cities, IoT, AI, robots, edge computing will fuel next wave of tech M&A.

Excelled. Innovated. Inspired. That’s what the eight winners of Mergers & Acquisitions’ 12th Annual M&A Mid-Market Awards did in 2018. Our awards honor the leading dealmakers and deals that set the standard for transactions in the middle market. In addition to Nike, award winners include: Fortive, TA Associates, the Riverside Co., Harris Williams, Monroe Capital, Goodwin and Luminate Capital Partners’ Hollie Haynes. Read our full coverage: Meet the winners of the M&A Mid-Market Awards: Nike, Fortive, TA, Harris Williams.

Technology permeates dealmaking today. “Tech is, more or less, touching everything,” as the authors of the 2019 BDO Technology Outlook Survey put it. You can see the impact of tech throughout the 2018 winners of Mergers & Acquisitions’ M&A Mid-Market Awards, especially Luminate Capital Partners founder Hollie Hayne scoring Dealmaker of the Year for raising a second fund to invest in enterprise software companies and TA Associates winning Private Equity Firm of the Year for investing a record $2.8 billion in new portfolio companies, most of which are infused with technology.

Related: Why private equity firms still love technology
Related: 10 private equity firms share strategies for tech M&A.

Genstar Capital, Audax and HarbourVest ranked as the top U.S. private equity firms of 2018, based on volume of completed deals, according to PitchBook. Check out Mergers & Acquisitions’ profiles of 21 firms that led the league tables. Top private equity firms: Genstar, Audax, HarbourVest.

Also see: Top investment banks in PE-backed deals: KPMG, Houlihan, GS, William Blair.

Mergers & Acquisitions has named 36 leaders the 2019 Most Influential Women in Mid-Market M&A, including Kainos Capital’s Sarah Bradley, Kayne Anderson Capital Advisors’ Nishita Cummings and Pelham S2K Managers’ Venita Fields. All 36 are outstanding dealmakers both inside and outside of their firms. This year, we asked the featured dealmakers to tell their own stories through Q&As, including their advice for women. Related: Meet the 2019 Most Influential Women in Mid-Market M&A.

Read more about Mergers & Acquisitions’ three annual special reports, including the M&A Mid-Market Awards, the Rising Stars of Private Equity, and the Most Influential Women in Mid-Market M&A.

EVENTS
ACG Chicago hosts the Midwest Capital Connection, at The Marriott Downtown Magnificent Mile, May 21-22.

ACG New York, ACG Boston and ACG Philadelphia are holding the Industrial Conference with Value Creation at the Infor in New York on June 6. The event is part of the Northeast Industry Tour.

ACG Minnesota hosts the the Upper Midwest ACG Capital Connection at the Renaissance Minneapolis Hotel, The Depot, June 10-11.

ACG Boston brings together 700-plus dealmakers for DealFest Northeast and DealSource Select 2019 at the Cyclorama and the State Room, June 12-13.

Exponent Women hosts the Annual Exchange, which brings a trusted network of women dealmakers together for a focused day of robust content and networking, at Second in New York, on July 11. The Exchange provides attendees with opportunities to establish new connections, reinforce existing ones and absorb timely and relevant knowledge from industry leaders.


Demitri Diakantonis

Demitri Diakantonis

Demitri Diakantonis joined SourceMedia in 2015 and serves as Managing Editor of Mergers & Acquisitions. He covers all aspects of middle-market dealmaking, with a focus on strategic buyers and the consumer and retail sectors, and writes The Buyside column.


Mary Kathleen Flynn

Mary Kathleen Flynn

Mary Kathleen Flynn joined SourceMedia in 2011, serving as the Editor-in-Chief of Mergers & Acquisitions. MK oversees the brand’s content on all media platforms, including website, e-newsletters, video, slideshows, podcasts and print.


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


May 20th, 2019 May 20th, 2019

Vista’s Robert F. Smith will pay Morehouse Class of 2019’s student loans


Photo credit: Bloomberg News

Billionaire investor Robert F. Smith announced in a commencement address at Morehouse College on Sunday that he would pay off the student loans of every member of the class of 2019.

“On behalf of the eight generations of my family that have been in this country, we’re gonna put a little fuel in your bus,” Smith said during a speech to the Atlanta college’s graduating class.

“My family is going to create a grant to eliminate your student loans,” Smith added, according to a Twitter post by Morehouse College.

“This is my class, 2019. And my family is making a grant to eliminate their student loans,” he was quoted as saying.

An official at the historically-black, all-male college told a local news station that the gift was worth about $40 million. There are almost 400 graduating seniors in the class.

Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the costs of tuition and borrowing continue to escalate, the result is a widening default crisis that’s causing concern for Fed Chairman Jerome Powell. There’s $1.6 trillion in outstanding debt through the first quarter of 2019 while delinquent U.S. student loans reached a record $166 billion at the end of 2018.

Smith, the richest black person in the U.S. with a net worth of $4.5 billion on the Bloomberg Billionaires Index, had already announced a $1.5 million gift to Morehouse.

Students cheered at the news.

“If I could do a backflip I would. I am deeply ecstatic,” Elijah Dormeus, a business administration major who’s graduating with $90,000 in student loans, told the Atlanta Journal Constitution.

Smith is the founder and chief executive officer of Vista Equity Partners, a private equity firm headquartered in Austin, Texas, with $56 billion under management. Its holdings include workflow manager Autotask and ticket marketplace Vivid Seats. Smith, 56, graduated from Cornell University and Columbia Business School.

He joined Goldman Sachs Group Inc. as a tech investment banker in 1994, working in New York and then San Francisco before leaving to start Vista in 2000, which focuses on the enterprise software sector. He’s been chairman of Carnegie Hall since 2016.

Smith signed the Giving Pledge in 2017, promising to invest half his net worth during his lifetime towards protecting the environment and supporting equality.

“Potential is no guarantee of progress,” he wrote in his 2017 letter. “We will only grasp the staggering potential of our time if we create onramps that empower ALL people to participate, regardless of background, country of origin, religious practice, gender, or color of skin.”

Bloomberg News

May 20th, 2019

DealBook Briefing: Tech’s Cold War Just Started

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Google, Qualcomm and Broadcom are among the companies that have reportedly frozen their supply of components and software to the Chinese technology giant to comply with a crackdown by the Trump administration.

• “Google has suspended business with Huawei that requires the transfer of hardware, software and technical services except those publicly available via open source licensing,” Reuters reported, citing unidentified sources.

• “Chipmakers including Intel, Qualcomm, Xilinx and Broadcom have told their employees they will not supply Huawei till further notice,” Bloomberg added, also citing unnamed sources.

The moves follow a Trump administration clampdown. The Commerce Department announced last week that U.S. companies would need special permission to sell some products to Huawei.

It’s not yet clear how long or deep the crackdown will be. Some commentators have said that it could be a short-lived part of U.S. trade war posturing. But the administration has been vocal about its concerns over possible threats to national security, and Huawei has said that it was prepared for being frozen out.

How the moves could hurt Huawei. Existing products would continue to receive Google updates, but future devices would have to use the open-source version of the operating system, without services like YouTube and Google Maps. The chip freeze-out means it might be forced to use its stockpile of U.S. components.

“We can now expect China to redouble efforts to roll out a homegrown smartphone operating system, design its own chips, develop its own semiconductor technology (including design tools and manufacturing equipment), and implement its own technology standards,” Tim Culpan of Bloomberg Opinion writes. “This can only accelerate the process of creating a digital iron curtain that separates the world into two distinct, mutually exclusive technological spheres.”

More: U.S. intelligence chiefs have warned American tech companies of the dangers of doing business in China. Senator Mark Warner, a Democrat on the Senate Intelligence Committee, is doing something similar.

Anti-money laundering specialists at the German lender recommended in 2016 and 2017 that transactions involving Donald Trump and his son-in-law, Jared Kushner, be reported to a federal financial crimes watchdog, David Enrich of the NYT reports.

Transactions set off automated alerts designed to detect illicit activity, Mr. Enrich writes, citing current and former bank employees. Compliance staffers then prepared reports to send to the Treasury Department.

Executives rejected the recommendations, and the reports were never filed. The kinds of all-cash deals made by real estate developers like the Trump and Kushner families can prompt anti-money laundering reviews, and bank executives can choose not to report activity if they conclude employees’ concerns are unwarranted.

But the decisions reflected Deutsche Bank’s lax approach to money laundering laws, former employees told Mr. Enrich. They saw the move as part of the lender’s tendency to protect relationships with lucrative clients.

“It’s the D.B. way,” Tammy McFadden, a former Deutsche Bank anti-money laundering specialist who reviewed some of the transactions, told the NYT. “You present them with everything, and you give them a recommendation, and nothing happens.”

Robert F. Smith stunned 396 young men graduating yesterday from Morehouse College, a historically black college in Atlanta, by announcing that he, America’s richest black man, would pay off all their student debt.

“We’re going to put a little fuel in your bus,” Mr. Smith, the commencement speaker, told the crowd. He later said, “Let’s make sure every class has the same opportunity going forward, because we are enough to take care of our own community.”

“This was a liberation gift, meaning this frees these young men from having to make their career decisions based on their debt,” David Thomas, the college president, told the NYT.

Mr. Smith “had become increasingly concerned in recent years about the degree to which students leave college saddled with heavy debts, including many at Morehouse,” the NYT reported, citing a person familiar with his thinking.

But details remain unsettled, including how students will demonstrate the amount of debt they have and how it will be paid off. Also unclear: the total amount Mr. Smith will contribute.

Mr. Smith built his fortune, estimated at $5 billion, through a career as a Goldman Sachs banker and as founder of Vista Equity Partners, a tech investment firm whose returns are believed to be among the best in private equity.

As of today, U.S. tariffs on metal imports from Mexico and Canada have been lifted, Ana Swanson of the NYT reports

• That removes “a major irritant for two important allies that in exchange agreed to stop punishing American farmers with their own taxes on pork, cheese and milk.”

• President Trump also “postponed a decision on whether to impose tariffs on automobiles imported from Europe, Japan and other countries for six months.”

The U-turn is tied to the newly negotiated Nafta, called the United States-Mexico-Canada Agreement. “Mr. Trump had described the tariffs as a source of leverage in negotiating a revision to that deal, which has yet to be ratified,” Ms. Swanson writes. “But both Republicans and Democrats had said they would not sign off on that deal until the White House removed metal tariffs on Canada and Mexico.”

Together, “the actions remove the threat of an all-encompassing global trade war and allow Mr. Trump to focus on pushing China to agree to the United States’ trade terms, as well as pressuring Europe and Japan to reach a trade deal before the 2020 election,” Ms. Swanson writes.

More: Big companies have tightened spending as trade fears intensify.

Facebook says artificial intelligence is a solution to its toxic content problems. Mike Schroepfer, its chief technology officer, says it won’t solve everything — and the scale of the problem has made him cry, Cade Metz and Mike Isaac of the NYT report.

• Mr. Schroepfer “is the person at Facebook leading the efforts to build the automated tools to sort through and erase the millions of such posts. But the task is Sisyphean, he acknowledged over the course of three interviews.”

• “Every time Mr. Schroepfer and his more than 150 engineering specialists create A.I. solutions that flag and squelch noxious material, new and dubious posts that the A.I. systems have never seen before pop up — and are thus not caught.”

• “In two of the interviews, he started with an optimistic message that A.I. could be the solution, before becoming emotional. At one point, he said coming to work had sometimes become a struggle. Each time, he choked up when discussing the scale of the issues that Facebook was confronting and his responsibilities in changing them.”

• “I do think there’s an endgame here,” Mr. Schroepfer said, adding: “I don’t think it’s ‘everything’s solved,’ and we all pack up and go home.”

Brian Rosenthal of the NYT takes a deep dive into how bankers and officials made money from the sale of New York City taxi medallions, even as lending turned predatory and Uber and Lyft devastated many drivers.

What the bankers did:

• “Between 2002 and 2014, the price of a medallion rose to more than $1 million from $200,000, even though city records showed that driver incomes barely changed.”

• “The investigation found example after example of drivers trapped in exploitative loans, including hundreds who signed interest-only loans that required them to pay exorbitant fees, forfeit their legal rights and give up almost all their monthly income, indefinitely.”

What city officials did:

• “For more than a decade, the agencies reduced oversight of the taxi trade, exempted it from regulations, subsidized its operations and promoted its practices, records and interviews showed.”

• Under the Bloomberg and de Blasio administrations, New York City “made more than $855 million by selling taxi medallions and collecting taxes on private sales, according to the city.”

• “When the medallion market collapsed, the government largely abandoned the drivers who bore the brunt of the crisis. Officials did not bail out borrowers or persuade banks to soften loan terms.”

The series finale for “Game of Thrones” concluded a major TV phenomenon. But HBO has a plan to move on from its hit, Gerry Smith of Bloomberg reports.

• HBO plans to increase its original programming 50 percent this year, “creating more chances for another blockbuster,” Mr. Smith writes.

• Shows in the pipeline include adaptations of the graphic novel “Watchmen” as well as “His Dark Materials,” the series of fantasy novels by Philip Pullman.

But “Game of Thrones” sets a high bar. The penultimate episode drew 18.4 million viewers across all HBO platforms.

“The finale was a mass live-viewing experience of the kind that is now almost unheard for serialized television — or almost any TV program that isn’t the Super Bowl,” John Jurgenson of the WSJ writes.

Replicating that in the streaming era will be difficult. Mr. Smith points out that “about 500 scripted TV shows” are fighting for attention.

Deals

• T-Mobile and Sprint reportedly plan to announce concessions like the sale of a prepaid mobile service and a pledge to hold down prices to win regulatory approval of their merger. (Bloomberg)

• Big investors like BlackRock didn’t buy more shares in Uber’s I.P.O., helping to spoil the company’s public debut. Relatedly: Why Uber, and investors, shouldn’t worry too much about the first day of trading. (WSJ, FT)

• CBS reportedly floated a $5 billion takeover bid for Starz, the premium-cable network. (WSJ)

• The e-cigarette maker NJOY reportedly had to slash its valuation target to $2 billion from $5 billion to draw investors to its latest fund-raising round. (WSJ)

• Catalyst, the private equity firm co-founded by Jim Sorenson, plans to raise $150 million to invest in opportunity zones. (Bloomberg)

Politics and policy

• The Republican National Committee accepted donations from Steve Wynn, the casino magnate who was ousted amid accusations of sexual misconduct. (NYT)

• The Trump administration warned that increased border crossings would cost $1.4 billion in additional housing for migrants. (NYT)

• Representative Justin Amash of Michigan became the first congressional Republican to call for President Trump’s impeachment. (NYT)

• The G.O.P. is stuck: It has to choose whether to focus on cultural issues or the strength of the economy for its 2020 message. (NYT)

• Social media disinformation was rampant in the 2016 election. Expect it to be worse next year. (NYT)

• Prime Minister Narendra Modi of India appears to be headed for re-election, exit polls show. (NYT)

Boeing

• Boeing has discovered that 737 Max flight simulators do not accurately replicate the conditions that led to two fatal crashes. (NYT)

• Global aviation regulators are to meet in Texas this week to determine when the 737 Max 8 can fly again. (FT)

Tech

• Tech jobs can propel people into the middle class — but bright spots are few and far between. (NYT)

• Nvidia has ridden a wave of demand for A.I. computer chips, but now it faces fierce competition. (WSJ)

• The Trump administration is reportedly set to adopt a set of O.E.C.D. guidelines for the development and use of A.I., the first set of such rules it will have endorsed. (Politico)

• San Francisco has banned facial recognition technology. New York City can’t decide whether to be transparent about its use. (NYT Editorial)

• The world’s most popular live-stream gamers get as much as $50,000 an hour to play new video games online. (WSJ)

Best of the rest

• Saudi Arabia’s oil infrastructure is at risk of major disruption, even from small attacks. (NYT)

• Why value added taxes, largely ignored by the U.S., have found favor in much of the world. (NYT)

• How powerful consultants have been “pitting states against each other to win tax breaks for new factories.” (WSJ)

• U.S. meat prices are poised to rise as a result of China’s swine fever epidemic. (WSJ)

• Male managers are increasingly nervous about mentoring women. (Axios)

Thanks for reading! We’ll see you tomorrow.

We’d love your feedback. Please email thoughts and suggestions to business@nytimes.com.

May 20th, 2019

Demand for animal health products and services rises, driving deals


Photo credit: Adobe Stock

At least two-thirds of U.S. homes have at least one pet, and people are spending more money on their pets than ever, driving M&A across the entire pet care sector. In 2019, Elanco Animal Health (NYSE: ELAN) announced plans to buy pet therapeutics company Aratana Therapeutics (Nasdaq: PETX) for up to $245 million. Aratana develops medicine for dogs and cats. The company makes Galliprant tablets, to treat osteoarthritis in pets. The deal will allow Elanco to integrate the Aratana portfolio of pet therapeutics into their companion animal therapeutics business, including a pipeline of therapeutic candidates and two marketed products. “As a newly independent, premier animal health company, we believe that Elanco would help expand our portfolio with their substantial resources and presence within the companion animal segment,” says Aratana CEO Craig Tooman.

It is not just strategic buyers that are active in dealmaking in the pet industry. PE firms that focus on animal care are raising new funds. Shore Capital Partners has raised its third healthcare fund at $293 million in 2019. The fund will invest in mircrocap businesses that have up to $100 million in revenue, including animal healthcare. In 2017, Shore Capital invested in Midwest Veterinary Partners, which owns the Lake Huron Veterinary Clinic in Michigan. The veterinary market is ripe for consolidation because there is an aging population of veterinarians who want to sell out of their practices and an increasing number of new veterinarians with high student debt and an increased desire to work as veterinarians, but not necessarily do the administrative work of owning a practice.

The U.S. pet insurance sector is fragmented. According to consumer financial services firm Synchrony (NYSE: SYF), the pet health insurance industry is expected to double by 2022. In 2019, Synchrony acquired pet health insurance company Pets Best. The target offers health, wellness and personal care credit products that can be used to pay for a variety of healthcare expenses including veterinary care. As the cost of pet care increases, pet owners are increasingly seeking better access to care. The acquisition will expand Synchrony’s CareCredit platform, and will allow CareCredit to offer more payment options for veterinarians and pet owners. “More people are including pets as part of their family,” says CareCredit CEO Beto Casellas. “With Pets Best, we now have unique insight into the fast-growing pet health insurance market and can offer pet owners more choices for their pet’s care.”


Demitri Diakantonis

Demitri Diakantonis

Demitri Diakantonis joined SourceMedia in 2015 and serves as Managing Editor of Mergers & Acquisitions. He covers all aspects of middle-market dealmaking, with a focus on strategic buyers and the consumer and retail sectors, and writes The Buyside column.


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May 18th, 2019

WeWork lost $1.9 billion last year, but it’s considering going public

The We Company, parent company of WeWork, is the latest in a string of richly valued start-ups set to go public this year. But though it was recently valued at $47 billion, it’s far from turning a profit. Instead, it’s hemorrhaging cash.

WeWork lost $1.9 billion last year on $1.8 billion in revenue, as it focused on rapid growth. Things improved in the first quarter of 2019, but only slightly: The company says it lost $264 million on $728 million in revenue during the quarter.

The company’s core business revolves around renting out co-working spaces to everyone from startups and freelancers to large enterprises. Now, WeWork says it’s in 425 locations, and has over 400,000 members, up from 186,000 in 2017. the company’s CFO told CNBC that investors should look at WeWork’s losses as “investments” that will lead to more cash flow.

However, Lyft and Uber‘s recent IPO stumbles could bode poorly for WeWork’s chances of a successful debut, as investors seem wary about taking a bet on companies that lack a clear path to profitability.

May 18th, 2019

How does WeWork work, and why it is losing money

12 Hours Ago

The We Company, parent company of WeWork, is the latest in a string of start-up unicorns set to go public this year. It is valued at $47 billion, but like other newly public companies such as Lyft and Uber, WeWork isn’t turning a profit. Instead, it’s hemorrhaging cash.

May 17th, 2019