April 18th, 2019 April 18th, 2019 April 18th, 2019

M&A wrap: Stifel, Mooreland, KKR, Navab Capital, Riverside, Mondelēz


Photo credit: Stifel Financial

Stifel Financial Corp. (NYSE: SF) is buying technology focused M&A advisory firm Mooreland Partners. Mooreland was founded in 2003, and completed more than 250 middle-market M&A and capital raising transactions. After the deal closes, Mooreland managing partner Patrick Seely will become the co-head of Stifel’s technology investment banking group, which has completed more than 300 deals, representing over $100 billion in value, over the last 20 years. “Technology is a sector that has been, and continues to be, a cornerstone of Stifel’s investment banking platform,” says Brad Raymond, global head of investment banking at Stifel. “Through this combination, we are doubling the size of our overall technology practice and significantly enhancing our presence in Europe and Silicon Valley.” Technology permeates many of today’s private equity deals, and buyers are hot on the trail of innovations that will drive sustainable value to customers and make companies more efficient, more effective and less expensive to run. Among the developments appealing to investors are: artificial intelligence, data management, data virtualization, digital marketing, healthcare IT, industrial automation, the Internet of Things, machine-to-machine learning, payment processing and Software-as-a-Service. Stifel is ranked among the most active M&A investment banks in 2018, based on the volume of completed private equity-backed deals, according to PitchBook.

Related: Top investment banks in PE-backed deals: KPMG, Houlihan, GS, William Blair.
Related: 10 private equity firms share strategies for tech M&A.

DEAL NEWS
Alexander Navab, a former head of Americas private equity at KKR (NYSE: KKR), has formed a new investment firm called Navab Capital Partners. The firm will focus on investing in upper mid-cap to larger businesses across the healthcare, technology, media, fintech, financial services and consumer sectors.

Greenbrier Cos. (NYSE: GBX) is buying the manufacturing business of American Railcar Industries for $400 million. Advisors to Greenbrier include: Bank of America Merrill Lynch and Goldman Sachs (NYSE: GS). The legal advisor to American Railcar is Willkie Farr & Gallagher.

The Riverside Co. has invested in in HemaTerra Technologies, a provider of Software-as-a-Service-based services for independent and hospital-based blood collection centers and plasma collection centers.

Mondelēz International Inc. (Nasdaq: MDLZ) has made a minority investment in Hu, which owns healthy snacks company Hu Products along with better-for-you fast-casual restaurant Hu Kitchen.

Lear Corp. (NYSE: LEA) has bought auto technology company Xevo.

FEATURED CONTENT
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: Nike, 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.

Related: 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.

Genstar Capital, Audax, 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 and more

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

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’s scoring Dealmaker of the Yearfor 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 one way or the other.

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

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.

EVENTS
ACG Boston hosts a 40th Anniversary Celebration and inaugural awards reception at the Boston Harbor Hotel’s Wharf Room on April 24.

InterGrowth 2019 takes place May 6-8 at the Waldorf Astoria & Hilton Bonnet Creek in Orlando, Florida.

Innovation Works holds its second annual AI/Robotics Venture Fair in Pittsburgh May 15-16.

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

ACG New York, ACG Boston and ACG Philadlephia 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 & The State Room, June 12-13.


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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April 18th, 2019

How Pinterest makes money

Pinterest will debut on the stock market on Thursday at an initial valuation above $10 billion. In its IPO filing, the company said it lost $63 million last year on revenue of $756 million in revenue, with revenue growth of 60%.

So where does this money come from?

The social network has 265 million monthly users who bookmark images they find online by “pinning” them to themed inspirations “boards.” That large user base is two-thirds women, and is highly valuable to advertisers. Pinterest sells targeted ads called “promoted pins” that appear at the top of users’ feeds and search results. Those ads brought in about $3 per user in 2018. It also sells click-to-buy shopping ads to businesses and hundreds of retail partners.

Pinterest was growing rapidly in 2012, but a recent CNBC report found that expansion was slowed by a cautious and sometimes overly passive culture at the company.

April 18th, 2019

DealBook Briefing: Business Heads Back to Saudi Arabia

Good Thursday. (Want this by email? Sign up here.)

Six months ago, the murder and dismemberment of the journalist Jamal Khashoggi by agents of Saudi Arabia cast a heavy cloud over the kingdom. But now the international business community is revving up its work with the Saudis again, Michael de la Merced, Stanley Reed and Dai Wakabayashi of the NYT report.

Business leaders had withdrawn from a government-led conference in Riyadh last fall, but that didn’t mean that their Saudi projects stopped:

Google continued to work on a data center there, meant to support cloud-computing services in the Middle East.

Blackstone still plans to invest from a $40 billion infrastructure fund that is counting on $20 billion in capital from the Saudis.

Saudi Aramco, the state-owned oil giant, sold $12 billion worth of bonds to international investors last week — on the same day that the U.S. barred 16 Saudis suspected of participating in Mr. Khashoggi’s death from entering the country.

Executives say they’re trying to support the Saudi people. “It’s the right thing to do for the people of Saudi Arabia,” Adam Aron, the C.E.O. of AMC Theaters, told the NYT this month when discussing plans to open movie theaters in the country. “They have been deprived of going to the movies for decades.”

But there’s also plenty of money to be made. Saudi Arabia has 33 million residents, most of them under 30, and it’s eager to attract foreign investment to help it revamp its economy.

Whether Saudi Arabia can sustain this momentum remains to be seen. “For people to invest in Saudi Arabia, they need a belief that this country is moving in the right direction,” Roger Diwan, a vice president at IHS Markit, told the NYT. “The last 12 months have not been stellar.”

Both Pinterest, the digital pin board company, and Zoom, which does videoconferencing, priced their initial public offerings above their initial price ranges yesterday.

Pinterest priced its shares at $19 each, above its price range and giving it a fully diluted valuation of $12.7 billion. That means its public debut won’t be a “down round,” at below the value used for its last private fund-raising. (For Pinterest, that was $12 billion.) Bankers appeared to set the company’s initial pricing conservatively, allowing it to vault over low expectations.

Zoom did better, pricing its shares at $36 apiece. That was $1 above an already raised price range, and made the company worth about $9 billion, nine times the valuation at its last private fund-raising round. Investors seems to appreciate that, unlike many other tech unicorns, it’s already profitable.

The strong demand may give some investors confidence in backing further unicorn I.P.O.s. Big investors may not be swayed by apparent trends, a corporate adviser told the FT, but retail investors probably will be.

The real test is still to come when the shares of the two companies start trading on the public markets today. Since Lyft went public two weeks ago, its shares have fallen about 17 percent. The Economist argues that the big question on investors’ minds is whether these companies (Zoom excepted) can ever make money.

Perhaps this year’s most anticipated event in Washington starts at 9:30 a.m. Eastern, when Attorney General William Barr says he’ll unveil a redacted version of Robert Mueller’s report. Here are some things to expect:

The White House already knows some of the findings, because the Justice Department shared details with President Trump’s team, the NYT reports. That has enabled the White House to prepare a speedy rebuttal, but raises questions about whether the Justice Department acted appropriately.

The report will be “lightly” redacted, the WaPo reports. It’s expected to lay out a blow-by-blow account of potential obstruction of justice by the president, including analyses of tweets, private threats and more. (The special counsel himself declined to offer a conclusion on whether Mr. Trump broke the law.)

It will be delivered to Congress on CDs. Yes, in 2019. The information will then be posted on the special counsel’s website sometime after noon.

Expect publishers to rush out physical copies of Mr. Mueller’s tome. Pity the typesetters who have to deal with the redactions. And Amazon is expected to start on an audiobook version as soon as there’s something to read aloud.

Did central banks kill inflation off with high interest rates? Did weak economies cause it to shrivel away? Or is it just hiding? Peter Coy of Bloomberg Businessweek went hunting for answers.

• While hyperinflation is destructive, a little inflation “greases the wheels of commerce,” Mr. Coy writes. It gives the appearance of rising wages and helps central banks encourage borrowing by cutting rates.

• “The Fed has repeatedly missed the target it set in January 2012 of 2 percent annual change in the price index for personal consumption expenditures. Once you strip out volatile food and energy prices, inflation by that measure has reached 2 percent just one month (July 2018) in the past seven years.”

• “Researchers are finding that low inflation is in large part a consequence of globalization or automation or deunionization — or a combination of all three — which undermine workers’ power to bargain for higher wages.”

• “In other words, the capitalists killed inflation.”

• There is no single obvious way to revive inflation, though aggressive fiscal policy might help. But even in countries where that’s possible, Mr. Coy writes, there’s no apparent political will for that, so the situation could persist for at least a decade.

The chairman of the F.C.C., Ajit Pai, said yesterday that he would oppose China Mobile’s application to provide cell service in the U.S., Cecilia Kang of the NYT reports.

China Mobile has been waiting on a decision since 2011. It wanted to connect calls between the U.S. and other nations, not to manage domestic calls.

But “serious national security and law enforcement risks” were raised by China Mobile’s application, Mr. Pai said in a statement. Senior officials worry that “calls could be intercepted for surveillance and make the domestic network vulnerable to hacking and other risks,” Ms. Kang writes.

An internal review and a Commerce Department recommendation pointed the same way, Mr. Pai said, “because of the potential for espionage, hacking and other security risks,” according to Ms. Kang. The F.C.C. is an independent, bipartisan agency, but “Mr. Pai, a Republican, carries tremendous sway because his party holds three of the five commission seats.”

A rejection would escalate the ongoing U.S.-China feud, in which Washington has tried to limit Beijing’s increasing telecom dominance. The Trump administration had largely focused on Huawei, but clearly has added to its target list.

When the iPhone maker and the modem chip giant settled a tangle of global patent lawsuits on Tuesday, they were focused on the two characters that obsess the entire tech world: 5G.

Qualcomm has taken an early lead in making the chips that will let cellphones use forthcoming superfast 5G data networks, the WSJ writes; it shifted its focus to that business more than two years ago.

So Apple was in a bind. Fighting Qualcomm, CNBC notes, limited its 5G options to a short and unpalatable list:

• Go with Intel, its 4G supplier. But there were rumors of delays at Intel. So that could be risky.

• Pick Huawei. But that would mean ignoring Washington’s concerns about national security.

• Build its own. But Apple’s chip design team is relatively new, so that could take a while.

Apple was seeking as much as $27 billion in damages across its lawsuits against Qualcomm, but ultimately ended up making an undisclosed one-time payment to the chip maker. That underscores 5G’s importance to Apple and its rivals.

More: Huawei has promised a $600 5G smartphone.

JPMorgan Chase reshuffled its executive ranks yesterday, giving two women big new roles — ones that identify them as possible successors to Jamie Dimon.

Marianne Lake, formerly the C.F.O., will lead the bank’s enormous consumer-lending division.

• And her successor as C.F.O. will be Jennifer Piepszak, who led the credit-card unit.

Both women gain in prominence. Ms. Lake, already considered a potential future C.E.O., can gain further cred by running one of JPMorgan’s most visible divisions.

And both are seen as having the “right combination of youth and experience to potentially succeed Mr. Dimon,” David Benoit of the WSJ writes. (They’re both 49.)

But don’t expect Mr. Dimon to go anywhere soon. He said in February that he plans to step down in about five years.

The Treasury Department plans to hire Monica Crowley, a Fox News commentator, as its top communications official. She dropped out of contention for previous government posts amid plagiarism allegations.

Deals

• If T-Mobile can’t buy Sprint, one of the biggest losers would be SoftBank, which was counting on the deal to take Sprint’s debt off its books. (WSJ)

• Saudi Aramco is said to be in talks to buy a stake in the petrochemicals unit of Reliance Industries, the Indian conglomerate. (FT)

• Uber is reportedly near a deal for an investment in its autonomous vehicle division, which would value the unit at $7.25 billion. (WSJ)

• Blackstone is reportedly planning to sell the Cosmopolitan hotel and casino in Las Vegas, and seeking $4 billion. (WSJ)

• Hedge funds enjoyed their best first quarter in 13 years. (CNBC)

Politics and policy

• Herman Cain said he wouldn’t withdraw from consideration for a seat on the Fed’s board, despite a shortage of Senate support. (WSJ)

• The Treasury Department issued new rules for tax breaks tied to opportunity zones. (NYT)

• Ivanka Trump confirmed that her father had asked whether she’d like to run the World Bank, and said she turned down a nomination. (AP)

• President Trump’s F.T.C. appointees don’t appear to agree with his “Made in America” vision. (NYT)

Trade

• The U.S. and China reportedly plan two more rounds of face-to-face trade talks, hoping for a deal by early June. (WSJ)

• Beijing’s recovering economy could give it a stronger negotiating hand. (Bloomberg)

• The Trump administration has cut off access to dollars for Venezuela’s central bank, further squeezing the Maduro government. (NYT)

• The E.U. warned that it could impose tariffs on $20 billion worth of U.S. good as punishment for American state support of Boeing. (FT)

Tech

• Gov. Tony Evers of Wisconsin wants to revise his state’s deal with Foxconn. (NYT)

• Gadget reviewers keep breaking Samsung’s $2,000 foldable-screen smartphone. (BBC)

• India has halted downloads of the video app TikTok, saying it could harm children. (NYT)

• The E.U. approved draft legislation that would require platforms to take down terrorist content within an hour of a request from the authorities. The European Parliament also passed rules that will require big tech companies to offer clearer terms of service, improve dispute-resolution programs and increase transparency. (BBC, VentureBeat)

• Facebook said it may have “unintentionally uploaded” the email contacts of 1.5 million new users since May 2016. (Reuters)

• Amazon is shutting its Chinese online stores in the face of stiff domestic competition. (Reuters)

Best of the rest

• French billionaires’ donations to rebuild Notre-Dame are fueling the resentments that animated the Yellow Vest movement. (NYT)

• The Writers Guild of America has filed a lawsuit against the four major talent agencies, escalating a civil war in Hollywood. (NYT)

• Deutsche Bank estimates that it handled at least 175 million euros, or about $197 million, from Russian criminals between 2011 and 2014. (FT)

• How much slower would the U.S. grow without immigration? In many places, a lot. (Upshot)

• The N.R.A. is reportedly mired in “secrecy, self-dealing, and greed.” (New Yorker)

• Alcohol-free beer is booming. (Bloomberg)

Thanks for reading! We’ll see you next week.

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

April 18th, 2019

Why this strategist is 'uneasy' about upcoming IPOs

Jimmy Chang of Rockefeller Capital Management says he is uneasy because, looking at recent IPOs, the percentage of unprofitable companies coming to market matches the highs reached during the dot-com boom and bust.

April 17th, 2019

Pinterest Prices I.P.O. at $19 a Share, for a $12.7 Billion Valuation

SAN FRANCISCO — Pinterest on Wednesday priced its shares at $19 each for its initial public offering, in a sign of healthy demand by investors after the appetite for fast-growing but money-losing tech companies appeared to be on the wane.

The price valued the digital pin board company, which lets people save images and links from around the web, at $12.7 billion. That is a little above its last private fund-raising round, which had pegged the company at $12 billion.

By selling at $19 a share, Pinterest raised $1.6 billion from big investors in the offering. The shares will begin trading Thursday on the New York Stock Exchange under the ticker symbol PINS.

Pinterest’s pricing could bode well for the many “unicorns” — start-ups worth more than $1 billion — that are rushing to the public markets. It follows a rocky debut for the ride-hail company Lyft, which went public on March 28.

After a euphoric spike on its first day of trading, Lyft’s shares promptly sank below their I.P.O. price. The company is still worth more than it was in the private market, but investors who bought into the I.P.O. are under water and may not want to take on more risk in start-ups like Pinterest.

“Coming out of Lyft, there was a lot of drama and concern around the appetite investors had for these money-losing businesses,” said Vincent Ning, director of research at Titan Invest, an investment manager.

He said Lyft might have been too aggressive on its pricing, which led Pinterest to take a more conservative tack. Mr. Ning predicted that that strategy would result in an uptick in Pinterest shares in the days after its I.P.O.

That appetite will be tested in the coming weeks. Uber, the giant ride-hailing firm and the most prominent player to emerge from this wave of start-ups, will start meeting with investors to sell its shares. Slack, a workplace collaboration company, and Postmates, a food delivery company, are also expected to unveil their I.P.O. plans.

These unicorns have waited longer to go public than past generations of tech start-ups, opting to raise more money from private market investors. But their lack of profits and nosebleed valuations have not always stood up to scrutiny once they went public.

Snapchat’s parent company is now worth around half of what it was valued at when it went public in 2017. The share price for Dropbox has been flat since it went public last year at a valuation below its last private market valuation. In 2012, Facebook also experienced a public market reality check, with its stock languishing for months below its I.P.O. price in its first year as a public company.

When Pinterest started to talk to investors about its I.P.O., it set a conservative price range that valued it at below $12 billion, the private valuation it has had since 2015. The strategy may stave off a frenzied spike and immediate drop like Lyft’s.

The conservative pricing was typical of Pinterest’s avoidance of hype. The company’s chief executive and co-founder, Ben Silbermann, is an introvert who has built Pinterest slowly and rarely brags.

“I don’t think it’s important to focus on the image of speed versus the things that our customers, and hopefully our future customers, really want,” he said in an interview with The New York Times last year.

Mr. Silbermann is “comfortable being underestimated,” Scott Belsky, an early investor in the company, said at the time.

While many start-up founders use their I.P.O. prospectus as an opportunity to wax poetic about their companies’ grandiose missions, the founder’s letter from Pinterest was short. It noted that “sometimes ‘what is essential is invisible to the eye,’” and thanked investors for considering the company.

The $1.6 billion that Pinterest raised is small in relation to its peers. Lyft raised $2.3 billion; Uber is expected to seek as much as $10 billion.

With $628 million in cash on its balance sheet, Pinterest has less need for money. It is also not losing as much money as Lyft or Uber. Pinterest said it had lost $63 million on revenue of $756 million in 2018. The company, which sells ads, is also growing quickly, reporting a 60 percent jump in revenue from 2017 to 2018.

The company faces stiff competition from digital advertising behemoths Google and Facebook, which owns Instagram. The company also listed Allrecipes, a recipe website; Houzz, a home-improvement website; and Tastemade, a cooking content company as competitors.

In its I.P.O. prospectus, Pinterest emphasized its differences from some of those services. Pinterest is not a social media app for hanging out with celebrities or broadcasting one’s life, the company said. It is meant to be personal. The company’s 250 million monthly active users, called “pinners,” come to the site to plan their lives, including home projects, weddings and meals.

Even if Pinterest’s shares trade slightly below their last valuation, early investors in the company will reap big returns. Bessemer Venture Partners, FirstMark Capital and Andreessen Horowitz have significant stakes. Alongside Fidelity and Valiant Capital Partners, they have poured more than $1.5 billion into the company. Mr. Silbermann stands to make about $981 million from his 11 percent stake.

April 17th, 2019

Lehman Brothers, a Family Saga, as Viewed by Some Who Lived It

“Bobbie’s talk was very much 2008 as it was 1929,” Mr. Russo said.

The “Trilogy” will head to London’s West End after it finishes its four-week run on Saturday. This production, directed by Sam Mendes, was adapted from the original, which was written in Italian by Stefano Massini and ran five hours.

Partly reflecting the high-altitude ticket prices ($425 for premium seats), New York audiences have included outsize numbers of financiers, as well as Lehman progeny who went to see the replay of a catastrophic downfall.

Wendy Lehman Lash, great-granddaughter of Mayer Lehman, the youngest of the three brothers, served as a conduit for tickets. “I would say over 100 Lehman offspring have seen it,” she said.

Ms. Lash’s paternal grandfather, Herbert Lehman, spent most of his career in politics, and served as New York’s governor and as a senator. Despite her Lehman roots, “I didn’t know this story, how they reinvented themselves,” Ms. Lash said of the founding patriarchs after seeing the play. “How Lehman had to go from cotton to banking.”

John L. Loeb Jr., an 88-year-old family scion who researched the family history for a self-published memoir, has seen the show three times. “It’s wonderful theater, but it’s largely the imagination of the author,” Mr. Loeb said. “It doesn’t quite tell the truth.”

Ever since 2008, Mr. Loeb has chafed against the public’s equating the Lehman family itself with the financial crisis. Bobbie Lehman, who died in 1969, was the last family member to lead the firm. And as Mr. Loeb pointed out, American Express bought the company in 1984. A decade later, it spun off Lehman Brothers’ financial service operations through a public stock offering, and Mr. Fuld became chairman and chief executive.

April 17th, 2019

Treasury Issues Rules on Tax Breaks for Opportunity Zones

WASHINGTON — The Trump administration released regulations on Wednesday that could help venture capitalists, Native American tribes and entrepreneurs benefit from a new tax incentive meant to encourage investment in struggling communities.

Backers of that incentive, known as Opportunity Zones, had complained to the administration in recent weeks that its regulations could end up steering most of that money into real estate development, rather than start-up businesses that are more likely to create well-paying jobs.

The rules released on Wednesday appeared to ease many of those fears. But critics said the administration had not done enough to make sure that the program achieved its goals.

Under the 169-page proposed regulation, the second in a series of rules meant to clarify the 2017 tax law that created the zones, investors can take advantage of the tax breaks in several ways. The new methods are particularly important for investors who hope to fund new coffee shops, grocery stores or possibly, as administration officials conceded on Wednesday, marijuana dispensaries in states that have legalized the drug.

“This round of regulations removes some of the most significant impediments keeping capital on the sidelines, especially as it relates to operating businesses,” said John Lettieri, president of the Economic Innovation Group, a Washington research organization that developed and championed the Opportunity Zone concept.

Senator Tim Scott of South Carolina, the Republican who inserted the zones into the tax law, said in a news release that the proposed regulations “took some good steps forward” toward helping investors and business owners. Late last week, Mr. Scott said in an interview that he was “concerned right now” about the administration’s approach to the regulations.

The tax incentive promises investors the chance to defer, reduce or — when investments are held for more than a decade — eliminate taxes on certain capital gains, provided they invest in Opportunity Zones. Those areas were identified by states last year based on criteria that included poverty and income levels.

After two rounds of regulations, and sustained criticism from economists who suggested ways to make the program more accountable, the government will still have no system for tracking investments in the zones and whether they are helping communities as advertised. Treasury officials said Wednesday that they were seeking proposals for how the department should collect data on Opportunity Zones.

“This thing’s been in place for 17 months and now you’re going to ask for comments about data collection?” said Olugbenga Ajilore, a senior economist with the liberal Center for American Progress in Washington. “It’s frustrating. There needs to be some accountability to the community.”

Even before the administration has finished issuing its rules, the zones have become a boon for real estate developers and drawn criticism from people who say they will mostly enrich well-heeled investors and speed up the displacement of low-income residents in gentrifying areas.

Treasury officials have developed a series of tests, in the regulations they began releasing in October, for which investments should qualify for the tax breaks. One key test many local officials use to evaluate the zones is whether the tax breaks encourage job-creating businesses, not just condos, retail stores, hotels and other real estate projects that often don’t create many permanent jobs with opportunities for advancement.

Mr. Scott and others have urged officials to set rules that encourage investment in entrepreneurship, and to attract a wide variety of investors, including venture capitalists who could establish funds that would back multiple projects in various zones.

The rules released on Wednesday, ahead of a White House meeting on the program, seek to meet that request in several ways.

They include provisions that will allow investors to qualify for the breaks even if the businesses they fund focus on exported goods or services or the domestic market outside the zone. Long-vacant properties will immediately qualify for the tax breaks. Investors will be allowed to share their stakes in funds that invests in the zones, and to sell, say, a start-up in an Opportunity Zone as long as the money is reinvested in another qualifying business or asset. Real estate investors will be allowed to lease and refinance their properties.

Mr. Trump heralded the regulations and the program, calling the zones “really a crucial part of our new tax law to help low-income Americans.”

“As you know,” he said at the White House, “this vital provision gives businesses a massive incentive to invest and create jobs in our nation’s most underserved communities.”

Supporters of the zones said the regulations could still be improved to encourage even more business investment.

Some critics acknowledged that the new rules included important provisions to help more communities take advantage of the zones. Making leased properties eligible for the tax breaks could help Native American tribes, for example, because they often lease their lands to businesses.

The proposal also allows Treasury officials to revoke a tax break for any Opportunity Zone project “if a significant purpose of a transaction is to achieve a tax result that is inconsistent with the purposes” of the program.

April 17th, 2019

Monica Crowley, a Fox News Fixture, Is Said to Get a Top Treasury Job

WASHINGTON — Treasury Secretary Steven Mnuchin plans to hire Monica Crowley, a longtime Fox News commentator, as his top communications official, according to a person familiar with the matter.

Ms. Crowley would succeed Tony Sayegh, who has been planning for several months to leave the Treasury in May. Her hiring would be another sign of the symbiosis between the Trump administration and Fox News, a launching pad for current White House officials and a place to land for those who leave. Mr. Sayegh is a former Fox News contributor.

While the Treasury position is primarily a platform for promoting President Trump’s handling of the economy, including his tax and trade policies, Ms. Crowley’s appointment is almost certain to raise questions.

She was considered for a high-ranking National Security Council job in 2017 and was also mentioned as a candidate to become the White House press secretary. But she dropped out of contention after allegations that she had plagiarized key passages in her 2012 book “What the (Bleep) Just Happened?” from Wikipedia and newspaper articles.

After CNN found evidence of plagiarism, HarperCollins withdrew the digital edition of the book. Separately, Politico found more than a dozen examples of passages in Ms. Crowley’s Ph.D. dissertation that had been taken from scholarly works.

At the time, Mr. Trump’s transition team portrayed the allegations as a political attack on Ms. Crowley.

Ms. Crowley could not immediately be reached for comment. Fox News declined to comment, beyond saying she had not been formally affiliated with the network since 2016.

The Treasury appointment, which does not require Senate confirmation, is ultimately Mr. Trump’s to make. The White House did not immediately respond to a request for comment.

Credible allegations of plagiarism would normally be problematic for securing a senior role in an administration, especially a job that entails providing potentially market-moving information to the public. But Mr. Trump has not been deterred from picking others with tarnished résumés for high-profile positions, recently standing behind Stephen Moore and Herman Cain as his choices to be governors of the Federal Reserve despite questions about their qualifications and personal lives.

The Trump administration’s communications team has been in transition since Bill Shine, a former Fox News co-president, resigned last month as deputy chief of staff for communications.

Mr. Mnuchin’s team has also been in flux. Eli Miller, his chief of staff, departed this month to join the Blackstone Group, the giant investment firm. David Malpass, the under secretary for international affairs, left to become president of the World Bank.

Ms. Crowley will have a formidable task in succeeding Mr. Sayegh. He emerged as one of Mr. Mnuchin’s closest confidants and was a liaison to the White House and Congress during the drafting and passage of the Republican tax-cut plan in 2017. He advised Mr. Mnuchin on his television presentation and encouraged the secretary to be more available to reporters.

Mr. Sayegh, the assistant secretary for public affairs, has been leading the search for his successor. His future plans are unknown.

A Treasury Department spokesman declined to comment on Ms. Crowley’s hiring, which was reported earlier by Bloomberg News.

April 17th, 2019

M&A wrap: Shore Capital, Apollo, Smart & Final, Martha Stewart, Emeril Lagasse


Photo credit: Shore Capital Partners

Shore Capital Partners, a private equity firm that focuses on the healthcare and food and beverage sectors, has raised two new funds. The PE firm raised its third healthcare fund at $293 million. In addition, Shore Capital raised its first food and beverage fund at $148 million. The healthcare fund will invest in mircrocap businesses that have have up to $100 million in revenue, including animal healthcare. In 2017, Shore Capital invested Midwest Veterinary Partners, which owns the Lake Huron Veterinary Clinic in Michigan. The food and beverage fund will seek investments in businesses that are involved in manufacturing, distribution and packaging. “Having the ability to expand our expertise and knowledge into the food and beverage space while simultaneously continuing our original healthcare-focused strategy is an attractive opportunity for our limited partners and firm as whole,” says Shore Capital founder Justin Ishbia. “As has been the case for many years and various cycles, we are confident that the food and beverage industry will continue to present quality investment opportunities, particularly within a number of niche sectors.” Kirkland & Ellis advised Shore Capital.

DEAL NEWS
Apollo Global Management LLC (NYSE: APO) is acquiring Smart & Final Stores, a value-oriented food retailer from Ares Management for $1.12 billion. Smart & Final operates 257 stores. Apollo previously owned Smart & Final from 2007-2012 and sold the target to Ares in 2012. Advisors to Smart & Final include: Jefferies, Citigroup, Centerview and Kirkland & Ellis. The board is being advised by Gibson Dunn & Crutcher. Advisors to Apollo include: Morgan Lewis & Bockius and Paul Weiss Rifkind Wharton & Garrison.

Adtalem Global Education Inc. (NYSE: ATGE) is buying OnCourse Learning, which offers compliance training, license preparation, continuing education and professional development, from Bertelsmann for $121 million. “This transaction expands our reach across the governance, risk and compliance sector and enhances our ability to meet the current and future needs of employers in the dynamic financial services industry,” says Adtalem CEO Lisa Wardell. Advisors to Bertelsmann include: Macquarie Capital and Manatt Phelps & Phillips.

Neuberger Berman-backed Marquee Brands is buying the Martha Stewart and Emeril Lagasse brands from Sequential Brands Group (Nasdaq: SQBG).

North Castle Partners has invested in Indian food brand Maya Kaimal Foods. The target makes sauces and ready-to-eat rices. The Giannuzzi Group advised the target. Morrison Cohen advised North Castle.

Meketa Investment Group and Pension Consulting Alliance have combined. The two firms now manage $1.8 billion assets, including $100 million in private markets and real estate assets.

Falfurrias Capital Partners-backed E-Technologies Group has purchased Superior Controls Inc., a provider of automation and control systems for the life sciences industry.

Sverica Capital Management has invested in Stream Companies, a marketing software provider for the automotive sector.

PEOPLE MOVES
Pat Cornelius has joined law firm Barnes Thornburg as a partner. Most recently with Squire Patton Boggs, Cornelius focuses on M&A in the financial services and healthcare sectors.

Robert Juelke was hired by law firm Hogan Lovells as a partner, where he is focusing on M&A in the insurance and real estate sectors. He was most recently with Drinker Briddle.

David Marchick has joined law firm Covington as a partner. Marchick was previously with the Carlyle Group (Nasdaq: CG), and advises companies and executives on matters that involve law, policy and reputational risk.

Alex Park was hired by law firm Alston & Bird as a partner. Previously with Womble Bond Dickinson LLP, Park focuses on M&A in the real estate and hospitality sectors.

FEATURED CONTENT
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: Nike, 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.

Related: 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.

Genstar Capital, Audax, 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 and more

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

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 Awardsespecially: Luminate Capital Partners founder Hollie Hayne’s scoring Dealmaker of the Yearfor 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 one way or the other.

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

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.

EVENTS
ACG Boston hosts a 40th Anniversary Celebration and inaugural awards reception at the Boston Harbor Hotel’s Wharf Room on April 24.

InterGrowth 2019 takes place May 6-8 at the Waldorf Astoria & Hilton Bonnet Creek in Orlando, Florida.

Innovation Works holds its second annual AI/Robotics Venture Fair in Pittsburgh May 15-16.

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

ACG New York, ACG Boston and ACG Philadlephia 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 & The State Room, June 12-13.


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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April 17th, 2019

DealBook Briefing: Apple and Qualcomm Kiss and Make Up

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After two years of bitter patent battles across three continents, Apple and the chip maker Qualcomm have settled all of their disputes, Don Clark and Daisuke Wakabayashi of the NYT report.

• The companies “agreed to dismiss all litigation between them worldwide. They added that they had reached a six-year agreement for Apple to pay unspecified royalties on Qualcomm’s patents.”

• “That deal, which was effective as of April 1, included a two-year option for an extension, plus a multiyear agreement for Qualcomm to supply chips to Apple. In addition, Apple will make an undisclosed one-time payment to Qualcomm.”

Hours later, Intel said it would stop selling smartphone modem chips — including 5G models that Apple had been expected to use next year — citing “no clear path to profitability.” Nikkei Asian Review reports, citing unnamed sources, that Apple had been concerned about relying solely on Intel for its 5G chips.

And Qualcomm’s shares jumped 23 percent after it said it expected $2 per share in additional revenue from the settlement.

“I’m floored,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, a technology analysis firm. “Qualcomm got the bigger win because it had the most to lose and the most to gain. And it ended today.”

“How much the deal might affect people’s phone prices will not be clear until more financial details of the settlement are disclosed. But the effect on the price of individual handsets is not likely to be large,” Mr. Clark and Mr. Wakabayashi write.

More 5G news: Nokia wants to take on Huawei on next-generation wireless infrastructure. And Huawei said that it has no 5G contracts from mainland China.

Shares in Sprint tumbled over 7 percent yesterday after the WSJ reported that Justice Department staffers had concerns about its proposed sale to T-Mobile USA.

Justice Department officials met with both carriers earlier this month to discuss the merger, according to news reports. They showed some skepticism about the structure of the transaction.

But one man will decide whether to block the deal. That’s Makan Delrahim, the head of the Justice Department’s antitrust division — and it isn’t clear which way he is leaning.

T-Mobile’s C.E.O., John Legere, is pushing back. He tweeted that the WSJ’s description of the meeting, which had Justice Department staffers saying the deal was “unlikely to be approved as currently structured,” was “simply untrue.”

The companies still have about a month of regulatory reviews to wait out. And they could still make changes to the transaction to win over Washington officials.

More: The White House is refusing House Democrats’ request for any documents about President Trump and the Justice Department review of AT&T’s takeover of Time Warner.

The business of multibillion-dollar deals and complex derivative trades wasn’t Wall Street’s cash cow in the first quarter. That honor fell to bank branches, consumer apps and credit cards, Robert Armstrong of the FT reports.

• “Over the past 12 months, shares in Morgan Stanley, which has no retail unit, and Goldman Sachs, which has only a tiny one, are the worst performing among the six big U.S. banks, having fallen 11 percent and 21 percent, respectively.”

• “Conversely, JPMorgan and BofA, with the strongest retail units, trade at the widest premiums to tangible book value in the group.”

• “ ‘Corporate and investment banking is not a source of growth, and asset management is not [either]. All the growth is coming from the retail banks,’ said Charles Peabody of Portales Partners.”

• The big question, Mr. Armstrong writes, is how long this will last. Banks have kept deposit rates low even as the Fed’s rates have risen. But the difference between shorter-term and longer-term interest rates is narrowing, threatening that income.

In the wake of two fatal crashes, two influential shareholder advisory firms have recommended big changes to Boeing’s board of directors, including a partial demotion for Dennis Muilenberg, the C.E.O.

Mr. Muilenberg should lose his role as chairman, I.S.S. and Glass Lewis said. The two proxy advisory firms, who hold sway over many institutional investors, often recommend having an independent chairman.

Separating the roles “eliminates the conflict of interest that inevitably occurs when a C.E.O. is responsible for self-oversight,” Glass Lewis wrote in its report to investors, according to the WSJ.

Also under pressure: the head of Boeing’s audit committee, Lawrence Kellner. Glass Lewis want him removed for failing to foresee safety risks on the 737 Max planes.

Boeing defended its current board and said it should decide its own leadership structure. “The board is not aware of clear evidence demonstrating that splitting the C.E.O. and chairman roles is good for all companies in all circumstances,” the company said in its proxy filing.

Ads that ran alongside anti-vaccine content. Accusations of abetting child suicide. Viral content that showed pedophiles were flourishing in comments sections. YouTube has had a rough time recently. Daisuke Wakabayashi of the NYT looks at how its C.E.O., Susan Wojcicki, is coping.

• “In an industry that celebrates eccentricity, Ms. Wojcicki presents as exceedingly normal, bordering on boring, even as elements of her digital realm burst into the real world in forms that are increasingly grotesque and sometimes dangerous.”

• “Political figures and tech luminaries alike are castigating YouTube for not doing enough to rein in the crooks, crackpots, racists, Russian agents and charlatans who call the platform home. New horrors are ceaseless.”

• Now, “YouTube wants to remove the content that violates its policies more quickly and effectively; promote better, more authoritative material and limit the spread of videos that are potentially harmful but does not break the rules.”

• “I know we can do better, but we’re going to get there,” she said in an interview. “I own this problem, and I’m going to fix it.”

• Ms. Wojcicki is unlikely to be unseated anytime soon. While she technically reports to Sundar Pichai, Google’s C.E.O., she is one of the few people at the tech giant with “walk-in access” to Larry Page, Alphabet’s reclusive co-founder and C.E.O. “She is not going anywhere,” one Google executive told Mr. Wakabayashi.

The Chinese economy steadied itself in the first three months of the year, after Beijing flooded the financial system with money to avoid a slowdown, Alexandra Stevenson of the NYT reports.

The world’s second largest economy was 6.4 percent bigger in the first quarter than in the same period of 2018, Ms. Stevenson reports, citing figures provided by Chinese officials. “The pace matched that of the fourth quarter, when growth suffered as shoppers pared back, the stock market slumped and private businesses pleaded for help.”

“While economists generally regard China’s economic figures with skepticism, they point to other signs that the country’s current slowdown may have reached bottom. Other figures suggest shoppers are back at the tills, factory output is ticking up and the world, after several tough months, is buying more Chinese goods.”

“Beijing needs such hopeful signs as it tries to reach a trade deal with the Trump administration while under pressure to lift conditions at home.”

But there’s a caveat. The improvement probably has more to do with all that stimulus cash than with any sudden increase in business confidence. And it’s unclear how long the cash can keep flowing.

More: As unlikely as it sounds, some business leaders and intellectuals in China see President Trump — one of Beijing’s toughest critics — as a kind of savior for the nation.

As a lawmaker, Mick Mulvaney tried to abolish the Consumer Financial Protection Bureau. And when the Trump administration made him its acting director, he steadily undercut it from within, Nick Confessore reports in the NYT Magazine.

• “When Mulvaney took over, the fledgling C.F.P.B. was perhaps Washington’s most feared financial regulator: It announced dozens of cases annually against abusive debt collectors, sloppy credit agencies and predatory lenders.”

• “What he left behind is an agency whose very mission is now a matter of bitter dispute. ‘The bureau was constructed really deliberately to protect ordinary people,’ says Lisa Donner, the head of Americans for Financial Reform. “He’s taken it apart — dismantled it, piece by piece.’ ”

• “Some career employees saw a kind of strategic ambiguity at work, designed to muddle decision-making and insulate Mulvaney as he neutered the agency’s enforcement work.”

• The deconstruction “offers a case study in the Trump administration’s approach to transforming Washington, one in which strategic neglect and bureaucratic self-sabotage create versions of agencies that seem to run contrary to their basic premises.”

• This “wasn’t just one of the Trump era’s most emblematic assaults on the so-called administrative state,” Mr. Confessore writes. It was “also, in part, an audition” to become the White House chief of staff.

Robert Jackson Jr., the S.E.C.’s only Democratic commissioner, is expected to step down later this year.

Ulrich Spiesshofer abruptly stepped down as C.E.O. of ABB after facing pressure from activist investors. He will be replaced in the interim by Peter Voser, the company’s chairman.

Nissan has reportedly abolished its “office of the C.E.O.,” a group of executives who worked for the chief executive.

Deals

• James Murdoch reportedly plans to invest about $1 billion into new media companies after his family sold the bulk of its media empire to Walt Disney. (FT)

• Commerzbank is said to have been approached by the Dutch lender ING about a potential merger before it began deal talks with Deutsche Bank. (FT)

• Expedia Group agreed to buy Liberty Expedia Holdings for $2.6 billion in stock to simplify its ownership structure. (Bloomberg)

• KKR has profited handsomely by investing in Marshall Wace, the big British hedge fund. (Bloomberg)

• Netflix says it has “no big need” for mergers. (Business Insider)

Politics and policy

• Democratic presidential contenders are spending their fund-raising cash on digital ads, huge rallies and unexpectedly large staffs. (NYT)

• And House Democratic freshmen have maintained a torrid fund-raising pace to hold onto their seats. (Politico)

• UnitedHealth’s C.E.O., David Wichman, said yesterday that Medicare for all, as proposed by leading Democrats, would “destabilize the nation’s health system.” (CNBC)

• Terry Gou, Foxconn’s founder, said a sea goddess has persuaded him to run for the presidency of Taiwan. (Bloomberg)

Brexit

• Here’s what the Brexit delay means for the forthcoming E.U. elections. (FT)

• Brexit is proving bad for people’s mental health. (FT)

Trade

• The enforcement mechanism America wants in its proposed agreement with China could also be a powerful weapon for Beijing. (Bloomberg)

• The U.S. and Japan will fast-track their trade talks, partly by narrowing the scope. (FT)

Tech

• Jack Dorsey of Twitter promised changes to clean up his social network. But can he do it? (Axios, Wired)

• How Hulu’s ads could help it in the streaming wars. (NYT)

• Microsoft turned down a facial-recognition contract with a California law enforcement agency over rights concerns. (Reuters)

• Here’s an insightful — if extremely long — look at Facebook’s troubled 15 months. (Wired)

• The NYT spent $60 on a facial recognition system to study crowds in a park. It worked scarily well. (NYT)

Best of the rest

• Donations for the restoration of Notre-Dame have surpassed 600 million euros, or about $675 million. (NYT)

• Researchers at the Commerce Department’s Bureau of Economic Analysis want to measure how wealth is shared across America. (WSJ)

• Nissan and Renault have ousted Carlos Ghosn. But can they save their partnership? (NYT)

• Richard Liu, the billionaire founder of the Chinese e-commerce giant JD.com, has been accused of rape in a lawsuit. (NYT)

• The highest-paid financial professionals work in real estate investment trusts. (WSJ)

• Employee wellness programs do little good. (NYT)

• What it was like for a Lehman Brothers veteran to watch “The Lehman Trilogy.” (NYT)

Thanks for reading! We’ll see you tomorrow.

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

April 17th, 2019

China’s Economy Stabilizes After Beijing Opens the Bank Vaults

BEIJING — China’s economy stabilized in the first three months of the year, according to official figures released on Wednesday, after Beijing flooded the financial system with money in a whatever-it-takes approach to arrest a slowdown.

Officials said that the Chinese economy, the world’s second largest, grew 6.4 percent in the year’s first quarter compared with the same period in 2018. The pace matched that of the fourth quarter, when growth suffered as shoppers pared back, the stock market slumped and private businesses pleaded for help.

While economists generally regard China’s economic figures with skepticism, they point to signs that the country’s current slowdown may have reached bottom. Other figures suggest shoppers are back at the tills, factory output is ticking up and the world, after several tough months, is buying more Chinese goods. Beijing needs such hopeful signals as it tries to reach a trade deal with the Trump administration while under pressure to lift conditions at home.

Officials “spared no effort to put the policies into effect,” and growth in the first quarter “laid a sound foundation for the stable and healthy economic development of the whole year,” said Mao Shengyong, a spokesman for the National Bureau of Statistics.

There is a caveat: The signs of improvement most likely do not stem from a sudden burst of confidence in the strength of the country’s economy among Chinese business leaders.

Instead, the positive glimmers are largely a product of the hundreds of billions of dollars that Beijing has pumped into the country’s economy in recent months, as well as the loans that officials have pressed state-run banks to make to businesses. All of that comes at a cost, and it raises a question about how willing Beijing is to spend to keep growth going.

“This time they used an overwhelming amount of force to boost the economy,” said Larry Hu, chief China economist at Macquarie Group. “That is why the economy stabilized in the first quarter.”

The chance of a “double dip,” in which growth drops again before picking up later this year, is high, Mr. Hu added. “The recovery is not that solid,” he said. “They front-loaded the policy firepower at the start of the year.”

The data on Wednesday also revealed that state-owned enterprises picked up much of the slack in economic activity, with investment from those industrial giants rising while investment by private companies slowed.

In many ways, China’s policymakers are reverting to an earlier approach: doling out more loans in exchange for a short-term increase in confidence. The strategy helped keep growth surging over the past decade, even after the 2008 global financial crisis. But it left the country awash in debt that threatens to hamper the economy in the years ahead.

In the early years of China’s boom, companies and local governments could borrow liberally knowing that accelerating growth could help ensure that their gambles paid off. Now that the country’s economy is huge and maturing, it has become increasingly difficult for China to simply grow its way out of its debt.

“China already is in the midst of the largest credit bubble the world has ever seen,” said Victor Shih, an associate professor at the University of California, San Diego. And, Professor Shih added, the Chinese government has not been able to wean itself off its debt habit.

“The government simply cannot afford to think about the medium term and must focus on short-term continuation of the credit bubble,” he said.

The latest round of government-driven financial largess was remarkable in size and scale, economists said.

The broadest measure of new borrowing in China, known as total social financing, jumped to $1.2 trillion in the first quarter, while bank lending hit a record high of $865 billion, according to central bank statistics.

Local governments, encouraged by the central government, raised $100 billion in new money through special bonds, compared with just $11.5 billion in the first quarter of last year, when the same local governments were scolded for borrowing too much and hiding their debts.

This money started to show up in the economic data on Wednesday, with a jump in spending for massive infrastructure projects like toll roads and new subway lines. .

On Tuesday, the Organization for Economic Cooperation and Development warned of the potential hazards of such heavy borrowing, saying it could yield bigger economic imbalances in the future. The organization revised its outlook for China’s growth to 6.2 percent for this year and 6 percent for 2020, citing the heightened risks of a housing collapse and growing geopolitical tensions.

Even as it struggles through an economic slowdown, China is a “major driver of world economic growth,” Ludger Schuknecht, the organization’s deputy secretary general, said in a report.

“Yet China is at a crossroads, facing serious domestic and external challenges to maintaining its strong position over the long term,” Mr. Schuknecht said. The organization also warned that the country’s trade war with the United States would weigh on exports and overall growth.

As it searches for engines to power growth globally, the world needs China to pull through economically. Last year, Beijing reported that growth had softened to its slowest pace since 1990 amid mounting signs that the trade war was already beginning to take a toll, spooking investors. New export orders dropped to multiyear lows, prompting factories to cut overtime and send workers home early before the Chinese holiday season.

The world can turn once again to Chinese shoppers, if the data this quarter is any indication. Chinese shoppers helped to push retail sales up by 8.3 percent in the first three months of the year, though car sales were still low and the figure was unimpressive by the standard of the past couple of years.

“Early signs that consumption growth may be stabilizing is really the big story,” said Shaun Roache, chief economist for Asia Pacific at S&P Global.

Companies also appeared to have more resources to hire and expand in the first three months of the year. Some of this was the result of a pledge last year by the central bank to pump $175 billion into the system, mostly to help small and midsize companies.

Although the data remains weak for manufacturers, the sector saw a double-digit jump in revenue in the first three months of the year compared with the last quarter of 2018, according to the economic consulting firm China Beige Book.

Making deep cuts to corporate taxes is among the new policies Beijing hopes will stimulate economic activity. The State Council, China’s cabinet, has announced a series of such cuts that are expected to free up $300 billion to help jump-start the economy.

If its current measures do not work, Beijing could try more unconventional policies to stimulate struggling sectors like the property market.

That sector, which by some measures accounts for up to 30 percent of China’s economic activity, is saddled with too many unsold apartments and many unfinished development projects. The slowdown in property sales and the glut of empty apartments — 65 million units, according to one estimate — have started to worry economists. New housing starts this year are down from the same period last year. Land sales also dropped in the first quarter and could continue to fall.

Construction and investment data on Wednesday showed early signs of a turnaround. Prices of homes stabilized, and investment in the real estate sector rose at a faster pace than last year over the same period.

Chinese officials have said they have a handle on what they see as a modest slowdown. Economists say the government still needs to get the debt problem fully under control.

“This rally didn’t appear out of nowhere,” analysts at China Beige Book wrote, “and there are at least three compelling reasons to doubt its staying power: credit, credit and credit.”

Addressing China’s expansive monetary policy on Wednesday morning, Mr. Mao conceded that “downward pressure on the economy still exists,” both from a global economic slowdown and from what he described as China’s own “structural contradictions.”

He added: “6.4 percent is still less than last year’s full year growth.”

April 16th, 2019

The Supreme Court Hands the S.E.C. a Rare Win

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The Securities and Exchange Commission’s record in the Supreme Court has not been strong the past few years.

The court limited the period during which the agency can pursue a fraud claim and required a case seeking disgorgement be filed within five years of the violation.

But the justices handed the S.E.C. a significant victory last month in Lorenzo v. S.E.C., affirming the agency’s authority to pursue fraud cases.

The agency had found that Francis V. Lorenzo, the former director of investment banking at a Staten Island brokerage firm, had misled investors about Waste2Energy Holdings’ assets while trying to sell $15 million of debt for the company. Mr. Lorenzo forwarded emails at the direction of his boss that said the company had $10 million in assets, when in fact its assets were worth less than $400,000.

Rather than charge him with being an accomplice to fraud, the S.E.C. accused him of being what is known as a “primary violator” of the main antifraud provision, Rule 10b-5.

Mr. Lorenzo argued that the Supreme Court’s 2011 decision in Janus Capital Group v. First Derivative Trading limited liability for misleading statements to those who “make” the statements, not those who help put the statements out to investors. The court said in its pithy ruling in the Janus case: “One ‘makes’ a statement by stating it.” In other words, only the speaker can be held to violate Rule 10b-5.

The Janus case, however, involved a private securities fraud class action, not an enforcement action by the S.E.C. So instead of limiting the main antifraud provision to only those that make the misleading statements, the court found in the Lorenzo case that “it would seem obvious that the words in these provisions are, as ordinarily used, sufficiently broad to include within their scope the dissemination of false or misleading information with the intent to defraud.” In other words, by participating in sending out false information, Mr. Lorenzo was culpable for engaging in a fraudulent scheme.

The court concluded its opinion by pointing out that “Congress intended to root out all manner of fraud in the securities industry. And it gave to the commission the tools to accomplish that job.” The key tool to fight fraud is Rule 10b-5, and the agency can now pursue a wide range of cases in which misleading information is given to investors, even if the person charged cannot be said to have actually made the statement.

Justice Stephen G. Breyer wrote the court’s opinion in the Lorenzo case, and he was able to turn the tables on the Janus case in which he wrote a dissenting opinion. In Janus, he argued that “the majority has incorrectly interpreted the rule’s word ‘make.’” So his opinion in the Lorenzo case let him give a broad reading to the scope of Rule 10b-5, at least when the S.E.C. files an enforcement action to prevent those trying to defraud investors. Justice Thomas, who wrote the opinion in the Janus case, asserted in the Lorenzo case that Justice Breyer’s opinion “renders Janus a dead letter.”

The key question is how the courts will read the ruling in the Lorenzo case as it relates to private plaintiffs pursuing securities fraud class actions. Will misstatements by a company, for instance, qualify as a Rule 10b-5 violation? The decision in the Janus case largely had shut down such claims by limiting the potential defendants to those who made the statements.

Private plaintiffs likely will cite the decision in the Lorenzo case to claim that a misstatement or failure to disclose information operated as a scheme to defraud, which means that anyone involved in putting out misleading information could be sued. That could significantly expand the number of potential defendants who can be sued for securities fraud and carry the possibility for significant recoveries from those with deep pockets who played some role in sending out misleading information to investors.

Companies are rightfully fearful of securities fraud class actions. The broad civil discovery available to plaintiffs means potentially embarrassing or damaging information could see the light of day. If plaintiffs can use the decision in the Lorenzo case to survive an initial motion to dismiss, that will give them significant leverage to extract a settlement from the defendants.

In 1995, Congress acceded to the call of companies tired of being sued by adopting the Private Securities Litigation Reform Act, making it more difficult to pursue securities fraud class actions by giving courts the power to dismiss cases at an early stage. Whether Congress will be willing to step in again to cut back on securities fraud lawsuits by limiting the ruling in the Lorenzo case remains to be seen. Companies can be expected to demand greater protection from fraud claims because of the risk these lawsuits pose.

April 16th, 2019

Nissan and Renault Are Rid of Carlos Ghosn. Now, Can They Save Their Partnership?

TOKYO — It was a simple plan. Renault and Nissan, two partners in a vast auto-making alliance, would pool their resources to build a new low-cost car in, and for, emerging markets.

Each company, working from a factory near Chennai, India, would add its own branding and finishes, but the platform — the vehicles’ bones — would be the same. Carlos Ghosn, the alliance’s chief executive, believed that shared engineering was necessary for the French and Japanese companies to prosper in an increasingly competitive industry.

But the two teams — despite both being led by French engineers — could not agree on a design, people familiar with the matter said. When Nissan’s cars hit the market in 2014 and Renault’s in 2015, they were different, even at the chassis. Mr. Ghosn was frustrated and disappointed, one of the people said, and saw the companies as ignoring his direct instructions.

Today, Mr. Ghosn sits in a Tokyo jail. And the two executives now at the top of the alliance must figure out how to overcome the fierce corporate pride that has fueled Renault and Nissan’s past rivalry and secure the companies’ successful cooperation.

The challenge will fall to Renault’s new chairman, Jean-Dominique Senard, who has a reputation as a careful negotiator, and Nissan’s chief executive, Hiroto Saikawa, who has pointedly defended his company’s autonomy in the past.

Renault, which on paper controls Nissan, has scrambled in recent weeks to keep its partner happy. Renault has joined Nissan in turning up the legal pressure against Mr. Ghosn, who was ousted from the alliance after his November arrest in Japan on allegations of financial wrongdoing.

The groups created a new leadership board for the alliance last month that gives equal weight to the Japanese side of the partnership, which includes Nissan and Mitsubishi Motors. And Renault has kept out of the way as Nissan executives moved to dismantle the structures they say Mr. Ghosn used to control the three companies.

Still, Renault is keeping one of the biggest sources of tension off the table: its outsize stake in Nissan. That has been an irritant for Nissan, which is now bigger and more powerful than the French company that bailed it out in 1999.

As a global market for electric cars and autonomous driving grows, Renault needs Nissan’s manufacturing power and knowledge of how to sell cars around the world, including in the United States.

Keeping the status quo “invites a degree of instability” into the alliance, said Peter Wells, a professor at the Center for Automotive Industry Research at Cardiff University in Wales. “Those arrangements reflected the strengths of those companies at the time they were made. But Nissan’s position is now stronger than Renault’s.”

Renault, Nissan and Mitsubishi — which together accounted for the sale of 10.76 million cars in 2018 — have pledged that they will make decisions on operations and governance by consensus, unwinding the centralized power structure that Mr. Ghosn built, which allowed him to call most of the shots. The joint decision-making approach, which Mr. Saikawa has described as “epoch-making” and “win-win-win,” is similar to the way the alliance operated when Renault first took over Nissan.

The new era kicked off Friday in Paris, where the top executives of the three automakers met to review automotive projects and technology aimed at outperforming rivals. Members from the boards of directors and executive committees of Nissan and Mitsubishi were wined and dined the night before at a rare dinner with their Renault counterparts in a restaurant atop Renault’s flagship showroom on the Champs-Élysées.

The alliance board, which includes Mr. Senard and the chief executives of Renault, Nissan and Mitsubishi, plans to meet monthly, alternating between the French and Japanese capitals, to enhance their cooperation, according to a person with knowledge of the arrangement, who was not authorized to speak publicly.

It remains to be seen how effective the new arrangement will be in an ultracompetitive auto market. Mr. Ghosn criticized a manage-by-consensus approach during a videotaped statement last week, suggesting that the alliance would have little chance of success with diffuse leadership.

“For people who say there are only two options — consensus or dictatorship — that means they don’t know what leadership is about,” Mr. Ghosn said in the video, released a day after he was rearrested in Japan on new allegations of financial misconduct.

Last week, a Tokyo court ruled that Mr. Ghosn will remain in custody until Monday. He has denied all wrongdoing and blamed Nissan executives for his ouster, saying they feared he was tying the company too tightly to Renault.

Company executives maintain that, whatever corporate tensions have existed, Renault and Nissan engineers and designers are working well together, most notably on the development of electric vehicles.

“Everybody is working on operational matters in a very efficient way,” said Gilles Normand, Renault’s senior vice president for electric vehicles, during an interview at the Geneva International Motor Show in March.

Operationally, Nissan is the bigger success. Under Mr. Ghosn, the company slashed costs and focused on building its market share around the world. Last year, its vehicles accounted for almost half the alliance’s sales worldwide. Nissan makes and sells cars in three of the world’s largest auto markets: the United States, China and Japan. Renault has no meaningful presence in any of them, though it performs well in the European Union.

But Renault has a 43 percent stake in Nissan, a position that it has amassed since 1999, when it saved the Japanese company from near bankruptcy. Nissan holds just a 15 percent nonvoting share in Renault. Mr. Saikawa has repeatedly pushed for a rebalancing of the shareholding structure, especially after the French government, Renault’s biggest shareholder, abruptly doubled its voting rights in Renault in 2015. That sparked fears in Japan that a foreign government could try to influence Nissan.

Renault and Nissan have both said rebalancing is not on the table — at least for now. During a news conference at Nissan’s headquarters in Yokohama last month, Mr. Senard said the companies must cooperate or die.

“We are in a destructive industry,” he said. “We will have to be close, each to the other, because if not, if we are alone, we will never succeed.”

Consolidation and cost-saving are the watchwords of today’s auto industry. BMW and Daimler said in March that they would cooperate on the development of autonomous driving technology. Ford and Volkswagen are developing a lightweight pickup truck together, and analysts expect the partnership to deepen. Fiat Chrysler is openly looking for a merger partner.

India was a natural market for Nissan and Renault to pursue. Its economy is one of the world’s fastest-growing. Its middle class increasingly aspires to own cars. But consumer demand for low-cost cars forces companies to pursue the kinds of razor-thin margins that can be achieved only by scale.

After its early disagreements in Chennai, the alliance made progress. By 2017, the bulk of the cars made there shared the same basic architecture. And the partners have said 70 percent of their vehicles worldwide will be based on common designs by 2020.

One former alliance executive said the India experience was a stumble that had not been forgotten. “Both companies were unable to arrive at a mutually agreeable and beneficial understanding on sharing the platforms, which hurt sales,” said Kaushik Madhavan, an auto industry analyst who early on managed product planning for Nissan in Chennai.

Today, “both brands have very good models, many of which can potentially be relevant to the Indian market,” he said. “But internal squabbles and uncertainty in decision-making is affecting both brands in India.”

Nissan’s shareholders are still not convinced that the companies can work together. At a special meeting in early April, an attendee questioned Mr. Saikawa about a recent disagreement between Renault and Nissan over a hybrid car technology — promoted as e-Power — that has done well in the Japanese market. According to Nissan marketing, e-Power integrates a car’s gasoline engine to help charge its high-output battery.

If Renault had more control over its partner, it “would have rejected all of the things Nissan wanted to do,” the attendee said in an accusatory tone. “E-Power never would have made it to the public.”

“When one of the partners has more control or power, this will happen.”

April 16th, 2019

Donald Trump, China Savior? Some Chinese Say Yes

Donald J. Trump has referred to China as “our enemy.” He has called it “a major threat.” “Remember,” he once wrote on Twitter, “China is not a friend of the United States!”

Some people in China have their own label for the polarizing American president: savior.

At dinner tables, in social media chats and in discreet conversations, some of the country’s intellectual and business elite are half-jokingly, half-seriously cheering on the leader who has built a large part of his political career on China-bashing.

“Only Trump can save China,” goes one quip. Others call him the “chief pressure officer” of China’s reform and opening.

Their semi-serious praise reflects the deepening despair among those in China who fear their country is on the wrong track. An aggressive outsider like President Trump, according to this thinking, can help China find its way again.

The Communist Party has become more involved in business, the economy, public discourse and other elements of everyday life. Many of these elite fear that after 40 years of reform and opening up, China is retreating. To make matters worse, nobody at home appears willing or able to fight the trend. President Xi Jinping has become the country’s most powerful leader since Mao Zedong, hurting the chances that internal opposition can push back.

Then came Mr. Trump and his trade war. Among other demands, American negotiators are calling on China to play a smaller role in the country’s economy. They want the Chinese government to stop throwing money at state-controlled companies. They want lower trade barriers and a level playing field for private businesses.

That puts Mr. Trump, oddly, in sync with a number of Chinese intellectuals and business types. Should the Communist Party step back from the economy, their thinking goes, it might have to loosen its tight grip over the rest of society, too.

“The trade war is a good thing,” said Zhu Ning, an economist at Tsinghua University in Beijing. “It gives us hope when we’re hopeless.”

“The various demands by the U.S. government could force us to carry on with the reforms,” said Tao Jingzhou, a partner at the law firm Dechert’s Beijing office. “There’s a Chinese saying that carrying out a reform is equivalent to a man cutting off his own arm, which is very hard. It might help if someone else forces you to do it.”

Even some retired officials have said they believe that the trade war could have positive effects. Long Yongtu, who led the negotiations for China’s entry into the World Trade Organization, said at a forum last month that trade friction could be “a good thing.”

It could be “a healthy pressure that pushes China to move forward,” he said.

The chances that Mr. Trump alone can change China’s ways are exceedingly slim. The Communist Party risks looking weak if it agrees to too many of his demands. True reform would have to come from inside.

“We can’t count on the external force to save China,” said Wang Gongquan, a billionaire liberal activist and former venture capitalist. He was among the first group of people who were detained or jailed after the party intensified the crackdown on dissent and civil disobedience six years ago.

“Changes will only come,” Mr. Wang added, “when responsible people inside and outside the government push for it together.”

Still, the hopes about Mr. Trump acknowledge the role the outside world has played in China’s gradual opening over the past four decades. Since the end of the Cultural Revolution, the Communist Party has largely been a reluctant reformer, often pushed and lured by internal and external forces.

Even some in the Trump administration seem to be hoping that internal voices will speak up. In an interview with National Public Radio, Robert Lighthizer, Mr. Trump’s top trade negotiator, was asked about the likelihood that the trade war would lead to changes in China.

“You have to start with the proposition that there are people in China who believe that reform is a good idea,” Mr. Lighthizer said. “And you have to believe that those people are at a very senior level.”

The challenge now will be to find those internal voices in a time when dissent can be quickly squelched.

“Unfortunately, there’s no force to be joined with in China,” said Liu Suli, a liberal thinker and enthusiastic Trump supporter who founded an independent bookstore in Beijing. “There’s only a pool of stagnant water.”

The breadth of support for Mr. Trump in China isn’t clear. Many business leaders dare not speak out for fear of angering the Communist Party.

The talk is hard to miss. The first time I heard the “Only Trump can save China” quip was a few months ago from a self-described apolitical tech entrepreneur in Guangdong Province in southern China. He complained about rising taxes and growing government interference in the economy. He was worried that if his start-up failed, he could end up on a newly created blacklist that would prevent him from taking flights and checking in at some hotels.

This image of Mr. Trump is often at odds with reality. Supporters of his who have long pushed China on human rights are cheering a president who wants to make it harder for migrants fleeing political persecution to find sanctuary in the United States. It’s a strange disconnect to listen to graying activists — educated free thinkers, some of whom have gone to prison for their ideals — put their hopes in a man who openly admires autocrats and calls journalists “the enemy of the people.”

Optimists nevertheless point to signs that they say show Mr. Trump is having an impact. Facing both the trade war and a slowdown in growth that began in the middle of last year, China’s leadership has embraced some modest liberalization. The government has promised to cut taxes, ease other burdens on the private sector and give markets a somewhat bigger role in the economy.

“More market-oriented actions are being reconsidered or put back on the table,” said Mr. Zhu, the Tsinghua economist. “In this sense, the trade war is helping China’s reform.”

But there’s little evidence that the leadership is easing its grip in a lasting way. The few business-friendly gestures are reactive rather than proactive. In other words, there hasn’t been any fundamental change in the leadership’s thinking. The party must control, as Mr. Xi has said, “all tasks.”

Some Chinese supporters of Mr. Trump, particularly dissidents or those living in exile, believe that he plans something bigger: regime change. Liu Junning, a pro-democracy dissident in Beijing, pointed to Vice President Mike Pence’s stern speech in October in which he accused China of numerous offenses over the years. Mr. Liu also pointed to Venezuela, where the Trump administration has pushed for new leadership.

In part, this group believes past presidents were too soft on China’s Communist Party. But they also cite the patina of toughness that Mr. Trump accumulated in his pre-political days. Mr. Liu cited Mr. Trump’s book “The Art of the Deal” and his reality TV show, “The Apprentice.”

“Trump’s approach is that he gives you a task and he expects you to get it done. Otherwise, you’re fired,” Mr. Liu said, alluding to the reality show. “He can be very tough.”

How tough he will be about fixing China’s economy still isn’t clear. In public comments, Mr. Trump has focused on getting China to buy more American goods. His advisers have said he will press for economic reforms, but any pledge by China to cut subsidies to state-owned companies or favored industries would be difficult to verify, much less enforce.

“I don’t think helping China to reform is Trump’s main political goal,” Mr. Zhu said. “He may just want something to tweet about.”

April 16th, 2019

M&A wrap: Riverside, TA associates, Genstar, OEP, Clearlake, Ridgemont

The Riverside Co. is led by co-CEOs  Béla Szigethy and Stewart Kohl.

The Riverside Co. is led by co-CEOs Béla Szigethy and Stewart Kohl.

Photo credit: The Riverside Co.

The Riverside Co.’s prolific dealmaking continues in 2019. For example, the firm recently invested in: ADA Solutions, a maker of safety products for the visually impaired; rum maker E&A Scheer; and education and training services provider Praetorian Digital. Riverside, led by co-CEOs Béla Szigethy and Stewart Kohl, has made more than 600 investments since it was founded in 1988. The firm focuses on investing in businesses valued at up to $400 million. Riverside ranked among the top private equity firms compiled by PitchBook, based on volume of completed deals in 2018. The firm also Mergers & Acquisitions’ 2018 M&A Mid-Market Award for Private Equity Seller of the Year.

DEAL NEWS
TA Associates has made a minority investment in Indira IVF, an India-based infertility treatment provider. Advisors to TA include: KPMG and Pioneer Legal. The target was advised by Veritas Legal.

Genstar Capital-backed Pretium Packaging has acquired Olcott Plastics, a supplier of packaging products to the beauty and healthcare sectors. P&M Corporate Finance advised Olcott.

Wells Enterprises Inc. has acquired ice cream products maker Fieldbrook Foods from Arbor Investments. Advisors to Wells include: UBS Investment Bank and McDermott Will & Emery.

Encore Consumer Capital has invested in Tourtellot & Co., a distributor of fresh produce to grocery stores.

One Equity Partners-backed PS Logistics has bought truckload carrier Celadon Logistics Services from Celadon Group.

Clearlake Capital Group and SkyKnight Capital-backed healthcare Software-as-a-Service company Symplr has acquired Intellisoft. The target is a provider of enrollment and contract management software. In 2019, Symplr bought API Healthcare.

Ridgemont Equity Partners has acquired Munch’s Supply, a supplier of HVAC equipment, from Rotunda Capital Partners. The advisor to Rotunda was Lincoln International.

Ultra Clean Holdings Inc. (Nasdaq: UCTT) has purchased Dynamic Manufacturing Solutions, a semiconductor weldment and services provider. Advisors to UCT include: Needham & Co. and Davis Polk & Wardwell.

Hayfin Capital Management has launched its first CLO in a year, a $500 million offering of loans and notes offering collateralized by broadly syndicated leveraged loans. Hayfin Kingsland X, as the deal is dubbed, will have a four-year reinvestment period for the manager to buy and sell loan assets in efforts to maintain or improve credit metrics in the transaction. It is non-callable for four years. Read the full story: Hayfin printing its first CLO of 2019 in $500M transaction.

PEOPLE MOVES
Goodarz Agahi was hired by law firm K&L Gates as a partner. Previously with Baker & Hostetler, Agahi concentrates on M&A across the consumer, food and beverage, medical devices, pharmaceutical and technology sectors.

Timothy Alden has joined financial advisory firm Macquarie Capital as a managing director and co-head of the firm’s aerospace, defense and government services group. He was previously with Jefferies.

Mark Buchanan was hired by Macquarie Capital as a managing director and head of North American family office coverage. Buchanan was most recently with BMO Financial Group.

Carlo Caponi was hired by investment bank PJ Solomon as a general counsel, where he is overseeing all of the firm’s legal matters. Caponi was most recently with Jefferies.

Allison Dukes’ long career at SunTrust Banks in Atlanta will end later this year after the bank completes its merger with BB&T. SunTrust said in a regulatory filing Friday that Dukes, its chief financial officer, plans to “pursue other opportunities” after the merger closes in the third or fourth quarter so that she can remain in Atlanta, where she is actively involved with a number of civic and philanthropic organizations. Read the full story: SunTrust CFO to depart following merger with BB&T.

James Fitzsimmons has joined law firm Drinker Biddle & Reath as a partner. He was most recently with Budd Larner, and focuses on private equity and M&A.

Pooja Goyal was hired by the Carlyle Group (Nasdaq: CG) as a partner and head of the firm’s renewable and sustainable energy team. She was most recently with Goldman Sachs (NYSE: GS).

William Gress was hired by Core Industrial Partners-backed Prototek Sheetmetal Fabrication as CEO. Gress is a former executive at Brunswick Corp. (NYSE: BC).

Milton Kahn has been promoted to chief operating officer at middle-market investment bank DAK Group. Kahn joined DAK in 2017 as a principal.

Travis Keller was hired by M/C Partners, a private equity firm that focuses on telecommunications and information technology, as a partner. He was most recently with Altman, Vilandrie & Co.

Dan Mendelson has joined healthcare and technology-focused PE firm Welsh, Carson, Anderson & Stowe as an operating partner. He was previously the CEO of Avalere Health.

Jane Scobie was hired by law firm Willkie Farr & Gallagher LLP as a partner. She was most recently with Dechert, and concentrates on tax matters related to private equity and M&A.

Tess Sprechman has joined private equity firm AE Industrial Partners as vice president, head of investor relations. She was most recently with Sun Capital Partners.

Mary Courtney-O’Sullivan was hired by investment firm Palladin Consumer Retail Partners as chief financial officer and chief compliance officer. She was previously with Advent International.

Timothy Wentink was hired by lender Twin Brook Capital Partners as a managing director, where he is concentrating on healthcare lending. Wentink was previously with Madison Capital.

Mike Wollatt has joined alternative investment firm Hamiltin Lane (Nasdaq: HLNE) as a principal, where he is leading the firm’s new Toronto office. Wollatt was most recently with Omers.

Shingo Yatsui was hired by financial advisory firm BTIG as a managing director and head of cross-border M&A. He was previously with GCA.

FEATURED CONTENT
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: Nike, 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.

Related: 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.

Genstar Capital, Audax, 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 and more

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

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 Awardsespecially: Luminate Capital Partners founder Hollie Hayne’s scoring Dealmaker of the Yearfor 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 one way or the other.

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

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.

EVENTS
ACG Boston hosts a 40th Anniversary Celebration and inaugural awards reception at the Boston Harbor Hotel’s Wharf Room on April 24.

InterGrowth 2019 takes place May 6-8 at the Waldorf Astoria & Hilton Bonnet Creek in Orlando, Florida.

Innovation Works holds its second annual AI/Robotics Venture Fair in Pittsburgh May 15-16.

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

ACG New York, ACG Boston and ACG Philadlephia 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 & The State Room, June 12-13.


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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April 16th, 2019

DealBook Briefing: Billionaires Pledge Hundreds of Millions to Save Notre-Dame

Good Tuesday morning. (Was this email forwarded to you? Sign up here.)

The catastrophic fire at Notre-Dame Cathedral in Paris yesterday badly damaged the 850-year-old building, but some of France’s richest moguls are stepping up to pay for repairs.

Around 500 firefighters battled the blaze for nearly five hours, Adam Nossiter and Aurelian Breeden of the NYT write. By 11 p.m. Paris time, the structure had been “saved and preserved as a whole,” the city’s fire chief, Jean-Claude Gallet, said. But two-thirds of the roof was destroyed and the main spire collapsed. So far, it’s unclear both how the fire started and how much survives of the interior, but nobody was killed or injured, officials said.

“We will rebuild Notre-Dame,” President Emmanuel Macron said last night. “Because that is what the French expect.”

So far 300 million euros, or $339 million, have been pledged for rebuilding, Bloomberg reports:

• François-Henri Pinault, the C.E.O. of the luxury goods conglomerate Kering, and his father, François Pinault, will donate €100 million from their investment company, Artemis.

• The Arnault family, which runs the rival luxury goods conglomerate LVMH, responded with a pledge of €200 million, plus its architectural and design resources.

If you want to donate, Fast Company explains three ways.

More: An algorithmic error by YouTube served up information about the Sept. 11 attacks alongside live video of the fire.

____________________________

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

____________________________

It’s the latest effort to gain insight into Mr. Trump’s financial records, as the president resists demands for access to his tax returns and other documents.

Lawmakers also subpoenaed records from JPMorgan Chase, Bank of America and Citigroup related to potential money-laundering in Russia and Eastern Europe, the NYT reports.

“The potential use of the U.S. financial system for illicit purposes is a very serious concern,” Representative Maxine Waters, the chairwoman of the House Financial Services Committee, said in a statement.

Deutsche Bank says it’s cooperating. “We remain committed to providing appropriate information to all authorized investigations in a manner consistent with our legal obligations,” a spokeswoman for the firm said.

But the Trump Organization condemned the moves. Eric Trump, one of Mr. Trump’s sons, called the subpoenas “an unprecedented abuse of power.” A lawyer for the company said it was considering options for preventing Deutsche Bank from complying.

More: Two Pulitzer Prizes were awarded yesterday to reports investigating Mr. Trump’s finances. The NYT won for its investigation into how the Trump family avoided paying a half-billion dollars in taxes, while the WSJ was recognized for revealing hush-money payments made to two women who claimed to have had affairs with Mr. Trump.

This year promises to be one of the biggest for public offerings in recent memory. And that’s created a scheduling problem, Erin Griffith and Michael de la Merced of the NYT report.

If all the big tech I.P.O. candidates went to market, they could issue over $100 billion in new stock, according to Renaissance Capital. At the peak of the dot-com era, in 2000, the figure was $96 billion.

I.P.O.s are already running into each other. Pinterest wanted to go public before Good Friday — and wound up scheduling its offering on Thursday, the day also chosen by the video conferencing company Zoom. Uber ensured that there were at least 30 days between Lyft’s prospectus filing and its own.

“I do think there’s going to be some potential indigestion,” Kathleen Smith of Renaissance Capital told the NYT. Barrett Daniels of Deloitte added, “There could end up being I.P.O. fatigue because it is going to be overwhelming.”

Uber is a special concern. Its offering is expected to to be the biggest in years, raising $10 billion — which bankers working on rival offerings fear will suck the air out of the markets that week. They’re giving it a wide berth.

Perfect timing could be important, because some bankers worry that a single bad debut could taint the batch. Lyft’s shares popped straight after their I.P.O., but two weeks later they’re down 22 percent. We’ll see if that is destined to hurt other unicorns when Pinterest goes public this week.

France and Belgium refused to support a new round of trade negotiations between the European Union and the U.S. yesterday, suggesting a bumpy road ahead for those discussions.

It’s a striking break in European unity. Trade measures normally pass unanimously. The European Commission had initially proposed a new round of trade talks in January.

French and Belgian officials cited climate change, and specifically the U.S. withdrawal from the Paris climate accord, as an objection.

But the talks are expected to proceed anyway, with a focus on eliminating tariffs for industrial goods, excluding agricultural products, and making it easier for U.S. and E.U. companies to meet the other side’s technical requirements.

Expect agriculture to be a point of contention. Congress and Mr. Trump both say it has to be addressed; but Cecilia Malmstrom, the E.U.’s chief negotiator, has called it “a red line for Europe.”

U.S. companies are disclosing the pay ratio between bosses and median workers in proxy filings for the first full year since the S.E.C. demanded the metric. The FT and Equilar, a compensation consultancy, dug into the numbers, looking at the 100 largest companies by revenue that had published 2018 data by April 1, the midpoint of the annual reporting calendar. Three notable findings:

• “Of the 100 CEOs, 11 made more than 1,000 times as much as their median employee.”

• “Elon Musk was paid 40,668 times more than the median Tesla worker,” though that company was not part of Equilar’s analysis.

• “Warren Buffett earned less than seven times as much as the median Berkshire Hathaway employee.”

Skepticism remains about the usefulness of the metric. It might cause a day or two’s bad publicity, critics say, but it will have much less effect on companies’ compensation decisions than their financial results.

German prosecutors filed aggravated fraud charges yesterday against Martin Winterkorn, who was Volkswagen’s C.E.O. when it deceived regulators about emissions levels, Christopher Schuetze of the NYT writes.

• “The charges are the first criminal indictment in Germany against an individual in connection with the diesel scandal.”

• The indictment “includes charges of breach of trust, tax evasion and false certification, either directly or by aiding in such crimes. If convicted, Mr. Winterkorn could be sentenced to up to 10 years in prison.”

• “In charging Mr. Winterkorn and four Volkswagen managers whose names were not released, the public prosecutor’s office in Braunschweig tied the five to events reaching as far back as 2006.”

• “The timeline is significant because it rejects initial claims by Volkswagen that senior management became aware of the so-called defeat devices used to cheat emissions tests only after being confronted by the United States environmental authorities in 2015.”

• “Even after paying $33 billion in fines and settlements related to the scandal, the carmaker continues to face legal challenges and investigations from authorities in the United States and Germany.”

Best Buy named Corie Barry, its chief financial officer, as its next C.E.O. The current C.E.O., Hubert Joly, will become executive chairman.

The P.R. firm Prosek Partners plans to announce this morning that it has hired David Wells, who most recently led marketing and communications for Goldman Sachs’s consumer and investment management division, as a partner.

Daniel Daniel, a former senior investor at BlackRock, has left to start Twenty Acre Global, an investment firm that will take stakes in tech companies.

BlackRock has reportedly moved to hire Tang Xiaodong, most recently a senior executive at GF Securities, to oversee its mainland China operations.

Deals

• AT&T sold its 9.5 percent stake in Hulu back to the streaming service at a $15 billion valuation. (WSJ)

• Deutsche Bank reportedly expects to lose up to $1.7 billion in revenue if it merges with Commerzbank, when customers reduce their exposure to the combined lender. (Bloomberg)

• When Anadarko agreed to sell itself to Chevron for $65 a share, it reportedly cut off talks with Occidental Petroleum about an offer in the mid-$70s. (CNBC)

• Salesforce agreed to buy its philanthropic arm, which also sells the company’s software to nonprofits, for $300 million. (Business Insider)

• Venture capitalist firms foresee a windfall in astrology start-ups. (NYT)

Politics and policy

• Senator Bernie Sanders released 10 years’ worth of tax returns yesterday, revealing that he’s in the top 1 percent of taxpayers. He defended his wealth, but demurred on whether he should be paying more. (NYT)

• President Trump’s personal lawyer urged the Treasury Department not to release his client’s records. (NYT)

• The Interior Department’s new secretary, David Bernhardt, faces an ethics investigation by its inspector general. (NYT)

• Representative Alexandria Ocasio-Cortez, Democrat of New York, reportedly declined meetings with top banking executives after harshly criticizing the industry. (Fox Business)

• The Justice Department said a redacted version of Robert Mueller’s report would be released on Thursday. (NYT)

Boeing

• American Airlines plans to give its pilots more simulator training for 737 Max jets. (WSJ)

Trade

• U.S. efforts to tighten sanctions on Iranian and Venezuelan oil might push up energy prices. (NYT)

• OPEC has gotten unexpected help from a longtime frenemy, Russia. (WSJ)

• President Trump insists that the U.S. will “win either way” in its trade discussions with China. (Reuters)

Brexit

• Britain’s foreign secretary, Jeremy Hunt, said a top priority is reaching a Brexit deal in time to avoid the U.K. holding European elections. (BBC)

• Germany’s foreign minister says that Britain shouldn’t get another Brexit extension. (FT)

• Some British companies are enjoying a pre-Brexit boom — but they’re worried about what comes next. (FT)

Tech

• Huawei says it has secured 40 commercial contracts to build and operate 5G wireless infrastructure, but it has not discussed 5G chipsets with Apple. Also: China is investigating a Huawei rival, Ericsson, over its technology licensing practices. (Reuters, WSJ)

• SpaceX is seeking another $500 million in funding, but there are internal questions about the viability of its plans for a satellite-based internet business. (WSJ)

• Ecuador said it had been hit by 40 million cyberattacks since Julian Assange was arrested last week. (AFP)

• Big companies thought their insurance covered the 2017 NotPetya cyberattack. Maybe not. (NYT)

• Uber is really worth about $60 billion, according to Aswath Damodaran, NYU’s valuation expert. (CNBC)

• The first opinions on Samsung’s folding-screen phone? It might just be worth the $2,000 price tag. (Gizmodo)

Best of the rest

• Lori Loughlin and her husband pleaded not guilty in the college admissions scandal. (Bloomberg)

• Citigroup and Goldman Sachs both delivered better-than-expected earnings yesterday, but investors were still disappointed. (Bloomberg)

• UniCredit pleaded guilty to U.S. charges that its German division let some Iranian customers violate sanctions. (Bloomberg)

• Expectations for America’s first quarter G.D.P. growth are increasing. (Axios)

• Greece wants to repay its €10 billion loan from the I.M.F. early. (Sky News)

• Supreme Court judges are torn about whether a clothing company’s name is too obscene-sounding to trademark, but united in not saying it aloud. (NYT)

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April 16th, 2019

Hayfin printing its first U.S. CLO of 2019 in $500M transaction

Hayfin Capital Management has launched its first U.S. CLO in a year, a $500 million offering of loans and notes offering collateralized by broadly syndicated leveraged loans.

Hayfin Kingsland X, as the deal is dubbed, will have a four-year reinvestment period for the manager to buy and sell loan assets in efforts to maintain or improve credit metrics in the transaction. It is non-callable for four years.

The Class A tranche, which consists of loans instead of bonds, carries preliminary triple A ratings from Fitch Ratings and Kroll Bond Rating Agency. The senior tranche is priced at 146 basis points over three-month Libor, according to the presale reports.


Neither of the agencies is rating the five subordinate note classes of notes to be issued totaling $140 million. The unrated residual tranche is sized at $40.5 million. The subordinate notes include three classes of notes (Class C, D and E) that have deferrable interest payments in the event overcollateralization or interest coverage test failures for the Class A and B notes.

The deal’s identified portfolio (featuring 194 corporate obligors) has a weighted average life is 6.75 years.

U.K.-based Hayfin Capital Management’s U.S. affiliate was formerly Kingsland Capital Management, which it acquired in January 2018. It has issued three U.S. CLOs and two European deals since the acquisition.

April 15th, 2019

Arabian Centres Company launches biggest Saudi IPO in 5 years

The Saudi Stock Exchange, also known as the Tadawul All Share Index, in Riyadh, Saudi Arabia

Simon Dawson/Bloomberg/Getty Images

The Saudi Stock Exchange, also known as the Tadawul All Share Index, in Riyadh, Saudi Arabia

Major Saudi shopping mall developer Arabian Centres Company is launching an initial public offering that will be the kingdom’s biggest since 2014, when Saudi Arabia’s largest lender, National Commercial Bank, was listed.

The listing, which was approved by Saudi financial regulator Capital Market Authority, is offering 95 million shares on the Tadawul, the Saudi stock exchange. It represents about 20 percent of the company’s share capital.

The IPO “could be in the range of $1 billion,” said Olivier Nougarou, the CEO of Arabian Centres Company, according to Reuters.

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. Alhokair was the subject of an anti-graft shakeup led by Saudi Crown Prince Mohammed bin Salman in late 2017 that saw scores of businessmen and royals detained in the Ritz Carlton in Riyadh. The billionaire businessman was released in January 2018 with no charges against him, according to reports.

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.

In a statement Tuesday, the company described the IPO as “laying the groundwork for the next chapter of our growth story.” It said the listing would give both domestic and international investors “the opportunity to invest in a dynamic company and industry well-positioned to benefit from the longer-term structural growth path within the retail sector in the Kingdom.”

The IPO comes as Saudi Arabia works to implement liberalizing economic reforms and deepen its financial markets as part of Vision 2030, an initiative aimed at diversifying the kingdom’s oil-dependent economy.