M&A wrap: 7-Eleven, Marathon, Speedway, Microsoft, TikTok, Google, ADT, GTCR, Motorola


Seven & i Holdings Co., the world’s largest convenience-store franchiser, agreed to buy Marathon Petroleum Corp.’s Speedway gas stations for $21 billion, betting that an expanded U.S. footprint will deliver growth amid the uncertainty of the pandemic. The transaction, to be paid in cash and partly financed using debt, will add about 3,900 stores to 9,800 locations operated by the retailer’s U.S.-based 7-Eleven unit, the Tokyo-based company said in a statement Monday. The deal is the second-largest purchase of a U.S. target this year and the biggest yet for Seven & i, a retail giant with 69,000 stores worldwide including 7-Eleven outlets and Ito-Yokado supermarkets in Japan. Seven & i spent $3.3 billion three years ago to buy Sunoco LP gas stations and convenience stores in a push to expand its U.S. footprint. Marathon follows a long line of energy companies that are shedding retail networks to focus on making fuel. The deal, the biggest in the oil sector since the coronavirus outbreak, comes as retailers look to shift their focus amid the coronavirus pandemic, which has further upended a sector already being impacted by the onset of e-commerce. Marathon said it will use $16.5 billion in after-tax proceeds to reduce debt and bolster dividend payments. Read the full story by Bloomberg News: 7-Eleven owner buys Marathon gas stations for $21 billion.

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

DEAL NEWS
In a bid to salvage a deal for the U.S. operations of TikTok, Microsoft Corp. (Nasdaq: MSFT) CEOfficer Satya Nadella spoke with President Donald Trump by phone about how to secure the administration’s blessing to buy the wildly popular, but besieged, music video app. Microsoft in a blog post Sunday confirmed talks to buy TikTok’s operations in the U.S., as well as in Canada, Australia and New Zealand, and said it’s aiming to complete the deal no later than Sept. 15. The software giant’s public statement follows closed-door discussions with TikTok and Trump, who floated plans for an outright ban of the app on national security grounds and publicly lambasted the idea of a deal late Friday night. The companies now have 45 days to hash out a plan acceptable to all parties, a deadline insisted on by the White House, according to Bloomberg News. The two companies have not yet worked out key details for a deal, including price. TikTok has become a flash point among rising U.S.-China tensions in recent months as U.S. politicians raised concerns that parent company ByteDance Ltd. could be compelled to hand over American users’ data to Beijing or use the app to influence the 165 million Americans, and more than 2 billion users globally, who have downloaded it. Read the full story by Bloomberg News: Microsoft tries to salvage deal to buy TikTok.

Alphabet Inc.’s Google (Nasdaq: GOOG) has agreed to pay $450 million for a stake in security firm ADT Inc. as part of a partnership to create smart-home security products. The deal will widen the potential reach for Google’s own smart-home devices, led by its Nest offering. ADT focuses on home security products such as electronic security, fire protection, and alarm monitoring services. Read the full story by Bloomberg: Google invests $450 million in home security firm ADT.

GTCR-backed TerSera Therapeutics LLC is buying Xermelo from Lexicon Pharmaceuticals for at least $159 million. The target develops treatments for carcinoid syndrome diarrhea and other tumors.

Motorola Solutions Inc. (NYSE: MSI) has acquired video security company Pelco for $110 million. The latter designs, develops and distributes end-to-end video technology, including video security cameras and video management system software. “Video continues to play a more powerful role in enabling safer cities and securing businesses around the world,” says Motorola CEO Greg Brown.

AUA Private Equity Partners-backed TruFood Manufacturing has bought Simply Natural Foods, a co-manufacturer of nutrition and better-for-you chocolate and bar brands.

PEOPLE MOVES
Ian Drysdale has joined private equity firm Great Hill Partners as an executive-in-residence where he is focusing on identifying and pursuing investment opportunities in the financial technology, payments and software sectors. He most recently served as president of Zelis Payments.

Stephen Olson has joined law firm Gibson Dunn as a partner and head of its private equity practice. He was most recently with Jones Day.

James Howe was hired by law firm Simpson Thacher where he is focusing on private equity and M&A. He was previously with Gibson Dunn.

CORONAVIRUS IMPACT
Judging by recent M&A trends during the Covid-19 pandemic, it’s increasingly clear that private equity investors have continued to focus on add-on acquisitions as a growth strategy even more so than they did pre-outbreak. Add-on acquisitions, or transactions that occur when a company acquires another company that complements the acquiring company’s business model, accounted for a record 72.5% of all U.S. private equity buyouts in the first quarter of 2020, up from 2019’s record of 68.1%. The trend continued in Q2 as add-ons made up the highest percentage of leveraged buyouts (LBOs) on record, and median deal size ticked down for the first time in five years. But while the private equity industry is enjoying the benefits of add-ons, many operating companies may be missing out on potential opportunities. Read the full story: 5 Tips for private equity firms eyeing add-on deals in the pandemic.

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

Guiding portfolio companies through the Covid-19 pandemic is the biggest challenge facing private equity firms and service providers today. Firms throughout the middle market are focused now on helping portfolio companies make decisions about reopening their businesses, assessing the impact of the coronavirus on their businesses and forging a strategy on moving forward. For example, Boston-based Watermill worked with portfolio company Enbi to reimagine its business to make face shields. “They are a high-tech company with deep market knowhow that make rollers for printers,” says Julia Karol, president and COO of Watermill. “The company realized people who have to wear the face shields for long periods of time were getting deep welts on their foreheads. Enbi was able to make a high-grade compound that used foam across the front of the shields, so they are comfortable. Enbi will continue to make masks and explore other innovations. It’s awesome to see the whole manufacturing community using their skills and expertise to help.” For more insights from Watermill, New Heritage, Monroe, Cushman & Wakefield and EisnerAmper, see the story Switching gears: 5 ways private equity firms and service providers are helping portfolio companies adapt in the Covid-19 pandemic.

The negative impacts of the Covid-19 pandemic cannot be overstated and have touched nearly every industry and person in the world. In sports, these negative impacts have been most readily observed through the temporary shutdown of both professional sports, and more locally, recreational team sports. However, Covid-19 has had an unexpectedly beneficial impact on one sector of the sports industry – individual outdoor sports. With many gyms still closed or operating at reduced capacities and many fitness classes on pause, sports enthusiasts are rediscovering the appeal of outdoor activities such as golf, cycling, hiking, fishing and more, all of which can be enjoyed while maintaining appropriate social distancing. Read the full story: Coronavirus has produced an outdoor sports boom that will spur M&A.

Under normal circumstances, M&A demands a robust set of tools and services to be successful. In today’s environment in which the stakes have been raised by the coronavirus crisis, professional help from service providers is more important than ever. Private equity firms and their portfolio companies want to know what actions they can or should take, and what their peers are considering, to make the best decisions possible in response to the Covid-19 pandemic. Through talking with many different affected parties, service providers have streams of data and information that can help investors make informed decisions and minimize negative economic impacts on their investments. Mergers & Acquisitions examines offerings from EHE Health, Norgay Partners, Cepres, Valuation Research Corp. and Axial. “The stakes are high today,” says Greg Mansur, chief client officer at EHE Health, which provides a playbook on getting companies back to work safely. “We want to be part of the solution for our clients. We want to help them through this and help America get back to work.” Read our full coverage: 5 service providers guide dealmakers through the next phase of the pandemic.

As transactions previously delayed due to the pandemic begin to pick up, acquirors and investors in the middle market should evaluate the target’s performance during the unprecedented disruption presented by the pandemic, and adjust expectations for the immediate and medium term. Supplemental due diligence is not only prudent — it is likely to be required as a condition to the placement of any representations and warranties insurance. Essential considerations include whether the target has been able to innovate and whether the valuation agreed to in a letter of intent should be revisited. Buyers should also review any termination provisions to determine whether any breakup fee would be payable. See our full coverage: 11 factors for dealmakers to consider before buying a company during the pandemic.

Many companies are unprepared to face the tremendous economic challenges brought on by the pandemic. For buyers, navigating this new world of distressed M&A may be the hardest obstacle to overcome in transactions with insolvent organizations. Read the full article: Coronavirus puts spotlight on distressed M&A.

What do you do when you’re a dealmaker under quarantine, and face-to-face meetings are out of the question? For Work from Home (WFH) strategies, Mergers & Acquisitions turns to eight prominent dealmakers from private equity firms, investment banks, lenders and law firms. “I miss the excitement of a great conference; wearing my nice clothes, early morning breakfasts, the one-on-ones, drinks with my women ‘tribe,’ and dinner at a steakhouse, even though I am a vegan,” says Amy Weisman, managing director, business development, Sterling Investment Partners. In some respects, it is easier to build relationships now, explains Nanette Heide, partner, co-chair, private equity group, Duane Morris. “Meeting folks over a video conference from their home is immediately humanizing.” M&A pros also point out that human factors play a role. “Emotional Quotient (EQ) is more important than ever during trying times,” says Jeremy Holland, managing partner, origination, The Riverside Co. “It’s critical to remember that the dealmaker on other side of the (now figurative) deal table is a person, too. They have good and bad days and presumably know many people in high-risk categories, potentially even themselves. Being extra thoughtful about each interaction is important.” Read our full coverage: Dealmaking under quarantine: 8 private equity and M&A pros share strategies while social distancing.

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

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

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

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

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

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

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

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

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

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