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Despite signs of a potential recession, deal maker sentiment remains optimistic

Recent news about the yield inversion will probably have an effect on investor psyche. Inversions have historically predated recessions by as many as 24 months—one lag in particular (2005-2007) also included a significant rise in the S&P. In four of the last five recessions, the lag between inversion and the start of a recession has lasted at least a year.

It’s a bit different with market corrections, which in two of five cases have begun in three months or less. Another tidbit came earlier this year from Bain & Co.’s Hugh MacArthur, who noted “only three periods historically [where] private multiples generally exceed the public average: during the ‘Barbarians at the Gate’ era of the mid-1980s, during the exuberant runup to the 2008 global financial crisis, and now.”

The sky has been falling for a long time among prognosticators, and the “tea leaves” in the featured chart don’t give us much of a schedule to work with. At PitchBook, we’ve been trying to gauge investor sentiment through our PE Deal Multiples Survey. In our last survey, we asked respondents for their reasons for canceling or renegotiating their most recent transactions. Here are their responses:

Those answers painted an optimistic picture among dealmakers, with only 7% citing negative changes in market fundamentals. The two most-cited responses reflect a strong market—41% said they found adverse information during due diligence and 24% said another buyer swooped in with a better offer.

Even not-that-bad information found during diligence is legitimate grounds to rethink purchase prices. There isn’t a lot of room for error with today’s multiples, and we’ve heard plenty of anecdotes of deals taking upward of 12 months to close. Furthermore, there are lots of buyers trying to put their money to work, so overcautious dealmakers will lose out to higher bidders. Those two reasons accounted for 65% of our results.

We’re curious about your thoughts as dealmakers, and our newest survey is now live. All deal data is kept confidential and isn’t published on our database. Participants receive the full aggregated report and are entered into a $300 Amazon gift card drawing—and everyone gets a candid look of current market sentiment, which may shift in the next month, or year, or two years.

 

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CBS, Viacom enter streaming wars with $30B combination

In the latest example of major consolidation in the media industry, CBS and Viacom have officially agreed to conduct a long-awaited merger, creating a new company called ViacomCBS with a combined market cap of around $30 billion. The deal will merge CBS’s broadcast offerings and the Showtime network with MTV, Comedy Central, the Paramount film studio and other Viacom brands, adding a broad collection of new content to CBS All Access, the network’s existing streaming service.

As consumer tastes have evolved and in-home streaming has emerged as perhaps the dominant entertainment form of our time, many of the industry’s biggest players have turned to M&A to augment their offerings. It’s been a little more than a year since AT&T acquired Time Warner for $85 billion, adding brands like HBO and Turner to its stable. And earlier this year, Disney beat out Comcast to purchase a raft of TV and film assets from 21st Century Fox for approximately $71 billion, making major content additions ahead of the planned launch of its Disney+ streaming service. Disney also took control of Hulu earlier this year, valuing the streaming pioneer at $15 billion.

The newly formed ViacomCBS, though, will be considerably smaller than some of its streaming competition. AT&T and Disney both have market caps of over $240 billion, making them more than 8x the size of ViacomCBS. Netflix carries a market cap of more than $135 billion, even after its stock has slid in recent weeks in the wake of disappointing 2Q results.

The combination of Viacom and CBS has long been rumored, due largely to the very close ties between the two New York-based companies. They were in fact the same company until 2006, when media tycoon Sumner Redstone split them into two entities. Redstone and his National Amusements holding business have maintained control over both Viacom and CBS in the years since, with his daughter Shari Redstone assuming more power in recent years as her father has reportedly battled health issues.

Current Viacom president and CEO Bob Bakish will assume those same roles at the new ViacomCBS, while Joe Ianniello, the acting head of CBS, will remain in charge of CBS-branded assets. Ianniello has been the interim CEO at CBS since longtime leader Leslie Moonves stepped down last September following several allegations of sexual harassment.

 

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The ‘Millennial Walt Disney’ and her Museum of Ice Cream raise $40M

The way Maryellis Bunn tells it, it all began because she was a bored millennial in New York with nothing to do. All the real museums were dry, stodgy, stuck in the 20th century. Bunn decided that a new generation, one that increasingly wants to spend its money on documentable experiences rather than things, needed a new kind of cultural space.

And thus was born the Museum of Ice Cream. What is it? It’s not a museum, and there’s sometimes only a tangential relationship to ice cream. One way to describe the Museum of Ice Cream is as an Instagram-friendly series of art installations designed as a surreal maze of interactive, hyper-visual exhibits—like a giant pool of sprinkles or a room with technicolor popsicles melting from the walls. Another is that it’s a confectionery millennial fever dream, like if you dropped acid before touring the Ben & Jerry’s factory.

Either way, since Bunn and co-founder Manish Vora launched the first Museum of Ice Cream in New York in 2016, the pop-up experiences have become a cultural phenomenon, selling out stints in Los Angeles, San Francisco and Miami in the blink of an eye and drawing visits from celebrities like Beyoncé and Kim Kardashian. And now, Bunn and Vora are capitalizing on that buzz in a serious way: On Wednesday, they launched a new parent company for the Museum of Ice Cream called Figure8, unveiling $40 million in Series A funding at a $200 million valuation. Elizabeth Street Ventures and Maywic Select Investments led the round, with OCV Partners also participating.

Figure8, it seems, will both build on the existing Museum of Ice Cream and expand the ideas behind the pop-up experience into other realms. It plans to open a new Museum of Ice Cream location each quarter, Vora said in a press release announcing the deal. But Figure8 was also created to help respond to what Vora described as “an overwhelming amount of requests from companies asking us to design branded experiums for them.” Corporations want to get in on a concept that’s entranced the prized under-25 demographic.

From the outset, expansion seems to have been in the cards. During a 2017 interview with New York magazine, Bunn (who’s now 27) toured the Museum of Ice Cream’s San Francisco location with reporter Anna Wiener. Afterward, when asked what her “ultimate dream” was, Bunn’s reply was illuminating: “I want to be the next Disney. I could take all of those different installations that we just went through, and I could build them out into city blocks. It would be my Heaven. Could you imagine?”

In its headline accompanying the story, New York described Bunn as “The Millennial Walt Disney.”

The runaway success of the Museum of Ice Cream—it claims more than 1.5 million visitors across its current and prior locations—has inspired a spate of imitators eager to get in on the experience game. In the Big Apple, you can visit the Rosé Mansion, which puts a wine-flavored twist on the idea. There’s also Candytopia, a Wonka-esque space filled with candy-inspired artwork and installations that’s currently touring the US. Its answer to the Museum of Ice Cream’s sprinkle pool is a pit full of marshmallows.

And now, with the creation of Figure8, it seems like more colorful pop-ups with eye-catching concepts designed to pile up the likes on social media may be on the way.

 

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This day in buyout history: Blackstone closes its biggest fund ever—for now

Blackstone is currently raising its eighth flagship private equity fund, a monstrous pool of capital that’s already collected more than $22 billion in commitments and could ultimately total $25 billion, according to reports. When the vehicle closes, it might be the largest in the history of the private equity industry—and it will almost certainly be the biggest fund Blackstone has ever raised.

But for the moment, at least, a different vehicle holds that title. And it’s done so for exactly a dozen years, ever since August 8, 2007, the date the firm announced a final close for Blackstone Capital Partners V on $21.7 billion.

It was auspicious timing for multiple reasons. One was that the fund close came less than two months after Blackstone went public, raising more than $4.1 billion in a closely watched IPO that’s proved to be a transformative event in the firm’s history. Another was that it came shortly before the global economy began to turn, joining a wave of mega-funds that swept across the private equity industry in the months leading up to the financial crisis, including a $20 billion vehicle from Goldman Sachs.

And when you compare Blackstone’s fifth flagship effort with the vehicles that came before and after, it seems clear that the firm got at least a little caught up in the fundraising frenzy. It was a remarkable step-up in size of more than 3x from Blackstone Capital Partners IV, and both the firm’s fifth and sixth funds fell well short of that $21.7 billion figure. That’s contrary to the general industry trend of firms raising more cash for each successive flagship fund, particularly among private equity’s biggest players.

 

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The median PE buyout size in consumer products is heading for a decade high

Private equity’s track record in retail has come under some hefty scrutiny of late. And buyout shops are taking the hint. At just over 40 deals closed through 1H, PE firms are set to complete the fewest retail transactions since at least 2013.

Although the headlines are hard to ignore, it’s important to point out that financial sponsors have also helped brick-and-mortar operations in the middle market with the adoption and expansion of digital strategies. This development has been a boon to retailers. Increased investment in digital technologies has made operations more efficient, boosting sales and blending the customer experience online and off.

As a result, some PE firms are finding bright spots in the still-competitive US consumer market, with many omni-channel businesses not only maintaining margins in the face of secular stagnation, but also commanding higher valuations. This dynamic has contributed to the persistent strength of median deal values even as activity cools off.

 

Digital strategies can provide retailers with valuable metrics on essential data points like customer acquisition costs, which help improve performance. Moreover, marketing campaigns waged across channels have given middle-market retailers an outsized opportunity to track consumers from engagement through purchase in a manner reminiscent of larger rivals. An essential element here has been the swift adoption of direct-to-consumer distribution models by those with a conventional retail presence. Case in point? Cosmetics. And demographics are on their side.

 

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Uber hemorrhages $5.2B in 2Q amid volatile day for ridehailing

Optimistic investors spent Thursday driving up the price of shares in Uber (NYSE: UBER) in anticipation of the company’s 2Q earnings. Once the results arrived, though, it was a very different story.

Uber reported an eye-watering 2Q loss of $5.2 billion on Thursday, part of an earnings report that came almost three months to the day after the ridehailing company went public in a long-awaited IPO that raised $8.1 billion. The report sent the company’s stock sliding in after-hours trading, giving up most of its gains from earlier in the day. Uber closed Thursday at $42.97, up more than 8%, but it dipped to below $38 in early after-hours trading before quickly bouncing back to above $40.

That $5.2 billion loss included $3.9 billion in one-time compensation expenses related to the company’s IPO, so the damage isn’t as severe as it might initially appear. But that leaves about $1.3 billion in other losses, compared to $878 million in total losses for 2Q 2018.

Uber also reported revenue of nearly $3.2 billion, a YoY uptick of 14%. That’s reportedly the slowest quarterly growth figure the company has ever publicly disclosed, which is both a testament to how explosive its previous growth has been and a potential warning sign to investors of Uber’s ability (or lack thereof) to maintain that steady expansion.

Uber unveiled its 2Q earnings one day after Lyft (NASDAQ: LYFT) did the same. The numbers were a bit more promising for the slightly smaller ridehailing company, with revenue of $867.3 million (up 72% YoY) and a net loss of $644.2 million, compared to $178.9 million during 2Q 2018. Notably, Lyft changed its previous estimates of how much money it will lose for the whole of 2019, revising its projection from nearly $1.18 billion down to $875 million.

 

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UK government agrees £300m rescue package for British Steel

The government has moved to rescue British Steel with a financial support package worth as much as £300m that ministers believe will be enough to secure backing from a private bidder.

It is understood that the Department for Business, Energy and Industrial Strategy (BEIS) has agreed to substantially increase support to bidders for British Steel, which employs more than 4,000 people, after months of wrangling following the company’s collapse into administration.

The rescue package will include beefed-up grants, indemnities and loans that could be worth as much as £300m, according to sources quoted by Sky News.

 

A Turkish pension fund is considered to be the frontrunner to takeover the company’s main plant in Scunthorpe and subsidiaries across Teesside, although a consortium which includes a leading civil engineering firm working in west Africa is also in the running after making a late bid.

Despite the late interest from elsewhere, the business secretary, Andrea Leadsom, is expected to approve exclusive talks with Ataer Holdings, a subsidiary of the Turkish military pension scheme Oyak. An announcement that Ataer has won preferred bidder status could be made by the government’s official receiver David Chapman and EY, which is managing the sale, as early as next week.

Ataer is believed to be the frontrunner after it committed to keeping all parts of the steel company together. While the plant in Scunthorpe makes up the vast majority of British Steel’s operations, the government has so far expressed a preference for selling the company as a single entity, including satellite operations in areas such as Teesside.

 

The government has already provided a £120m loan to British Steel to help meet its obligations under an EU carbon credits scheme for industrial polluters. Nevertheless, the firm is understood to be losing £5m a week.

The Guardian has approached EY and BEIS for comment.

Earlier this week, BEIS said: “This government will leave no stone unturned to get a good solution for British Steel at Scunthorpe, Skinningrove and on Teesside.”

 

Read More – www.theguardian.com

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G4S gears up to sell armoured van network

Security contracting firm G4S could be set to sell off its network of cash machines and armoured vans.

The firm said its board had approved plans to separate that part of its business from its main security operations, which makes up more than 80% of its business.

Nevertheless, the cash machine and money transport unit employees 30,000 staff.

G4S said it would evaluate offers for its cash arm as it continues to separate the unit from from its main security business, which it expects to have completed by the middle of next year at a cost of £50m.

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Bayer share price surges amid report it could settle Roundup weedkiller lawsuits for $8bn

Bayer’s share price rocketed by as much as 11 per cent today as a report emerged that the German giant had proposed to pay $8bn (£6.59bn) to settle 18,000 lawsuits relating to its Roundup weedkiller.

 

Bayer later trimmed gains back to 5.8 per cent on Germany’s Dax stock exchange to leave shares at €66.6 after Bloomberg’s article.

The pharma giant has seen shares fall by more than a third since a court decided last August that subsidiary Monsanto should have warned people about Roundup’s alleged cancer risks.


Bayer’s legal team has held talks in New York with lawyers representing claimants, with Bayer having offered to pay between $6bn and $8bn to settle claims, Bloomberg reported.

Claimants are hoping to over $10bn.

The parties are set to ask for a postponement of the next Roundup trial, due to start this month, the report added.

A US court ruling earlier this month saw a judge reduce the sum Bayer should pay out to one Roundup claimant from $80.3m to $25.3m.

 

Judge Vince Chhabria ruled the original sum was “constitutionally impermissible” as it was almost 15 times the compensatory damages award.

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Office set to close up to half its 100 UK stores

Shoe retailer Office is planning to close up to half of UK stores at it reckons with the decline of business on the high street.

The South African-owned company is working up plans to close dozens of its 100 stores as their leases expire during the next few years, according to a report by Sky News.

Office is said to have decided against using a company voluntary agreement (CVA) to implement the closures.

An Office spokesperson said the retailer has “no immediate plans to close down stores”.

 

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