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Google snaps up Fitbit for $2.1bn

Google has snapped up the Fitbit activity tracker business in a $2.1bn (£1.6bn) deal that will enable the search giant to go toe-to-toe with Apple in the fast-growing smartwatch and wearables business.

Google is paying cash for the San Francisco-based Fitbit, which was set up in 2007.

It is paying $7.35 per share – a premium of more than 70% to the Fitbit share price before the shares were suspended earlier this week amid takeover speculation.

The price, however, is a fraction of the company’s value when it floated in 2015. The shares were initially priced at $20, and soared to more than $50 in the weeks following the initial public offer. But it has suffered in recent years from competition from bigger rivals Apple, Samsung and China’s Xiaomi. In August the group’s shares hit a low of $2.85.

The deal, which is Google’s biggest consumer purchase since it bought home-tech business Nest five years ago for $3bn, will have to be approved by shareholders and regulators, especially over how it handles Fitbit users’ data. The firm claims to have 28m active users worldwide and its fitness trackers store location and physical health data for users who monitor their activity, sleep and and exercise using a range of wearable devices.

Fitbit said it would not sell customers’ personal data and pledged that wellness data would not be used by Google ads.

Google has offered its own fitness tracking service, called Google Fit, since 2014, but has relied on third parties such as Fossil and Tag Heuer to produce Android-compatible smartwatches.

In a blogpost announcing the deal Rick Osterloh, Google’s senior vice president in charge of devices & services, said Fitbit had been a pioneer but that Google could “help spur innovation in wearables and build products to benefit even more people around the world.”

The market for wearables is growing rapidly. Last week, in its latest quarterly financial results, Apple reported annual sales growth of more than 50% in its “wearables” division, which includes watches. The iPhone-maker’s total sales from wearables over the three month period were £6.5bn.

The deal will expand Google’s range of consumer products, which already includes smartphones, headphones, smart speakers and laptops.

Osterloh wrote that Google would not misuse Fitbit users’ personal data: “We will never sell personal information to anyone. Fitbit health and wellness data will not be used for Google ads. And we will give Fitbit users the choice to review, move, or delete their data.”

Earlier this week, amid reports that the deal was being finalised, the British Labour party wrote to the UK’s competition regulator calling for the takeover to be blocked. Tom Watson, the shadow digital, culture, media and sport secretary, called the deal a “data grab”.

He said: “If this acquisition were to proceed, Google could have information on how we sleep, when we move, what we eat, on our breathing and our heartbeats. This data could hardly be more sensitive, but … all this information could then be used [for] micro-targeting, advertising, and behaviour modification. The risk to consumers here is significant.”

Watson has also written to the information commissioner, Elizabeth Denham, expressing concern over the data aspects of the merger and asking her office to assess whether it raises privacy concerns.


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Vauxhall fears after car giants Fiat and PSA announce merger

Fiat Chrysler is to merge with Vauxhall’s owner PSA to create the world’s fourth largest car company.

The two sides say they have yet to finalise all the details, but the 50-50 merger is expected to provide significant cost savings.

That has raised concerns at Vauxhall, which employs 3,000 people in the UK, as it could be vulnerable to any restructuring.

Unions called for talks with France’s PSA, which owns Peugeot and Citroen.

Fiat Chrysler, the Italian-US business behind Jeep, Alfa Romeo, and Maserati, has been looking for a big tie-up for years, believing that consolidation in the global industry is needed to cuts costs and overcapacity, and fund investment in electric vehicles.

It has tried previously to form alliances with General Motors and Renault.

A combined Fiat Chrysler-PSA will have a market value of about $50bn (£39.9bn) with annual sales of 8.7 million vehicles. The companies said there are no plans to shut factories, but UK unions are uneasy about the impact on Vauxhall.

“Merger talks combined with Brexit uncertainty is deeply unsettling for Vauxhall’s UK workforce which is one of the most efficient in Europe,” said Unite national officer Des Quinn.

“The fact remains, merger or not, if PSA wants to use a great British brand like Vauxhall to sell cars and vans in the UK, then it has to make them here in the UK.”


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Thomas Cook’s Nordic business lives on after private equity deal

A trio of investors—including two private equity firms—has teamed up to save Thomas Cook’s Nordic business a month after the British travel company suddenly declared bankruptcy, delisted its shares, ceased operations and stranded more than 150,000 customers.

European buyout firms Altor Equity Partners and TDR Capital, along with Norwegian real estate tycoon Petter Stordalen’s Strawberry Group, are slated to assume ownership of the Ving Group, as the Northern Europe unit is called. The group employs 2,300 people across charter businesses in Sweden, Norway, Denmark and Finland, along with Thomas Cook Airlines Scandinavia.

Strawberry Group and Altor will each buy 40 percent of Ving, while TDR Capital will purchase the remaining 20 percent, though no price was revealed. Following the acquisition, the investors will work to secure approximately 6 billion Swedish kronor (about $618 million) in liquidity and guarantees for the business.

Unlike the larger Thomas Cook Group, which was founded in the 1840s to serve the burgeoning British middle class, Ving has recently proved itself profitable. Some of the Ving units will declare bankruptcy in order to facilitate the redirection of all businesses to a freshly established company created by its new owners, but the company’s sale will ensure 400,000 people who have booked upcoming trips will be able to travel without issue.

“[The deal] secures the business and creates a stable foundation for future development,” Harald Mix, a partner at Altor, said in a statement.

Altor, based in Stockholm, has raised five funds since its creation in 2003. It has invested in more than 60 middle-market Northern European companies, worth a total of €8.3 billion (about $9.25 billion).

TDR Capital, founded in 2002, manages €8 billion in assets and is headquartered in London. It also focuses on mid-market companies, with a preference for growth-oriented investments.

Strawberry Group maintains 11 companies and invests primarily across the real estate, finance, hospitality and art industries. Stordalen is a Norwegian billionaire who, along with his three children, also owns the region’s largest resort chain, Nordic Choice Hotels. The brand operates 180 luxury hotels across five countries.

The buyout of Thomas Cook’s Nordic unit may be one of the more dramatic deals in recent memory, but it fits cleanly into the bigger picture of the region’s PE landscape. Nordic dealmakers such as Altor have maintained a relatively consistent slice of the European private equity pie over the past decade. As of September 30, Nordic PE deal value this year totaled about €26 billion, about 11% of overall European deal value, per PitchBook’s 3Q 2019 European PE Breakdown. Through the past decade, the Nordic region’s deals have largely hovered around that same share of the total.


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China-driven M&A in North America is nearly MIA this year

North American M&A activity involving Chinese buyers has fallen off a cliff this year. That’s not a complete surprise, but it’s not often you see such swift drop-offs without something alarming going on. China-driven M&A is on pace to fall by more than 90% from its 2016 peak, according to PitchBook’s 3Q 2019 North American M&A Report.

Just over $20 billion worth of North American M&A deals with Chinese acquirers have been consummated this year through 3Q, which would have been a blip in 2016, when $298.5 billion changed hands. Combined M&A value figures treaded water over the past two years, at least comparatively, and a few big deals were executed. In the background, though, volume slid very quickly, from 696 deals in 2016 to 496 in 2017, then to 274 deals last year, and finally, to only 73 so far this year:

US-based companies and Chinese acquirers have more or less ceased doing business, at least for now. Some of that is collateral damage from the trade war, but more of it is likely related to The Committee on Foreign Investment in the US. The CFIUS has effectively blocked several major transactions, mostly on national security grounds.

The list of affected sectors is broader than aerospace and semiconductors—reviews are now triggered for energy, transportation, healthcare and even financial services companies. Taken together, the regulatory territory covered by CFIUS reviews is quite extensive. The market is now very aware of the penalties involved, thanks to high-profile deals being scuttled by regulators—including some completed deals that had to be unwound after the fact. It would be interesting to track all of the broken deal fees and legal expenses involved in the deals that didn’t make it into the chart above.

It isn’t clear that an end to the trade war would lead to an immediate recovery in the M&A market. Activity would pick up to some degree with an agreement, but most of these cross-border cancellations boil down to those security concerns, many of them well-founded. As long as Donald Trump remains in office, China remains communist and we continue to give each other the side eye, it may be radio silence on the M&A front for a while.


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Flying cars’ next stopover could be on Wall Street

Flying cars may soon descend on Wall Street.

China’s EHang, a maker of autonomous and remote-piloted flying passenger vehicles, has filed for an IPO on the Nasdaq, seeking to break a barrier for its industry.

EHang is unprofitable and its revenue has been declining this year, according to its SEC filing. The move also comes amid a setback for Chinese-manufactured drones, after the Trump administration said on Wednesday that the US Department of the Interior would stop using unmanned vehicles and related technology made in China, citing national security concerns. It wasn’t immediately clear whether the department had previously been employing EHang’s technology.

Like other so-called flying-car developers such as Germany’s Lilium, EHang is positioning its one- and two-seat vehicles as a mobility answer to the traffic congestion that plagues big cities. It also is taking aim at commercial applications like grocery or parcel deliveries.

Last year saw a new high in VC capital raised by drone and aerial makers, which gathered about $460.9 million across 71 deals, according to the PitchBook Platform. Among the bigger venture rounds of late were North Carolina-based PrecisionHawk’s $75 million funding in January of last year led by ClearSky and China-based SZ DJI Technology’s $75 million deal in 2015 from Accel and other investors.

If its IPO is completed, EHang would become the first VC-backed flying passenger-vehicle startup to go public, according to PitchBook data.

Led by software engineer Huazhi Hu, EHang has raised more than $95 million in venture capital since it was founded in 2014, according to its filing, which lists GGV Capital and Zhen Partners as top shareholders with stakes of 10.8% and 7.6%, respectively. EHang is also developing unmanned drones for industrial uses.

The startup currently does flight testing under the supervision of China’s aviation authorities and has delivered 38 passenger-grade autonomous aerial vehicles for testing and training.

EHang’s losses have been growing as its sales are falling. It lost about 37.6 million Chinese yuan (around $5.3 million) in the first six months of the year, up from a loss of 26.5 million yuan in 1H 2018, according to its filing. The company’s revenue doubled in 2018 to around 66 million yuan from the previous year. Through June 30, revenue dropped to 32.4 million yuan compared with 38.4 million yuan in 1H 2018.


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JD Sports’ Footasylum takeover could be bad for shoppers, says CMA

The UK’s competition watchdog has said JD Sports’ £90m deal to buy its smaller rival Footasylum could result in higher prices and that it will carry out an investigation unless JD can address its concerns.

The Competition and Markets Authority (CMA) said its initial investigation found the deal could result in a “substantial lessening of competition”.

The CMA is concerned this could result in a worse deal for shoppers through higher prices, reduced choice or worsening customer service. “JD Sports must now address the concerns identified or face a further, more in-depth investigation,” it said.

Colin Raftery, a senior director at the CMA, said: “JD Sports is already by far the largest player in the growing sports fashion sector, so any deal that results in it buying up one of its closest competitors could clearly give cause for concern.

“Our investigation has shown us that JD Sports and Footasylum have been competing strongly across the UK, with a sports fashion offering that few other retailers are able to match.”

Peter Cowgill, JD Sports’ executive chair, said: “We continue to believe that Footasylum would be a positive addition to the group, bringing a differentiated customer demographic and fashion-led product range that is complementary to our existing business.

“We also believe that there will be significant operational and strategic benefits from a combination of the two businesses. Our discussions with the CMA are ongoing as we consider whether to proceed to phase two or if acceptable remedies can be agreed at this stage.”


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Flutter shares jump 14 per cent on £11bn merger with Stars Group to create one of the world’s largest gambling firms

Flutter Entertainment and Nasdaq- and Toronto-listed Stars Group said today they were merging in a deal that will create one of the world’s largest gambling businesses.

Shareholders in Flutter, formerly known as Paddy Power Betfair, will own approximately 54.6 per cent of the new company with Stars shareholders owning approximately 45.3 per cent of the combined group.

The combined revenue of the two businesses in 2018 was £3.8bn and their combined market capitalisation is £11bn, enough to make it one of the world’s largest online betting and gaming operators globally.

The new business will be based in Dublin, with a premium listing on the London Stock Exchange and a secondary listing on Euronext Dublin.

Flutter shares jumped nearly 14 per cent this morning to 8,700p.

News of the deal also boosted other gambling stocks, with William Hill up 3.65 per cent, 888 Holdings up 1.8 per cent and GVC Holdings up nearly one per cent.


The two businesses said the merger would help the combined group crack the US market which is liberalising its gambling rules.

The pair said the deal would create value for shareholders with pre-tax cost-synergies of £140m per annum along with lower finance costs.

Flutter chief executive Peter Jackson will be chief executive of the combined group with Flutter chair Gary McGann taking the role of chair.

Flutter has entered into third-party deals in the US with Fox Sports, Fastball Holdings and Boyd Interactive Gaming conditional on the merger going ahead.


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PE mega-funds have higher floors and lower ceilings than smaller vehicles

Private equity mega-funds (of at least $5 billion) have tended to outperform smaller funds over the past 20 years. That shouldn’t come as a surprise, as mega-funds are only raised by firms that have outperformed over time.

At least for private equity, the biggest firms are almost by definition some of the best firms, at least perception-wise, since they had to justify their growth to LPs over several funds. Not every top-performing firm opts to grow that large—but the ones that do go on to raise mega-funds give themselves good odds of maintaining performance as they grow.

Our recent PitchBook analyst note dives into performance metrics for $5 billion-plus PE funds and how they differ from the rest of the market. TVPI figures—which reflect a fund’s investment multiple—suggest that mega-funds hit more doubles than the rest of the market, but also fewer home runs. For example, across several vintage buckets, mega-funds have a higher chance than smaller-sized funds to achieve a TVPI of at least 1.5x. That’s great news for larger LPs looking for consistently positive returns.


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Robots are ready to sort our trash, but will VCs be interested in the messy world of recycling?

You finish a greasy-yet-satisfying lunch at the cafeteria, pick up the items from the table and walk to the trash and recycling bins. Like most well-intentioned people, you face a familiar dilemma. Used napkins. Leftover ketchup packets. A foam container. Wait, there’s food stuck on it. Where do they all go? Is anyone watching? Help.

We’ve all been there. And our three-second plight is part of an expensive problem that’s only piling up by the minute.

China took the world by surprise last year when it started banning imports on dozens of kinds of solid waste, including some plastics and other recyclables. The maximum acceptable contamination level in plastics and fiber also dropped to 0.5% in China, making it nearly impossible for recycling facilities around the world to quickly process sizable volumes of scrap.

The impact of those changes has been devastating, and for many private waste management companies in the US, plastic recycling is no longer a viable market. Like any other business, a recycling company needs to efficiently use available resources and have a healthy bottom line. The soaring cost of recycling has forced many local governments across the US and recycling processors to send increasing amounts of waste to landfills or incinerators.

Even in this dire situation, many environmentalists and entrepreneurs believe there’s a silver lining. China’s bold move has forced countries throughout the world to acknowledge green issues and push innovative recycling ideas toward tangible and long-term investments.

While humans could single-handedly choke our planet with waste, we may need some help to clean up the mess. Enter the robots.

One of the crucial steps in contributing toward a circular economy begins with correctly classifying what can and cannot be recycled. Even something as straightforward as a coffee cup could be complicated during disposal. Its light-weight plastic lid, paper cup and cardboard holder may appear to be recyclable components, but rules might be different for a sorting facility if it’s made of virgin tree fiber rather than paper or if it’s contaminated with leftover whipped cream.

Charles Yhap, who co-founded CleanRobotics in 2015, realized there might be a better way to sort trash than to expect high levels of awareness, accuracy and motivation from human beings—especially when recycling laws can be confusing and vary from county to county. The Pittsburgh-based company has developed an AI-powered robot called TrashBot that helps automate the separation process at the point of disposal.

“The idea was born out of frustration, of being confronted with an array of trash bins,” Yhap told PitchBook. “Waste management processes are either dirty, dull or dangerous, and it makes sense to target robotics in this industry.”

TrashBot uses cameras and sensors to scan discarded items from everyday waste—and that doesn’t mean it conveniently tosses an unfinished can of soda straight to the bin bound for the landfill. These robots can “swallow” excess liquids. CleanRobotics is focusing on high-traffic facilities such as airports, convention centers and schools, but one challenge is its technology requires waste to be thrown away one item at a time with a short delay in between. The company is backed by investors including GAN Ventures, SOSV and Innovation Works.

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WeWork has acquired more than 20 companies in the run-up to its IPO

In their endeavors to scale operations and improve their brands, VC-backed companies have turned to robust M&A activity in recent years. Taking notes from consumer-facing platforms such as Facebook and Twitter, who led the way to establish how private companies can grow from strategic acquisitions before their historic rides to the public markets, WeWork has acquired 21 startups to date, with a bulk of those investments sealed in the last three years.

The co-working giant raised nearly $1 billion in VC funding before it made its first acquisition in 2015 with Case, which provides building design and information-modeling services. And in a bid to either grow the current business or explore opportunities in other industries, WeWork is currently one of the most active VC-backed acquirers in the space.

How many of those investments were directly related to the company’s space-as-a-service offering? According to a recent PitchBook analyst note, the split of acquisitions made by WeWork related to the core business versus noncore is an estimated 60-40. Notable acquisitions that currently have little to do with WeWork’s office rental focus include Flatiron School, which offers a coding education platform and Islands Media, the developer of a messaging app for college students.

The co-working giant revealed mounting losses in its S-1 filing last month. However, its appetite to acquire startups that range from the developer an office sign-in system to a behavior-analytics platform, indicates that buying tech or venturing beyond its core business via an acquisition seems to be the preferred route for WeWork, instead of building the same thing in-house.

While mega-deals from deep-pocketed investors such as SoftBank or eye-popping valuation step-ups may have favored WeWork’s acquisition strategies so far, it’s difficult to say whether the business will continue to pick up startups at the same rate in the future, especially as it plans to seek a valuation of between $20 billion and $30 billion in its upcoming IPO, slashing its last private market valuation, according to The Wall Street Journal.

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