May 2019

Markross121_ May 29, 2019 No Comments

SpaceX lifts off with $1B after Starlink launch

The space race is still alive and well—at least when it comes to VC funding and global satellite internet.

SpaceX, the rocket company founded by celebrity billionaire entrepreneur Elon Musk, has raised an additional $704.74 million across two previously declared rounds, according to filings reviewed by PitchBook on Friday. Both rounds have now raised a combined total of $1.02 billion since January. With the new funding, SpaceX now holds an estimated $31.5 billion valuation, with previous investors such as Sherpa Capital, Alphabet and Founders Fund adding to their stakes in the company. SpaceX did not immediately respond to requests for comment.

The funding announcement comes a day after the Los Angeles-area company launched 60 Starlink satellites into low Earth orbit, en route to an eventual goal of the 800 satellites needed to reliably provide significant high-speed internet coverage worldwide. The Starlink project, initiated in 2015, is expected to be fully operational in 2020, with the possibility for up to 12,000 satellites entering orbit, per regulatory filings SpaceX submitted to the Federal Communications Commission. Its competitors include global satellite internet aspirations from OneWeb, which is backed by Virgin Group and Qualcomm Ventures, and from Samsung, among others.

Elon Musk has previously declared his goal is to use revenue from Starlink’s projected operations to fund Starship, an initiative to build advanced rockets and spaceships to bring human civilization to Mars. Currently, Starship’s vehicles are being constructed in Boca Chica, Texas, and Cape Canaveral, Florida, with Musk regarding the locations as “competing” to see which site is more efficient.

Legal challenges abound

While the promise of exploring space and colonizing Mars someday may sound dreamy, the journey isn’t always glamorous, and SpaceX has had its share of difficulties.

The new funding also comes on the heels of the company’s lawsuit against the US Air Force’s Space and Missile Systems Center, filed in mid-May and unveiled on Wednesday by CNBC. In the lawsuit, SpaceX claims the center “wrongly awarded” $2.26 billion last fall in development contracts “to a portfolio of three unproven rockets” built by its competitors, while rejecting SpaceX’s bid.

Namely, Blue Origin received $500 million, United Launch Alliance scored $967 million, and Northrop Grumman banked $792 million. Meanwhile, SpaceX’s Falcon 9 and Falcon Heavy rockets were kicked to the curb, with the Air Force concluding that certain elements of the company’s Starship vehicle broadly labels its entire fleet as “high risk.”

Since the filing was largely redacted to protect proprietary and competitively advantageous information, it is not clear what the specific factors that were deemed “high risk.” Without greater details, it is difficult to speculate regarding the merit of the complaint.

However, the lawsuit may simply be an indication of the unwillingness of SpaceX and Elon Musk to concede defeat. As part of a broader ethics investigation into Acting US Secretary of Defense Patrick Shanahan, an April 25 report revealed that Shanahan and Musk met privately on December 6 to discuss SpaceX’s failure. During the meeting, Musk expressed his opinion that SpaceX had submitted a lousy contract proposal that “missed the mark.”

In addition to Musk’s stated opinion on the proposal quality, Bloomberg reports SpaceX has won nine federal contracts since 2015, including a recent $297 million launch contract from February. All such contracts were in direct competition with ULA, among others, arguably contradicting perceptions of institutional favoritism working against SpaceX.

While the $1.02 billion in funding SpaceX has garnered this year may be coincidental, it could reasonably be an unenthusiastic replacement for what would have been a grant from the Air Force, considering the timing and a similar amount to what the Air Force was dishing out.

Regardless, such a refusal to concede defeat is far from unusual in the world of Elon Musk, where themes of stubbornness and denial abound. There was his infamous “funding secured” tweet and subsequent unwillingness to adhere to SEC monitoring, as well as his long-standing but never-fulfilled repetition of Tesla’s ever-imminent resolution of cashflow and production issues.

In perhaps the most dramatic example, Musk has steadfastly refused to settle the defamation lawsuit filed against him after he called Vernon Unsworth, one of the divers who helped rescue a Thai soccer team from a cave in 2018, a “pedo guy” on Twitter after Unsworth disparaged Musk’s offer of a submarine to aid in the rescue as a PR stunt. The suit reportedly seeks damages for some $75,000, equivalent to less than 0.00005% of Musk’s net worth, but in a familiar denial, Musk maintains his innocence and regards his comments as an “imaginative insult” protected by the First Amendment.

As SpaceX’s lawsuit seeks to recover its missed Air Force grant by challenging the reasons the company’s bid was not chosen, it remains debatable whether the Air Force truly did cheat SpaceX—or Musk & Co. are simply unhappy to admit that they lost.

Sports Illustrated becomes latest legacy magazine gobbled up by PE

It’s become a familiar story for the media industry. A legacy publication struggles because of declining print advertising revenue. Digital advertising revenue fails to offset the losses. A private investor emerges to try to save the business.

The latest example came with a twist Tuesday when Authentic Brands Group agreed to buy the intellectual property of Sports Illustrated from media conglomerate Meredith for $110 million. As part of the unique partnership agreement, Meredith will continue to operate SI’s editorial arm for at least the next two years under the same schedule, while maintaining editorial independence under the direction of publisher Danny Lee and editor-in-chief Chris Stone. The iconic sports publication’s future after that is unclear.

In the meantime, ABG will try to drive revenue by using SI’s brands, which include the company’s namesake, Sports Illustrated Kids, Sportsperson of the Year, SI TV and the company’s iconic swimsuit edition. The company also purchased the rights to more than 2 million images from SI’s photography archives, which it reportedly hopes to monetize.

“We are now perfectly positioned, with the support and resources of ABG, to thrive in many other spaces: events and conferences, licensing, gambling and gaming, IP development, especially in video and TV, to name a few, all while continuing to benefit from Meredith’s industry-leading track record in operating media companies,” Stone said in a press release.

Launched in 2010 with a $250 million investment from Leonard Green & Partners, Knight’s Bridge Capital and founder Jamie Salter, ABG specializes in managing retail, entertainment and sports brands. And its list of clientele is fairly diverse, with the brands of Shaquille O’Neal, Muhammad Ali and Marilyn Monroe among its holdings.

But it remains to be seen if ABG can recharge SI, which has struggled along with the rest of the magazine industry to adapt to the digital landscape. Once heralded for employing a range of legendary sports writers such as Frank Deford and Rick Reilly, the company has seen its market share dwindle from a range of digital online competitors, including the The Ringer, Barstool Sports and The Athletic, which was valued at around $200 million in its latest funding round.

Meredith acquired SI in early 2018 as part of its roughly $1.8 billion deal for Time Inc., with Koch Equity Development contributing $650 million to the purchase. In the ensuing 18 months, the business has unloaded the company’s assets in pursuit of paying down $1 billion worth of debt. It sold Time magazine to Salesforce founder Marc Benioff and wife Lynne Benioff for around $190 million and Fortune magazine to Thai entrepreneur Chatchaval Jiaravanon for $150 million. It’s also shopping FanSided, an SI-affiliated blog network that focuses on sports and pop culture, for a reported $30 million, along with ad platform business Viant.

On a broader scale, the shifting media landscape hasn’t kept investors from dabbling in the US publishing industry, though deal count dropped about 5% in 2018, per Pitchbook data. And 2019 is off to a fairly benign start, with just six completed PE-backed acquisitions to date. The most notable came in January when Penske Media, a New York-based digital media company backed by the Saudi Arabia Public Investment Fund, bought the remaining 49% stake it didn’t already own in Rolling Stone magazine.

Sensible Fiat Chrysler-Renault merger could be undone by politics

Frosty relations between France’s Macron and Italy’s Salvini could scupper talks over £29bn merger.

That there is an economic case for the proposed €32.6bn (£29bn) merger between Fiat Chrysler and Renault goes without saying. A link between the two companies to form the world’s third-biggest carmaker after Volkswagen and Toyota has always made a lot of sense. If the deal is scuppered, it won’t be due to a lack of business logic; it will be because politics gets in the way.

There are two big arguments in favour of the deal. The first is there is a global glut of automotive capacity that is already forcing companies to cut production, close plants and lay off workers.

The second is the age of the internal combustion engine is drawing to a close. Technological change has meant progress being made towards autonomous, self-driving cars, while the need to combat the climate emergency has forced car companies to think about a new generation of electric-powered vehicles.

These changes – the biggest in the industry for 125 years – leave companies in a bind: they either have to come up with the massive investment required to deliver the cars of the future against new rivals such as Google’s Waymo, or become museum pieces. The tie-up between the Italian-American Fiat Chrysler and the French-Japanese alliance of Renault, Nissan and Mitsubishi is primarily about generating economies of scale in order to save €5bn a year that would be available for R&D and product development.

This is a hefty sum to make from efficiency savings and there has to be a suspicion that the merged company would also look to take costs out of the business by getting rid of excess capacity. The French government, which has a 15% stake in Renault, is certainly alive to this possibility, which is why Bruno Le Maire, the finance minister, is seeking explicit guarantees there will be no job losses.

That’s one potential political complication. Another is that Matteo Salvini, Italy’s deputy prime minister and the leader of the far-right League, has expressed a desire to take a stake in the new company. This would be no problem were relations good between Paris and Rome, but they are not. There is absolutely no love lost between Salvini and the French president, Emmanuel Macron. That, coupled with the fact car companies tend to be national virility symbols, suggests the negotiations will not be trouble free.

Tiger Global’s unicorn stable grows with Ivalua deal

A startup developing software that helps other companies save money has become the latest company backed by Tiger Global to attain a $1 billion valuation.

That startup is Ivalua, a Bay Area business that says it’s raised $60 million in growth equity backing at a valuation of more than $1 billion. Tiger Global and the growth arm of Ardian both participated in the funding, while KKR is an existing Ivalua backer. The company makes spend-management software, which its clients use to streamline financial processes and increase cash flow.

It’s the newest highly valued addition to the portfolio of Tiger Global, a New York-based hedge fund that invests in startups in a major way, typically targeting late-stage deals. Last October, the firm closed its latest VC vehicle on $3.75 billion, per the Financial Times, and in the months since, it’s been busy putting all that new capital to work.

Pret a Manger in talks to gobble up Eat to fuel expansion

Pret a Manger is in talks to buy its rival sandwich chain Eat as part of plans to expand its specialist vegetarian operation.

The London-based coffee shop firm is understood to be in line to buy the majority of Eat’s 94 stores to step up expansion of Veggie Pret.

The majority of Eat’s outlets are in London but it also has sites in key towns and cities around the UK, including Birmingham and Manchester, as well as airport stores in Bristol, Edinburgh and Heathrow.

Pret has four vegetarian outlets, three in London and one in Manchester. It is keen to expand the operation due to rising demand for plant-based meals, according to the London Evening Standard, which first reported the deal.

Pret said: “We never comment on rumour or speculation.”

Peter Backman, an independent restaurant consultant, said the deal suggested Pret believed it could tempt different customers with Veggie Pret enabling it to expand even in London where it already has a lot of outlets. He said buying Eat stores would give it room to experiment while reducing competition.

Pret is keen to capitalise on the growing vegan and vegetarian market which has prompted the likes of Waitrose to introduce specialist aisles and big chains such as Marks & Spencer, Tesco and Sainsbury’s to push vegan ranges.

According to Waitrose, a third of UK consumers say they have deliberately reduced the amount of meat they eat or removed it from their diet entirely. One in eight Britons are now vegetarian or vegan, and a further 21% say they are flexitarian – where a largely vegetable-based diet is supplemented occasionally with meat.

The possible Eat deal also flags potential consolidation in the takeaway food market where growth is slowing and competition fierce as supermarkets and coffee shops vie with the likes of Pret, Itsu, Wasabi and Leon.

The proposed deal comes after Eat was put up for sale by its private equity owners Horizon Capital in February. It made a £17.3m loss in the 12 months to June 2018 and a £18.9m loss the previous year.

Overall sales slipped more than 4% to £94.9m as cafes and restaurants faced heavy competition. A slowdown in spending has also led consumers to remain cautious amid Brexit uncertainty.

Sainsbury’s-Asda merger blocked by regulator

The proposed merger between Sainsbury’s and Asda has been blocked by the UK’s competition watchdog over fears it would raise prices for consumers.

The Competition and Markets Authority (CMA) also said it would raise prices at the supermarkets’ petrol stations and lead to longer checkout queues.

Sainsbury’s boss Mike Coupe said the regulator was “effectively taking £1bn out of customers’ pockets”.

But he said the supermarkets had agreed to end the deal.

Asda boss Roger Burnley said he was disappointed: “We were right to explore the potential merger with Sainsbury’s, which would have delivered great benefits for customers and supported the long term, sustainable success of our business.”

Deutsche Bank and Commerzbank abandon merger talks

Deutsche Bank and Commerzbank have abandoned merger talks, saying the deal would have been too risky.

Both banks said the deal would not have generated “sufficient benefits” to offset the costs of the deal.

The German banks only entered formal merger talks last month.

The German government had been supporting the tie-up, with reports saying Finance Minister Olaf Sholz wanted a national champion in the banking industry.

The government still owns a 15.5% stake in Commerzbank, acquired after the bank was bailed out following the financial crisis.

The deal was seen as a way of reviving the fortunes of both banks.

Deutsche Bank shares fell 1.5% to €7.48 each, while Commerzbank shares dropped 2.5% to €7.60.

Combined, the banks would have controlled one fifth of Germany’s High Street banking business with €1.8 trillion ($2tn; £1.6tn) of assets, such as loans and investments.

Scots packaging firm Macfarlane expands in England

Glasgow-based packaging firm Macfarlane Group has expanded in England with a new acquisition.

Macfarlane, which is the UK’s biggest protective packaging distributor, bought Buckinghamshire-based Ecopac (UK) Ltd in a deal worth up to £3.9m.

Ecopac generated sales of £6m and pre-tax profits of £500,000 in the year ended 31 March 2018.

It focuses on customers based near its 60,000 sq ft facilities near Aylesbury.

Macfarlane said Ecopac was a profitable packaging business that would be earnings-enhancing in its first full year in the group.

Ecopac is the latest in a series of acquisitions by Macfarlane within the past two years.

In September 2017, it bought two Nottingham firms in a deal worth up to £16.75m. It later bought Leicester-based Tyler Packaging and Harrisons Packaging, based in Lancashire.

Macfarlane recently reported a ninth year of successive growth.

Sales were £217m in in 2018, up from £196m the year before. Pre-tax profits were at £11.2m – 20% ahead of 2017.

Cruise hits $19B valuation as corporate VCs rev up self-driving buzz

Autonomous car company Cruise announced Tuesday that it has secured a $1.15 billion equity investment from a group of investors including its parent company, GM, as well as T. Rowe Price, Honda and SoftBank’s Vision Fund. The deal brings Cruise’s valuation to $19 billion.

The Bay Area business plans to launch a commercial robotaxi service by the end of this year, and to hit that milestone, it is looking to double in size by hiring about 1,000 employees during the year, according to Reuters. “Developing and deploying self-driving vehicles at massive scale is the engineering challenge of our generation,” Cruise CEO Dan Ammann said in a statement.

The company revealed that it has secured capital commitments of $7.25 billion in the past year. That includes $2.25 billion from SoftBank’s Vision Fund last year, with the fund planning to contribute $900 million in the first tranche and another $1.35 billion when Cruise’s autonomous vehicles are ready for commercial use. Honda also contributed, announcing a $2.75 billion investment in October. The Japanese automaker planned to make a direct equity investment of $750 million at the time and the remaining $2 billion coming over 12 years.

There was an explosion in corporate VC activity overall in 2018, and the trend continues this year. During 1Q, “autonomous driving companies raised $2.3 billion in deals including CVC investors with technology parent companies, such as Amazon and Intel Capital, as well as CVCs with automotive parent companies, such as Toyota AI Ventures and BMW i Ventures,” according to the latest PitchBook-NVCA Venture Monitor report. The autonomous-driving industry is expected to attract CVC investment in coming quarters due to high demand from automotive original equipment manufacturers for technology partnerships and additional investment opportunities in self-driving businesses.

Last year saw record-breaking traditional and corporate VC investments in companies developing autonomous cars in the US, as the total capital investment peaked at $3.8 billion across 68 deals. The second quarter of 2019 is well underway and autonomous businesses have secured $1.8 billion across 13 deals in the US.

Zipline is raising up to $120M to deliver medical supplies via drone

Drone-delivery startup Zipline is seeking to raise up to $120 million in Series D funding, PitchBook has learned. The funding could value the company at up to $1.34 billion, per a PitchBook estimate, up from the $620 million valuation it reached fourteen months ago.

Final terms and details of the financing have not been announced and are subject to change. When contacted, the company denied the report.

Founded in 2014, Zipline is a Bay Area-based business that operates small robotic airplanes to deliver blood and urgent medicines to clinics in Rwanda and Ghana, with plans to expand the deliveries to serve 1% of the global population by the end of this year.

Excluding the upcoming round, the company has brought in over $110 million in prior backing from a list of investors that includes GV, Andreessen Horowitz and Sequoia. Here’s a recap of Zipline’s previous funding rounds:

October 2012: $6.6 million Series A at a $20 million valuation
July 2014: $4.2 million Series A1 at a $35 million valuation
July 2015: $7.5 million Series A2 at a $75 million valuation
November 2016: $25 million Series B at a $200 million valuation
March 2018: $70 million Series C at a $620 million

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