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Markross121_ May 29, 2019 No Comments

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

Markross121_ May 9, 2019 No Comments

9 big things: Unicorn stocks are spiking after IPOs

Like so many of the VC-backed unicorns going public these days, vegan protein specialist Beyond Meat has never made a profit.

But the past two days were highly, insanely, ludicrously profitable for the company’s backers, as stock in Beyond Meat shot up nearly 200% from its IPO price and investors swarmed in pursuit of a piece of that sweet, sweet meatless meat. That sort of spike is rare. But it also aligns with the post-IPO performance of the rest of 2019’s unicorn herd.

So far this year, when unicorns go public, they tend to get more valuable—and that’s one of nine things you need to know from the past week:

1. To infinity for Beyond

The first hints that something might be brewing emerged earlier in the week, when Beyond Meat elevated its original IPO price range. The company priced at $25 per share, at the top of its revised range. And then everything went crazy: Stock in Beyond Meat (NASDAQ: BYND) opened Thursday trading at $46 per share, closed at $65.75, and then inched up even higher on Friday, finishing the week at $66.79. That equates to a market cap of $3.8 billion, compared to a $1.5 billion IPO valuation and a $1.35 billion figure with its last round of VC.
There’s probably nobody happier about it all than the folks at Kleiner Perkins: The firm owned a 15.9% pre-IPO stake in Beyond Meat, holding shares now worth well over $500 million.

Recent weeks, of course, have been peppered with unicorn IPOs. For the most part, once these companies have gone public, they’ve been out of mind; the main exception might be Lyft, whose slipping stock price has caused cries of concern about Uber’s eventual fate. But for the rest of the cohort, the move to the public markets has been accompanied with steadily rising stock prices.

IT software provider PagerDuty went public on April 11 with an IPO price of $24 per share, valuing the company at $1.8 billion. Its stock shot up nearly 60% on its first day of trading, closing at $38.25 per share, and has continued to tick up in the weeks since. Shares in the company closed Friday at $46.52 per piece, for a market cap of $3.4 billion, compared to $1.3 billion with its last VC round.

Social media unicorn Pinterest debuted a week later, pricing its IPO at $19 per share—above its expected range—to establish a $10 billion valuation, notably less than its prior $12.3 billion VC-backed valuation. But Pinterest stock closed its first day trading up at $24.40 per share, and it closed Friday at $28.36, for a market cap of about $15 billion.

The prime example of the trend might be Zoom, which joined Pinterest in going public on April 18. After pricing above its anticipated range at $36 per share, the company’s stock zoomed (sorry) to $62 by the end of its first day, representing a valuation increase from $9.2 billion to nearly $16 billion in mere hours. Zoom’s stock closed Friday at $79.18, valuing the workplace video company at almost $20 billion.

The performance of these stocks and the rest of the unicorns on their way to the public markets will of course be worth monitoring in the weeks, months and years to come. The early results, though, must have some of the longtime investors in those unicorns asking: What took you so long?

2. A new Vision

There could be an unusual new entrant in the sprint to the public markets: SoftBank’s Vision Fund. The Japanese investor might conduct an IPO for the $100 billion vehicle sometime this year, per The Wall Street Journal, among additional plans to raise an equally enormous follow-up fund; the hope of chief executive Masayoshi Son is reportedly to turn the vehicle into a tech-focused (and unprofitable) analog to Berkshire Hathaway. One of SoftBank’s major portfolio companies could also soon go public, as WeWork announced this week that it confidentially filed for an IPO back in December.

3. Making it easy

That’s the goal of UiPath, a startup focused on automating workplace functions that raised $568 million this week at a $7.1 billion valuation, a huge step-up from a $3 billion valuation just six months ago. Making cross-border payments easy is what helped London’s Checkout.com bring in an enormous Series A this week, collecting $230 million at a reported $2 billion valuation. Other kinds of payments are the domain of Divvy, which banked $200 million at an $800 million valuation this week: The company makes software designed to replace expense reports.

4. Fight club

The Professional Fighters League pinned down a $30 million Series C this week to fund its unique mixed martial arts competition, with Elysian Park Ventures and Swan Ventures among the backers. And while Sumo Logic doesn’t have anything to do with actual sumo wrestling, PitchBook learned that the data analytics company is raising new cash at what would be a unicorn valuation.

Uber eyes IPO price at midpoint or lower amid tumultuous week

It would have been bad enough for Uber if the company’s long-awaited IPO occurred during the same week that US-China trade tensions roiled the stock markets. Or if the offering came just a few days after rival Lyft posted eyebrow-raising losses in its first quarter as a public company. Or if Uber’s drivers planned a strike in the lead-up to the listing in protest of Uber’s pay practices.

Instead, all three things happened. And now, Uber is planning to price its IPO at or below its midpoint price of $47 per share, per reports, which would give the company a fully diluted valuation of $86 billion or less. That’s likely up from the $76 billion valuation Uber reportedly attained with its last round of private funding, but several billion shy of figures that have been thrown around in recent months.

It’s been a little less than two weeks since Uber announced an IPO price range of $44 to $50 per share, equating to a valuation range of about $80.5 billion to $91.5 billion. Earlier this week, Bloomberg reported that the listing was at least three times oversubscribed, enough to price at the upper end of its range if so desired—healthy demand, to be sure, but quite different from a Lyft IPO in late March that was reportedly 20 times oversubscribed.

The fate of Lyft in the intervening weeks is surely one reason Uber’s offering isn’t looking quite so gargantuan as once expected—although it will still be one of the largest VC-backed listings of all time. Since stock in Lyft closed its first day of trading at more than $78 per share March 29, the price of those shares has fallen more than 30%, dipping below $53 Wednesday to reach a new all-time low. The company now has a market cap of $15.1 billion, the same as the valuation that came with its final round of private VC funding last summer.

A single-day drop Wednesday of nearly 11% came a day after Lyft reported its financial results for the first time as a public company, including a net loss for 1Q of more than $1.1 billion. While the company chalked up some of those losses to IPO-related expenses, it’s also a reminder to investors that profitability is still very far away. Lyft lost $911 million for the whole of 2018, compared with a $1.8 billion loss for Uber.

Those losses are, of course, at odds with Lyft and Uber’s sky-high valuations and revenue figures, a quasi-contradiction that could be interpreted a number of ways. As an example, one can look to the ridehailing companies’ ongoing labor dispute with their drivers, which on Wednesday took the form of a boycott by Uber and Lyft drivers in cities across the US, the UK and Australia. Those drivers—who are, of course, regarded as contractors, not employees—see all that money flowing in and wonder why they, the people who actually allow Uber and Lyft’s apps to function, can’t get a little bit more of it. The companies, meanwhile, can point to the losses as a reason thriftiness is required.

That argument perhaps crumbles a bit when Uber’s two top executives reportedly took in more than $90 million in compensation last year. There’s certainly enough money to make sure some people become immensely wealthy. Labor just isn’t on that list.

And depending on the IPO price Uber ultimately settles on, by the end of the week, there might be a little bit less wealth to go around than everyone expected a few months ago.

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