Investments Archives

Markross121_ August 12, 2019 No Comments

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.

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.

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.”

Huawei unveils Harmony operating system as it weans itself off Google Android

Huawei has unveiled a new operating system for smartphones and other devices, as US trade restrictions threaten its access to American technologies such as Android.

The Chinese firm said its smartphones will continue to use Google’s Android operating system for the moment, but that Harmony could replaced Android “immediately” if necessary.

“Harmony OS is completely different from Android and iOS,” said Richard Yu, head of Huawei’s consumer business group.

The new operating system will be gradually rolled out across support devices such as smartwatches, speakers, and virtual reality gadgets.

Harmony is part of a wider drive by Huawei to fast-track the development of its own technologies and reduce reliance on US firms as the US-China trade war intensifies.

US companies are currently banned from doing business with Huawei, and it was announced yesterday that US government agencies have been barred from buying the company’s products.

The government is currently determining whether Huawei will be allowed to participate in the UK’s 5G network, which is in the process of being developed.

Just Eat £9bn merger plan sends shares soaring

The prospect of a multibillion-pound bidding war for Just Eat sent shares in the FTSE 100-listed business surging by more than a fifth on Monday.

Just Eat agreed terms with its Dutch rival Takeaway.com in a deal that would create one of the world’s biggest online food delivery companies.

When announced, the £9bn combination valued Just Eat shares at 731p and the UK company’s share capital at £5bn.

Speculation about a rival bidder pushed Just Eat shares comfortably above the offer terms. The UK company’s shares closed up 22.7% at 780p.

Under the terms of the agreement, Just Eat shareholders would receive 0.09744 Takeaway.com shares for each Just Eat share and would own 52.2% of the combined group. It would be headquartered in Amsterdam and listed on the London Stock Exchange, with a “significant part of its operations” in the UK.

Analysts speculated there could be a counterbid, possibly from the Berlin-based Delivery Hero or the South African internet and media company Naspers.

There have been a flurry of deals in the fast-growing online food delivery market, with competition heating up from Uber Eats and Deliveroo. Just Eat bought the UK firm HungryHouse in January 2018, and in December Takeaway.com acquired Delivery Hero’s food delivery business in Germany.

Analysts at Jefferies thought the most likely counter-bidder would come from outside the industry, such as Japan’s SoftBank, Amazon or private equity.

A bid from Uber Eats or Deliveroo would raise competition issues, and these could also affect Amazon. After it became the lead investor in a $757m (£451m) financing round in Deliveroo in May, Amazon was ordered by the UK’s Competition and Markets Authority to halt any integration efforts pending an investigation into potential breaches of competition rules.

Combined, Just Eat and Takeaway.com had 360m orders worth €7.3bn in 2018 and strong positions in the UK, Germany, the Netherlands and Canada.

Under the plans, Takeaway.com’s boss, Jitse Groen, would become chief executive of the new company. It would be chaired by the Just Eat chairman, Mike Evans, while the Takeaway.com chairman, Adriaan Nühn, would be vice-chairman. The Just Eat chief financial officer, Paul Harrison, would take on the same role for the combined group, and its interim chief executive, Peter Duffy, would leave.

Groen has described the UK as one of the best three markets in Europe, along with the Netherlands and Poland. Takeaway.com was founded in 2000 and operates in 10 European countries as well as Israel and Vietnam, but it does not have a presence in the UK. The two companies have little geographical overlap apart from Switzerland.

Analysts at Barclays said: “Just Eat shareholders would be getting the best operator in the space to run the business – a notable shift from missed execution from management in the last few years.”

Just Eat has come under pressure from its activist shareholder Cat Rock Capital to merge with Takeaway.com, in which the US hedge fund also holds a stake.

London Stock Exchange agrees £22bn deal to buy Eikon-owner Refinitiv

The London Stock Exchange Group has agreed a $27bn (£22bn) deal to buy Refinitiv in a move that will transform it into a UK-headquartered, global rival to Michael Bloomberg’s financial news and data business.

The all-share deal will allow LSE to take control of Refinitiv, whose Eikon terminals on trading floors challenge those provided by Bloomberg, from a consortium led by Blackstone and including Thomson Reuters, which owns the Reuters news service.

LSEG’s shares rose 5% to £69.50 on the news of the finalisation of the deal, giving the business a stockmarket value of £24bn. LSEG’s share price has risen by more than 60% over the last year.

“The acquisition of Refinitiv is transformational,” said David Schwimmer, the chief executive of LSEG. “It is a rare and compelling opportunity to combine two world class businesses and create a global financial infrastructure leader. We will continue to be a global business headquartered in the UK.”

Schwimmer said the deal would increase its presence in the US, the world’s biggest financial market, and also allow it to expand in Asia and emerging markets.

He said that increasing LSEG’s international exposure is not a response to Brexit and that the company is prepared for a no-deal scenario.

“LSEG has been prepared for whatever may come through Brexit,” he said. “We are already diversified across regions and by currencies. This transaction helps us become more global. This is not about Brexit.”

The finance chief, David Warren, said there would be job cuts, as part of £350m of cost savings over the next five years, but would not say how many redundancies there would be.

“I can’t quantify them, it would be too early to do that,” he said. “[There will be] employee related efficiencies.”

Print M&A activity shows no sign of abating

While mergers and acquisitions are nothing new in print, the latest PrintWeek Top 500 found that there were at least 77 deals involving UK printers between March 2018 and March 2019 – the busiest period in M&A activity in recent years.

And things have not slowed down since, with deals involving companies big and small still happening in nearly every corner of the industry.

Among those finalised in the past month alone include DG3’s purchase of Newnorth, Bell & Bain’s merger via acquisition of J Thomson Colour Printers, and Positive ID Labels’ double buy of Banbury Labels and Dabbon Labels.

Suppliers have also seen their fair share of action, with Japan Pulp and Paper’s acquisition earlier this month of Premier Paper Group heading up the recent moves on that front.

Hopefully all these deals will prove successful, but acquisitions can, and do, go wrong for companies that cannot financially or strategically support their ambitions or, indeed, for a myriad of other reasons.

“Acquisitions can make sense, but be wary and be very clear why it’s advantageous to your business,” warns BPIF chief executive Charles Jarrold.

“Similarly, be sure to understand the business and do your due diligence on the acquisition before finding out late in the day that things are not what you expected. I used to work for a big US company who used the term ‘deal zeal’ – the buzz of getting caught up in an exciting acquisition can impede clear judgement.”

But acquisitions are nevertheless very popular in print as the industry continues to consolidate to ease overcapacity and increasing labour and raw materials costs.

They are also far and away the most popular form of M&A activity, with true 50/50 mergers proving incredibly rare in print, the only one listed in the latest Top 500 being Bright-source’s merger with Signal, which was already its sister company to begin with.

Many acquisitions, however, are promoted as being a merger via branding, communications with clients and PR.

“Mergers ae often billed as 50/50, but the reality is that this is rare in practice,” says Jarrold.

“There isn’t room to duplicate all functions, so one team or another, or one person or another, need to lead and businesses need clear structures and management processes. There is however room for making sure that the best of each business wins through – probably not 50/50, but a dispassionate look at what’s best.”

Richmond Capital Partners director Kevin Barron says true 50/50 mergers are often a “needs must deal” that happens when two companies that cannot afford to buy each other join forces to eliminate excess capacity.

“Generally you would start a new company that acquires the two companies, then at some point there is a rationalisation that goes on but that generally takes six to 12 months to work its way through, because you can’t merge companies in five minutes.

“So you end up with duplication for a while. We knew of one company who didn’t rationalise quickly enough and ended up with four finance directors.

“And egos can get in the way with 50/50 mergers – ‘my business is better than yours’.”

The global space business is worth $415 billion

Fifty years ago, the world watched as American astronauts Neil Armstrong and Buzz Aldrin took the first steps on the moon, the culmination of a near decade-long race between the U.S. and the Soviet Union to determine the world’s technologically superior nation.

Today, a new space race has emerged, not between rival superpowers, but competing private enterprise backed by some of the planet’s richest men. Companies like Richard Branson’s Virgin Galactic, Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin are leading the charge to commercialize space travel, and they’re creating a ton of excitement along the way.

“Everybody’s talking about space again,” said Rich Cooper, Vice President of Strategic Communications and Outreach at the Space Foundation.

“Space has been cool for those of us who have been part of the industry, but there is a whole new generation of Americans that are getting reignited and excited about space because of companies like Blue Origin, SpaceX, and Virgin Galactic,” he added. “You’re having a whole new set of market entrepreneurs enter this area and really bring the cost to access space down, but also communicating with people that makes them feel connected to it.”

Global space activity is a massive business

According to the Space Foundation, the global space economy is now worth about $414.75 billion, with more than half of that value coming from commercial space products and services.

Cooper says that number is only expected to grow as space related technologies creep into all corners of the developed world.

“Space is a critical infrastructure,”he said. “Everything that we do here on Earth is directly connected to what’s happening above. Whether that be cell phones, whether that be data, whether that be advanced medical technology… every facet of our lives is connected to that and that’s what becomes a larger part of a global space economy that is creating jobs and is creating opportunity that we always thought were reserved for the rocket scientists and the astronauts.”

Mars by 2030?

With the lunar landing behind us, experts and science fiction fans alike are looking to the next frontier in space travel: Mars. Depending on the time of year, the red planet sits anywhere from 33 million to 250 million miles away from Earth, putting the total travel time anywhere between 39 and 289 days. Although a trip that long may sound like a daunting task, Cooper said we could possibly send a human to Mars by 2030.

“The hope is that we could see [reaching Mars] hopefully within the early 2030’s if at all possible, if not sooner,” Cooper said. “This is a longer journey that needs to be taken and there are steps that need to be taken to make sure that it is safe, it is affordable, and it is sustainable.”

Car sharing company Turo is tech’s latest unicorn – $250M IAC investment

There’s a new unicorn in town.

Car-sharing company Turo recently landed a $250 million cash infusion from web giant IAC (IAC)— giving the Airbnb of cars a valuation of over $1 billion. The deal also makes IAC the largest shareholder of Turo.

“We believe that there’s a huge opportunity to transform the world’s 1.5 billion cars into cars that can generate earnings for their owners while they aren’t using them,” Turo CEO Andre Haddad told Yahoo Finance’s YFi PM in a recent interview.

Capitalizing on the growing car-sharing marketplace, Turo now hosts over 10 million customers worldwide. Customers can rent cars online or through the app.

So how does it work? “Turo enables all of these car owners around the country, around the world, to monetize their cars when they’re not using them,” Haddad explained.

The CEO sees it as a platform that’s more than just helpful for consumers, but also for the car owners themselves — giving them a modest income stream. “Last year, the average host on the platform earned around $550 a month sharing their car roughly ten days a month,” he told Yahoo Finance.

“A lot of people are sharing their main cars. Often it helps them pay for their car payments,” he added.

Founded in 2010, Turo has almost 400,000 vehicles listed on its site, and generated roughly $250 million in revenue in 2018, according to the Wall Street Journal.

The car-sharing company operates in 49 states and 5,500 cities—except New York, as these rentals can’t be insured.

Haddad also stated that, when lending out your vehicle on Turo in the United States, the company provides insurance for the host through its partnership with Liberty Mutual.

“We provide the coverage that protects both the host and the guests,” the CEO said. “Your personal insurance when you’re sharing your car is not really covering that transaction,” he adds.

Whether Turo will follow in the footsteps of ride-hailing companies like Uber (UBER) and Lyft (LYFT) and go public however, remains to be seen.

Activist investor Elliott buys stake in troubled insurer Saga

Saga has seen its shares surge after activist investor Elliott bought a 5% stake in the troubled insurance firm.

Shares jumped 7% in early trading, as investors gave a thumbs-up to the entrance of the US shareholder.

The insurance group, which specialises in products for the over-50s, has had a troubled year which saw it warn over profits in April amid an overhaul to return to growth.

It said it was launching a “fundamental” strategy rethink of tactics in the insurance business to address “increasing challenges” in its markets.

Elliott is known for shaking up businesses, including resources company BHP and investment group Alliance Trust.

The activist group, founded by billionaire Paul Singer, is best known in the UK for its ownership of book shop chain Waterstones, which it snapped up last April.

Russ Mould, investment director at AJ Bell, said: “Saga’s dramatic fall from grace has seen its share price fall to such low levels that an activist investor has popped up on the shareholder register.

“Saga is currently searching for a new chief executive and so Elliott may want to have a say in who is hired, although one would suggest it will need a bigger stake in the business to have any influence on strategic decisions.”

Shares in Saga have more than halved since the start of the year, with the profit warning and boardroom changes weighing down on shareholder sentiment.

Last month, chief executive Lance Batchelor announced plans to quit at the end of the financial year following six years with the business.

Saga said a search is currently under way to find a successor.

The news of Mr Batchelor’s departure came amid a major boardroom shake-up which had already seen Patrick O’Sullivan join as company chairman, while James Quin was recruited as chief financial officer in January.

Shares in Saga increased by 7.8% to 46.2p in early trading on Wednesday.

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