Telecommunications provider Swisscom will buy the 31% stake in Swisscom Directories it does not own from Tamedia for 220 million Swiss francs (around €194 million). The company, in which Tamedia has held an interest since 2015, has more than 800 employees and operates two of Switzerland’s biggest directory platforms, local.ch and search.ch.
Direct Line mulls £400M bid for L&G arm
Direct Line has joined the group of potential bidders for the home and contents insurance arm of Legal & General, per Sky News. The insurance giant put the unit up for sale in November and has since reportedly received interest from other insurers and buyout investors. The general insurance subsidiary reported a £37 million operating profit in 2017, down 29% on the prior year
Volkswagen to snap up Volvo subsidiary
Volkswagen has agreed to buy a 75.1% stake in WirelessCar, a provider of connected vehicle services, from Volvo for 1.1 billion Swedish kronor (around €110 million). The deal will net VW a business with expected revenues of 500 million kronor and more than 3 million active connected cars.
Aramco completes €1.5B Arlanxeo takeover
Saudi Aramco has officially bought the 50% of Dutch specialty chemicals joint venture Arlanxeo it did not own from Germany’s Lanxess for around €1.5 billion. The acquired business focuses on synthetic rubber and elastomer products for tire and auto-parts manufacturers. Aramco and Lanxess originally agreed to the deal in August.
Ophir confirms approach from Medco
Indonesian oil and gas business Medco Energi is in talks with Ophir Energy about a possible acquisition bid, the London-based exploration specialist has confirmed. Takeover Code rules require Medco to announce its intention to make a bid by close of business on January 28. Ophir generated revenues of $102 million in the first half of 2018, up from $88.3 million in the previous year.
Aareal seals German bank takeover
Aareal Bank has completed its acquisition of Düsseldorfer Hypothekenbank for around €162 million. The transaction will lead to a positive one-off effect, which will boost Aareal’s 2018 profit by around €52 million. The Düsseldorf-based mortgage lender no longer originates new property finance business, and has been undergoing an orderly wind-down process since 2015.
Next big thing: Oiltech
Proptech, insurtech, femtech, lawtech and even MADtech (the confluence of marketing, advertising and technology)—whether you call them buzzwords or not, they are all an indication of how technology and data are disrupting traditional verticals. This is evident in the current crop of startup founders. Several stem from traditional sectors and, with the proliferation of technology, have a vision to do things differently—and more efficiently—than before.
In the first edition of our “Next big thing” series, we take a look at oiltech and, to a wider extent, commoditech.
The rise of Big Data, changing regulations and evolving real-time trading trends are leading global commodity giants, trading houses and other market participants to think about recalibrating their traditional models and how business will be conducted moving forward. This is understandable given the sums that are at stake, with research from consulting firm BCG estimating that the commodity trading industry’s potential value pool is worth around $70 billion per year.
Change is coming
Margins within commodity trading are eroding, and indeed, it appears as if the industry as a whole needs to come to terms with a less profitable reality. According to research from Oliver Wyman, gross margins dropped some 4.5% in 2016.
However, new players are emerging, either starting up businesses or backing those aiming to re-engineer some traditional methods.
“It is fascinating to see just how fast things are evolving,” Florian Thaler told PitchBook. Thaler is a former oil strategist at hedge fund Och-Ziff, Shell and Citigroup, and a co-founder and the current CEO of OilX, a tech startup that has set out to revolutionize oil trading analytics. “Commodity trading and oil trading as the largest commodity will be significantly shaped by two mega-trends, namely new data sets from remote sensing via satellites, as well as superior data science models that can process, curate and combine data in near real time on a massive scale.”
Shifting powers
These themes are also altering the power balance between the new entrants and established industry players such as oil majors, banks, brokers and service providers.
“The general complacency toward smaller players who are doing things differently is diminishing, but we still have some way to go,” Thaler said. “It is encouraging to see that money is being invested and that traditional VCs and some large family offices have realized that the market is going to look fundamentally different than it does now in only three to five years.”
Blue Bear Capital is one of the few thus far that have begun backing companies in the space. The firm invests in companies that apply data-driven technologies to the energy supply chain and counts some of the industry’s most prominent names as advisors, including former BP board member and CEO John Browne. All of its portfolio hails from the space and includes companies such as Expedi, a supply chain procurement platform for the energy industry.
Another backer is CommodiTech Ventures, a specialized early-stage venture fund investing solely in commodities technology and founded by former traders Etienne Amic and Jose Tumkaya. The industry veterans both believe that trading by gut instinct is simply outdated and the equivalent of being stuck in the analog era.
Enter technology
On the face of it, commodity trading actually sounds pretty straightforward: Make a profit by monetizing market imperfections such as those related to quality, time and location.
The reality is, of course, more nuanced.
During his time at Shell, Thaler discovered that access to data was only one of the ingredients required to gain an advantage over competitors.
“The fact is that the oil majors have access to an incredible amount of data, but the way that information gets utilized is very siloed and limited,” he explained. “In contrast to this, my experience at a hedge fund showed quite the opposite: limited access to information, but amazing tools and systems. It demonstrated to me that superior data systems can be very powerful.”
OilX’s vision is to combine the data science tools of a modern hedge fund with the knowledge base of an oil major. Its setup mirrors the technological innovation of Signal Ocean, a venture looking at a similar disparity in the shipping industry, with the aim of improving commercial performance of its clients.
Signal Ocean is a co-founder of OilX and its technology partner. Thaler and his partner have effectively created a digital twin of the oil supply chain without owning any assets in the chain, by applying AI and satellite technology to enable oil traders to make better decisions much faster than traditionally. The newcomers alter the already ultracompetitive space and could potentially reshape the industry’s dynamic from asset-driven to data-driven.
Said Thaler: “While some of the market participants have begun to invest and embrace the changing environment, there is still a number that are only slowly coming to terms with the fact that having loads of people on the ground and owning assets around the globe is no longer good enough. What is currently happening is a seismic shift away from ‘boots on the ground’ to ‘eyes in the sky.'”
The commodity trading industry has a long history of agility and constant adaptation. However, the speed of change and the diversity in background and skill set of new entrants in the space will require the big players to embark on new ways to create proprietary information flows and utilize algorithm-based analytics.
The incorporation of data science technologies into the decision-making process may also see a number of traditional players entering partnerships with some of the startups that are setting out to disrupt the industry.
The key trends that will shape European PE and VC in 2019
Growth trajectory
While Europe has traditionally been very good at creating new companies, it hasn’t been as apt at growing them, according to Draper Esprit CEO Simon Cook. He thinks this will change. “One trend we have been tracking closely is the proportion of companies which raise early-stage money and which then go on to raise growth money,” he said. “We think this is key to building a sustainable entrepreneurship in Europe. In the US, almost 85% of all businesses that raise seed go on to raise growth capital ($5 million to $75 million). In Europe, it has previously been much less. We expect the gap between the US and Europe to close this year, and to see far more growth deals in Europe.”
Green is a go
Among Europe’s new companies, there’s one sector in particular that Matt Bradley, investment partner at Forward Partners, believes will take off in 2019.
“You’ve probably noticed—in stores, restaurants and conversations—an embrace of all things not meat,” he said. “Vegetarianism, veganism and the curiously defined flexitarianism are on the rise. Whether it’s due to animal welfare concerns, the environment or health and diet-related interest, there’s been a huge shift in public appetites and taste. The trend shows little sign of abating. That means the market size that entrepreneurs can go after is large and increasing rapidly; a great foundation from which to start a business.”
These types of companies have already seen success in 2018 with investments including vegan meal delivery business AllPlants’ £7.5 million funding round from Octopus Ventures. But, Bradley said there’s still plenty of room for innovation:
“In the offline world, I’d expect more and more vertical-focused restaurant concepts to pop up. There’s clearly appetite for more plant-based products for those entrepreneurs willing to take on food formulation and creation. In the online world, all those businesses and business models that we’ve seen prosper relating to food—marketplaces in all parts of the supply chain, on-demand, subscriptions, et cetera—are increasingly attractive. As the market grows more and more, investors are likely to want a piece of the action too.”
Impact’s breakthrough year
It’s not just the food industry that’s going green, according to Sir Ronald Cohen, chairman for the Global Steering Group for Impact Investment. He expects that 2019 will be a “breakthrough year” for impact investing, which he believes will develop into a multitrillion-dollar market.
According to Cohen, impact investing not only more than matches returns generated by more traditional investment strategies, but is also the answer to some of society’s biggest challenges.
“On a global level, I am concerned by the tensions that are building in societies around the world,” he said. “Migration, inequality, the widening gap between the ‘haves’ and the ‘have-nots’ and the resulting erosion of some of our most trusted institutions are all causes for great concern. If we want to maintain a market-based system, we have to face these challenges head-on.
“I believe impact investing can contribute to a solution in a meaningful way, not by fixing issues at the edges, but by putting us on the path to systemic change. Impact investment moves us away from the doctrine of maximizing profit alone to a new paradigm. It brings impact to the center of our consciousness, measures it, and shifts us to optimize risk-return-impact when making business and investment decisions.”
Business as usual
While societal challenges and political events such as Brexit have created a fair amount of uncertainty, Andres Saenz (pictured), EY global private equity leader, expects European activity to remain robust.
“2018’s fundraising market was notable for closings by a number of large European funds and one of the best years on record,” he said. “We expect continued strength in 2019, while recognizing that there are fewer such vehicles currently in the pipeline.”
Saenz anticipates the coming 12 months will keep up the pace after a busy 2018: “We expect continued momentum heading into 2019, given record levels of dry powder and an overall accommodative financing environment. Tech, healthcare and consumer products remain powerful trends and platforms for growth, and we expect continued appetite for deals in these spaces.”
The end of an era
However, not everyone shares an optimistic view for the year ahead. Richard Clarke-Jervoise, partner and head of the Stonehage Fleming Private Capital, claims that private equity has reached the end of its “Golden Age.”
“I think we, like many people, have been preparing for a downturn for a number of years,” he said. “We’ve been very conscious that it has been a good sellers’ market and a tougher buyers’ market. The period from 2012 to 2018 will be remembered as private equity’s ‘Golden Age’ due to exceptionally benign economic conditions, very strong interest from investors and a strong bull market for equities. Private equity managers have taken advantage of various innovations: GP-led restructuring, GP-stake transactions and a growing willingness for LPs to support multiple strategies. However, cracks have started to show in 2018 as it closed on an uncertain note.”
He continued: “The technology space has suffered from falls in public market valuations, IPOs trading below their listing price and the first signs of the impact of trade wars. This has led to a palpable sense of caution from most GPs and we’re getting closer to the top of the market, if we’re not there already. This means that it’s time to be cautious rather than piling on a lot of risk. We’ve tried to be very disciplined in the way we commit money and really focus on managers with a huge amount of experience; they’ve seen a lot of cycles and we think that has a lot of premium in a volatile period.”
The Pac-12 wants a $500M investment from private equity
Private equity has long made its living turning around distressed companies.
Could the industry revive a struggling college sports league?
The Pac-12 Conference is seeking a $500 million investment from a private equity partner for a 10% stake in the league’s TV network and other commercial assets, according to The Oregonian. A possible deal could reportedly value the new business at between $5 billion and $8.5 billion, per the conference’s plans. It would also include broadcast and sponsorship rights, merchandising, and distribution agreements.
It’s unclear if any formal discussions between the Pac-12 and potential investors have begun.
Embattled Pac-12 commissioner Larry Scott presented the plan to Pac-12 leadership last November, per the report, and if a deal is struck, it could provide the conference’s 12 schools with nearly $42 million apiece. The money is much-needed. The Pac-12 Network has struggled to generate revenue comparable to other Power Five conferences such as the SEC and the Big Ten, the latter of which is set to distribute $15 million-plus more annually to its schools than the Pac-12 currently does to its member institutions.
Why would a PE firm be interested in such a deal?
In 2011, the Pac-12 signed a 12-year television contract with ESPN and Fox worth some $3 billion. The deal expires in 2024 and the upcoming contract could provide a nice cash infusion within a typical five-to-seven-year investment timeline. And an investor wouldn’t have to do much in the meantime other than front the money, since a proposed deal from the Pac-12 would see the conference retain operational control.
But any firm would be attaching itself to a league that’s been criticized for spending too much on its conference headquarters in downtown San Francisco, overseen a raft of high-profile officiating errors in football, and failed to produce a team that reached the College Football Playoff in three of the past four years, plus other controversies. The Pac-12 has responded by hiring FleishmanHillard, a PR agency that specializes in crisis management, again per The Oregonian.
When the conference created its own network following the deal with ESPN and Fox, it touted that the Pac-12 Network was independently owned and thus would get 100% of the proceeds. But that arrangement so far hasn’t been very lucrative. The conference has failed to strike a deal with DirecTV because of a disagreement over media rights, costing the Pac-12 millions and hurting its national exposure. Meanwhile, Scott himself has drawn criticism for his $4.8 million salary, per a USA Today report, which was more than double his Big Ten and SEC peers in 2016.
Swiggy nabs $1B as Indian food tech industry matures
From tangy, chutney-dipped samosas to spicy chicken curries, Indians are enthusiastic when it comes to their food. And so are venture capitalists.
Indian food delivery startup Swiggy has announced a $1 billion round led by Naspers, with participation from DST Global, Coatue Management and Meituan Dianping. Tencent, Hillhouse Capital and Wellington Management also participated in the funding.
Founded in 2014, Swiggy has partnered with more than 50,000 restaurants across 50 cities in India. Naspers first backed the Bengaluru-based business in 2017, before leading a $100 million round for Swiggy this February at an estimated valuation of $725 million, followed by another $210 million round in June at an estimated valuation of $1.3 billion.
In a country with more than 1.3 billion people who seem to love their food, it’s not difficult to see the scope of investment opportunities in food tech and restaurant tech. Swiggy’s latest fundraise comes at the end of a big year for Indian food startups securing VC funding. Even excluding Swiggy’s massive round, the current year has seen more VC funding in the space than each of the last three years, with $762 million invested across 23 deals.
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