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Coronavirus deals latest blow to China’s struggling VC landscape

China’s once-booming venture capital scene is grappling with its latest setback as the coronavirus outbreak derails fundraising for companies in the region.

In the past month and a half, venture capital activity in China—both in terms of the number of deals and the money raised by startups—has fallen more than 60% compared with the same period last year, according to PitchBook data.

“It’s very difficult to be able to get things done,” said Drew Bernstein, co-managing partner at Marcum BP, an accounting firm that advises Chinese companies. “It would be hard for me to imagine a business in China that’s not affected by this.”

From the start of the year through Feb. 12, venture capital activity in China fell from 340 to 144 deals, and the capital raised declined from $4.3 billion to $1.4 billion, when compared to the same period last year. The drop-off was particularly pronounced following the Lunar New Year in late January.

 

Even before the outbreak, the venture landscape in China suffered from waning confidence in the domestic startup scene. After years of red-hot funding activity, investors were shaken by the poor post-IPO performance of several tech companies, including electric car maker NIO and smartphone manufacturer Xiaomi.

“The valuations of a lot of companies got cut” after going public, said Ted Chan, a data analyst at PitchBook. “Investors were seeing that happen and got more careful about investing.”

Past outbreaks, such as SARS in 2003 and the 2016 Zika virus, both weighed on public and private investment activity. In the case of Zika, the amount raised through venture deals in South and Central America declined by a third, according to PitchBook data.

 

Read More – www.pitchbook.com

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As big bank M&A heats up, Morgan Stanley will pay $13B for E*Trade

Morgan Stanley declared Thursday that it has agreed to buy discount brokerage pioneer E*Trade for a whopping $13 billion—representing the priciest acquisition announced by a major US bank since 2008, according to PitchBook data, when regulators arranged a string of hasty mergers to rescue the financial system.

With the deal’s emergence, the online brokerage wars may have reached an apex. Trading commissions are out the window. Charles Schwab has gobbled up smaller rival TD Ameritrade. Now, America’s second-largest investment firm is plunging into the battle in a bid to further diversify its business.

“Wealth management and online brokerage are both relatively steady and relatively capital-light, especially in comparison to sales and trading operations,” said Morningstar equity analyst Michael Wong.

This diversification effort has fueled a consistent acceleration of M&A activity in the US financial services sector. Deal value hit a decade-peak in 2018, with about $289 billion worth of acquisitions in the space, according to PitchBook data. 2019 was in second place with deals totaling $230 billion.

 

Read more – www.pitchbook.com

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10 big things: Blue Apron, HQ Trivia move on to Plan B

Blue Apron set out to transform the way people eat. HQ Trivia wanted to build the future of TV. Both companies financed their dreams by raising a lot of money from some of venture capital’s biggest names. And for a while, both companies seemed on the brink of breaking through.

But startup life can be fickle. Gradually, the early success gave way not to failure, but to what’s in some ways worse: irrelevance. And when the next-big-thing buzz wore off, both Blue Apron and HQ Trivia were confronted with the realization that their original plans for supremacy might need a major adjustment.

Blue Apron is publicly seeking a buyer, and HQ Trivia has apparently risen from the dead after a raucous, live-streamed funeral. The existential angst emanating from a pair of former Silicon Valley darlings is one of 10 things you need to know from the past week:

1. Cooks and questions

I’ve written before in some length about the turbulent times at Blue Apron, a company that encapsulates the venture capital world’s brief infatuation with meal-kit delivery startups. This week, along with its Q4 earnings, the company announced it is evaluating strategic options, including a potential merger or outright sale.

Once valued at $2 billion by VCs, life has gotten much tougher for Blue Apron since a 2017 IPO. The company has never turned an annual profit—although it did cut its losses by nearly half from 2018 to 2019, dropping from $122.1 million to $61.1 million—and revenue has been steadily shrinking.

In addition to revealing new financial numbers and plans to sniff around a sale, Blue Apron also announced the closure of a fulfillment center this week. The combination was enough to send the company’s stock price plummeting even further. It closed Friday with a market cap of less than $40 million, meaning its valuation has declined by more than 98% from its VC-backed high point.

If Blue Apron is able to find a buyer, two obvious options might be an established grocery chain or a larger food-delivery company. Those were the routes taken by some of Blue Apron’s former rivals in recent years: Fellow meal-kit startup Plated sold itself to Albertsons, while Home Chef was acquired by Kroger and Maple was gobbled up by Deliveroo.

Talks of an acquisition were also at the root of HQ Trivia’s recent drama.

The startup burst onto the scene in 2017 with its joke-filled, live-streamed trivia games, where users could win money by correctly answering an increasingly difficult slate of questions. The next year, it raised $15 million in a round reportedly led by Founders Fund, valuing the company at $100 million, according to PitchBook data.

Co-founder Rus Yusupov, who previously co-founded Vine, took to the pages of The New York Times to proclaim HQ Trivia’s “ambitions to essentially build the future of TV.” But instead, viewers slowly began to drift away, and funding dried up.

On Valentine’s Day, Yusupov reportedly sent a memo to workers announcing that a planned acquisition had fallen through and that HQ Trivia would cease operations that day. That night, HQ Trivia broadcast what was purportedly its last episode ever, replete with f-bombs, spraying champagne, complaints about high-priced dog food, and statements from host Matt Richards like, “Why are we shutting down? I don’t know. Ask our investors.”

But Monday morning brought a twist. Yusupov tweeted that after a “busy weekend,” he’d found a new buyer for HQ Trivia that wanted to keep the company up and running. Employees and fans are surely trying not to dwell on a succeeding tweet from Yusupov admitting that it’s “[n]ot a done deal yet.”

No matter what happens, we haven’t heard the last of the story. The Hollywood Reporter indicated Friday that The Ringer is planning a new podcast charting the trivia company’s rise and fall.

Today, neither Blue Apron nor HQ Trivia is where they hoped they would be back in 2017. One could go so far as to say recent events at the companies have been disastrous. But the fact remains that both have been more successful than, I don’t know, 97% of all startups that get up and running. Creating a sustainable company is really hard. Almost everyone fails. And almost everyone fails long before the point of making national headlines or reaching a unicorn valuation.

And who knows: Maybe new ownership is all Blue Apron and HQ Trivia need to mount wholesale turnarounds. The past week, though, brought plenty of reason for pessimism.

Grocery shopping may very well be transformed in the coming years, and a new future of TV may be built. But I don’t think Blue Apron and HQ Trivia will be the ones doing it.

Read More – www.pitchbook.com

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Just Eat and Takeaway.com cleared to form £6.2bn food courier giant

Further growth on the menu as Dutch firm’s boss hails merger as ‘dream combination’

 

Shareholders in Just Eat have given the green light to a £6.2bn merger with Dutch food delivery firm Takeaway.com, which will create one of the largest food delivery groups in the world.

Takeaway.com said Just Eat shareholders holding 80.4% of the company’s voting rights had accepted its all-share merger offer, which it upped to an offer worth 916p a share just before Christmas. As a result of a fall in Takeaway.com’s share price since then, it was worth 902p a share on Friday.

Confirmation of the deal is a blow to rival Prosus, the Amsterdam-listed offshoot of the South African tech group Naspers, which tried to forestall the merger agreement with a rival offer. Before Christmas it raised its all-cash bid by £400m to £5.5bn, or 800p a share, having previously made 740p- and 710p-per-share bids.

 

Jitse Groen, the chief executive of Takeaway.com, said: “Just Eat/Takeaway.com is a dream combination and I am very much looking forward to leading the company for many years to come.”

The Takeaway.com deal is expected to be declared unconditional by 31 January 2020 and finalised by the end of February.

Takeaway.com’s offer hands Just Eat shareholders a 58% stake in the merged company. It has also said it will sell Just Eat’s stake in the Brazilian delivery company iFood, which Just Eat owns in partnership with Prosus, and return half the proceeds to shareholders.

Launched by five Danish entrepreneurs in 2001, Just Eat originally linked customers to restaurants that handled their own deliveries. It has recently branched out into handling deliveries, responding to competition from Uber Eats and Deliveroo.

The merger marks the latest phase of consolidation in the takeaway delivery market, which expanded by nearly 20% in the UK, excluding Northern Ireland, last year, according to analysts Kantar. The deal comes after Just Eat bought the UK firm HungryHouse and Takeaway.com acquired Delivery Hero’s German business in 2018.

 

Read More – www.theguardian.com

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Jupiter agrees £370m deal to buy Merian Global Investors

Deal will create second-biggest retail asset management group in Britain, managing £65bn.

 

The investment manager Jupiter is to pay £370m to buy Merian Global Investors in a deal that will create the second-largest retail asset management group in the UK.

The enlarged group will have £65bn under management, but some analysts said they regarded the deal as an essentially defensive merger of two struggling businesses.

Jupiter has been affected by significant outflows in recent months, losing £4.5bn of client funds during 2019 following the departure of a “star” European fund manager, Alex Darwall, who left to set up his own business. The trading update accompanying the news of the deal revealed a slide in Jupiter’s profits to £163m for 2019, compared with £183m the year before.

 

The market initially welcomed the relatively low price paid for Merian, better known under its pre-2018 name Old Mutual Global Investors (OMGI).

The private equity firm TA Associates backed a £600m buyout of OMGI in December 2017, subsequently renaming it Merian, but it sagged as funds flowed out of the business. At the time of the purchase in 2017, the OMGI/Merian business had £25.7bn in funds under management, but the figure has since fallen to £22bn.

Jonathan Miller of the investment research agency Morningstar said: “It is somewhat surprising that after Merian’s own change of direction backed by private equity around 18 months ago, they’re set to be acquired. The deal is symptomatic of the pressure active managers are finding themselves under.

 

“Merian was valued just shy of £600m in June 2018, but Jupiter is set to pay £370m for the acquisition, with £29m in net debt and Merian shareholders becoming a 17% shareholder of the enlarged entity.”

The acquisition is the latest deal by Andrew Formica, the Australian who led the merger between fund managers Henderson and Janus in 2016 then joined Jupiter as chief executive in early 2019.

Formica promised that shareholders would benefit from substantial cost “synergies” and that the deal will be “highly earnings accretive”. He added: “With this acquisition, our business will benefit from an increased capacity to attract, develop and retain high-quality talent, backed by further investment in our platform and technology.”

 

Read More – www.theguardian.com

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Optiv confirms ‘temporary’ UK closure and turns attention to M&A

Security giant says it is still committed to European expansion

US-based MSSP Optiv has confirmed what it called a “downsizing” of its UK operation, claiming the move is temporary as it turns its attention to M&A.

CRN reported yesterday that Optiv was in the process of shutting down in the UK, keeping on a handful of staff to continue any outstanding customer transactions.

 

In a statement Optiv called the move “temporary”, insisting that it still has plans to build a presence in Europe and has looked at 40 European businesses to acquire before deciding it “simply couldn’t justify the high valuations of these companies”.

“After a comprehensive strategic review, we’re temporarily downsizing our London-based organic operations,” Optiv said.

“We remain committed to serving the European market, clients, partners and prospects,” it added, claiming it could acquire “once European valuations right-size”.

Optiv’s CMO had previously said that the firm looked at acquiring the likes of SecureData and SecureLink, opting against making a bid because it thought the pair were overvalued.

SecureData was bought last year for a multiple of 20 times its EBITDA.

Micky Patel – partner at August Equity, which sold SecureData to Orange – told CRN earlier this year that the multiple was achieved because SecureData was unique in that it was a cybersecurity service provider that had scaled.

A panel of private equity investors also told delegates at CRN‘s Channel Conference MSP that they believe high multiples are here to stay.

 

Read More – www.channelweb.co.uk

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Yahoo Japan and Line set to merge

Japan’s biggest search engine and messaging app are set to merge under a deal agreed by their parent companies.

Yahoo Japan is the country’s biggest search engine, and has e-commerce and online banking subsidiaries.

Line is the country’s dominant messaging app, and is also popular in Southeast Asia and Taiwan.

Analysts say the merger will help the companies compete with Japan’s other online giants.

Yahoo Japan has long offered a diverse range of services but has lagged behind many of its competitors, said Seijiro Takeshita, from the University of Shizuoka.

“This will be a very big headache and threat to the players like NTT Docomo and Rakuten,” he said.

Big in Japan

While Google is the predominant search engine in the US and Europe, Yahoo is Japan’s most popular search engine.

More than 50 million people visit Yahoo Japan’s website every month.

Yahoo Japan is no longer linked to its US namesake, which sold its remaining stake in the company in 2018.

Line, which is owned by South Korean company Naver, has roughly 80 million users in Japan and a similar number in Southeast Asia and Taiwan.

The app itself is perhaps best known for cartoonish stickers, a feature which its competitors have also adopted.

In recent years, Yahoo Japan’s parent company, Softbank, has bet billions on primarily Asian-based tech companies.

The deal could also make it a dominant player in the payments market in Japan.

Softbank already has its own payment service PayPay.

With this deal, it will scoop up Linepay, which is used by many of its competitors.

“I think there will be a lot of game-changing issues that will go on,” said Mr Takeshita.

 

Read More- www.bbc.co.uk

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Virgin Galactic wins space tourism race to float on stock market

Sir Richard Branson beat Elon Musk and Jeff Bezos by listing his venture in New York.

 

Publicity-hungry billionaires must have a space venture, and here’s Sir Richard Branson’s: Virgin Galactic is now a stock market-listed company with a $2.4bn valuation. Actual space tourists won’t depart until next year, but Branson has beaten Elon Musk and Jeff Bezos in getting his business floated in New York.

Galactic, despite the whizzy-looking planes, is quite a simple financial bet. It’s a punt that multimillionaires can be persuaded in droves to part with $250,000 – the price of a ticket to ride from New Mexico to 50 miles above the Earth’s surface and back. Galactic is projecting revenues of $590m and top-line earnings of $270m in 2023, by which time it expects to have flown 3,242 passengers. Who are they all supposed to be?

The marketing pitch is that a trip on Galactic makes for a more entertaining holiday for the super-rich than a tootle around the Med on a floating gin palace. A Philip Green-style cruiser costs $500,000 a week to hire, apparently. And a private island comes in at $230,000 a week, according to Branson’s crew, who presumably have the inside track on Necker’s rental rates. Thus Galactic, according to the grim prose in the listing documents, “offers a unique value proposition relative to comparably priced ultra luxury travel and transportation experiences”.

 

Read More – www.theguardian.com

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A buyer for British Steel is welcome but what’s Jingye’s strategy?

It’s hard to see why the Chinese firm wants to take over a loss-making business in a tough market.

 

Half the woes for steelmakers in Britain derive from dumping into world markets by Chinese producers, or so we have been told for a couple of decades. So it is a strange sort of rescue for British Steel that ownership should pass to a little-known Chinese conglomerate, Jingye, offering a vague promise to invest a large sum.

Any buyer is better than none, of course, since the effects of irreversible closure of the Scunthorpe steelworks would be appalling. Top of the list would be 4,000 jobs, with another 20,000 in the supply chain. Then there would be the huge environmental clean-up costs.

Jingye counts as a more credible owner than Greybull Capital, the private equity outfit that took British Steel into administration. Yet it is still hard to understand why a Chinese group, which is only the world’s 37th largest producer of steel, wants to own a loss-making producer on the other side of the world.

 

Tata Steel couldn’t make financial sense of what it called its “long products” business, so gave it away to Greybull for £1 in 2016. Industry conditions haven’t notably improved for high-cost European producers since then. The price of iron ore, of the two key raw materials, is high. And complaints about energy and environmental costs, the other half of the industry’s troubles, are constant.

Perhaps Jingye wants overseas assets to balance the volatility in its home market. Or perhaps it calculates that a purchase of British Steel will open up opportunities to export to the UK some of its current products. But those theories are speculative. This £50m purchase may just be a hopeful punt in which the downside risks are deemed tolerable.

 

Read More – www.theguardian.com

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These firms are keying 2019’s record rate of add-ons

Private equity firms are living in the age of the add-on.

Through the first nine months of the year, add-ons to existing portfolio companies accounted for 68% of all private equity investments in the US—the highest annual rate on record—according to PitchBook’s 3Q 2019 US PE Breakdown. With deal multiples spiking across the broader buyout market, this inorganic growth is one of the few ways left for investors to find the potential for value creation to which they’ve grown accustomed.

As with every investment trend, some firms have embraced the strategy more fully than others. In ascending order, here’s a look at the six investors who have been most active in the US add-on market during 2019, according to PitchBook data, along with a rundown of the sorts of deals they’ve been getting done:

T-5. Insight Partners—30 add-ons

Until earlier this year, Insight Partners was known as Insight Venture Partners. That’s reflective of how the firm differs from most of the other firms on this list. Instead of focusing almost exclusively on buyouts and other private equity deals, Insight operates across a much broader segment of the private investment spectrum. It’s just as well known for its venture deals (or perhaps more so) as it is for conducting control investments.

But those control investments are still a major part of its strategy. And this year, it’s led to a spate of add-ons for a number of different portfolio companies, with a seeming focus on deploying new types of software across a range of sectors.

One example is Community Brands, a creator of software for nonprofits and other well-meaning organizations, which earlier this year announced three add-ons in a single day. Another is Enverus, which changed its name from Drillinginfo in August. The developer of software and data analytics for the energy sector has been busy building out its suite of services, acquiring one company that provides maps of the Permian Basin in March and another that makes billing and revenue software for the oil sector in July.

T-5. Harvest Partners—30

Harvest Partners, a New York-based firm that’s been making private equity investments since 1981, has taken a more diverse approach to its add-on activity in 2019, with no single portfolio company dominating its dealmaking.

In recent weeks, it’s been busy with Integrity Marketing Group, a distributor of life and health insurance that Harvest bought into alongside existing backer HGGC in August. (Of note to some, surely, is the fact that the chairman of Integrity’s board is Steve Young, the NFL hall of famer who’s also a co-founder of HGGC). Integrity was already on an add-on binge before Harvest entered the picture, and it’s kept it up in the meantime, acquiring four different insurance marketing companies in October alone, per PitchBook data.

The co-investor relationship with HGGC isn’t rare for Harvest. Some of its other portfolio companies that have been busy conducting add-ons this year are also examples of Harvest investing alongside fellow firms, including recycling specialist Valet Living (which it backs along with Ares Management) and insurance brokerage Acrisure (both Blackstone and Partners Group). That likely lightens some of the sourcing, diligence and dealmaking loads.

 

Read More – www.pitchbook.com