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PitchBook
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The Weekend Pitch |
May 31, 2020 
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Debt. It can be a bridge to a company's future prosperity, or a massive weight that creates a drag on progress. High levels of debt can eventually pave the way for asset sales to outside investors.
For India's billionaire oil and gas tycoon Mukesh Ambani, debt has mounted in recent years to fuel a headlong expansion of his company, Reliance Industries. Reliance's empire includes Jio Platforms, the Mumbai-based mobile and telecom network that has sprinted its way to grabbing $10 billion over just the past two months by top foreign tech investors including KKR, Silver Lake, Vista Equity Partners and even Facebook.
To be sure, those deals represent big bets on Ambani's ambitions for Jio to lead India's rise to a world digital powerhouse. But in an era when oil and gas prices have cratered, those investments also speak to Reliance's ongoing effort to reduce its massive debt, which the company aims to bring to zero over the coming year.
I'm Alexander Davis, editor of PitchBook News, standing in for my colleague Kevin Dowd on The Weekend Pitch, and the flock of investors circling Jio is just one of six things you need to know from the past week. Reach us at weekend@pitchbook.com. |
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| Mukesh Ambani, chairman and managing director of Reliance Industries, at the TIME 100 Gala. (Larry Busacca/Getty Images) |
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1. From debt to digital titan
These days, it seems, barely a day goes by without a whisper of yet another mega-investment in Jio, now valued at $65 billion, according to a PitchBook estimate. And this past week was no exception. Mint, an Indian business news outlet, reported that Microsoft is in talks to take a stake of more than 2.5% in Jio for up to $2 billion. Both sides have been mum on the report. Microsoft struck a 10-year cloud-services partnership with Jio last year. Other potential investors negotiating for a piece of Jio include Twitter and Abu Dhabi sovereign fund Mubadala, Reuters reported.
What exactly is Jio, which was founded less than 10 years ago, and why has it won over fans including KKR's Henry Kravis, Facebook's Mark Zuckerberg and Microsoft's Satya Nadella? There is a reason these tech investors made such big bets and why they did so at this moment.
You could say there are 1.3 billion reasons. That is how many people in India figure to join the nation's fast-emerging digital economy as companies like Jio aggressively build out the connected ecosystem. Following years of declining energy prices, Ambani made the audacious but shrewd decision to play a starring role in India's digital transformation. He has done so by squeezing credit out of the vast oil and gas assets that made Reliance the country's biggest company and Ambani Asia's richest man, according to Forbes.
Ambani's gambit comes as Reliance is getting less, well reliant, on energy as the source of its fortunes.
Oil prices are depressed and digital is the future. In fiscal year 2019, oil and chemicals led the way, making up 42% of Reliance's revenue, with digital at 17%, according to Q4 financial results issued in April. A year later, the oil side shrank and overall business was 33% energy vs. more than 24% digital, which now encompasses an ecosystem of telecom networks, cloud computing and a mobile carrier for more than 388 million subscribers.
Against this backdrop, PE and buyout firms sped up their evolution into global tech investors. PE fundraising for this strategy has surged to record levels, and tech-focused PE fund returns have outperformed other industry funds, according to a report by PitchBook analysts last fall. Facebook, for its part, has upped the ante by investing $5.7 billion for a 10% stake in Jio.
Ambani has shifted the company's financing equation of late to emphasize more equity, rather than leverage, smoothing out the balance sheet. And this could pave the way for an IPO of the Jio unit, which Reliance is considering for some time over the next 12 to 24 months, Bloomberg reported.
Signs of this change appeared even before Jio's May fundraising bonanza.
The parent company's total debt-to-equity ratio stood at 0.61 last fall, down from 0.75 a year earlier. Reliance had begun chipping away at its debt load, which weighed in at more than $35 billion last fall, down from over $41 billion in early 2019. The company has maintained a BBB+ Standard & Poor's credit rating, according to its latest financial report, putting it near the high end of the debt-rating spectrum but still not exactly sterling.
Jio has plainly stated it's determined to lead a tech transformation of its parent company and the rest of the Indian nation itself. It is well on its way, already a fast-growing tech titan in its own right. If Jio's flurry of fundraising is any sign of things to come, we could soon witness the birth of a new global tech superpower.
2. SoftBank business
No week of big tech happenings would be complete without Masayoshi Son's Vision Fund in the mix. SoftBank's mammoth—but ailing—fund, which earlier in May posted a $17.7 billion loss, is planning to cut about 10% of its staff of roughly 500, Bloomberg reported. Despite the heavy losses, Rajeev Misra, the mastermind at the helm of the Vision Fund, this week reportedly saw his annual compensation package double to $15 million. SoftBank, which is reeling from the WeWork debacle and other bad bets, is still busy doing deals—though some of them are stake liquidations rather than a deployment of new funds. Vision Fund 2 led a $500 million investment in Didi Chuxing to focus on the Asian ridehailing giant's efforts to develop autonomous driving, according to reports.
3. IPO market claws back
It turns out there are signs of life in the IPO market, and not just within the usual life sciences bunch. Maybe it was a sign of pent-up investor demand. PE-backed coffee giant JDE Peet's pulled off what is reportedly Europe's largest IPO of the year in an Amsterdam offering that raised €2.25 billion ($2.5 billion). Back in the US, co-working space startup Industrious is interviewing bankers for a possible Wall Street debut, CEO Jamie Hodari told Bloomberg. Industrious, backed by Brookfield Asset Management, competes against WeWork.
4. A thousand million for ThousandEyes
In the latest deal to capitalize on expected growth of cloud computing, Cisco Systems swooped in to acquire ThousandEyes for nearly $1 billion, according to reports. Companies use ThousandEyes' technology to monitor and manage cloud infrastructure operations. Backers included Sequoia, Sutter Hill Ventures and Salesforce Ventures.
5. Big tech's buying
Acquisitions by the biggest tech companies have been undeterred by the pandemic. One of the latest deals came to light this week when Bloomberg reported that Apple has brought on board an Ontario, Canada-based AI startup called Inductiv. The move, which has the markings of an acqui-hire, aims to boost machine-learning capabilities that would improve services like Apple's Siri voice-recognition technology.
6. End of an era
General Electric severed its last ties to Thomas Edison with the sale of its lighting subsidiary to Savant Systems, a provider of smart home components. Savant said the products will retain the GE brand name. The deal caps a 130-year history for the lighting unit, coming as GE exits the consumer market to concentrate on its industrial business.
View the full list online |
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Blank checks and small checks
No need to be blank-faced about blank-check holding companies. If you haven't familiarized yourself with special-purpose acquisition companies, or SPACs, be sure to check out this illuminating piece by my colleague James Thorne. SPAC maneuverings were in the news this week when Silver Lake built up its position in a blank-check company called Far Point Acquisition to push through a pending deal for Global Blue, a Silver Lake portfolio company.
In the niche area of startups addressing women's health, there's a sub-niche focused specifically on alleviating the effects of menopause. After a long history of stigma around the life stage, some venture capitalists have slowly begun to realize that the market size of menopause tech makes it hard to ignore, PitchBook's Eliza Haverstock reports. |
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Two sides of the value coin
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| (Thithawat_s/iStock/Getty Images) |
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Even before the abrupt impact of the coronavirus, there were many indications that the unchecked VC valuation growth in the US could be nearing an end.
Our latest US VC Valuations Report provides fresh data and analysis on longstanding trends that were already showing signs of change during Q1.
Impact investing offers a different perspective on value, as those types of returns need to be balanced with social or environmental benefits. Senior analyst Hilary Wiek gives a thorough breakdown of impact investment strategies and frameworks. |
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Recommended reads
As commuters return to work, staying safe on transit will be all about social distancing. [CityLab]
A.P. Giannini's founding of Bank of America shows how hard times can spawn big upstarts. [The Wall Street Journal]
What the pandemic teaches us about preparing for the threat of climate change. [Callaway Climate Insights]
The coronavirus is creating a nightmare for San Francisco's homeless. [The New Yorker]
A primer on Section 230, the law Trump wants to change to target social networks. [Los Angeles Times] |
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