You're Invited To Deal Flow | World Of Big Buyouts, Acquisitions, IPOs And Finance

Kevin Dowd

Staff Writer

Hello there. If you’re reading this, it’s probably because you’re interested in money, mergers, LBOs, IPOs or some other aspect of finance and dealmaking. And why wouldn’t you be?

It is, after all, a multitrillion-dollar segment of the global economy. An arena where billionaires do battle. A sphere where geopolitics and pop culture collide. A subject that can shape what we buy, where we work, how we travel, and nearly every other aspect of our lives—and a subject that is thus, to me at least, of endless fascination.

My name is Kevin Dowd. And if you’re still with me so far, I think you might also be interested in a new project of mine. I’ve launched a newsletter called Deal Flow, which offers a daily diet of detailed analysis from the world of big buyouts, big acquisitions, big IPOs and the rest of Big Finance. You can click here to instantly sign up for a free three week trial.

On the average day, dozens of deals are conducted around the world with a combined worth of many billions of dollars. I’m here to help you make sense of all the biggest headlines, whether that’s Amazon’s newest acquisition, Blackstone’s latest bet on a tech company or the next major unicorn IPO.

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The following is a sample of the Deal Flow
newsletter from Monday, April 19, 2021.

April 19, 2021

BIG THINGS

A regulatory challenge to a $40 billion deal in the UK is that latest example of semiconductor mergers making major headlines. PHOTO BY GETTY IMAGES

1. CHIPPING IN

The semiconductor segment is in the midst of a serious shakeup. The pandemic has muddled supply chains. Natural disasters from Texas to Japan have contributed to a chip shortage. And over the past year, companies have realigned the industry through a series of mega-mergers with a combined worth of more than $100 billion

Now, the biggest of those deals may be on the rocks.

The UK government announced Monday that it will conduct a further investigation of Nvidia’s plans to acquire British chip designer Arm for $40 billion, citing the potential national security implications of the titanic transaction. In addition to putting a possible damper on a booming merger market, the intervention is the latest example of semiconductors serving as a hot-button issue in geopolitics.

Let’s start with all the dealmaking that has unfolded in the space over the past 12 months. Last April, Infineon completed a $9.4 billion acquisition of Cypress Semiconductor, and Nvidia sealed a pact to buy Mellanox for $6.9 billion. As the year went on, the numbers got bigger. In July, Analog Devices struck a $21 billion deal for Maxim Integrated. Nvidia announced its planned Arm acquisition in September. And in October, AMD inked a $35 billion acquisition of Xilinx, while SK Hynix reached a separate $9 billion takeover agreement to buy Intel’s NAND memory business.

It’s not exactly breaking news that semiconductors are critical to our modern economy, functioning as an integral part in everything from smartphone to fighter jets. But the rise of 5G, new advances in AI, commercial investments in big data and other technological developments have only increased the industry’s prominence. Many of the biggest names in the space are turning to M&A to build out their offerings for the decade to come.

Nvidia and Arm aren’t the first companies to run into regulatory issues in these efforts. The Committee on Foreign Investment in the United States, also known as CFIUS, investigated Infineon’s purchase of Cypress before approving the deal. Back in 2018, Chinese regulators scuttled Qualcomm’s plans to acquire rival NXP Semiconductors, a failed $44 billion move that presaged this more-recent string of deals.

China’s move to block the Qualcomm-NXP deal came amid escalating trade tensions between the country and the US, as the two powers have begun to battle more openly for supremacy in both technology and geopolitics. Last week, the potential impact of those tensions on the semiconductor market was again thrown into sharp relief.

Taiwan Semiconductor Manufacturing, also known as TSMC, is the world’s largest semiconductor foundry, producing chips for Apple, Sony, Nvidia and a long list of other highly prominent customers. On its most recent annual report, released Friday, TSMC warned that “trade tensions or protectionist measure” could cause price hikes or cause some of its products to be unavailable entirely. The announcement came after China made global headlines earlier this month with a series of military exercises around Taiwan, prompting speculation that China may be considering a renewed challenge to Taiwanese sovereignty. If TSMC were forced to halt production, the industry’s current chip shortage would get much more dire.

The UK has other reasons for taking a closer look at Nvidia’s planned purchase of Arm. But as consolidation among semiconductor companies continues, everything in the space grows increasingly connected.

AC Milan, owned by Elliott Management, is one of the founding members of a new soccer league that's already turned into a political lightning rod. LIGHTROCKET VIA GETTY IMAGES

2. PE'S PLACE IN A SUPER LEAGUE

The world of European soccer is reeling after a dozen of the wealthiest clubs in the sports announced plans to form a new Super League, a long-talked-about and highly controversial move to consolidate their standing at the forefront of the sport. JPMorgan has agreed to underwrite an investment of some €4 billion (about $4.8 billion) to get the league up and running, according to Bloomberg.

Some private equity firms are likely watching the saga unfold with great interest. Professional sports teams have become an increasingly popular investment option for PE, and the world of European soccer is no exception.

Several of the clubs and leagues involved in the prospective Super League have direct private equity ties. Italy’s AC Milan, one of the 12 founding members, is controlled by Elliott Management. Silver Lake owns a minority stake in City Football Group, the parent of Manchester City, another founding member. In March, RedBird Capital Partners acquired a $750 million stake in Fenway Sports Group, which owns Liverpool FC.

Last November, top Italian league Serie A agreed to sell a 10% stake in its media rights to a group including CVC Capital Partners and Advent International. And the Bundesliga, Germany’s top league, has reportedly talked to several private equity firms over the past few months about acquiring a minority stake in the league’s media rights, with potential suitors including Advent, BC Partners, Bain Capital and KKR, per Bloomberg.

The launch of the Super League would be a financial boon for the teams involved. It would likely have more negative implications for domestic leagues, potentially draining away revenue as well as fan interest.

The new league will represent a seismic shift in global soccer—if it ends up happening at all. Politicians including French President Emmanuel Macron and UK Prime Minister Boris Johnson have already come out against the effort, arguing it is anti-competitive and counter to the spirt of European sport. UEFA, the governing body of European soccer, released a statement decrying the Super League as “cynical” and threatening that any athletes who participated in the league would be banned from playing on their national teams in the European Championship and the World Cup.

Private equity investment has worked for some of the teams looking to form the Super League. Could it work for their opponents, too? Bloomberg reported Monday morning that UEFA is already in discussions with UK-based investor Centricus Asset Management about a potential €6 billion investment that would allow UEFA to overhaul its current Champions League as a counter to the Super League’s planned launch.

3. MINING MATTERS

Experts predict breakneck growth in the electric vehicle market in the years to come. Monday brought a pair of deals involving the pursuit of a substance that will be critical in making that prediction a reality.

In Australia, Orocobre Limited agreed to buy rival Galaxy Resources for a reported $1.4 billion, a deal the two sides say will create the fifth-largest lithium miner in the world. The lithium the two companies produce is a critical component in the lithium-ion batteries that have become the industry standard among EV developers. Current Orocobre shareholders will own 54.2% of the combined company, with current Galaxy investors retaining the remainder.

On the other side of the Pacific Ocean, Brazilian private equity investor IG4 Capital offered to make a $916 million investment in three holding companies that in turn hold stakes in Sociedad Quimica y Minera de Chile, the second largest lithium producer in the world, according to Reuters. Lithium mining is just one branch of SQM’s business, as the company also has arms focused on plant nutrition, iodine and its derivatives, potassium and industrial chemicals.

The Outback meets the ocean. PHOTO BY GETTY IMAGES

4. ANTIPODAL INVESTING

Blackstone is staying busy Down Under.

The firm has chosen a winning bidder in its auction of Milestone Logistics, agreeing to sell the portfolio of assets for A$3.8 billion (about $3 billion) to ESR Australia and GIC. The portfolio comprises 1.4 million square meters of warehouse space across several of Australia’s biggest cities. The private equity industry has shown an increased appetite for logistics assets in recent years, spurred by a boom in ecommerce, and Blackstone has played a leading role.

Blackstone also has new competition in its attempt to consummate a different real estate-focused deal in Australia. On Monday, Oaktree Capital Management offered to supply up to A$3 billion in funding to Crown Resorts to help Crown buy back shares in itself from a vehicle controlled by James Packer, the billionaire who founded the casino and hotel operator. Last month, Blackstone made an unsolicited offer to acquire all of Crown for around A$8 billion. That offer came a little less than a year after Blackstone acquired an initial 10% stake in the company.

OTHER THINGS

• A white knight who had emerged to rescue Tribune Publishing from a sale to Alden Global Capital, a hedge fund that has grown infamous for buying up struggling newspapers and slashing costs, is having second thoughts. Swiss billionaire Hansjoerg Weiss pulled out of a competing bid to buy Tribune that he launched earlier this month alongside Choice Hotels chairman Stewart Bainum, one Tribune said would likely be superior to an initial offer from Alden, which Tribune had accepted in February. Bainum still plans to pursue the acquisition, but Tribune said it will terminate negotiations with Bainum’s group because the counterbid no longer represents a “superior proposal.”

• Banking consolidation is afoot in the US Northeast. Webster Financial agreed to acquire peer Sterling Bancorp in an all-stock deal, creating a combined company that claims a market cap north of $10 billion. Webster manages $33.3 billion in assets and has nearly 150 locations across Connecticut, Massachusetts, New York and Rhode Island, while Sterling maintains 78 locations in New York.

• Vista Equity Partners lined up its latest major exit, agreeing to sell market intelligence provider Numerator to UK-based rival Kantar. The deal is worth around $1.5 billion, according to Reuters. Bain Capital has owned a controlling interest in Kantar since 2019, when it acquired a 60% stake in the company at a $4 billion valuation from WPP. Vista acquired Numerator in 2017.

• Monday also brought another notable secondary buyout in the tech sector. Thoma Bravo agreed to purchase Calabrio, a developer of cloud-based software for customer service and workforce management, from KKR. KKR acquired the Minnesota-based company in 2016, then made a follow-on investment two years later.

• With Calabrio on the way out, KKR also made an addition to its portfolio. The firm co-led a funding round for Adopt A Cow, a direct-to-consumer dairy company based in Beijing that was founded in 2016. The startup handles all facets of the dairy supply chain, from feeding its cows to marketing its milk and cheese products. For KKR, the deal reflects twin strategies of investing in more young tech companies and building out its platform in Asia.

• Zoom Video Communications is launching a $100 million venture fund that will invest in startups and developers building tools for the company’s video platform. In using venture capital as a way to develop a larger software ecosystem on top of the company’s existing service, the move is reminiscent of the success Salesforce has had with its Salesforce Ventures arm. Zoom has been a star on the public market ever since its IPO almost exactly two years ago, with a current market cap approaching $100 billion.

• George Sherman announced plans to step down as CEO of GameStop in the coming months, the latest sign of the company’s transformation in the wake of its surprising emergence as a stock-market darling. Earlier this month, the company announced that Chewy co-founder Ryan Cohen, an e-commerce wunderkind who has recently taken a significant stake in GameStop, would become its new chairman. The company’s stock was up more than 10% in early trading Monday, topping $170 per share—nearly 10 times higher than its price at the start of 2021.

• Siris Capital wants to make a bet on British outsourcing. The US-based firm submitted an offer Monday to take Equiniti private for £624.3 million (about $870 million), marking a 24% premium to the closing price of Equiniti’s shares last week. As such, the UK-based provider of outsourced financial and administrative services saw its stock price climb on Monday, finishing the day up nearly 19%.

THINGS TO READ

Hollywood super-agent Ari Emanuel founded the company that became Endeavor more than a quarter-century ago. Now, he’s trying to transform it into something bigger. [The New Yorker]

After Dell Technologies announced plans to spin out its 81% stake in VMware, Michael Dell is sitting on a $50 billion fortune. [Forbes]

The price tag always matters. But these days, the speed with which a deal can get done is increasingly a differentiating factor for private equity firms. [Bloomberg]

Why do we make typos? And might we be on the brink of a future where there are no typos at all? [BuzzFeed News]

Kevin Dowd

Staff Writer

I am a staff writer at Forbes. I previously wrote for PitchBook, where I created The Weekend Pitch, a weekly newsletter about the private markets. Before that, I covered high school sports in the Pacific Northwest, and I graduated from the University of Washington with a degree in journalism and creative writing. I live in Seattle, where I read a lot of books and play a lot of golf.

Follow me on Twitter.

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You're Invited To Deal Flow | World Of Big Buyouts, Acquisitions, IPOs And Finance

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