Icahn, Buffett face pipeline disappointment

Kevin Dowd

Staff Writer

October 6, 2021

Big Things

1. Icahn't believe it

Southwest Gas Holdings doesn't care what Carl Icahn thinks.

On Monday, the iconic (Icahnic?) activist investor sent a letter to Southwest's board revealing he had acquired a 4.9% stake in the company and petitioning its leaders not to conduct a rumored acquisition of Questar Pipeline Company. But on Tuesday afternoon, Southwest proceeded with the deal anyway, announcing an agreement to purchase Questar—which operates over 2,000 miles of pipelines and underground energy storage assets in Utah, Wyoming and Colorado—from Dominion Energy for just shy of $2 billion.

In line with his standard approach, Icahn's attempt to persuade Southwest (which trades on the NYSE as SWX) was more about sticks that carrots. "During the past few years, management of SWX has made a number of egregious errors at the expense of shareholders," his letter to the company reads. "The purchase of Questar you are currently being rumored to make at the price you are willing to pay will make all past errors pale in comparison."

This isn't the first time Icahn has been disappointed by an energy company's acquisition. He was an outspoken detractor of Occidental Petroleum's agreement to buy Anadarko Petroleum in a $38 billion mega-deal in 2019, calling the transaction "one of the worst I've seen." Since that transaction was announced in May 2019, Occidental's stock price is down 40%—although it has bounced back encouragingly in 2021 after a dangerous plunge in the early months of the pandemic.

Only time will tell if he's right this time. But he's not alone in being skeptical about the deal: Stock in Southwest was down nearly 4% today, taking its market cap to $4 billion. Those shares had spiked on Tuesday, though, so they're basically trading flat since the start of the week. The utility company provides natural gas services to some 2 million customers in Arizona, California and Nevada.

This also isn't the first time Questar has been caught up in a deal involving a legendary investor. In July, Dominion terminated an agreement to sell Questar to Warren Buffett and his Berkshire Hathaway, citing antitrust concerns The deal was originally part of a larger $9.7 billion divestiture of Dominion's natural gas transmission and storage business to Berkshire, the rest of which was successfully completed last November.

Icahn and Buffett are on opposite ends of the spectrum when it comes to investment strategy. But in the case of Questar, neither could get their way.

Hey, it's a less expensive way to find buyers than hiring a bank. Getty Images

2. A seller's market

Blackstone president Jon Gray and Brookfield Asset Management chief executive Bruce Flatt both think it's a good time to be pursuing exits. Their colleagues throughout the private equity industry apparently agree, as three of today's biggest headlines all involve firms pursuing high-profile sales.

In one move, Copenhagen-based private equity firm Axcel agreed to sell SteelSeries, a manufacturer of headsets, keyboards and other gear for gamers, to GN Store Nord for 8 billion Danish kroner (about $1.24 billion). It will be a prompt and profitable exit for Axcel, coming a little more than two years after the firm bought the Danish company in a deal local media reported to be worth 2 billion Danish kroner.

Overall, SteelSeries has been owned by private equity for nearly a decade: L Catterton and ClearVue Partners previously acquired the company in 2012. Its new owner, GN, is a manufacturer of hearing aids, headsets and other audio products that was founded in Denmark more than 150 years ago as the Great Northern Telegraph Company.

Elsewhere, Reuters reports that PAI Partners and Baring Private Equity Asia have begun canvassing the market in search of a buyer for World Freight Company International, with hopes of finding a deal worth more than €1.5 billion (about $1.7 billion). WFC plays a key role in coordinating global air trade, selling and managing more than 3 million tons of cargo capacity each year for airlines. Like so many other global supply chains, that air trade has come under severe strain during the past year-and-a-half of the pandemic.

Once again, if PAI and BPEA do find a deal in the coming months, their investment in WFC will go down as a quick and lucrative one—although not quite as quick or lucrative as Axcel's holding of Steelseries. The two firms teamed up to buy WFC in 2018 for a reported €600 million.

Lastly, we have The Carlyle Group, which is exploring a potential sale of Sunsho Pharmaceutical for more than $500 million, per a Bloomberg report. The Japanese company is a contract manufacturer that makes capsules and other supplement products for the healthcare and consumer spaces. Japan has emerged recently as a hot market for private equity firms, but Carlyle is no newcomer, with a history of investing in the country that dates back two decades. The firm bought Sunsho in 2014, using capital from its third Japan-focused fund.

It doesn't come as a surprise to see so much exit activity. As we've mentioned plenty of times in this newsletter, we're in the midst of a record-setting year for IPOs. At the halfway point of the year, the private equity industry was on pace to see its most exits and its highest exit value in more than a decade, according to PitchBook, and the dealmaking environment remained robust in the third quarter.

"Robust" might be underselling it. Everywhere you look, investment records are falling in 2021. The business of buying and selling companies is busier than ever.

Other Things

• It isn't quite WeWork paying $13 million for a company that makes wave pools. But Adam Neumann is back in the M&A game—tangentially, at least. GoTo Global Mobility, an urban mobility startup that's backed by the WeWork co-founder, is expanding its European network through the purchase of Emmy, which operates a moped-sharing service that comprises 3,000 electric vehicles in the German cities of Berlin, Hamburg and Munich. Neumann invested $10 million in GoTo last year for a 33% stake, according to Bloomberg. And with its huge ambitions, you can see why the company caught his attention: "Our goal is to be the Netflix of mobility," GoTo chief executive Gil Laser told TechCrunch.

• Rigetti Computing, a creator of quantum computing hardware, announced plans to go public at an equity valuation of $1.5 billion by merging with a SPAC called Supernova Partners Acquisition Company II. This fits the bill of SPACs becoming a newly frequent pathway to the public market for companies in largely theoretical industries like electric vehicles, flying cars and space transportation. Rigetti will use the expected $458 million in cash proceeds from the deal to continue developing its quantum processors, which could help set the stage for a revolution in computing that would allow machines to conduct extremely complex calculations in a fraction of the current time. The company has raised $174 million in prior venture funding, per PitchBook. PIPE investors in the SPAC merger will include Bessemer Venture Partners, T. Rowe Price and In-Q-Tel, the venture arm of the Central Intelligence Agency.

• In a year dotted with notable acquisitions by Boston Scientific, this is the biggest yet. The medical device manufacturer revealed a deal today to pay $1.75 billion for Baylis Medical, which makes medical devices aimed at improving surgical access to the left side of the heart. Boston Scientific said in a presentation that the deal will allow the company to achieve "expanded leadership in left-heart procedures." Last month, Boston Scientific closed its $1.1 billion acquisition of what used to be the global surgical business of Lumenis, and it lined up a separate takeover of Devoro Medical for at least $320 million. Earlier in the year, the company struck deals to buy Farapulse for $295 million and Preventice Solutions for as much as $1.2 billion.

• After selling zero shares in six of the past seven years, Josh Harris has unloaded $490 million worth of Apollo Global Management stock since announcing his departure from a daily role at the firm in May, according to a Bloomberg report. Previous reports have indicated that Harris lost out to fellow co-founder Marc Rowan in race to succeed Leon Black as the firm's CEO after Black stepped down in the wake of an investigation into his payment of $158 million to Jeffrey Epstein for what the law firm Dechert described as "legitimate advice on trust and estate planning, tax issues, issues relating to artwork, Black’s airplane, Black’s yacht, and other similar matters." But Harris' recent sell-off may have other motivations, too. Per Bloomberg: "Harris, 56, signaled last year that he intended to sell a chunk of his stake for estate planning."

• With the deadline for a ruling looming in three weeks, Nvidia is taking new steps to gain approval from the European Commission for its deal to buy British chip designer Arm for $54 billion. The California-based semiconductor giant offered unspecified concessions to the European regulator, according to a new filing, a bid to stave off intervention on antitrust grounds. The agency and other industry rivals have raised concerns that the acquisition could harm competition in the closely watched semiconductor space, as Arm's technology and designs are widely used throughout the industry. The European Commission has said it plans to issue a decision by Oct. 27.

• Swiss watch retailer Chronext postponed a planned IPO in its home country, citing stormy market conditions. The company had planned to begin trading later this week, with hopes of raising nearly $250 million in proceeds. Founded in 2013, Chronext operates an online platform for buying and selling luxury watches, plus physical locations where shoppers can try on timepieces. We've seen more and more delayed debuts in recent weeks as stock indexes have experienced their most sustained declines since the start of the pandemic. And in Europe, many companies that rode the IPO wave in 2021 are now finding themselves below water.

• Ares Management announced an agreement to take a majority stake in Apex Clean Energy, marking the latest example of private equity firms flocking to deals in the renewable energy space. The deal will be conducted through Ares' infrastructure and power strategy, which has deployed $9 billion in its history with a focus on investments in climate infrastructure, natural gas generation and energy transportation. Ares has backed a handful of prior Apex projects, including the Aviator Wind park in Texas, where 191 turbines churn out electricity for customers including McDonald's and Facebook.

• Canada's Tricon Residential filed with the SEC on Tuesday for a public offering in the U.S. that will aim to raise $350 million in proceeds. The company's shares are already publicly traded in Toronto. Tricon is an owner and manager of residential housing assets in the U.S. and Canada, with a portfolio of more than 33,000 single-family and multi-family homes and apartments. The company focuses on properties with monthly rental payments of between $1,300 and $2,100. In July, Tricon announced a new joint venture with $1.4 billion in equity commitments that will aim to buy over 18,000 additional single-family rental homes in the next three years.

• Smart-home and home-security specialist Nice said it will purchase Nortek Security & Control from Melrose Industries in a transaction worth $285 million. Based in Southern California, Nortek designs and installs security systems for customers ranging from big-box retailers to residential homeowners. It also owns other brands in areas such as power management, wellness and audio/video technology. For Nice, which is headquartered in Italy, the takeover marks a continued expansion of its services in the U.S.

Things To Read

Thanks to the supersonic rise of FTX, his cryptocurrency exchange, Sam Bankman-Fried is the richest twentysomething in the world. And he has big plans for his fortune. At some point. [Forbes]

Another indicator of how spicy this year's dealmaking market has been: Private equity firms are paying bigger premiums to conduct take-private buyouts than they have since the 20th century. [Financial Times]

Once a lawyer who earned millions by representing big corporations, Jonathan Kanter is now a top antitrust official tasked with regulating them. Contrary to what you might expect, progressives are pleased. [The New York Times]

Despite facing its shares of struggles during the pandemic, the global wine industry has emerged in 2021 as an unlikely hotspot for acquisitions. [The Wall Street Journal]

A hearty congratulations to 480 Otis, a very fat and good bear. [Gizmodo]

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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