Forbes - The biggest buyout ever?

Kevin Dowd

Staff Writer

October 12, 2021

Big Things

1. Murmurs of a $54B buyout

GlaxoSmithKline has been planning to split its consumer healthcare unit from its main prescription drugs business for nearly three years. This June, the British pharmaceutical colossus finally revealed some details of the looming separation, saying it intended to list its consumer division as a separate publicly traded company sometime in mid-2022, a move that would create billions in proceeds.

But now, another possibility has emerged. What if GSK sold the consumer business to private equity, instead?

Multiple major firms have expressed interest in pursuing a deal for the division that could ultimately be worth more than £40 billion (about $54 billion), according to a Bloomberg report. The possible buyers are a who's who of private equity heavyweights: Advent International, Blackstone, The Carlyle Group, CVC Capital Partners, KKR and Permira were all described as either "potential suitors" or "likely suitors" for the consumer health unit, which includes brands such as Tums, Centrum, and Sensodyne.

If a deal does materialize, and if GSK is able to fetch something close to the reported price tag—two significant ifs—it would be the largest pure-play buyout in private equity history, surpassing the $45 billion takeover of utility provider TXU (later renamed Energy Future Holdings) by KKR and TPG in 2007. Silver Lake backed Dell's $67 billion acquisition of EMC in 2016, but that was a much more complicated transaction than your traditional LBO.

We've seen a few buyouts worth $10 billion or more already this year, but only one deal that comes close in size to this potential GSK spinout. In June, Blackstone and Carlyle teamed up with Hellman & Friedman on an agreement to buy Medline Industries for more than $30 billion, aiming to capitalize on a pandemic-induced boost in desire for the company's medical devices and supplies.

A potential takeover of the GSK consumer unit is still quite speculative at this point, so we'll move along to the day's other major developments. But it's certainly a deal worth speculating over.

Nine months after acquiring the rights to Shakira's song catalog, Hipgnosis Song Management is getting into business with Blackstone. Filmmagic

2. Blackstone is buying ballads

Blackstone is teaming with a fund managed by a longtime music executive to form a new venture that will aim to invest $1 billion of the private equity firm's money into the booming business of acquiring song rights.

Investors have been flocking to the music industry during the pandemic, seeking to tap into an ongoing explosion in streaming revenue. Bob Dylan, Calvin Harris, Neil Young, Shakira and Barry Manilow are all on the long list of artists who have chosen to sell their rights, with private equity firms and other bespoke investors emerging as the most popular buyers.

Blackstone will dip a toe into the space alongside Hipgnosis Songs Fund and its CEO, Merck Mercuriadis, a longtime executive at The Sanctuary Group who formerly helped manage acts ranging from Guns N' Roses to Beyonce. More recently, Mercuriadis has pursued a different strand of the music business through his work at Hipgnosis. The company went public in London on July 2018 and has since raised nearly £1.3 billion (nearly $1.8 billion) to purchase song rights, building up a portfolio that currently comprises more than 64,000 songs and more than 150 Grammy-winning tracks from artists including Bon Jovi, Fleetwood Mac, Journey, Nirvana and many more.

Blackstone's capital for the partnership will come from its tactical opportunities arm. The firm will also take an ownership stake in Hipgnosis.

Other private equity titans are also chasing deals in the space. Billboard reported late last week that an investor group including KKR was closing in on a deal to acquire the Kobalt Music Royalty Fund II from Kobalt Music, a longtime investor in the music rights. Last week, Apollo Global Management backed the launch of HarbourView Equity Partners, a new firm focused on "niche markets and esoteric investments," including music assets.

And Blackstone, of course, is also busy planning to put capital to work in other asset classes, too. The firm has started talking to LPs about raising a second growth fund that could ultimately garner as much as $10 billion in commitments, according to Bloomberg, which could make it the largest growth fund ever. It's been just seven months since Blackstone closed its debut growth fund on $4.5 billion, but the firm's growth unit has already shown its worth, with earlier investments in Bumble and Oatly turning into lucrative IPOs in 2021.

3. Regulatory wrangling

Two different mega-deals in two different industries are waiting on rulings from European antitrust regulators. It looks like they may get two different results.

S&P Global and IHS Markit are set to receive approval from the European Commission to go ahead with their $44 billion merger announced last November, the latest enormous transaction to shake up the world of financial information, according to Reuters. But the European Commission isn't yet done looking at Nvidia's $54 billion agreement to buy Arm, per a separate Reuters report. With the end of a preliminary review approaching, the agency's regulators now plan to launch a full four-month investigation into the proposed takeover. Arm's chip designs and technologies are widely used throughout the semiconductor industry, and regulators have concerns that Nvidia's acquisition of those designs and technologies could harm competition.

The agency's initial review of the S&P-IHS deal is scheduled to end Oct. 22, while the deadline for a ruling on Nvidia and Arm's proposal is Oct. 27.

Why are S&P and IHS on the brink of success, and why are Nvidia and Arm set to fail? It sounds like a tale of two concessions. In August, IHS agreed to sell its U.S. oil price information services to News Corp. for $1.15 billion, assuaging regulatory concerns that the combined company could possess undue power in that particular slice of the market. S&P reportedly offered further, unspecified concessions last week. Nvidia proposed its own unspecified concessions to the European Commission last week. But those remedies, it seems, weren't quite effective as those offered by S&P and IHS.

This year's frenzied rate of dealmaking has created plenty of work for regulators. As you might expect, deals worth tens of billions of dollars have drawn particular interest. Earlier this year, Aon and Willis Towers Watson called off a proposed $30 billion mega-merger due to disagreements with regulators at the U.S. Department of Justice.

Other huge deals, though, are getting done—including some in the sectors where S&P, IHS, Nvidia and Arm operate. This January, the London Stock Exchange closed its $27 billion acquisition of Refinitiv, creating a financial information colossus to challenge Bloomberg. S&P and IHS are now chasing the sort of scale required to make that a three-horse race. The semiconductor space, meanwhile, has recently played host to a string of huge mergers, including Analog Devices' $23 billion purchase of Maxim Integrated that was completed in August.

Other Things

• The Trump Organization is nearing a deal to sell the Trump International Hotel in Washington, D.C., to Miami-based investor CGI Merchant Group for somewhere between $370 million and $400 million, according to The Wall Street Journal. The news comes a few days after the federal government released documents indicating that the luxury hotel lost more than $70 million during Donald Trump's time in office. If a sale goes through, the property might not carry the former president's name for long. The WSJ reports that CGI has talked to hotel company's including Hilton Worldwide "about removing the Trump name in favor of that of another hotel manager."

• When you think of products you might purchase at Best Buy, medical devices are probably pretty far down the list. But that's a fact the Minnesota-based consumer electronics giant is aiming to change. Best Buy announced an agreement today to acquire Current Health, a provider of telehealth and remote patient monitoring tools, marking the latest expansion of its Best Buy Health division. In 2019, the company completed previously deals to buy Critical Signal Technologies, another patient monitoring specialist, and BioSensics, which makes wearables designed to predict falls and other problems for older patients. DVD players are Best Buy's past. It's betting medical electronics could be its future: "The future of consumer technology is directly connected to the future of healthcare," said Deborah Di Sanzo, the president of Best Buy Health, in a statement.

• GitLab and its CEO, Sytse Sijbrandi, now plan to sell 10.4 million shares for between $66 and $69 in an upcoming IPO on the Nasdaq, an increase from the company's previously indicated range of $55 to $60. A midpoint pricing would now raise $702 million and result in a $9.6 billion non-diluted valuation for GitLab, the creator of a DevOps platform for building new software. The company itself will sell 8.42 million shares and Sijbrandi will sell another 1.98 million, according to its IPO prospectus. GitLab was valued at $6 billion in a secondary sale of its shares in January.

• Elliott Management published a public letter to the board of Healthcare Trust of America on Monday, pushing HTA to consider a sale or other strategic options and confirming earlier media reports that activist firm has built a "substantial" stake in the real-estate investment trust. HTA's shares have risen 8% since last Wednesday, when Bloomberg first reported on the activist push, taking the company's market cap to nearly $7.2 billion. Elliott expressed its opinion that the company would be "best served by a sale to private equity, a non-traded REIT or a strategic buyer." Scott Peters, the founder of HTA, stepped down from his roles as chairman and CEO in August.

• Longtime Wall Street banker William Lewis announced plans today to join Apollo Global Management as a senior partner and member of the firm's investment committee, departing his current role as chairman of investment banking at Lazard. Lewis has worked at Lazard since 2004, and before that he spent 24 years at Morgan Stanley, where he was the bank's first Black managing director. The addition continues a year of high-profile personnel moves at Apollo, including the departure of longtime CEO Leon Black, the appointment of Marc Rowan as his successor and the appointment of former SEC chairman Jay Clayton as the chairman of its board.

• The business of Vroom is buying and selling used cars. The company is trying to make the buying part of that equation easier than ever with the acquisition of United Auto Credit, a provider of auto financing services that claims to work with a network of more than 7,000 dealerships. Vroom will pay $300 million for the California-based company, marking its largest acquisition ever; last December, Vroom agreed to pay $120 million for Vast, an AI-powered provider of market data for used cars. Vroom's stock chart has declined by more than 50% since it went public in June 2020, dropping its market cap to $2.9 billion.

• Prominent debt investor Oak Hill Advisors has formed a joint venture with carbon-offset specialist Bluesource to invest $500 million in timberland that will be preserved to help counter the emissions of major companies. The business of carbon offsets has boomed as the corporate world has become more aggressive about establishing concrete climate goals, greatly increasing the number of potential buyers for preserved forests. Big Wall Street names have been taking note: In June, the asset management arm of J.P. Morgan acquired Campbell Global, which manages $5.3 billion worth of carbon-sucking forestland.

• The latest company focused on pet care to pull in private equity backing is Bond Vet, a startup that raised $170 million this week from Warburg Pincus. Founded just two years ago, the company offers a wide range of veterinary services from a network of clinics in and around New York City. A surge in pet adoptions during the pandemic has caused a concurrent spike in the need for veterinary care, a spike on which Bond Vet chief executive Mo Punjani aims to capitalize. "The increase in pet ownership, accelerated by the rise of adoptions and need for care during the pandemic, has demonstrated an enormous opportunity to improve veterinary services," Punjani said in a statement.

• The impact investing arm of hedge fund Two Sigma purchased Eclipse Advantage, a provider of outsourced labor for warehouses and distribution centers in the U.S. and Canada. The unit, called Two Sigma Impact, cited ongoing shortages of logistics workers, the increasing popularity of e-commerce and an increasing reliance on outsourced workers to fill supply-chain gaps as three motivating factors behind its investment. The deal will mark a quick exit for Longshore Capital Partners, which acquired Eclipse in August 2020 from prior private equity owner LaSalle Capital.

Things To Read

A company called Diversified Energy has bought up tens of thousands of dying oil and gas wells across America. To some at least one industry expert, it "looks like a liability bomb that's destined to explode." [Bloomberg]

What companies will form the next generation of billion-dollar startups? My colleagues offer a few predictions. [Forbes]

Christmas is a mere 74 days away. That's a terrifying timeline for the toy companies (and their employees) trying to navigate a supply-chain crisis. [The Wall Street Journal]

Will car owners pay a few extra dollars each month for heated seats? Movies, music, fitness and food have already fallen under the sway of the subscription economy. Companies like BMW and Rivian think the auto industry may be next. [Wired]

As the pandemic roiled the world in 2020, the asset management industry was in the midst of its biggest year for growth of the past decade. [Institutional Investor]

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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Forbes - The biggest buyout ever?

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