Forbes - Elizabeth Warren vs. PE

Kevin Dowd

Staff Writer

October 24, 2021

Big Things

1. There's no stopping private equity

On Wednesday, a group of congressional democrats led by Elizabeth Warren reintroduced the Stop Wall Street Looting Act, a signature piece of proposed legislation designed to neuter the modern private equity industry through a series of transformative measures.

If enacted into the law, the bill would hold private equity firms responsible for their portfolio companies' debt. It would prohibit firms from extracting dividends from a portfolio company during the first two years of ownership. It would, in general, make the business of leveraged buyouts much more cumbersome and much less appealing.

This isn't the first time Warren and Co. have pushed back against private equity. The Stop Wall Street Looting Act was first introduced in 2019, only to die on the vine due to lack of support. And at first glance, there's little reason to think this attempt will go any different. Warren, Sherrod Brown and other lawmakers held a pair of hearings this week designed to gin up interest in their efforts, but attendance was sparse. Democrats now have control of Congress, unlike in 2019. Lawmakers, though, appear to have other priorities. The mood in Washington may change, but it doesn't look like a reckoning for private equity is coming anytime soon.

Elizabeth Warren and two fellow Democratic senators are reviving an effort to reshape the private equity industry. Associated Press

Which, of course, is the preferred scenario for the private equity firms themselves. The same week that lawmakers reignited an effort to rein in the industry's power, the biggest private equity firms in the world were busy demonstrating just how powerful they've become—and just how immense their ambitions remain.

Apollo Global Management conducted a virtual investor day on Tuesday, guiding backers and potential backers through its strategic vision for the next five years. The headline number came from still new-ish CEO Marc Rowan, who declared Apollo's desire to reach $1 trillion in assets under management by 2026—more than doubling the $472 billion in AUM the firm currently claims. That drive to build the firm's asset base is centered on its push into perpetual capital, which is in turn centered on Apollo's ownership of Athene, a major retirement annuity provider that has been crucial to the firm's recent explosive growth.

Members of Congress want to rein in private equity by killing leveraged buyouts. But Apollo's presentation highlighted how those LBOs are already becoming a smaller part of the private equity playbook for the industry's biggest firms, as they continue to evolve into globe-gobbling financial behemoths.

Speaking of which: Blackstone reported stellar financial results for the third quarter of the year this week, including new quarterly records in distributable earnings and fee-related earnings. The firm's private equity portfolio appreciated by 10%, and the value of its real estate holdings swelled by 16%. Again, that development wasn't necessarily powered by LBOs: Blackstone's holdings in software, warehouses and life-sciences lab space were some of the biggest drivers of its growth.

That's not to say Blackstone has abandoned the buyout business, or anything close to it. The firm agreed this week to buy shapewear maker Spanx at a valuation of $1.2 billion, its sixth billion-dollar acquisition of the past two months, according to PitchBook. Bloomberg reported this week that Blackstone is seeking to raise as much as $30 billion for its next flagship fund, which would be the largest pool of buyout capital ever raised. Leveraged buyouts are still a significant prong of the firm's strategy. But they are just one prong among many.

The same is true at KKR, another private equity heavyweight that demonstrated the diversity of its interests this week. In one move, the firm agreed to pay $1.1 billion to Kobalt Music to acquire a portfolio of rights to more than 62,000 songs, including tracks from Grammy winners Lorde and The Weeknd. Conducted through a new platform called Chord Music Partners, it's the latest example of private equity firms spending big money on intellectual property. Shortly after unveiling that deal, KKR struck a pact to buy Edge, an observation deck on the 100th floor of the 30 Hudson Yards skyscraper in New York City, with Bloomberg reporting the firm will pay some $500 million. The observatory, which will remain open to the public, is located just a couple-dozen floors up from KKR's corporate headquarters.

The fourth member of private equity's leading quadrumvirate has also been busy: The Carlyle Group unveiled plans this week to acquire Saama Technologies for up to $430 million, marking the firm's latest bet on the life sciences sector. As I wrote about in some detail this week, Saama is a data analytics company that rose to prominence last year through its worth with Pfizer, helping the pharma giant cut a month off the time it otherwise would have taken to bring its COVID-19 vaccine to market.

Democrats in Congress want to slow the private equity industry down. But if anything, the industry's biggest names are ramping up their rate of activity, aiming to capitalize on the highly appealing deal environment created by the pandemic. Don't expect the deals to slow down until that environment changes—or until the winds in Washington start to blow in a different direction.

And with that, onto the rest of our recap of the week in deals...

A Daily Deep Dive Into The World of Big Buyouts, Big Acquisitions, Big IPOs and Big Finance

Five times a week, Kevin Dowd follows the billions of dollars' worth of deals happening on any given day and keeps track of the most important and impactful transactions.

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2. The Trump SPAC

In retrospect, we probably should have seen this coming. Donald Trump revealed plans late Wednesday night to form a new social media business called Trump Media and Technology Group and take the new entity public through a SPAC. There were basically no details about the company's strategy, financials or leadership. In the age of meme stocks, though, none of that matters. The SPAC in question, called Digital World Acquisition Corp., saw its share price skyrocket on Thursday, rising from a previous close of $9.96 to $45.50. A grand total of 1,100 Digital World shares changed hands in trading this Monday. On Thursday, that number climbed to 488,826,100, making it the most-traded stock in America.

The action continued on Friday. Digital World shares opened at $118.79 and climbed as high as $175—an unprecedented spike even in the wild world of SPACs. The stock declined in the afternoon, closing the week below $100, but that didn't change the big picture. TMTG is the latest demonstration of the increasing power sentiment-driven retail investors have to shape the stock market.

As noted by my colleague (and Trump chronicler extraordinaire) Dan Alexander, if the SPAC deal goes through, it won't be the first time Trump has been at the helm of a publicly traded company.

3. WeIPO

Two years later than originally expected, WeWork is a public company. The one-time co-working unicorn completed its SPAC merger and listed on the NYSE this Thursday, raising $1.3 billion in proceeds through a combination with BowX Acquisition Corp. Then, the real fun began: WeWork stock spiked as much as 13% during intraday trading Thursday and was up more than 10% on Friday, taking its stock price past $13 and its market cap north of $10 billion.

Adam Neumann was in New York to celebrate the listing, joining cofounder Miguel McKelvey and a group of early WeWork employees for a Thursday morning party in New York's Meatpacking District. "It's such a special day," Neumann told the New York Post. Neumann may no longer be WeWork's CEO, but he remains a shareholder. And a well-renumerated one at that: WeWork's impressive debut means that Neumann is once again a billionaire.

4. PayPal's ambitions

You probably think of PayPal as a payments company. Which, fair enough: Payments are what PayPal does. But the company has much bigger dreams: It wants to nearly double its user base over the next four-plus years, with ambitions of becoming the sort of ubiquitous super-app that has come to dominate the consumer tech sector in Asia, and one that could challenge the likes of Facebook and Amazon for supremacy in the U.S.

If those dreams are to become reality, M&A may be a key component. And sure enough: Reports emerged this week that PayPal is in negotiations to acquire Pinterest for around $45 billion. The potential deal would be one of the few biggest acquisitions of 2021 so far, and it could result in a serious expansion of PayPal's services, with the millions of "pins" on Pinterest's platform representing millions of new e-commerce opportunities. Pinterest's stock price climbed more than 12% over the course of this week, taking the company's market cap to $37 billion.

5. The semiconductor circus

The past week brought a pair of significant deal developments in the semiconductor space, an industry that continues to be wracked by pandemic shortages that seem unlikely to end anytime soon.

GlobalFoundries, a major semiconductor manufacturer based in Malta, N.Y., said it plans to offer 55 million shares for between $42 and $47 apiece in its upcoming IPO on the Nasdaq, with a midpoint pricing set to raise about $2.45 billion in proceeds and value the company at nearly $24 billion. The company logged a net loss of $1.4 billion on $4.9 billion in revenue last year, compared to a $1.4 billion net loss on $5.8 billion in revenue during 2019.

Elsewhere, data storage giant Western Digital has seen its negotiations to acquire chip maker Kioxia collapse, according to multiple media reports, news that comes a couple months after the two sides were reportedly close to striking a $20 billion deal. A group led by Bain Capital has controlled Kioxia since 2018, when the specialist in NAND memory technology spun out from Toshiba. One potential factor in reconsidering a deal: Western Digital stock has declined 26% since early June, which could make the company's shares less appealing as merger currency.

6. Gassing up for IPOs

Volvo Cars set an initial price range for what will be one of the biggest IPOs in Europe this year, revealing plans to sell shares in Stockholm for between 53 and 68 Swedish crowns apiece. That corresponds to an expected market cap of between 163 billion crowns and 200 billion crowns, with the upper end of that range equating to a $23.3 billion valuation. Volvo is currently owned by Geely Holdings, a Chinese auto conglomerate. Polestar, a maker of electric vehicles that spun out of Volvo in 2017, announced its own plan to go public last month, opting for a SPAC merger that valued the company at $20 billion.

Another, much more unexpected auto IPO is also in the works. Hertz, the rental-car company that entered bankruptcy protection during the early days of the pandemic, is planning a return to the Nasdaq, according to a recent IPO filing. The move comes about four months after Hertz formally emerged from bankruptcy under the new ownership of Knighthead Capital Management and Certares Opportunities, which furnished the company with $5.9 billion in new equity as part of the deal. The Hertz IPO filing offers a look at the damage COVID-19 did to the company's finances: It ended up recording $5.3 billion in revenue during 2020, down from $9.8 billion in 2019.

7. Slots of fun

The gambling sector continues to be a hot spot for deals of all kinds in 2021. That trend manifested this week in a pair of different companies that are in the business of building slot machines.

Aristocrat Leisure, an Australian slot-machine maker, got the week started with an agreement to pay A$5 billion (about $3.7 billion) for Playtech, a British developer of gambling software. Aristocrat will pay 680 pence per share to acquire the company, marking a hefty 58% premium to its prior closing price. A couple days later, Bloomberg reported that Scientific Games is considering an IPO for its global lottery business. The maker of slot machines and other gaming systems is based in Las Vegas, but it's said to be mulling a listing of the lottery unit in Australia, with hopes of raising A$4 billion in proceeds. And on Friday, Bloomberg followed up with another report that Scientific Games was in talks with Apollo Global Management and Brookfield Asset Management to instead sell the lottery unit, with a price potentially reaching $7.5 billion.

8. Buzzy tech takeovers

Twitter lined up its latest acquisition this week, striking a deal to buy Sphere, the developer of a group chat app. The London-based startup has a notable pedigree: One of its cofounders is Nick D'Aloisio, who at the age of 17 sold his first startup, called Summly, to Yahoo for $30 million in 2013. And Sphere has raised capital from backers including Airbnb cofounder Brian Chesky and Tinder cofounder Sean Rad, with some $30 million in total venture funding. Twitter has grown increasingly acquisitive this year, with a focus on buying consumer tech startups whose products could help the company build out its suite of offerings aimed at creators.

Instacart, meanwhile, announced an agreement this week to pay $350 million for Caper AI, a maker of smart shopping carts that also function as payment terminals. It's the grocery delivery company's largest acquisition ever, and like Twitter's deal with Sphere, its a purchase aimed at augmenting Instacart's existing offerings with new, complementary tech. This acquisition differs, though, in that it is a prelude to an expected IPO for Instacart that could occur in the next few months.

Things To Read

For a group called ICARDA, researching how agriculture can survive on a warming planet was difficult enough. Then, the civil war began. [The New Yorker]

In the race to create a new, all-encompassing digital reality, tech visionaries like Mark Zuckerberg seem to have forgotten a lesson from science fiction: The metaverse isn't supposed to be a good thing. [The Atlantic]

A thorough breakdown of why Michael Burry, John Paulson, Paul Singer and a host of other Wall Street heavyweights still believe that bitcoin is one big scam. [Intelligencer]

Part of Amanda Knox wants to move on from the tragedy in Italy that changed her life. Another part may never be able to. [The New York Times]

For 20 years, the Colombian government paid a mystic to keep the rain away. Then, he became a laughingstock. But Jorge Elias González still believes. [Bloomberg]

A new study published in Science magazine offers a fascinating (and heart-breaking) look at how elephants from poaching-heavy parts of Mozambique are rapidly evolving to lose their tusks. [BBC]

From Peloton purchases to port pileups, a look at some of the numbers driving America's supply chain woes. [Forbes]

Quote Of The Week

"The idea that I would help [Trump] build out a fake news business called Truth makes me want to throw up."

-An anonymous hedge fund investor, speaking to the Financial Times about his decision to promptly sell his nearly 10% stake in the SPAC that is doing a deal with Donald Trump, willingly missing out on the blank-check vehicle's explosive Thursday gains

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 - Elizabeth Warren vs. PE

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