Forbes - Casper gets comfortable with PE

Kevin Dowd

Staff Writer

November 21, 2021

Big Things

1. The ghost of Casper's DTC dreams

It’s been a big autumn for public debuts in the direct-to-consumer space. Warby Parker, which might be more synonymous than any other company with the rise of the DTC model, went public through a direct listing in September. Rent the Runway conducted an IPO in October. Allbirds followed suit in November.

Casper Sleep beat them all to the punch: It went public early last year. Instead, this week brought a different type of deal for the DTC brand that pioneered the idea of putting a mattress in a box.

Did somebody leave $300 million under the mattress? Getty Images

Casper’s IPO in February 2020 was underwhelming, to say the least. At the time, CNN described it as “officially a disaster.” It’s only been downhill from there. Casper has struggled mightily as a public company, continuing to hemorrhage cash even as the broader mattress market has boomed amid the pandemic. Its stock price has declined more than 70% since early June. So, this week, Casper decided to return to the private market with an agreement to sell itself to consumer-focused private equity firm Durational Capital Management for $6.90 per share, or a little less than $300 million.

That represents a 94% premium to Casper’s stock price before the deal was announced. It’s an impressive vote of confidence from Durational Capital. But it also a far cry from the $1.1 billion valuation that venture capitalists bestowed on Casper not so long ago, in April 2019. The price is a sign of just how far the company’s star has fallen in the two-and-a-half years since—and of the difficulties facing so many DTC companies as the industry struggles to live up to its disruptive dreams.

Casper was founded in 2014 to shake up the mattress industry with a streamlined model and the promise that all consumers needed was its “one perfect mattress.” It quickly became a hot commodity among venture capitalists. By 2015, Casper was valued at more than $500 million. In 2017, it pulled in $170 million in new funding at a $920 million, vaulting itself into the realm of the DTC elite.

In the process, Casper raised capital from some of the biggest names in VC: Norwest Venture Partners, Lerer Hippeau, IVP, NEA. And it also courted a cadre of celebrity investors who chose to chip in some cash in exchange for lending Casper their cache. Adam Levine, Leonardo DiCaprio, Shaun White, 50 Cent, Ashton Kutcher and Kyrie Irving all own stakes in the company.

Those celebrity investors were perhaps as much a marketing move as a source of significant cash. In many ways, marketing was key to the company’s rise. When Casper first got up and running, the DTC industry was much less crowded, and VCs were very optimistic. That allowed it raise tons of funding and flood the market with millennial-targeted advertising to quickly build brand recognition. Casper was also one of the first major DTC brands to begin opening physical locations. It was a retail version of blitzscaling, the same go-go ethos that drove Uber and so many other startups in the early unicorn era.

But things have changed. These days, there’s more competition from other upstarts with the same model, driving up the cost of advertising. Established mattress brands are copying Casper’s best ideas. And profitability remains out of reach: Casper has lost money in every quarter as a public company, with a net loss of $80 million through the first nine months of this year.

Casper was one of several companies trying something similar in the mattress market. These days, few are thriving. Tuft & Needle got out of the race early, selling itself to Serta Simmons in 2018 for $500 million. Purple Innovation, which went public through a SPAC merger in 2018, has seen its stock price slip more than 60% so far this year. In October, Cerberus Capital Management acquired Brooklyn Bedding and Helix Sleep and merged the two former competitors. Leesa hasn’t raised funding since 2019.

There are parallels between the story of Casper and the tale of Blue Apron. Both were direct-to-consumer companies that rode a wave of early investor optimism and podcast advertising to huge valuations and impressive brand recognition. But both were also caught in a crowded field of competitors. And in the end, for both, the business model just didn’t work—at least not in a way that has pleased public investors.

Now, Durational Capital will have a chance to turn things around. But first, the firm’s executives should get a good night’s sleep.

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2. A data-center spending spree

One day, $25 billion worth of deals involving data centers. KKR and Global Infrastructure Partners unveiled an agreement on Monday to buy CyrusOne at an enterprise value of $15 billion, the largest takeover ever conducted in the data-center space. And at the exact same time—7 a.m. ET—American Tower announced its acquisition of CoreSite Realty in a $10.1 billion deal. CyrusOne operates more than 50 data centers around the world, while CoreSite cliams a portfolio of 25 data centers and a suite of other offerings in the U.S.

The moves continue an astounding run of consolidation in the space: The No. 3, No. 4, No. 5 and No. 6 data-center operators in the U.S. have now all been the subject of mergers or acquisitions this year, according to Synergy Research Group, which tracks the space. The pandemic has helped spur companies to invest more resources in digitizing their operations, which led to a surge in demand for data-center services. Now, the companies who offer those services are cashing in.

3. How sweet it is

Sweetgreen could hardly have asked for a better start. We knew demand for the salad chain's shares was strong on Wednesday night, when the company priced its IPO at $28 per share, well above its expected range. We learned just how strong on Thursday afternoon, when Sweetgreen shares started trading near $55. That figure declined as the day went on. But Sweetgreen still finished with a 77% first-day pop, taking its market cap to some $5.3 billion.

Add in employee stock options and other diluted shares, and that valuation climbs to some $6 billion—more than three times greater than the $1.78 billion valuation Sweetgreen attained in January with its final round of private funding. That's a windfall for backers like T. Rowe Price, Fidelity, Revolution and D1 Capital Partners, all of which own at least 6% of Sweetgreen. It's also a win for Naomi Osaka, who owns a smaller stake in the chain.

The company's shares declined notably on Friday, falling some 10% in the early hours of trading. But they were still worth nearly $45 apiece—up 61% from the IPO price. Between Sweetgreen, Dutch Bros., Vita Coco and Portillo's, it's been a big past few months for food and beverage debuts. Next up might be Greek yogurt maker Chobani, which filed this week for its own IPO.

Sweetgreen founder Jonathan Neman was all smiles after this week's debut. The Washington Post via Getty Images

4. Mining mergers

We've seen a series of mergers and acquisitions this year related to real, physical mining—you know, pulling gold or iron ore out of the ground. More recently, though, it's the realm of cryptocurrency mining that's driving deals.

Bitdeer, a crypto mining operation that broke off from Bitmain earlier this year, announced plans on Thursday to go public through a SPAC merger at a $4 billion valuation. A day later, Bloomberg reported that another mining company, Prime Blockchain is nearing a SPAC merger of its own at a $1.5 billion valuation. (Prime Blockchain reportedly mines about five bitcoin per day. Current value: Just shy of $300,000). Core Scientific, which also mines crypto, lined up a $4.3 billion SPAC merger in July. The crypto market took a significant dip this week, but that volatility isn't slowing down dealmakers.

5. Tweetstorms

For better or worse, writing unofficial essays on Twitter is going to get easier. The social media company revealed an acquisition this week of Threader, the developer of an app that allows Twitter users to compile and share long threads of posts. Following the acquisition earlier this year of Revue, which runs a newsletter platform, this is the latest example of Twitter turning to M&A to build out its services for writing in a slightly longer format. The pithiness of the 140-charachter limit is already receding into history.

Donald Trump is no longer allowed to post on Twitter. Which is perhaps the main reason he plans to launch Trump Media & Technology Group, a speculative new social media venture that announced plans in October to merge with a SPAC called Digital World Acquisition Corp., news that caused Digital World's stock price to skyrocket. Now, Elizabeth Warren has some questions. The senator from Massachusetts sent a letter to SEC chairman Gary Gensler calling on the agency to investigate Digital World, the Trump SPAC and the broader SPAC space, citing media reports that the two sides were discussing a deal well before they disclosed such talks to investors. Warren described such a scenario as "a textbook example of a SPAC misleading shareholders."

6. Square footage

Real estate investors Hackman Capital Partners and Square Mile Capital Management are teaming up to acquire the CBS Studio Center in Los Angeles for more than $1.8 billion, according to The Wall Street Journal, snapping up a famed studio lot that has played host to dozens of television shows over the decades, including "Seinfeld," "Big Brother" and "The Mary Tyler Moore Show." The WSJ reports that Hackman and Square Mile emerged from a bidding war that drove the price for the studio $500 million higher than the seller, ViacomCBS, had expected—a sign of how eager investors are to snap up scarce real estate that's in high demand amid the ongoing streaming wars.

CBS Studio Center was also the home to "Parks and Recreation." WireImage

Blackstone is one of those other investors that has been buying up Hollywood assets. Last year, the firm bought a 49% stake in a $1.65 billion portfolio of studio facilities that's controlled by Hudson Pacific Properties, and this July, Blackstone and HPP announced plans to build a studio of their own. More recently, though, the world's biggest private equity firm has been deploying capital with another industry trend in mind. Blackstone bought a stake this week in Life Science Logistics, an operator of controlled-temperature and cold-chain warehouses for the life sciences sector, aiming to capitalize on what LSL chief executive Richard Beeny described as "unrelenting demand" for the company's services since the onset of the pandemic.

7. Paytm's disappointment

Digital payments giant Paytm raised $2.5 billion this week in the largest IPO ever conducted in India. But once the opening bell rang, things went south. The company's stock plummeted 27% during its first day of trading, a sharp rebuke from public investors. That stands in stark contrast to other unicorns that have got off to explosive starts after going public in India earlier this year, including Zomato and Nykaa.

The plunge seems to be something of an Icarus moment for Vijay Shekhar Sharma, the CEO of Paytm's parent company, who had been very open with his desire to break India's IPO record. He got his wish—but in the process, he also created steep losses for the investors who bought into the offering.

8. Subs and suds

If you haven't heard of Firehouse Subs yet, you will soon. That, at least, is the plan at Restaurant Brands International, a fast-food conglomerate that acquired the sandwich chain this week in a deal worth $1 billion. RBI already owns Burger King, Tim Hortons and Popeyes. And the plan is to build Firehouse—which currently operates 1,200 locations across the U.S., Canada and Puerto Rico—into a similar global brand. RBI chief executive José Cil said he sees "tremendous potential to accelerate U.S. and international growth at Firehouse Subs." RBI can now check off burgers, breakfast, fried chicken and sandwiches. What fast-food food group will be next?

If you haven't heard of Heineken, you might be living under a rock. Or at least under a very intense no-alcohol mandate. Regardless: The Dutch brewing giant revealed an agreement to take controlling stakes in South African wine and spirits specialist Distell Group and Namibia Breweries and to combine the two with Heineken's existing business in South Africa, creating a combined company worth €4 billion (about $4.5 billion). The deal values Distell alone at 40.1 billion rand (about $2.6 billion), making it the largest acquisition in Heineken's history, according to PitchBook.

9. Teas and tees

Unilever is the largest manufacturer of tea in the world. But not for long. The consumer goods colossus signed a deal on Thursday to sell the majority of its tea business, including the Lipton brand, to CVC Capital Partners for €4.5 billion (about $5.1 billion). The company has been eyeing a sale for many months now: Growth in the tea division has lagged behind other arms of the Unilever empire, and tea market continues to shrink in relation to coffee and other alternatives. Unilever will now focus on its dozens of other subsidiaries, including famous brands like Ben & Jerry's, Dove, Hellman's and Q-Tips.

While CVC Capital was pouring itself a cup, Fortress Investment Group was teeing one up. The SoftBank-owned firm agreed to buy Accordia Golf, which owns and operates a portfolio of dozens of golf courses in Japan, from South Korean private equity firm MBK Partners, with reports pegging the price at about ¥400 billion (around $3.5 billion). The valuable nature of land in Japan means the number of golf courses in country has been shrinking in recent years, which both reinforces Accordia's market position and creates some interesting opportunities: The Financial Times reports that renewable energy and logistics companies have already approached Fortress about ways they could leverage the company's real estate portfolio.

Things To Read

A 2,668-mile journey from Alabama to Los Angeles offers a glimpse at just how pervasive supply-chain woes have become for companies across the U.S., whether they sell gravestones or Coca-Cola. [Los Angeles Times]

As the science of DNA analysis continues to develop, genetic genealogists have begun using their work to identify killers and criminals. In the process, they're facing new, complicated questions of morality. [The New Yorker]

There were millionaires. There were murders. There was, quite possibly, an affair with her nephew. The true-life, true-crime story of a Houston socialite named Candace Mossler really has it all. [Texas Monthly]

A few weeks ago, the Bored Ape Yacht Club descended on Manhattan. Is the millionaire-minting crypto collective a new kind of media giant? Or is it all one big scam? [Input]

Over the past two years, American healthcare workers have waged an unprecedented war on COVID-19. Now, they're leaving the industry in unprecedented numbers. [The Atlantic]

America has a long, long history of inequality between white homeowners and black homeowners. In places like Orange Mound, a neighborhood in southeast Memphis, that divide has only deepened during the real estate market's recent surge. [The New York Times]

A deep dive on Petershill Partners and what a recent IPO for the Goldman Sachs-backed company means for the future of the GP stakes space. [PitchBook]

Quote Of The Week

"After all, it is a very large bank."

-Carrie Lam, the chief executive of Hong Kong, explaining why JPMorgan Chase leader Jamie Dimon was exempted from quarantine requirements when he traveled to Hong Kong this month

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 - Casper gets comfortable with PE

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