Forbes - Welcome To The New Deal Flow

Kevin Dowd and Becca Szkutak

Staff Writers

We’re used to talking about mergers around these parts. But today, the newsletter has a merger of its own.

Deal Flow has officially combined with Midas Touch, bringing together our coverage of venture capital, private equity, M&A, IPOs and the rest of the dealmaking landscape under one roof. The newsletter will look a little different, but the goal is the same: bringing you all the news, analysis and entertainment you desire from this multitrillion-dollar slice of the global economy.

We hope you enjoy. If you’ve got any thoughts on the new format, or any pictures of your dogs to share, or any news tips—we like those—give us a shout at dealflow@forbes.com. And most importantly: Thanks for reading.

—Kevin Dowd & Becca Szkutak

The Big Take

Ian Lane has spent the past two decades immersed in the private markets. And he’s never seen an environment quite like this one.

Picking his brain about the current state of venture capital and private equity seemed like the perfect way to kick off this new era of Deal Flow.

Lane is a managing director who focuses on co-investments at HarbourVest Partners. He’s also the chair of HarbourVest’s direct investment committee, placing him at the nerve center of a sprawling financial empire that claims some $86 billion in assets under management across a range of strategies, including private equity, venture capital, credit, secondaries and infrastructure.

Last year was an unprecedented one across the private and public markets. There were more VC deals, more PE deals and more M&A deals than any other year on record. The S&P 500 gained 25%. You get the idea. Healthcare and tech were two hot spots, driven in large part by the pandemic trends of telehealth and remote work. It seemed like every company that helped accelerate those transitions was an attractive target for investors, no matter the state of its balance sheet.

Lane has seen the ground begin to shift so far this year, with markets quavering amid a tech-stock rout and the prospect of higher interest rates. Investors are still hunting down deals in healthcare and tech, but they’re now paying much more attention to the bottom line.

“In the first six weeks of 2022, there’s been a real focus on companies that can prove that profitability, yet still benefit from some long-term trends—long-term trends around demographics, long-term trends around technology adoption,” Lane says.

And when he says long-term, he means it. While the pandemic accelerated the shift, he thinks we’re still very much in the early days of digitizing the healthcare industry.

“There’s just so much information, there are so many disparate systems, and then there are complications around healthcare privacy,” Lane says. “It’s an extremely big challenge. And we believe for the next several decades there will be multiple businesses created off this.”

He identifies cybersecurity, digital analytics and fintech (HarbourVest is an investor in Klarna) as other sectors where competition for deals has been fierce. He also points to video games, which have sparked some of the biggest merger agreements so far this year, including Microsoft’s deal to buy Activision Blizzard for $68.7 billion and Take-Two Interactive’s $12.7 billion purchase of Zynga. Meanwhile, the broad potential of the technology that underlies video games has sparked a corporate frenzy around ideas of the metaverse.

HarbourVest doesn’t have an investment in any kind of metaverse startup, but it is examining how video-game technologies might spill over into other industries. “How do you use visualization of information? How do you use that to solve problems?” Lane says. “We think there’s going to be multiple applications that come out of gaming that are beyond people interacting in a game.”

Finding cash to chase down all those deals shouldn’t be a problem. In the U.S. alone, venture capital and private equity firms are sitting on more than $1 trillion in dry powder, per PitchBook. And with the huge returns the private markets have produced in recent years, LPs are hungry for more.

“A lot of their highest-returning sectors within their portfolios have been the private markets,” Lane says. “And at the same time, there's a growing amount of firms and different types of products to enable investors to participate in the private markets. And so what we're seeing is this condensing of timelines. Firms, particularly firms with strong track records, are raising larger amounts of capital in shorter periods of time.”

There is one potential counter to that trend: the denominator effect. Many institutions stick to strict ratios when divvying up their dollars among asset classes. If one strategy underperforms, they might also pull back from others, so as not to grow overexposed. And if the stock market's shaky start to 2022 continues, Lane thinks interest could wane in the private markets, too.

But remember that phrase from earlier: long-term. Lane and his colleagues don’t expect the turbulence of the past six weeks to change the bigger picture. All those records set last year might not last for long.

“We think the future is very bright for the private markets,” Lane says. “But it won't be a straight line.” —K.D.

Regulation consternation

For the second time in the past two weeks, the Securities and Exchange Commission is taking steps to make private equity and venture capital a little less opaque.

The regulator approved a proposal Wednesday that would compel private equity, venture and hedge funds to provide quarterly statements to their investors detailing performance, fees, expenses and compensation. The plan would also prohibit firms from charging fees for unperformed services, such as accelerated monitoring fees, and from giving preferential terms to some LPs. It also calls for annual audits of private funds.

We’re at least two months away from any final decision, but this week’s 3-to-1 vote makes a change seem quite likely.

In late January, the SEC made another proposal that would force private funds to report significant events to regulators on a much tighter timeline. The private markets keep growing bigger, and fund managers are their best to win over retail investors. But remember Newton’s third law. As private equity’s footprint grows, so too the scope of its regulatory oversight. —K.D.

Innovation in Ukraine

Twice now Jeremy Achin has found himself in Ukraine at the wrong time—and he’s still bullish on the engineering talent there.

In 2014, the cofounder and former CEO of $6.2 billion AI unicorn DataRobot touched down to set up an office in Kiev weeks after Malaysia Airlines Flight 17 was shot down over eastern Ukraine, and months after Russia invaded Crimea.

Now, he’s there to launch two new startups and a venture fund from the country after arriving two weeks ago amid the political turmoil. He declines to discuss the details of these new startups, NeoCybernetica and hOS, which have already started raising capital and will operate in the AI space—but he did drop some hints to our colleague Kenrick Cai.

Achin is also serving as the lead investor for $50 million Cortical Ventures, which will invest in seed and Series A investments into AI and machine learning startups globally.

“Of course, I’m monitoring the situation and ready to get out of here super fast if necessary,” he says. “But I don’t want to be the remote corporate CEO that makes decisions about moving people and their families without talking to them. I’m more used to it than most Americans would be.” —B.S.

Jeremy Achin cofounded and served as CEO of DataRobot from 2012 until March 2021. KATIA BABASH

Death of a mega-deal

Nvidia and Arm called off their plans to merge this week in a move worth more than $60 billion, citing serious regulatory challenges the proposed takeover had encountered on both sides of the Atlantic Ocean. I wrote on Tuesday about the deal’s downfall and about how Arm owner SoftBank, fresh off of losing that lucrative exit, still plans to cash in.

For Nvidia, the takeover was an attempt to consolidate power in the rapidly evolving semiconductor market: Arm doesn’t make its own chips, but rather licenses chip designs and other intellectual property to companies across the semiconductor segment and beyond. Regulators feared that its acquisition by one of those clients could crowd out Nvidia’s rivals and curb innovation.

In the U.S., regulatory attention on major mergers and acquisitions has intensified under the Biden administration. This, though, is the biggest deal yet to collapse. Aon and Willis Towers Watson also cited antitrust enforcement when they broke off a planned $30 billion combination last July. —K.D.

India’s e-commerce unicorns

A pair of startups aiming to shake up the Indian logistics space raised new nine-figure fundings from some high-profile investors this week, marking the convergence of two trends: the ongoing emergence of India as a unicorn breeding ground, and the ongoing transformation of the world’s supply chains amid the pandemic.

ElasticRun, which helps mom-and-pop stores in rural India build an ecommerce presence and secure inventory from global consumer companies, brought in $300 million in a deal led by SoftBank, resulting in a $1.5 billion valuation. Goldman Sachs and Prosus also both took part. Our colleague Simran Vaswani has a closer look at the Series E investment.

And Xpressbees, which handles shipments in India for many major e-commerce brands such as FlipKart and Paytm, collected $300 million of its own from Blackstone, TPG and ChrysCapital, good for a $1.2 billion valuation. About $200 million of that total will be a secondary sale of shares, marking a full exit for CDH Investments and a partial one for Alibaba. —K.D.

ElasticRun is targeting mom-and-pop shops in rural India for collaboration with big brands and e-commerce firms. GETTY IMAGES

They Said It

“It doesn’t make any sense how unemployment is through the roof, and everyone just has money somehow. I have never seen an uptick in the higher-end spectrum of things like this, with $200,000 cars being bought like they’re Jell-O.”

—Luxury car broker Faisal Malik, speaking to the New York Post about how Wall Street’s elite are spending their record-breaking bonuses

Just The Facts

— Our own Forbes said Thursday that it will take on a $200 million investment from cryptocurrency exchange Binance, part of a planned $400 million PIPE investment to support Forbes' merger with a SPAC called Magnum Opus Acquisition. The blank-check deal is expected to close this quarter. Binance operates the world's largest cryptocurrency exchange in terms of trading volumes.

— Apax Partners and Iliad want to buy Vodafone’s Italian unit for €11 billion ($12.5 billion). KKR wants to buy Telecom Italia for €10.6 billion ($12 billion). But it doesn’t look like either deal will get done, at least not at that price. Vodafone rejected an offer today from Apax and Iliad (a French telecom rival), and Bloomberg reported that the Italian government is underwhelmed by KKR’s bid. But it seems clear that consolidation will remain a theme in Europe’s telecom sector.

— Another day, another blockchain decacorn. On Tuesday, San Francisco-based Alchemy raised $200 million in a round led by Silver Lake and Lightspeed Venture Partners that values the developer platform startup at a barn-burning $10.2 billion.

— Global shipping giant A.P. Moller-Maersk is putting some of its record-breaking profits from 2021 to work with a $1.68 billion deal to buy Pilot Freight Services, which specializes in home delivery and other on-road logistics services. It’s Maersk’s latest move to diversify from its core ocean freight business. Pilot has been owned by ATL Partners and British Columbia Investment Management since 2016.

— Netherlands-based Protix raised €50 million ($57 million) for its insect-based animal food company. This is not the only startup looking to utilize the creepy-crawling—but very sustainable—protein source. Jiminy’s is also tackling the pet food sector, Mighty Cricket is focused on human food, and Ynsect does some of both.

— Snoop Dogg agreed to buy Death Row Records, his old label, from a music management company backed by Blackstone, marking a rare point of cultural overlap between Stephen Schwarzman and the man who gave the world Doggystyle.

— In a different kind of music deal, Sting became the latest aging artist to sell off his songwriting catalog. Universal Music Group will pay about $250 million to gain full control of both the copyrights and the royalties from Sting’s work, per the New York Times, spanning his solo career and his time with the Police.

— British private equity firm BC Partners closed its 11th flagship fund with €6.9 billion ($7.9 billion) in total commitments, falling short of what Bloomberg reported to be an €8.5 billion ($9.7 billion) target. The fundraising market is expected to be buoyant this year after 2021’s dealmaking flurry, but this is evidence that won’t be the case for every firm.

— Speaking of fundraising buoyancy, though: Global Infrastructure Partners is in talks to raise as much as $25 billion for its next vehicle, according to Bloomberg. That number would mark the largest vehicle in GIP’s history, as well as the largest infrastructure fund ever raised.

— Database software startup Starburst closed a $250 million funding round led by Alkeon Capital. This is the fourth round raised by Starburst since the start of the pandemic, a span in which the company’s valuation has soared from just over $140 million to $3.35 billion, per PitchBook.

— Tiger Global takes a trip to Egypt. The investing conglomerate led a $20 million Series A round for Cairo-based Thndr, which offers an app-based investing platform. African firms Endure Capital, Raba and Prosus Ventures got in on the action, too.

Charted

Supply chain startups are all the rage. Source: PitchBook

Earlier this week, freight forwarding platform Flexport announced a sizable $935 million Series E Round that brings its valuation to more than $8 billion. This round, led by MSD Partners and Andreessen Horowitz, is just the latest mega-deal in the supply chain sector.

The industry’s pain points have been put on full display since the pandemic began, and venture capitalists have looked eager to back potential solutions. More than $65 billion was pumped into the global industry in 2021, according to data from PitchBook, up more than 40% from the $38.4 billion invested in 2020. Investment volume in the industry has risen in the industry by threefold since 2016, when $18.9 billion was invested.

Other recent funding rounds in the sector include a $37 million Series B round for trucking logistics company Leaf Logistics, $5 million for supply-chain visibility platform Leverage and $50 million for supply-chain quality-assurance software Inspectorio.

For more on Flexport, read Alex Konrad’s latest cover story.

What We're Reading

— Carl Icahn’s latest activist battle isn’t about improving a company’s stock price. It’s about saving pigs from McDonald’s. (The Wall Street Journal)

— Giant retailers like Amazon and Walmart have continued to grow their market share during the supply-chain woes of the pandemic. And small businesses have continued to lose out. (The American Prospect)

— This story has it all: money laundering, the largest financial seizure in Justice Department history and cringey YouTube raps. Meet the couple accused of trying to launder $3.6 billion of stolen crypto. (Forbes)

— A thousand-mile journey on the road with Stephen Graves offers a glimpse at some of the real reasons why America is short on truckers. (The New York Times)

— What is Elon Musk’s role at deep-tech startup Neuralink? It’s unclear. Employees claim mixed messages about it from the tech mogul himself, and documents filed with the SEC offer conflicting information. (Fortune)

— The eyes of America this Sunday will descend on SoFi Stadium for the Super Bowl. What they won’t see are the many ways the shiny new football coliseum has transformed the neighborhood around it. (Sports Illustrated)

— A snafu involving file extensions is creating havoc for Mazda-owning fans of public radio in the Pacific Northwest. (The Seattle Times)

What To Watch For

What’s next for Peloton? With acquisition rumors swirling and the company’s stock price plunging, some 2,800 workers lost their jobs this week, including CEO John Foley. (As a parting gift, the fired workers received free Peloton memberships.) Will a company like Amazon or Nike submit a bid in the days to come? The mere prospect helped drive Peloton’s stock price up more than 50% this week, recouping a very small proportion of the past year’s losses.

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.

Becca Szkutak

Staff Writer

I'm a New York-based reporter covering venture capital, startups and investors. I was previously a reporter at the Venture Capital Journal and Private Debt Investor. I graduated from Emerson College in 2017 with a degree in journalism.

Follow me on Twitter at @rebecca_szkutak or send me an email at rszkutak@forbes.com.

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