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M
RKET.CO
DLEMA
THEMID
2020
MARCH
A look at how five of the biggest
tech companies probe new terrain
through early-stage investments
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Contents March 2020 | VOL. 55 | NO. 3
Cover Story
16
Fresh Terrain
A look at how five of the biggest
tech companies explore new territory
through early-stage investments.
Features
24
Viral impact
How the coronavirus is affecting M&A
and private equity.
27
Top investment banks
Houlihan Lokey leads list based on
volume of PE-backed U.S. deals
30
Top private equity firms
Audax ranks first in U.S. deals.
Private Equity Perspective
14
Record year for fundraising
Blackstone’s $26 billion fund marked
the largest buyout fund ever raised.
The Buyside
15
Taking a new path
XPO Logistics is selling assets and has
Watercooler hired a new CFO to lead the process.
6 10 Guest article
Climate change draws PE Future of auto
33
KKR raises first global impact fund to BorgWarner acquires Delphi to
Women on board
target clean water. position for auto industry shift.
Gender diversity on corporate boards
is good for performance and for
8 12 shareholders.
Protecting businesses Why investors like steaks
Advent and Crosspoint buy Smith & Wollensky owner purchases
cybersecurity firm Forescout. Strega to form new hospitality group. Data
35
9 12 Completed deals
Healthy capital Duff & Phelps changes hands CVC Capital, KKR and Olympus
Simple Mills backer Vestar closes Stone Point, Further Global acquire the Partners were among notable buyers
new fund. in January.
financial services firm.
TheMiddleMarket.com March 2020 Mergers & Acquisitions 1
001_MAJ0320 1 2/24/2020 6:22:35 PM
Inside Word March 2020 | VOL. 55 | NO. 3
Alexa, play “Rocketman”
The voice assistant has sold 200 million devices and TheMiddleMarket.com
launched a corporate venture capital fund 1 STATE STREET PLAZA, 27TH FLOOR
NEW YORK, NY 10004-1505 • (212) 803-8200
EDITOR-IN-CHIEF
Mary Kathleen Flynn
MANAGING EDITOR
Like many of today’s technology giants, Ama- Demitri Diakantonis
zon.com Inc. (Nasdaq: AMZN) came from humble CONTRIBUTING EDITORS
Keith Button, Danielle Fugazy
beginnings, as a startup in a garage. It’s said that in GROUP EDITORIAL DIRECTOR,
BANKING AND CAPITAL MARKETS
the early days of the company, founder Jeff Bezos Richard Melville
and his wife couldn’t run a vacuum cleaner or hair
dryer in their house without blowing a fuse, due to EXECUTIVE DIRECTOR, CONTENT OPERATIONS
AND CREATIVE SERVICES
the power drain from the company’s servers. It may Michael Chu
SR. ART DIRECTOR
be a bit fanciful, but I can’t help wondering if that Nick Perkins
domestic inconvenience planted the seed for the
VICE PRESIDENT, CAPITAL MARKETS
smart-home technology that would one day blossom Harry Nikpour (212) 803-8638
SENIOR MARKETING MANAGER
into Amazon’s Echo smart speaker and Alexa voice assistant. Jamie Billington
212-803-6099
Alexa has reached dizzying heights in popularity over the last year. In
January 2019, Amazon announced it had sold 100 million Alexa-powered
CHIEF EXECUTIVE OFFICER������������������������Gemma Postlethwaite
devices. By January 2020, that number had doubled. Smart-home engage-
CHIEF FINANCIAL OFFICER���������������������������������������Debra Mason
ment with Alexa nearly doubled, too, with people using the voice assistant for
CHIEF STRATEGY OFFICER�������������������������������������������Jeff Mancini
smart-home controls hundreds of millions of times every week. CHIEF CUSTOMER OFFICER����������������������������������������Dave Colford
Within Amazon, Alexa is the also focal point for much activity. The tech- CHIEF CONTENT OFFICER�������������������������������������������David Evans
nology even has its own venture capital fund. The Alexa Fund invests up to VP, PEOPLE & CULTURE����������������������������������������������������Lee Gavin
$200 million in early-stage voice technology companies. It focuses on hard-
ware products both inside and outside the home, businesses that deliver new LICENSING AND REUSE OF CONTENT:
services to devices enabled by Alexa and companies that can contribute to Contact our official partner, Wright’s Media, about available
usages, license and reprint fees, and award seal artwork
at arizent@wrightsmedia.com or (877) 652-5295 for more
the science behind voice technology. information. Please note that Wright’s Media is the only
authorized company that we’ve partnered with for Arizent
Many of today’s big tech companies are engaging in corporate venture materials.
capital (CVC), perhaps taking a page from their own histories. Bezos, for ex-
CUSTOMER SERVICE
ample, began raising about $1 million from around 20 angel investors in 1995, help@arizent.com or (212) 803-8500
then raised an $8 million Series A from Kleiner Perkins in 1996 and then took
Amazon public in 1997. Mergers & Acquisitions Vol. 55/No. 3 (ISSN 0026-0010) is
published monthly with combined issues in July/August and
November/December by Arizent, One State Street Plaza,
The end goal for startups backed by CVC may more likely be an M&A deal, 27th Floor, New York, NY 10004-1505. Yearly subscription is
$1,995; $2035 for one year in all other countries. Periodical
rather than an IPO. That’s one potential benefit of CVC. If the company doing postage paid at New York, NY and U.S. additional mailing
offices. POSTMASTER: Send address changes to Mergers
the investing likes how the startup develops, the investor is in a great position & Acquisitions / Arizent, One State Street Plaza, New York,
NY 10004. For subscriptions, renewals, address changes
to snatch it up. and delivery service issues contact our Customer Service
department at (212) 803-8500 or email: help@arizent.com.
Check out our cover story, where we explore how Amazon and other tech This publication is designed to provide accurate and
authoritative information regarding the subject matter
giants are using CVC in tandem with their R&D and M&A efforts. M&A covered. It is sold with the understanding that the publisher
is not engaged in rendering financial, legal, accounting, tax,
– Mary Kathleen Flynn or other professional service. Mergers & Acquisitions is a
registered trademark used herein under license.
©2020 Arizent and Mergers & Acquisitions. All rights reserved.
2 Mergers & Acquisitions March 2020
002_MAJ0320 2 2/24/2020 4:37:19 PM
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003_MAJ0320 3 2/24/2020 11:54:58 AM
What’s going on
@TheMiddleMarket.com
www.themiddlemarket.com
Conversations Opinion Data
What’s ahead Inclusion Weekly roundups
We conducted interviews with 8 invest- Having a more diverse workforce and Check our website every Friday for PE
ment bankers and other M&A advisors. board of directors leads to a greater fundraising scorecard and the Weekly
Some said the first half of the year will diversity of ideas. But it’s not just wrap. Recent deals mentioned include
be robust, while others said the un- greater diversity of ideas which leads Morgan Stanley’s purchase of E*Trade
certainty may have a negative impact to innovation; greater board diversity and Franklin Resources’ acquisition of
throughout 2020. also sets the tone for a more inclusive Legg Mason.
workplace culture.
4 Mergers & Acquisitions March 2020
004_MAJ0320 4 2/24/2020 4:41:18 PM
005_MAJ0320 5 2/24/2020 11:54:58 AM
Watercooler
BLOOMBERG NEWS
Climate change draws PE
KKR raises first global impact fund to target clean water
By Demitri Diakantonis and Mary Kathleen Flynn
KKR (NYSE: KKR) has raised $1.3 “We are thrilled to see our inves- energy is becoming “one of the most
billion for its global impact fund. tors’ shared enthusiasm for the tre- active sectors in infrastructure,” David
The fund is “dedicated to investment mendous opportunity we see ahead Giordano, global head of BlackRock
opportunities in companies whose for KKR Global Impact and will build renewable power, told Bloomberg
core business models provide com- on this to help set the new standard News. It comes, he said, “as global
mercial solutions to an environmental across investing, value creation and power generation shifts from two-
or social challenge,” the firm says. measuring success in the space,” says thirds fossil fuels to two-thirds renew-
The fund will target companies in the Alisa Amarosa Wood, KKR partner ables over the next few decades.”
lower middle-market that contribute and head of KKR’s private market Jeff Bezos is also committing to
towards the United Nations Sustain- products group. investing in climate change. The
able Development Goals. The themes Investment firms are raising funds Amazon.com Inc. (Nasdaq: AMZN)
that the fund will focus on include: that focus on climate change. For founder has created the Bezos Earth
climate change, clean water, work- example, BlackRock has raised $1 Fund that is starting with $10 billion
force development, waste, mobility billion to invest in wind, solar and and will begin to issue grants in a few
and sustainability. battery-storage projects. Renewable months.
6 Mergers & Acquisitions March 2020
006_MAJ0320 6 2/24/2020 4:39:17 PM
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Watercooler
BLOOMBERG NEWS
ADOBE STOCK
Double fundraising Protecting businesses He
Battery Ventures raises $2 billion to go Advent and Crosspoint buy Sim
after enterprise companies cybersecurity firm Forescout new
Battery Ventures raised two new funds totaling $2 billion, Advent International and Crosspoint Capital are buying cy- Midd
almost double its last total and highlighting investors’ bersecurity company Forescout Technologies Inc. (Nasdaq: has r
growing interest in companies that cater to other busi- FSCT) for $1.9 billion. “As enterprises continue to shift to the on th
nesses, rather than consumers. cloud and decentralized networks, today’s chief information with
The new funds, a $1.2 billion Battery Ventures XIII, along security officers are looking for secure solutions to increase The f
with an $800 million side fund to help back extra-large visibility and provide orchestration, making their network vider
bets, will keep investing in sectors like business-to-business controls more seamless,” says Crosspoint managing partner retai
software, information infrastructure and cybersecurity. Greg Clark. Simp
Battery’s successes include tax-compliance software “Forescout’s platform is already ahead of the curve, and “V
maker Avalara Inc., which first received an investment in we believe we can further advance the company’s market lever
2012. Several of Battery’s portfolio companies were also position by applying the collective experience and exper- overl
acquired by bigger companies or private equity firms, tise in cybersecurity software of the Advent and Crosspoint team
including WebPT, ClearCare and Glassdoor. Capital team.” deliv
The transactions helped lift interest in enterprise overall, Forescout offers cloud, device and network security O’Co
along with the performance of Battery’s funds. Fund IX, services. The company previously worked with Aflac (NYSE: veste
which dates from 2010 and held investments in some of the AFL), Humana (NYSE: HUM) and JPMorgan Chase (NYSE: acqu
recently exited portfolio companies, has an annual internal JPM). “We are still in early innings of a large market oppor- Ab
rate of return of 26 percent, according to Bloomberg data. tunity as every organization needs visibility into what is con- in 20
Battery hasn’t entirely escaped the malaise hanging necting to their network and how to mitigate against high acco
over some consumer companies. It is an investor in Wag risk devices, including non-traditional IoT and OT devices,” 2013,
Labs Inc., a troubled dog-walking company. Some of its adds Forescout CEO Michael DeCesare. Advent manages Almo
other retail businesses appear to have more momentum, about $57 billion in assets. comi
such as StockX, a sneaker-trading marketplace. The firm Morgan Stanley and Wilson Sonsini Goodrich & Rosati 2013
last raised two funds totaling $1.25 billion in February are advising Forescout. Ropes & Gray is advising Advent. Ki
2018. Financing is being provided by Owl Rock Capital. Monu
8 Mergers & Acquisitions March 2020 TheM
008_MAJ0320 8 2/24/2020 4:39:31 PMADOBE STOCK
ADOBE STOCK
SIMPLE MILLS
Healthy capital PE firms invest in risk
Simple Mills backer Vestar closes “The risks facing financial institutions
new fund are multiplying”
cy- Middle-market private equity firm Vestar Capital Partners Gryphon Investors has acquired Ncontracts, a provider
aq: has raised its seventh fund at $1.1 billion. The firm focuses of risk management software for the financial services
the on the consumer, business services and healthcare sectors, sector. Ncontracts is Gryphon’s second deal in the risk and
tion with a focus on family and founder-owned opportunities. compliance industry, following the firm’s 2018 investment
ase The fund has already made two investments in IRI, a pro- in RegEd.
k vider of big data and predictive analytics for the consumer, “The risks facing financial institutions are multiplying
tner retail and media sectors; and better-for-you food brand and becoming more complex, and no bank, regardless of
Simple Mills. size, can justify using spreadsheets today to manage the
and “Vestar’s talented investment team consistently process when the stakes are so high,” says Gryphon princi-
et leverages deep sector relationships to uncover pal Jon Cheek. “Ncontracts’ software has made it easy for
r- overlooked opportunities, while our Vestar resources financial institutions of all sizes to manage the spectrum
oint team works closely with company management to of complex risks and regulations facing them today.”
deliver operational improvement,” says Vestar CEO Dan Ncontracts’ software products are designed to help
O’Connell. Since it was founded in 1988, Vestar has in- companies with compliance, vendor management and en-
YSE: vested $8 billion in 83 companies and made 200 add-on terprise risk management. The target has more than 1,300
E: acquisitions. customers in the U.S. Gryphon invests up to $300 million
por- About three-quarters of PE managers raising a fund in businesses that have up to $500 million in enterprise
con- in 2020 expect it to be larger than the prior money pool, value.
gh according to an EY survey. That’s the highest share since “While Ncontracts has experienced tremendous growth
es,” 2013, when EY first started posing the question to firms. over the last few years, there are still opportunities for
es Almost 60 percent of managers plan to raise a fund in the expansion across this fragmented market,” says Ncon-
coming year, the survey found. Vestar raised its last fund in tracts CEO Michael Berman. “With Gryphon’s resources
ti 2013 at $814 million. and leadership, we are confident that we can continue to
t. Kirkland & Ellis advised Vestar on the fundraise while increase our market share, and we are excited to embark
Monument Group served as placement agent. upon a strong partnership.”
TheMiddleMarket.com March 2020 Mergers & Acquisitions 9
009_MAJ0320 9 2/24/2020 4:39:51 PMWatercooler
DELPHI TECHNOLOGIES
BLOOMBERG NEWS
Future of auto Mining for deals
BorgWarner acquires Delphi to position M&A opportunities in the mining sector
for auto industry shift dry up
BorgWarner Inc. (NYSE: BWA) is buying Delphi Technolo- Private equity firms lost interest in the mining world in 2019,
gies PLC (NYSE: DLPH) in a deal that values the target pumping 75 percent less money into the sector as they
at $3.3 billion. The transaction brings together two auto focused more on funding existing investments.
suppliers that are positioning for the auto industry’s shift Investments dropped to $500 million from $2 billion a
to hybrid and electric vehicles, reports Bloomberg News. year earlier, according to a report by law firm Bryan Cave
Forced by governments around the world to improve fuel Leighton Paisner. That was the lowest amount since the
efficiency and cut emissions, automakers are turning to company started tracking the space in 2013.
smaller, lighter engines and electrifying their lineups. Private equity poured money into the mining sector
“This exciting transaction represents the next step in several years ago when big producers were forced to shed
BorgWarner’s balanced propulsion strategy, strengthening assets amid a collapse in commodity prices. That trend ap-
our position in electrified propulsion as well as our com- pears to have ended, and the law firm said private equity is
bustion, commercial vehicle and aftermarket businesses,” now focused on raising additional funds for existing invest-
says BorgWarner CEO Frédéric Lissalde. ments rather than looking for new deals. There was also a
BorgWarner makes auto parts for hybrid and electric dearth of big single deals last year.
cars, such as the electric drive module pictured on display “Increases in stakes are often focused on protecting exist-
at Automotive World in Tokyo. Delphi was one of two com- ing investments from dilution where additional capital is
panies to split from Delphi Automotive in 2017. The other needed to progress the project or for working capital,” Alex-
was Aptiv Plc, focused on new technology like advanced ander Keepin, head of mining at BCLP, said in the report.
safety systems and self-driving car software. The split left Gold remained the most popular commodity sector in
the smaller Delphi Technologies to focus on supplying 2019, attracting $192 million in investment, followed by lead
engine and transmission parts. BoFA Securities, Rockefeller and copper. For 2020, the law firm expects to see significant
Financial and Simpson Thacher & Bartlett are advising disposals by private equity.
BorgWarner. Goldman Sachs (NYSE: GS) and Kirkland are A number of funds “are now in year seven of what is often
advising Delphi. a 10-year fund life,” Keepin said.
10 Mergers & Acquisitions March 2020
010_MAJ0320 10 2/24/2020 4:39:58 PM®
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011_MAJ0320 11 2/24/2020 11:54:59 AMWatercooler
Wa
sh
Ber
BH
SMITH & WOLLENSKY RESTAURANT GROUP
Berks
agree
30 da
Inc., w
ADOBE STOCK
St. Lo
in ca
pape
Why investors like steaks Duff & Phelps changes hands 2018,
mone
Smith & Wollensky owner buys Strega Stone Point, Further Global, purchase Bu
pape
to form new hospitality group the financial services firm
indus
cal a
Irish investment firm Danu Partners has acquired upscale Stone Point Capital and Further Global are buying financial year
Italian restaurant operator the Strega Group from the services firm Duff & Phelps from Permira Funds for $4.2 bil- BH M
Varano Group. Danu owns steakhouse chain Smith & Wol- lion. Permira is keeping a stake in the target. Duff & Phelps coun
lensky which it purchased in 2016. As a result of the deal, advises companies on valuation, corporate finance, investi- to co
Danu has formed a new restaurant company called PPX gations, disputes, cybersecurity, compliance and regulatory “W
Hospitality Brands. The latter will manage Smith & Wol- matters. group
lensky and Strega. Duff & Phelps’ clients include 70 percent of top-tier pri- reaso
“Following the successful acquisition of the Smith & vate equity, law firms and hedge funds. The firm bought cy- posit
Wollensky Restaurant Group in 2016, the acquisition of The bersecurity company Kroll in 2018 and claims and noticing indus
Strega Group is an attractive opportunity to add highly administrator Prime Clerk in 2019. Duff & Phelps has about state
complementary Boston-based operating businesses to our 3,500 professionals worldwide. “We are thrilled to have the In
hospitality portfolio,” says Danu co-founder Leonard Ryan. opportunity to partner with Duff & Phelps again and par- he w
In addition to PPX, Danu’s other hospitality investment is ticipate in the next phase of growth for the company,”says dema
the Mercantile Group, which operates a group of restau- Stone Point CEO Chuck Davis. and t
rants, bars and hotels along with a nightclub and a music “The firm maintains a strong brand position and an out- succe
venue in Dublin. standing entrepreneurial culture that will drive its continued adve
Strega’s restaurant group includes Strega Waterfront, success.” Duff & Phelps is not the only bank to announce a Th
Strip by Strega and Strega Prime, as well as several cafés deal recently. Earlier in January, Piper Jaffray completed its home
and a catering business that are all in and around Boston. merger with Sandler O’Neil to become Piper Sandler Cos. Buffa
“The Strega brand was built by my passion and determi- (NYSE: PIPR). more
nation to add to Boston’s outstanding culinary scene over UBS Investment Bank, Goldman Sachs (NYSE: GS), Ever- It’
the past 17 years and to have this opportunity to pass on core and Kirkland & Ellis are advising Duff & Phelps. Skad- ate a
the Strega experience to a company like Danu Partners den, Arps, Slate, Meagher & Flom LLP is advising Permira. prefe
is an incredible opportunity,”adds Varano Group founder Simpson Thacher & Bartlett LLP and White & Case LLP are
— Blo
Nick Varano. advising the buyers. Goldman Sachs is providing financing. to the
12 Mergers & Acquisitions March 2020 TheM
012_MAJ0320 12 2/24/2020 4:40:09 PMWarren Buffett
sheds newspapers
Berkshire Hathaway sells
BH Media
Berkshire Hathaway Inc. (NYSE: BRK.A
agreed to sell its BH Media unit and its
30 daily newspapers to Lee Enterprises
Inc., which owns papers including the
ADOBE STOCK
St. Louis Post-Dispatch, for $140 million
in cash. Lee has been managing the
papers for Buffett’s company since
ds 2018, and Berkshire is loaning Lee the
money for the purchase.
e Buffett, who got a job delivering
papers as a teenager and invested in the
industry to capitalize on its one-time lo-
cal advertising stronghold, lamented last
ncial year that most newspapers are “toast.”
bil- BH Media, which owns papers across the ®
lps country, has been cutting jobs for years
esti- to cope with declining ad revenue.
tory “We had zero interest in selling the 13TH ANNUAL
ri-
group to anyone else for one simple
reason: We believe that Lee is best
INDUSTRIAL CONFERENCE
cy- positioned to manage through the
ng industry’s challenges,” Buffett said in a JUNE 4, 2020 | 2 PM - 6:30 PM
out statement Wednesday. NEW YORK ATHLETIC CLUB
the In 2018, Buffett acknowledged that
r- he was surprised that the decline in The Industrial sector is changing rapidly with advancements in
technology, AI, and data analytics. How will these advancements
ays demand for newspapers hadn’t let up drive value and deals in middle market industrial transactions.
and that his company hadn’t found a Please attend to network and learn more from key industry
successful strategy to combat falling executives and private equity decision makers.
ut-
ued advertising and circulation.
ea The Lee sale will include Buffett’s Vikash Magdani
Executive Director, ACG NY
d its hometown Omaha World-Herald and vmagdani@acgnyc.org
s. Buffalo News, a paper he’s owned for 347.633.7734
more than four decades.
aclay@acgnyc.org
ver- It’s a rare move for the conglomer-
d- ate as Buffett has long said that he
a. prefers to hold onto businesses. M&A
are
— Bloomberg News contributed
ng. to these reports.
TheMiddleMarket.com March 2020 Mergers & Acquisitions 13
013_MAJ0320 13 2/24/2020 4:45:51 PMPrivate Equity Perspective
overall. Direct lending funds,
propelled by the threat of
further regulation that would
curtail lending from tradi-
tional banks, continue to fill
the void and lend heavily to
middle market companies.
Additionally, private debt
keeps attracting investors
thirsty for yield in a low-
growth regime. As capital
has flooded in and AUM has
skyrocketed more than 350
percent in the past decade,
BLOOMBERG NEWS
many industry observers
fear investors have taken on
more risk than they realize.”
Looking ahead, the report
Record year for fundraising writers were cautiously opti-
mistic. “Many of the secular
tailwinds remain intact,
Blackstone’s $26 billion fund marked the largest buyout fund meaning fundraising should
ever raised, as appetite for the asset class grew remain robust heading
into 2020,” says the report.
By Mary Kathleen Flynn “However, the oft-discussed
threat of an impending
recession could finally put
Private capital fundraising posted a ban- institutional investors increased their alloca- a meaningful dent in the
ner year in 2019, with $888 billion raised tions to private markets, generally by lower- fundraising totals, and LPs’
across 1,064 funds, the most private capital ing their allocations to hedge funds and/or desire to co-invest and
ever raised on an annual basis, according to public equities. execute deals directly may
PitchBook’s Private Fund Strategies Report. Venture capital fundraising figures fell reduce the need for these
The $26 billion flagship vehicle raised by slightly from the previous year, but PitchBook investors to make fund com-
Blackstone marked the largest buyout fund says the fundraising outlook for VC remains mitments.”
ever. bright. “U.S.-based funds in 2019 had a gar- For ongoing coverage of
“Globally, PE firms raised more money gantuan year for investment realizations and private equity fundraising,
than they have in any prior year, closing on saw exit value more than double YoY, which see Mergers & Acquisitions’
nearly half a trillion dollars with LPs plowing will eventually turn into distributions to LPs. weekly column on www.
both freshly allocated capital and reinvested As LPs receive their cash, we expect them to themiddlemarket.com. And
distributions into the strategy,” says the re- recycle it into new venture funds.” for more analysis on 2019,
port. “Many GPs sought to capitalize on the Private debt fundraising rebounded in turn to page 30 of this
favorable environment by raising substan- 2019, notching the second-highest amount of issue to read profiles of Au-
tially larger amounts than they had for their capital raised annually in the strategy’s his- dax, HarbourVest, Genstar
previously marketed funds.” tory, says the report. “As in other private mar- and other top firms that
The role private funds play in institutional ket strategies, the number of funds closed were prolific throughout
portfolios continued to grow. On average, fell YoY despite more capital being raised the year. M&A
14 Mergers & Acquisitions March 2020
014_MAJ0320 14 2/24/2020 4:37:47 PMThe Buyside
Taking a new path
business for $225 million.
The target operates five
logistics warehouses. Also,
J.B. Hunt Transport Services
XPO Logistics is selling assets and has hired a new CFO to Inc. (Nasdaq: JBHT) has
lead the process acquired RDI Last Mile Co.,
which offers logistics and
By Demitri Diakantonis delivery services.
Automation and robot-
ics is also a big need in the
logistics sector. E-com-
The transporta- alternatives,” Jacobs told CNBC. “We were merce company Shopify
tion and logistics looking for a CFO with good relevant experi- Inc. (NYSE: SHOP) acquired
sector is fragment- ences. He’s a well-rounded CFO, he’s tested, 6 River Systems for $450
ed, and companies proven, lots of experience in divestitures, million. 6 River Systems
in the sector have asset sales and spinoffs.” uses cloud-based software
been making deals XPO’s timing is good: M&A in the logistics and mobile robots called
as they look for space is being driven by a demand for faster “Chuck” that assist employ-
growth opportuni- shipping and a race to add more fulfillment ees with inventory replen-
ties. There were $47 centers. More local fulfillment centers mean ishment, picking, sorting
billion in transporta- faster delivery times and lower last-mile and packing.
tion deals announced in North America in costs, which are costs for the last legs of XPO plans to accelerate
2019, a 47 percent rise from 2018, according deliveries for both retailers and customers. the pace of adding automa-
to Bloomberg News. Some examples: C.H. Robinson World- tion in its warehouses, and
XPO Logistics Inc. (NYSE: XPO) has been wide Inc. (Nasdaq: CHRW) is buying the company hopes it will
very active, making 19 deals worth $7.5 bil- Roadrunner Transportation Systems Inc.’s be in a better position to
lion since CEO Bradley Jacobs took over in (NYSE: RRTS) prime distribution services drive future growth. M&A
2011.
Now XPO wants to slim down and is
considering selling one or more assets. The
company has not specified which units are
for sale, mentioning only that it plans to
hold on to its North American less-than-
truckload business.
“The process is off to an excellent start.
There’s a lot of good momentum more than
we had expected,” Jacobs told investors.
To help lead the process, XPO named
David Wyshner as chief financial officer.
Wyshner most recently served as CFO of
Wyndham Hotels & Resorts Inc., a spin-off
of Wyndham Worldwide Corp. Wyshner led
Wyndham’s $2 billion purchase of La Quinta
XPO LOGISTICS
Holdings in 2018.
“He will certainly be a key member of the
team that is leading that review of strategic
TheMiddleMarket.com March 2020 Mergers & Acquisitions 15
015_MAJ0320 15 2/24/2020 4:38:19 PMTheM 016_MAJ0320 16 2/24/2020 5:58:46 PM
A look at how five of the biggest tech companies explore
new territory through early-stage investments
By Demitri Diakantonis
Once venture capital-backed startups themselves, today’s tech giants know a
thing or two about VC seed money. It’s fitting that many of them have created cor-
porate venture capital groups of their own. These CVCs help their owners experi-
ment and nurture new technologies and ideas in the early stages, without requiring
the commitment of an acquisition.
The CVC strategy often augments a company’s research and development ef-
forts as well as complementing its M&A strategy. Middle-market dealmakers would
be wise to track the VC investments of the five companies we highlight in this
story: Amazon, Google, Intel, Microsoft and Salesforce.
A CVC fund can be formed either as the independent arm of a corporation
or as a dedicated fund within the same company. In the past, strategic buyers
invested only in tech companies that directly fit with their core products. But as
time went on, CVC funds started behaving more and more like traditional venture
capital funds.
Using venture capital has advantages for strategic buyers. One is that they can
gain access to new technologies while doing due diligence for potential deals.
Corporations are partnering with AI startups in particular as they look for com-
panies that will help them compete with new players.
For example, Microsoft has partnered with KenSci, which developed AI software
that predicts care and cost risks for patients. AI startups raised a worldwide record
of $26.6 billion in 2019, compared to about $22 billion in 2018, according to CB
Insights.
TheMiddleMarket.com March 2020 Mergers & Acquisitions 17
017_MAJ0320 17 2/24/2020 5:58:47 PMCover Story
and we want to continue to make the
entire smart home experience even
simpler and more convenient,” says
Alexa Fund director Paul Bernard.
It’s not just smart home technology
that Alexa Fund is interested in: The
fund is targeting businesses in educa-
tion software. Alexa Fund was among
the investors that closed a seed fund-
ing round in Bamboo Learning at the
end of 2019. Bamboo Learning has
developed an Alexa skill that allows
families in more than 80 countries
learn about historical figures, includ-
ing writers, scientists, musicians, social
BLOOMBERG NEWS BLOOMB
justice activists and artists.
Hey Alexa… “Customers love using
G
Alexa to control their
Amazon formed a venture capital fund to find more Cap
connected devices and
technologies for Alexa devices inve
we want to continue to
make the entire smart
The Alexa Fund, Amazon.com Inc.’s The Alexa Fund has specific invest- home experience even Bu
(Nasdaq: AMZN) venture capital fund, ment criteria: It’s looking for compa- tome
simpler.”
invests up to $200 million in VC in nies that can offer convenience via bette
voice technology companies. The fund one’s voice, and businesses that solve intell
focuses on hardware products both hard problems in creative ways and “Bamboo Learning is a true in- vestm
inside and outside the home, busi- are a good fit with the Alexa Skills Kit novator in developing entertaining giant
nesses that deliver new services to or Alexa Voice Service. Alexa Skills Kit educational Alexa skills like Bamboo GOO
devices enabled by Amazon’s Alexa is a set of tools that build apps for the Luminaries,” adds Bernard.” capit
and companies that can contribute to device; Alexa Voice Service is built into Venture capital is just one prong focus
the science behind voice technology. Internet-connected devices that have of Amazon’s strategy for develop- “W
That includes text to speech, natural a microphone and a speaker. ing voice-assisted technology. On its been
language, automatic speech recogni- In 2020, Alexa Fund participated M&A prong, the company bought data comp
tion and artificial intelligence. in a Series A round of VC funding for analysis and search engine company whic
“We believe experiences designed Dublin-based Sweepr. Sweepr’s smart Graphiq, which collects and organizes early
around the human voice will funda- technology offers technical support product details to make it easier for on it
mentally improve the way people use for Internet-connected homes without people to get verbal answers. Gr
technology,” Amazon’s website states. having to go through customer service. In research and development, inves
Voice and text-assisted technology, The program delivers specific instruc- Amazon has developed Alexa-powered metr
including the Alexa device, is becom- tions, photographs and videos in an earbuds that have a built-in voice uses
ing ubiquitous in everyday shopping easy-to-understand format that are assistant. The company has also de- base
routines. Voice shopping on Alexa is customized for each person. veloped early-stage smart glasses that “W
catching on quickly, ranging from or- Sweepr can answer everyday simple access Alexa with a push of a button. face-
dering food to restocking refrigerators, questions such as “Why won’t Netflix As Amazon rolls out more voice- tion
and investors are figuring out how to load?” “Customers love using Alexa enabled technologies, it will look for base
take advantage. to control their connected devices startups to help the company grow. typin
18 Mergers & Acquisitions March 2020 TheM
018_MAJ0320 18 2/24/2020 5:58:52 PMthe people read and speak in many of the
n world’s most popular languages for
s free, along with a premium service.
The company, which says has more
ogy than 30 million users, also teaches
he fictional languages, such as Klingon.
ca- The online language learning market
ong will top $20 billion by 2026, predicts
nd- Verified Market Research. Duolingo
the has been investing in AI and machine
s learning so it can customize lessons
ws to individual learners as a human
teacher might.
d-
ocial “Typing biometrics
is the best form of
BLOOMBERG NEWS
Google’s trifecta
identifying people
g without compromising
privacy or security.”
CapitalG, Gradient Ventures and GV allow Google to
nd
invest in AI and other technologies Google’s third fund, GV (formerly
o known as Google Ventures), invests in
t enterprise and frontier tech, includ-
n Businesses are monitoring cus- of identifying people without com- ing AI. GV has backed more than 400
tomer behavior and aiming to offer promising privacy or security,” says companies since it was formed in
better experiences through artificial Gradient Ventures general partner 2009, and it manages more than $4.5
intelligence, and this is creating in- Darian Shirazi. billion.
vestment opportunities for technology Google has also expanded its AI GV recently invested in Viz.ai,
giants. Enter Alphabet Inc.’s (Nasdaq: portfolio through M&A. In 2018, the which uses AI to help doctors and
oo GOOG) Gradient Ventures, a venture company acquired Onward, an AI- medical professionals detect early
capital arm that launched in 2017 and powered chat services company that signs of stroke. Viz.ai uses deep-
g focuses on early-stage AI startups. helps businesses connect to custom- learning algorithms to look for stroke
“While artificial intelligence has ers. symptoms in a CT scan and alerts
its been around for a long time, most AI Google has other VC funds that doctors. “By alerting the right doctor
data companies are just getting started, back AI-related companies. For ex- at the right time and synchronizing
any which is why we primarily invest in ample, Google’s growth equity fund, care, Viz has the potential to signifi-
izes early-stage rounds,” Gradient states called CapitalG, led a Series F round cantly reduce the time to treatment
or on its website. of VC investment in language learn- and greatly increase a patient’s
Gradient led a Series A round of VC ing application Duolingo in December chances of a good outcome,” Viz.ai
investment in 2019 in behavioral bio- 2019. “Duolingo has been adding says.
wered metrics company Typing DNA, which users and revenue at an impressive Google also has long term AI proj-
uses AI to authenticate user identities pace, continuing to solidify their posi- ects of its own in the pipeline such as
e- based on how they type. tion as the number one way to learn wearable sensors, real-time transla-
that “With global regulation impacting a language globally,” says CapitalG tions and technology that detects
on. face-recognition-based authentica- general partner Laela Sturdy. Since sign language.
tion and hackers targeting SMS- it was founded in 2013, CapitalG has Looking ahead, AI will remain an
or based two-factor authentication, invested in more than 25 companies. important technology for Google and
w. typing biometrics is the best form Duolingo, founded in 2011, lets other startups that will seek funding.
TheMiddleMarket.com March 2020 Mergers & Acquisitions 19
019_MAJ0320 19 2/24/2020 5:58:54 PMCover Story
data into business value and driving
meaningful revenue for the company,”
Intel adds in a release.
Besides AI, Intel is looking to grow
in other sectors, such as real estate
software. Demand for real estate tech
is rising, as firms rely on technology to
assist them in managing their deals
and properties, driving deal activity.
Intel Capital recently backed
Cherre, a Software-as-a-Service
provider for the real estate industry.
Cherre offers potential investment
data on more than 170 million
properties.
BLOOMBERG NEWS BLOOMB
“Intel’s AI strategy is
Diversified investing grounded in the belief
that harnessing the
In
Intel’s 30-year old VC fund focuses on AI and real estate power of AI to improve Mic
technology business outcomes dea
requires a broad mix of
Intel Capital, the venture capital which remove some of the mystery of
technology.” Fo
arm of Intel (Nasdaq: INTC), was AI technology, will continue to gain as M
formed in 1991. Since then, the fund importance, and we look forward to “The global real estate industry is as ha
has invested more than $12 billion in helping them accelerate AI adoption undergoing a transformation, cata- startu
more than 1,500 companies, and 677 and address the need for explain- lyzed by massive data flows and the focus
portfolio companies have either gone ability.” application of artificial intelligence,” bring
public or been involved in a merger. Intel is making acquisitions to ac- says Intel Capital senior manag- not ju
Broadcom Inc. (Nasdaq; AVGO) and celerate growth in AI. In 2019, Intel ing director Trina Van Pelt. “Despite its we
VMware Inc. (NYSE: VMW) are some paid $2 billion for Habana Labs, a its substantial impact on the global MSFT
of Intel Capital’s past investments. developer of AI training technology economy, this sector is still in its on AI
Artificial intelligence is one area for data centers. “This acquisition infancy when it comes to data-centric M
that Intel Capital focuses on. The fund advances our AI strategy, which is to investing and underwriting decisions. trave
invested in AI company Kyndi in 2019. provide customers with solutions to fit We see Cherre as critical infrastruc- targe
Kyndi helps businesses find hard-to- every performance need – from the ture to accelerate the future of this other
locate information within collections intelligent edge to the data center,” industry.” then
of documents without requiring large, says Navin Shenoy, executive vice In other recent investments, Intel custo
labeled data. president and general manager of the Capital and Eight Roads Ventures led ers b
“Enterprises are turning to AI to data platforms group at Intel. a funding round in human resources book
take advantage of new opportuni- “Intel’s AI strategy is grounded in technology company Gloat in De- ing te
ties and to solve pressing business the belief that harnessing the power cember 2019. Gloat’s software helps natur
problems, and we expect AI’s use of AI to improve business outcomes businesses retain employees through custo
in business will continue to grow as requires a broad mix of technol- AI that compares employees’ work tract
the technology matures,” says Nick ogy, hardware and software, and full skills, interests and career histories “C
Washburn, senior managing director ecosystem support. Today, Intel AI to recommend potential projects and busin
of Intel Capital. “Solutions like Kyndi’s, solutions are helping customers turn career-advancing opportunities. autom
20 Mergers & Acquisitions March 2020 TheM
020_MAJ0320 20 2/24/2020 5:58:59 PMng vertising, social engagement tools and
any,” parental controls. “Making the internet
safer for kids is a sector-agnostic mis-
ow sion,” says SuperAwesome CEO Dylan
e Collins. “As increasing numbers of com-
tech panies outside of the core kids sector
gy to realize that children cannot be ignored,
ls we’ve begun to shift our horizons to the
ty. wider internet.”
In the U.S., M12 backed Evisort, which
uses AI to automate processing and
ry. tracking of corporate contracts. Evisort
t reviews, analyzes, approves and tracks
contracts, invoices and purchase orders.
BLOOMBERG NEWS
MI2 opened a new
ef Investing abroad London office to seek
opportunities across the
AI, big data, analytics,
ve Microsoft’s MI2 opened a European office to ramp up its cloud infrastructure,
dealmaking in the region machine learning and
of Software-as-a-Service
Founded in 2016, and formerly known travel providers,” says M12 partner Lior sectors.
as Microsoft Ventures, MI2 touts itself Litwak. “We were very impressed with
is as having “the agility and pace of a the company’s vision of increasing ef- Aside from dealmaking, internally
a- startup, getting deals done quickly and ficiencies for both businesses and travel Microsoft is investing in AI research in
he focused on the value-add that we can agents without compromising on high- the healthcare sector. The company
e,” bring to you as a collaborative partner, quality service and traveler experience.” recently announced plans for a five-year,
not just your investor,” according to The International Air Transport Asso- $40 million AI initiative for global health
te its website. Microsoft Corp.’s (Nasdaq: ciation predicts that passenger growth challenges and research. The program is
al MSFT) venture capital fund concentrates will double in the next 20 years. With designed to help research organizations
on AI and cloud computing. the rise of low-cost carriers, airlines are develop diagnostics, treatments and
ntric M12 recently invested in German competing to gain more passengers preventive measures.
ons. travel software startup Comtravo. The and are looking for ways to make their “We know that putting this powerful
c- target’s software translates emails and flying experiences standout. technology into the hands of experts
s other text-based requests into data, and For M12, the firm is ramping up its tackling this problem can accelerate new
then uses artificial intelligence to send investment efforts in European start- solutions and improve access for under-
el customized travel options to custom- ups. The fund recently opened a new served populations,” Microsoft president
led ers based on previous searches and London office to seek opportunities Brad Smith said in a statement.
es bookings. Companies are implement- across the AI, big data, analytics, cloud In 2019, Microsoft formed a partner-
ing text-supported software, such as infrastructure, machine learning and ship with health insurer Humana Inc.
ps natural language processing, to improve Software-as-a-Service sectors. (NYSE: HUM) that gives Humana access
gh customer experiences, and they are at- Earlier in 2020, M12 participated in to Microsoft’s cloud and AI resources.
k tracting investor attention as a result. a funding round for London-based Su- The deal is aimed at making more digi-
s “Comtravo is disrupting the huge perAwesome, a platform that allows for tal health services available to seniors.
and business travel market through deep safe web browsing for kids. The com- Microsoft indicates that it sees addition-
automation and unique access to pany’s products include kid-friendly ad- al similar partnerships down the road.
TheMiddleMarket.com March 2020 Mergers & Acquisitions 21
021_MAJ0320 21 2/24/2020 5:59:02 PMCover Story
behind the curtains and on the store
floor. With NewStore, retailers oper-
ate a seamless end to end experience
across all touchpoints, unlocking in-
store revenue drivers including endless
aisle, mobile checkout, store inventory
and clienteling.”
“Despite stores being a source of
great frustration, they also represent
a major opportunity,” says NewStore
CEO Stephan Schambach.
“This gives customers even more
choice in how they deliver omnichan-
nel experiences to keep pace with
the rapidly changing needs of their
BLOOMBERG NEWS
shoppers,” adds Salesforce Commerce
Buying into new habits
Cloud CEO Mike Micucci.
Salesforce is also making acquisi-
tions in the retail tech sector. In 2020,
the company acquired Evergage,
Salesforce Ventures invests in retail data providers that which was previously backed by Ar-
can meet shopper demands rowroot Capital, G20 Ventures and
Point Judith Capital. Evergage uses
data to monitor customer behavior
Salesforce Ventures is the venture fund, $100 million Canada trailblazer and helps retailers offer personalized
capital arm of Salesforce.com Inc. fund and $50 million Salesforce im- services.
(NYSE: CRM). Since 2009, the fund pact fund. Since 2009, Salesforce has “Evergage’s mission has always
has invested in over 375 companies. backed over 300 technology startups been to personalize the world, and
Salesforce Venture’s previous invest- across 20 countries. we’ve been doing that one client at a
ments include DocuSign, GoCard- One industry where Salesforce Ven- time for nearly 10 years,” says Ever-
less, Guild Education, nCino, Twilio tures looks to help companies is retail, gage CEO Karl Wirth. “Now, as a part
and Zoom. Salesforce Ventures says which relies intensely on technology of Salesforce, we’ll be able to do what
it invests in “the next generation of for everything from predicting what we do better and at a much greater
enterprise technology that extends customers want to delivering orders scale and pace than we ever could
the power of the Salesforce Intelligent quickly. Retailers are under immense before.”
Customer Success Platform, helping pressure to adapt to the rapidly In a recent similar deal from
companies connect with their custom- changing consumer landscape, and Salesforce Ventures, the fund co-led a
ers in entirely new ways” and describes give shoppers what they demand. $479 million VC growth funding round
itself as “building the world’s largest Earlier in 2020, Salesforce Ventures in cloud data provider Snowflake.
ecosystem of enterprise cloud compa- has invested in Omnichannel-as-a- The latter has worked with Conagra
nies and extending that technology to Service provider NewStore, which Brands Inc. (NYSE: CAG), JetBlue Air-
customers.” helps retailers run stores from iPhones. ways Corp. (Nasdaq: JBLU) and Office
Salesforce Ventures has at least “Retailers have long faced hurdles Depot Inc. (Nasdaq: ODP).
seven active venture capital funds fo- in offering a seamless interaction “When consumer expectations
cused on global regions. They include between online and brick-and-mortar,” change faster than the speed of busi-
the $50 million consultant trailblazer NewStore says in a press release. ness, you can’t afford to rely on frag-
fund, $125 million Europe trailblazer “Connecting legacy systems and out- mented or stale data to make daily
fund, $50 million Australia trailblazer dated technologies is time-consuming decisions that affect your bottom line,”
fund, $100 million Japan trailblazer and cumbersome, creating friction Snowflake states on its website. M&A
22 Mergers & Acquisitions March 2020
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BLOOMBERG NEWS
VIRAL IMPACT
500 c
was u
the 3
from
Br
Ma
By Mary Kathleen Flynn
The coronavirus Ho
is already slowing The impact of COVID-19, also known as the coronavirus, on the world’s
The
the
down China’s economy is likely to be significant. How it will play out in M&A and private
Ho
growth, stalling equity is difficult to discern this early in the spread of the virus. To get a sense imp
the world’s of the ramifications for the middle market, Mergers & Acquisitions examines imp
several factors, including the current impact on China’s economic growth; how
supply chain cou
the virus was discussed in the earnings calls of U.S. public companies in January has
and dampening and February; and the views of two prominent dealmakers who are based in sta
venture capital Hong Kong. As this is an ongoing story, we’ll continue evaluating the economic
fundraising. How and business effects. Ho
are middle-market First, let’s consider the impact of the earlier severe acute respiratory syn- In s
ven
dealmakers being drome virus. SARS claimed around 800 lives throughout the world and shaved
thr
0.5 to 1 percentage points off China’s growth in 2003. Back then, China was the
affected? be
world’s sixth largest economy. Today, it is the second, behind only the U.S.
apa
24 Mergers & Acquisitions March 2020 TheM
024_MAJ0320 24 2/24/2020 4:35:59 PMFeature
Analysts are already forecasting
slowed growth for China, due to CO-
VID-19. While the country’s economic
growth was 6.0 percent in the fourth
quarter of 2019, it may fall to as low as
3.5 percent in the first quarter of 2020,
if the spread of the virus is not con-
tained fast enough for manufacturing
production to resume to normal levels,
Morgan Stanley analysts wrote in a Feb.
19 report. While factories had started
to come online, analysts found that
production had only reached 30 to 50
percent of normal levels.
Earnings Calls
With China’s factories producing a
huge range of goods and parts, includ- FactSet. The industrial, IT and health- resume around the country, but we are
ing autos, apparel, toys and smart- care sectors accounted for the highest experiencing a slower return to normal
phones, for customers all over the world, number of companies discussing the conditions than we had anticipated,”
it’s not surprising the impact is already topic. the company said in a statement.
being felt far beyond the country’s MarketWatch compiled a slew of the Apple generates about 15 percent of
borders. The coronavirus emerged announcements in mid-February. Here its revenue from China, and many of its
as a dominant theme in the earnings are a few: products are manufactured there.
releases and conference calls of S&P Apple Inc. (Nasdaq: AAPL) warned it Coca-Cola Co. (NYSE: KO) CEO
G NEWS
500 companies. The term “coronavirus” would not meet second-quarter finan- James Quincey said the outbreak of se-
was used at least once in 38 percent of cial expectations, because production vere acute respiratory syndrome (SARS)
the 364 earnings calls that were held had slowed or been halted in China due in 2003 and 2004 was less of a concern
from Jan. 1 through Feb. 13, according to to the outbreak. “Work is starting to than the current virus. The Chinese mar-
Brian Bunker
Managing Director, Commercial Growth, The Riverside Co.
How are factory closings affecting the supply chain?
The virus hit over Chinese New Year when factories were closed, and the high number of migrant workers had returned to
their home town/village. Fortunately, large orders are shipped prior to the holiday to cover 2-3 weeks of factory closure.
However, eventually, there will be inventory shortages at overseas and domestic customers, stock-outs will, inevitably,
impact 1H revenue at portfolio companies. It is still too early to scope the full impact; however, portfolio companies are
implementing action plans, assessing stock levels, communicating with customers and trying to shift sourcing to other
countries. Fortunately, due to the tariff dispute, this process began 18 months ago, so, in general, dependence on China
has been somewhat reduced during that time. In general, extended closure of factories impacts sales as well as Ebitda;
staff still have to be paid and the facility/equipment maintained.
How is the virus affecting sales of consumer goods in China?
In some cities, residents are only allowed out once every 2 days to buy essentials; in general, the population is not
venturing out, thus consumer spending in China will be heavily impacted. This will affect our portfolio companies that sell
through Chinese retail outlets. Given road transport restrictions, e-commerce sales will also be affected as goods cannot
be delivered. Staff are mostly working from home and need to be paid even though they are not generating much revenue
apart from essential sales. Obviously, there will be some winners such as suppliers of face masks and hand sanitizer.
TheMiddleMarket.com March 2020 Mergers & Acquisitions 25
025_MAJ0320 25 2/24/2020 4:36:14 PMYou can also read
