Due Diligence Mergers & Acquisitions

A private equity datapoint that might surprise you

Plus, a $27bn big data deal loses its sparkle, and Amazon prepares for a new leader

© Financial Times

JULY 1 2021

One thing to start: Toshiba could be forced to consider any private equity-led
buyout offer in the coming months as activist investors exert more control over the
board following what one called a “game-changing” show of strength. Details here.

Shareholders removed Osamu Nagayama as chair of the company’s board in a shock vote last week © Bloomberg
 Welcome to Due Diligence, your briefing on dealmaking, private equity and
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Private equity’s dealmaking frenzy

DD readers will be well aware by now that private equity has had a good pandemic.

Not only are the share prices of listed buyout groups at highs (we wrote about one
consequence of that on Wednesday), but the pandemic’s hit to corporate
valuations, particularly in the UK, has given private equity firms some
opportunities to cinch cheaper deals.

Even so, the scale of its activity is astounding. The industry has struck more deals
in the past six months than in any previous half-year period.

Buyout groups, under pressure to invest their record-sized funds after a lull a year
ago, have agreed transactions worth $513bn in that time. And that’s before you
count a mega-deal for the US medical supply group Medline, which values the
company at $34bn.

They helped propel overall global M&A activity to its own all-time high, capping
what has been a remarkable rebound from the depths of the pandemic.
Jon Gray, Blackstone president and chief operating officer © FT Montage/Bloomberg
Jon Gray, president and chief operating officer of Blackstone, told DD’s Kaye
Wiggins and Ortenca Aliaj that his firm has been buying companies that stand to
benefit from “long-term tailwinds”, with themes including a housing shortage and
“the migration of almost everything online”.

All this dealmaking has been lucrative for investment banks. Total M&A fees hit
$17.9bn in the first half of this year, the highest since records began in 2000.

One area that’s not growing is Spac deals, which fuelled an M&A boom in the first
three months of this year. They’ve now tailed off because of regulatory scrutiny and
investor fatigue, down from 18 per cent of M&A activity in the first quarter of 2021
to 10 per cent in the second.

That wasn’t enough to dampen the dealmaking frenzy, however.

“This time last year it was still really bleak,” said Mark Shafir, global co-head of
M&A at Citigroup. “Did I have a crystal ball that could have predicted this level of
activity? The answer is no.”

Big data’s biggest deal falls from favour

London Stock Exchange Group‘s $27bn purchase of data and trading group
Refinitiv was meant to be the deal that vaulted the 323-year company from
humble administrator of exchanges and clearinghouses to formidable player in the
world of markets data.

And after the FT broke news of the transaction in July 2019, investors lapped up
the combination. They supported the LSE board and chief executive David
Schwimmer when rival Hong Kong Exchanges and Clearing briefly tried to
swoop in a few months later.
David Schwimmer, pictured, sealed the takeover within a year of succeeding Xavier Rolet as chief executive of the LSE ©
Bloomberg
Regulatory approval from Brussels was delayed by the pandemic and it needed the
sale of Borsa Italiana to Euronext for €4.5bn to get it over the line. Rare are the
FTSE 100 companies that potentially offer investors up to 5-7 per cent revenue
growth a year, as the LSE promised.

But the first four months of ownership haven’t been smooth sailing. The market’s
euphoria was punctured by the LSE’s disclosure in March that there would be
nearly £1bn of associated spending to integrate Refinitiv.
Its best-known product, the Eikon trading screen, has had repeated outages, and
the group’s long-serving head David Craig has stepped back from his role. The
company is also in a dispute with its main news provider Reuters.

Still, it’s a five-year integration plan. The LSE will hold an event on Friday to
educate investors as to what Refinitiv does and the markets it competes in. For
investors, it’s a chance to assess if their initial analysis was right.

Those who caught Wednesday’s DD will by now be familiar with PR firm Teneo,
whose co-founder, chief executive, and top recruiter Declan Kelly has stepped
down amid allegations of inappropriately touching women without their consent.

The LSE’s acquisition of Refinitiv was another money-spinning advisory position

for Teneo, which continued to do work for the LSE post-deal completion related to
how the market would receive the tie-up.

They were due to end in a couple of weeks but DD understands the finish date has
been “accelerated”.

Without Bezos, Amazon moves to fill the space

Many of us can probably pinpoint the most stressful day in our careers.

But if yours tops that of Ann Hiatt’s, who in 2003 booked her boss Jeff Bezos on
a helicopter that ended up crashing in the west Texas desert, do let us know. It’s
probably worth a story.
“Not only had I maybe just killed Jeff Bezos,” she told the FT’s Dave Lee, “but the
entire company might have just gone down.”

Of course everyone knows by now that Bezos and his $1.7tn company are doing
just fine. Undeterred by the chopper incident, the multibillionaire is headed on a
slightly more daunting flight to outer space aboard one of his Blue Origin
rockets.
Back on Earth, just days before Bezos is due to step aside as chief executive,
Amazon is charting a flight path of its own.

Shares have barely budged since news broke of Bezos’s replacement, Andy Jassy,
who is best known for creating Amazon’s colossal cloud computing business, AWS
— perhaps a sign of faith in the 53-year-old company veteran’s capabilities.

But as a flurry of Big Tech bills are introduced in Congress and the appointment of
vocal Amazon critic and US Federal Trade Commission chair Lina Khan
threaten to shake the ecommerce group from orbit, not everyone is convinced.

Andy Jassy © AP
“He’s talking about how he’s going to lead an effort to make Amazon ‘Earth’s best
employer’ and ‘Earth’s safest place to work’,” said Sonia Kowal of Amazon
investor Zevin Asset Management. “That doesn’t sound like Bezos stepping
away. That sounds like doubling down on the issues that he helped create.”

Others, like Scottish Mortgage Investment Trust joint manager Tom Slater,
worry the end of a “founder CEO” reign means a suppressed appetite for “bold
experiments” that are characteristic of a “Day 1” mindset — corporate jargon for
outwitting complacency. The £18bn investment vehicle run by Baillie Gifford
has reduced its holdings in the company.

Meanwhile, Jassy is making moves to combat the legal challenges headed his way.

Amazon has called for Khan to recuse herself from any FTC investigations
involving the company, citing her past criticisms of its business. Antitrust experts
aren’t yet persuaded.

“It’s worth a try but it seems like a pretty unlikely event,” said Chris Sagers,
professor of law at the Cleveland-Marshall College of Law.
Dave dissects the momentous changing of the guard further in this Big Read.

Job moves
• The departure of two of Deutsche Bank’s initial public offering
principals, investment bankers Poon Tsz Yuen and Rowena
Wang, has disrupted the German lender’s plans to relaunch its Asia
equities business, insiders told the FT.

• UBS has appointed Gareth McCartney and Jeff Mortara as

global co-heads of equity capital markets.

• Pinsent Masons has hired property and infrastructure partner

Deanne Ogilvie. She joins from Norton Rose Fulbright.

• EY has announced 830 new partners.

Smart reads
Up in flames How does a SoftBank-backed construction start-up “piss away”
$3bn of investor funds? Its direct-to-consumer model and overly optimistic cost
projections (sometimes by millions of dollars) were built on fantasy. (WSJ)

Empty promises For an impoverished, predominantly black neighbourhood in

Baltimore, a new Target store meant accessibility for shoppers often overlooked by
national retailers. Its recent closure has sewn doubt over the authenticity of
corporate pledges to combat systemic racism. (NYT)

Catching a Gucci grifter “Real estate investor” Ramon Abbas, aka

@Hushpuppi, has reeled in millions of followers with his high-flying Instagram
escapades. It turns out he also caught the FBI’s attention. (BBG)

News round-up
TPG is evaluating a public listing (WSJ)

Didi raises at least $4bn for New York stock market listing (FT)

Nordic payment groups merge to take on big tech (FT)

Four Palihapitiya-backed SPACs raise $880 million in upsized public offerings

(Reuters)

Lawyer Neil Gerrard denies ‘rape mode’ comment in ENRC trial (FT)
Gates Foundation pledges to donate $2.1bn to women’s causes (FT)

Tim Berners-Lee’s web NFT sells for $5.4m (FT)

Citizens Financial chief: ‘We’ve earned the rights to do more deals’ (FT)

Robinhood ordered to pay $70m penalty to US regulator (FT)

Singapore’s sovereign fund invests $1 billion in Grifols’s US unit (Reuters)

Sports betting: games have returned but stocks won’t play (Lex)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in
London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet
Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles
Kruppa in San Francisco. Please send feedback to [email protected]

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