SoftBank Eyes Additional Stake in Arm Ltd., Advent Acquires Zimmermann, KKR Closes Simon & Schuster Deal

Insights

Chart of the Week: Average exit sizes have fallen across most sectors -- with Healthcare seeing the largest drop of -66% YoY. Healthcare saw a flurry of deal activity between 2020-2022, and we may have seen that trend play out.

Technology has also seen a noticeable drop in average exit sizes. We see this on buyouts as well, but with deal activity near all-time highs for Technology, we think this is more of a case of smaller, but more frequent Technology deals getting done and the middle-market stepping in to do deals where perhaps venture capital has pulled back. (Read More)

Reports

Tomorrow we will publish the North America Private Equity Report: Q2 2023. Below is a summary of what will be included in that report. Reminder that our reports are available to Value Add PRO subscribers only (upgrade here).

Don’t Miss…

Private Equity Exits Report: Q2 2023

Private Equity Buyouts Report: Q2 2023.

Deal News

SoftBank is discussing the possibility of buying an additional 25% stake in the semiconductor company, Arm Ltd. They already own 75% of Arm Ltd. through their $100 billion Vision Fund. By investing more at a higher valuation, SoftBank could provide immediate financial gains to its investors. This move comes after the Vision Fund faced decreased tech valuations in recent times. For instance, WeWork, which is backed by the Vision Fund, is rumored to be on the brink of shutting down. Notable investors in SoftBank, like Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala, stand to benefit from this deal with Arm Ltd. Additionally, SoftBank is planning an IPO for Arm Ltd. with an estimated value of $60 billion to $70 billion. Yet, some investors are pushing for faster returns, concerned that offloading such a large volume of shares might take up to two years in the public market. (Source)

Advent has agreed to acquire Australian fashion brand Zimmermann for approximately $1 billion. The company had annual revenues of $260 million last year with 30% profit margin, making the valuation roughly 14x earnings. Zimmerman’s founding family will maintain minority ownership of the company and the management team will stay in place. Under Advent’s stewardship, the brand plans to expand in Asia and the Middle East. (Source)

Symphony Technology Group (STG) has agreed to acquire media editing software company Avid Technology Inc for approximately $1.4 billion, inclusive of debt. Avid shareholders will receive $27.05 for each share, marking a +32% premium over Avid's share price on May 23, prior to sale exploration reports. The transaction, set for Q4 2023 completion, will be financed by Sixth Street Partners and Silver Point. Avid, known for software used in blockbuster films, was under the influence of its major shareholder, Impactive Capital LP. (Source)

Japan Industrial Partners will initiate its tender offer to acquire electronics giant Toshiba for $14 billion this month. The buyout was initially announced in March, but now shareholders will vote over whether to proceed with the deal. Analysts are conflicted over how shareholders will vote. Several activist investors hold large positions in Toshiba, and they may be looking for higher returns. The company has been embattled by a series of issues since 2015, including claims of accounting fraud, a US bankruptcy, and a government scandal. (Source)

KKR has officially inked a deal to acquire Simon & Schuster for $1.62 billion in cash. Paramount's CEO, Bob Bakish, highlighted the deal's benefits, emphasizing increased financial flexibility and shareholder value. After the transaction's completion, Simon & Schuster will operate as an independent private company, retaining its current leadership under Jonathan Karp and Dennis Eulau. Karp expressed optimism about the partnership with KKR, noting its commitment to growth and expansion. Previously, a deal to sell Simon & Schuster to Bertelsmann’s Penguin Random House was blocked by U.S. regulators over anti-competitive concerns. The price agreed upon with KKR is lower than the initial $2.2 billion from the previous deal. However, the difference is partly compensated by a $200 million termination fee from Bertelsmann and Simon & Schuster's recent earnings. (Source)

Industry News

CVC Capital Partners is revisiting plans for a multibillion-euro IPO by year's end. This decision comes after the firm deferred its listing due to market uncertainties following Russia's Ukraine invasion. The potential listing follows CVC's recent €26bn fund generation and is seen as an indicator of investor trust in the private equity sector amidst changing economic conditions. CVC, which manages €140bn in assets worldwide, aims to expand its operations beyond traditional corporate takeovers. The anticipated IPO could facilitate further acquisitions in the asset management domain. (Financial Times)

Meanwhile, CVC Capital Partners just raised over $4.5 billion for its newest Asia-centric fund, according to a recent regulatory disclosure. While aiming for a $6 billion fund—their largest for the region to date—the completion date for the fundraising remains undisclosed. Notable investors in this fund encompass the Canadian Pension Plan Investment Board and The Oregon Public Employees Retirement System. This fundraising effort is notable given the current macroeconomic challenges and the wary stance global investors hold towards China. As of now, Asia's private equity fundraising stands at $48 billion for the year. (Reuters)

The Biden administration's initiative to curtail private-equity and venture-capital investments in China has sparked concerns among firms with extensive Chinese operations. The new "sanctions-lite" executive order targets high-tech sectors, necessitating disclosure on specific investments. While the American Investment Council argues that such investments don't pose a threat, the ambiguous nature of the proposal creates uncertainties about its future scope and the implications of mandatory disclosures. Firms are now navigating the potential risks and awaiting clarity from the Treasury Department's final decision. (Wall Street Journal)

Private equity exits are at a multi-year low as dealmakers struggle to agree on valuations in today’s market. Higher interest rates and economic uncertainty have led to smaller deal sizes, but as a result — firms are trimming portfolio companies only on a must-needed basis. Meanwhile, buyout firms are sitting on a record $1.5 trillion in dry powder, according to Preqin data. That said, there are signs that some PE firms are turning to public markets to exit portfolio companies — as the S&P has seen strong growth YTD. SoftBank is eyeing a $60 billion IPO for its semiconductor portco Arm Ltd and L Catterton is preparing an $8 billion IPO for shoe brand Birkenstock. (Bloomberg)

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