One scoop to start: 3G Capital is seeking more time from its investors to execute its next big takeover as the fund that famously invests alongside Warren Buffett has been put off making a large bet due to coronavirus-linked uncertainty and sky-high valuations. The Brazilian-US investment group behind Kraft Heinz and Burger King is currently sitting on about $10bn and seeking a target to buy. Read more.
Salesforce: picking up the Slack
If you’re reading this newsletter, it’s likely you’ll at some point be interrupted by the familiar chorus of pops and pings emitted by whichever online platform your company has chosen to help navigate the challenges of remote working.
So in these times it may come as little surprise that the cloud software company Salesforce is in talks to purchase the work messaging app Slack, a seemingly perfect pandemic pairing that could result in one of the biggest software transactions to date.
But a deal hasn’t always been a sure thing.
Slack missed the work-from-home memo earlier this year, its shares dropping nearly a quarter in the 17 months since its lacklustre public listing as savvier rivals plugged ahead, before news of the talks led the shares to pop.
After some due diligence on Slack’s less-than-explosive Wall Street debut, Salesforce and its chief executive Marc Benioff initially passed up on an acquisition, an insider told the FT’s Richard Waters. Its shares seemed overpriced at the time.
Meanwhile, Salesforce was riding the first coronavirus wave to new heights as demand for cloud software surged. Its shares have jumped 57 per cent since last June, even allowing for a 5 per cent fall on Wednesday on news of the talks.
Now, Benioff finds himself in a prime position to strike a deal that will probably be paid for largely in stock. But is it worth it?
Slack has struggled to keep up with the legions of competition working to encapsulate the minutiae of corporate life, from team meetings to happy hours and water cooler chats.
Take Asana, the task-management software company led by Facebook co-founder Dustin Moskovitz, which successfully sidestepped the traditional IPO process via a direct listing last month, achieving a market capitalisation of more than $4bn.
While Wall Street may be worried a deal with Slack would drag down Salesforce’s earnings, both Benioff and Slack chief executive Stewart Butterfield have a common foe: Microsoft.
The company’s Teams feature recently hit 115m daily users, up from only 20m a year ago, enjoying rapid growth by offering free integration with Microsoft’s widely popular Office Suite, a vast level of reach that in part motivated Slack to file an antitrust complaint with the EU.
Over at Salesforce, the worry is that Microsoft Teams will continue to entice its users to other areas of Microsoft’s business — including its customer relationship management software, which competes directly with Salesforce’s core business.
And as Lex points out, Salesforce has utilised M&A to broaden its services before — snapping up cloud collaboration company Quip in 2016 and graphics software provider Tableau last year.
The bottom line: Slack would add even more weight to the possibility of taking on a giant like Microsoft.
Indonesia’s new SWF courts the American dream
Indonesia has gone on a charm offensive to woo US investors — including private equity groups Blackstone and Carlyle — for a new sovereign wealth fund that is part of one of the country’s most ambitious economic reforms yet.
The fund, called Indonesia Investment Authority, is part of a sweeping omnibus law Jakarta passed in October that will overhaul several dozen tax and labour market laws as it seeks to attract foreign direct investment and revive an economy pummeled by the coronavirus pandemic.
Boosting infrastructure investment in south-east Asia’s largest economy has defined the presidency of Joko Widodo. And the fund — which aims to raise $15bn — is designed to facilitate just that, targeting sectors such as toll roads and electricity networks.
Jakarta will seed it with $5bn. It hopes to secure the balance from sources including government agencies such as the US International Development Finance Corporation as well as the private sector.
The ministry of maritime affairs and investment is helping to set up the SWF and its minister Luhut Pandjaitan has led discussions with US groups including BlackRock, EIG Partners, I Squared Capital and JPMorgan Chase.
Some of them told DD they were interested, but not without scepticism about investing into emerging market funds after the fiasco at 1MDB. (Read our breakdown of the scandal here.)
The fund’s governing laws — to be determined — could be key to its success. But for now, analysts point to the fact that pooling funds already helps cut risk.
Wellian Wiranto, economist at OCBC, says: “If I were to invest in one specific project [which] doesn’t take off, then all my money is stuck there. If I were to co-invest in this fund, maybe I can get better deal terms.”
Swiss banks: neutrality bites
Switzerland’s two biggest banks have found themselves in the middle of a legal and political row involving Bill Browder, the prominent Anglo-American investor turned anti-Vladimir Putin activist, and their Russian clients.
It started last week when Swiss prosecutors controversially dropped legal proceedings against a trio of Russians who bank with UBS and Credit Suisse.
That should have paved the way for the banks to unfreeze the $24m or so belonging to the three — Denis Katsyv, Dmitry Klyuev and Vladlen Stepanov.
But Browder alleges the men were at the centre of a massive fraud against his investment company, Hermitage Capital, in 2007.
He says the $24m was gained from that fraud — and he doesn’t want banks to release it. The men say the money is unconnected to Hermitage and have rejected Browder’s allegations.
In letters seen by the FT, Browder has threatened to bring down the full force of US sanctions legislation against the two banks if they unfreeze the accounts. Read up here.
Browder has proven a formidable opponent to the Kremlin and the financial networks used by corrupt Russian officials.
He was the driving force behind the 2012 “Magnitsky Act” in the US, which gives Congress the power to impose asset freezes on human rights abusers.
The act is named after Sergei Magnitsky, Browder’s former lawyer, who died in custody in Russia after being maltreated in prison where he was held without trial. It has been a particularly sharp diplomatic and legal tool wielded against Russia in recent years.
But as the latest development shows, it is also a big headache for many non-American financial institutions.
The Magnitsky Act has significant extraterritorial reach beyond the US — any institutions that do business in the US can be accountable to its obligations.
The legal tangle is likely to become even more onerous for bankers to the wealthy as the UK has now introduced similar legislation, in which foreign citizens will face visa bans and asset freezes for alleged human rights abuses under Britain’s new post-Brexit sanctions regime.
The EU Commission has followed suit, announcing its proposals for the “EU Global Human Rights Sanctions Regime” last month as it moves towards a Magnitsky-style act of its own.
Brian Sheth, who co-founded Vista Equity Partners alongside Robert Smith, is leaving the software buyout group. His departure comes after Smith admitted to evading taxes on hundreds of millions of dollars in investment profits. More here from Forbes.
Boris Johnson has appointed Dan Rosenfield as his new chief of staff. He joins from advisory group Hakluyt, where he worked as global head of corporate clients and head of the company’s UK business since 2016. He also held roles at Bank of America and the UK Treasury. More here.
Heavy traffic A myriad of electric vehicle start-ups are revving up to become the next Tesla, and there’s no shortage of fuel thanks to the billions of dollars staked on the race by BlackRock, the Saudi PIF, Apollo and ByteDance, to name a few. But there’s no way they’ll all make it past the finish line. (WSJ)
Kicked to the curb Once courted to abandon their home countries for far-flung destinations like Singapore, Kuwait and the UAE, expats are increasingly being shown the door as the pandemic pressures governments to favour locals amid dwindling jobs. (BBG)
Speed bumps ahead Japan’s misguided spending on infrastructure offers a lesson to other countries launching spending sprees in an effort to reboot their pandemic-ravaged economies — stimulus projects don’t guarantee a smooth road to recovery. (FT)
Commodities broker Marex looks to list on London Stock Exchange
One of the brokers with rights to trade on the historic trading floor London Metal Exchange is heading for an initial public offering as commodity markets enjoy the biggest boom since the early 2000s.
Marex, a brokerage controlled by two former Lehman Brothers investment bankers, said on Friday it was considering listing on the main market of the London Stock Exchange.
Should it proceed, Marex said the offer would consist of a sale of shares by existing investors and that it was aiming for a free float of at least 25 per cent, meaning it would be eligible for inclusion in widely followed FTSE indices.
London-based Marex employs about 1,000 people and is one of nine members of the Ring, the LME’s historic open outcry trading floor that is now threatened with closure after more than 140 years. It has a 16 per cent market share on the LME.
The company is controlled by JRJ Group, a private equity firm founded by Jeremy Isaacs, the former head of Lehman’s European operations, and Roger Nagioff, the bank’s ex-head of global fixed income.
JRJ has a 41 per cent indirect economic interest in Marex. It is expected to reduce that stake through the London IPO although it will remain a large shareholder.
People familiar with the plans said Marex was seeking a valuation of $650m-$800m. The company is about half the size of US rival Stonex Group, which has a market capitalisation of almost $1.4bn. The IPO could come as soon as June.
The company, which has been expanding aggressively through acquisitions, made pre-tax profits of $55m in the year to December, up from $46.6m a year earlier, on net revenue of $414.7m.
However, in 2018 pre-tax profits were just $13.4m after Marex took $31.9m of legal provisions related to a warehouse receipts fraud.
Marex makes more than half its revenue from commodity hedging services that help big commodity producers, consumers and traders manage price risk. Commissions from the group’s top 10 clients increased by 17 per cent to $49m in 2020.
“The attractiveness and resilience of our business model is demonstrated by our latest set of results, which showcase continued strong performance despite the obvious macro headwinds,” said Marex chief executive Ian Lowitt, who was paid $4m last year. His basic salary is almost twice that of the LSE’s CEO David Schwimmer.
JRJ Group and its partners Trilantic Capital Partners and BXR Group acquired a majority stake in Marex in 2010. A year later it bought Spectron to create one of the biggest commodity brokers in the world. The company has been up for sale for several years as JRJ has sought an exit from its investment.
It emerged in November that Marex had appointed Goldman Sachs and JPMorgan to help advise on a possible stock market listing. One of its no- executive directors is Stanley Fink, former CEO of hedge fund Man Group.
Marex said on Friday that acquisitions and expanding into “adjacent products” would continue to form a “central pillar of its strategy”. In November, Marex acquired Chicago-based equity derivatives firm XFA.
Commodity markets have boomed over the past year on the back strong demand from China, a post-pandemic pick up in other big economies and bets on the “greening” of the world economy.
‘A real man of mystery’: how Ian Osborne built a $1.5bn venture capital firm
When tech financier Ian Osborne invests in a company, executives must agree to an unusual clause: not to talk about it without his permission.
Such tactics have helped Osborne and his firm Hedosophia largely fly under the radar despite his involvement in high-profile investments and takeover bids over the past decade.
With early support from funds linked to media baron Michael Bloomberg, Hong Kong tycoon Li Ka-shing and the Burda family of Germany, the 38-year-old Osborne has quietly created a $1.5bn venture capital business.
According to people familiar with the matter, companies from Spotify, TransferWise and Raisin in Europe to Alibaba, Ant Financial and Airwallex in Asia have all received investment from Osborne.
One tech investor compares the urbane but reticent British investor to the well-connected PR fixer Matthew Freud: “He knows everyone.” Another, who carried out due diligence before working with Osborne, said: “He is the sort of guy who will turn up behind you on a flight to Rio. He is a real man of mystery.”
As one of the architects of the boom for special purpose acquisition companies (Spacs) — which raise cash in listed funds that then hunt for a company to take public — Osborne has helped turbocharge tech valuations.
Even as the US market cools on the phenomenon and regulatory scrutiny grows, Osborne is hoping to popularise such blank cheque vehicles in Europe with plans to raise as much as €460m with a Spac listing in Amsterdam.
Described by contacts as “obsessively secretive”, Osborne fiercely protects his privacy and allows publicity to be drawn to high-profile partners such as Chamath Palihapitiya, a venture capitalist.
Palihapitiya, a brash former Facebook executive, with a large social media following and a love of making provocative comments on TV, describes Osborne as “a very good yin to my yang”.
The moonshot machine
It is for the relaunch of Spacs in 2017 that Osborne is becoming best known — teaming up with Palihapitiya’s Social Capital to back the listings of companies such as Virgin Galactic, Clover Health and Opendoor.
Along the way, Osborne has amassed shares worth as much as $300m, according to a person familiar with the matter, boosted by the juicy “promote” share awards given to sponsors of the listings.
To friends and investors, he is a canny dealmaker and consummate networker, connecting rich family offices to founders needing funds to expand.
Others worry he has been at the vanguard of a wave of speculative cash, bestowing stratospheric valuations on unproven companies.
Virgin Galactic — which he helped take public in 2019 — opened the floodgates for moonshot companies with little by way of revenues to list through Spacs. More than 300 Spacs have raised $97bn this year, according to Refinitiv.
With the action now shifting to Europe, it marks a homecoming for Osborne, who splits his time between houses in London and Hong Kong, where he is a resident.
From Bloomberg to Zuckerberg
Born and raised in Richmond, London, the son of a lawyer and a doctor, Osborne studied at St Paul’s school, King’s College and London School of Economics, graduating in 2005 and going to work as an adviser to Bloomberg, who became a connecting thread through Osborne’s career.
Kevin Sheekey, Bloomberg’s longstanding campaign manager and communications chief, said Osborne began working for the then New York mayor after co-hosting a dinner in London whose guests included actress Claudia Schiffer and media scion James Murdoch.
By 2007, thanks to Osborne’s connections, Bloomberg was addressing the Conservative party conference in Blackpool. “It sounds an easy thing to do but connecting people is a rare talent,” said Sheekey. “Dozens of people around the world that Mike and I have good relationships with were introduced by Ian. Global business leaders never meet without a go-between. There is no Yellow Pages for that.”
He describes a Zelig-like quality to Osborne: “His nature is not to promote himself.”
As international adviser to Bloomberg for the next four years, Osborne continued to unleash his networking skills, gaining access to people who would become his ticket to the world of tech finance.
“At first it was like, ‘what is this British 20-something doing in the midst of US politics?’ It didn’t make much sense,” said Daniel Ek, founder of Spotify, who met Osborne in this period.
Initially, Osborne offered “advice, connections with people”, according to Ek. “But his Rolodex was off the charts for someone so young. The connection between politics and business today seems like an obvious fit but at the time no one was making the link.”
Osborne began to advise, and later invest in, Palihapitiya’s Social Capital after meeting him with Mark Zuckerberg in 2008.
Palihapitiya described Osborne as “extremely, exceptionally discreet and unbelievably trustworthy. He’s unbelievably connected. He is our modern version of a homeless billionaire. Ian is constantly working, is constantly travelling, and he collects people.”
In 2009, he set up his own consultancy, Osborne and Partners, that took on clients including DST Global, the venture capital firm run by Yuri Milner, the Israeli-Russian billionaire.
By 2010, he was helping DST lead investments in Spotify and Alibaba — where he had forged relationships with founders Ek and Jack Ma, respectively.
Through his time working with DST and afterwards, Osborne continued to run a PR and business development consultancy, advising the businesses of US tech billionaires from Travis Kalanick and Evan Spiegel to Zuckerberg. He remained close to Bloomberg, helping on an attempt to buy the Financial Times from Pearson in 2013.
That year, he was firmly established on the tech scene as one of the organisers of the hottest party in Davos — a “taxidermy” themed bash thrown with Napster co-founder Sean Parker and Salesforce CEO Marc Benioff.
He had also started to work informally for then UK prime minister David Cameron and chancellor George Osborne, to whom he remains close, helping open doors in the US. During the 2010 election campaign, he helped prepare Cameron for TV debates. Around the same time, he organised a trip to the US for Boris Johnson, then mayor of London.
Osborne became the “ultimate co-host” — according to one person familiar with the period — gathering people from politics, tech, finance and the arts. It was at a dinner hosted by Osborne in 2014, attended by actor Ed Norton and Arianna Huffington, that an Uber executive landed in trouble for suggesting that the company could dig up dirt on a critical journalist.
Taking ‘IPO 2.0’ to Europe
Osborne set up Hedosophia in 2012 — named after Greek gods of pleasure and wisdom — aiming to specialise in earlier stage tech firms.
Early backers included family offices such as Germany’s Burda and funds related to Li, the Hong Kong tycoon, said a person close to the group, who added that it now has a more institutional investor base of university endowments, public pension funds and insurance companies from the US, Japan, Canada and Sweden.
It was at a dinner in Hong Kong in early 2017 with Palihapitiya that he pitched the idea for a new sort of Spac to give tech founders an easier public listing without the risk and regulatory baggage of a traditional IPO.
Despite being partners in the sponsor company, the pair did not split earnings equally, said people with knowledge of the situation, with Palihapitiya taking the majority of profits but also putting in greater capital. Palihapitiya also coined the new term for the Spac — “IPO 2.0” — which was draped over the New York Stock Exchange at the launch in 2017.
Since then, hundreds of Spacs have followed this strategy, launched by former bank executives, athletes and politicians keen to enjoy the almost risk-free upside of the Spac sponsor model. But even those operating around Osborne wonder whether the market has now gone too far. “The bubble is definitely bursting now,” said one.
The Osborne/Palihapitiya Spac franchise has been hit as the market has turned — with Clover’s shares falling more than 50 per cent from their highs and shares in Virgin Galactic — which has yet to make a commercial flight — down more than 70 per cent from the peak.
Osborne is determined to get his European Spac right, according to those close to the plans, cutting the financial rewards for the sponsor and bringing together a heavyweight board.
This month, he will also return to an early passion in the theatre, producing one of the first musicals to open after the end of pandemic restrictions in the West End — Everybody’s Talking About Jamie.
He will need to get used to being centre stage — in Europe at least, he has no Palihapitiya to hide behind, and the scrutiny over Spacs in the US has started to raise questions for investors and sponsors alike over whether the market has gone too far, too fast.
Additional reporting by Tim Bradshaw and Arash Massoudi
Chip specialist Alphawave drops 10% on London debut
Shares in Canadian semiconductor group Alphawave fell as much as 24 per cent on their first day of trading in London, the latest in a string of underwhelming public-market debuts in the UK capital.
Alphawave, which launched four years ago, sold £856m worth of shares at 410p apiece, giving it an opening valuation of £3.1bn — the largest new technology listing since Deliveroo’s disastrous London launch in March. Shares closed at 370p per share, a decline of about 10 per cent.
While analysts and bankers said the fall reflected global trends rather than any underperformance of the London market, some have also questioned the group’s valuation.
“This has been an unlucky week [for IPOs],” said Russ Mould, investment director at AJ Bell. “[But] £3bn even for a well-understood industry, and even though it’s growing rapidly, you could argue was pretty punchy.”
Alphawave is relocating from Canada to the UK, with plans to build a research facility in Cambridge, an established centre for the industry. The UK boasts a number of prominent companies in the field, including Arm, which chipmaker Nvidia acquired last year, CSR and Wolfson Micro.
Several analysts and bankers said Alphawave had fallen victim to a recent wobble in tech stocks. The technology-focused Nasdaq Composite on Monday closed down 2.6 per cent as inflation fears grow, though it has since regained some of that ground.
“The post-open dip reflects worldwide volatility in trading of high-growth and high-value stocks in recent weeks, and some investors shorting IPOs in this environment, in particular where there are low trading volumes,” said Markus Bauman, corporate securities attorney at law firm Goodwin.
Others also pointed out that rising prices for the raw minerals and metals needed in the chip industry could erode future revenues.
Alphawave’s woes come after Deliveroo’s London listing, dubbed “the worst IPO in London’s history” by one of its bankers. Shares in the food delivery app are down more than 38 per cent from their IPO price.
“There’s probably a lot of wailing and pointing of fingers, but I’m not sure it’s fair,” said Mould, pointing to more successful recent IPOs such as ecommerce company The Hut Group or cyber security firm Dartktrace. “London does like entrepreneurs and it has a good record of providing risk capital, unfortunately there’s been a bit of a bad run.”
Other chipmakers such as US-listed Nvidia have also struggled amid the recent fall in tech stocks, with its share price declining 5 per cent in the past week.
Barclays and JPMorgan acted as joint bookmakers alongside BMO Capital Markets on the Alphawave flotation. Funds managed by BlackRock and Janus Henderson agreed to buy $510m as “cornerstone” investors in the offering.
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