A Wireless Internet Startup And A Venture Firm Put A New Twist On The SPAC

BIG THINGS

1. Starry’s unique SPAC deal

One year ago, a new twist on the SPAC emerged. On Oct. 5, 2020, a blank-check vehicle sponsored by venture firm FirstMark Capital raised $360 million in an IPO, indicating it could use the funds to pursue a merger with one of FirstMark’s existing portfolio companies. Such a deal would create the opportunity for a new kind of long-term partnership between a startup and an investor, allowing venture firms to support young companies all the way from their very beginning until they transition to the public market.

Today, FirstMark revealed its target. The SPAC, called FirstMark Horizon Acquisition Corp., said it will merge with Starry, giving the provider of wireless internet services an enterprise value of $452 million. Starry has raised $288 million in prior venture funding, according to PitchBook, including a $30 million Series B round in 2016 that included participation from FirstMark and a trio of big-name backers: KKR, Tiger Global and Soros Fund Management.

Starry develops and installs its own technology, beaming a broadband signal out from a series hubs on radio towers and skyscrapers that is then picked up by custom receivers in buildings and homes. It claims the system works at “a fraction of the cost of traditional fiber.” The company’s service is currently available in Boston, Denver, Los Angeles, New York and Washington, D.C., with pending plans to expand to Columbus, Ohio.

The SPAC merger will create $452 million in cash proceeds for Starry, which will go in large part toward building out the company’s network in a famously capital-intensive industry. And it will ensure that Starry and its CEO, Chet Kanojia, don’t have to venture too far from FirstMark’s nurturing nest.

“I cannot think of partners better suited to support our growth than FirstMark and FirstMark Capital and we’re excited to continue our relationship,” Kanojia said in a statement.

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2. Saudi fund nabs Newcastle

This is one of my favorite stories. The Public Investment Fund of Saudi Arabia has been trying to buy storied British soccer club Newcastle United for more than two years, even striking a deal in April 2020 with current owner Mike Ashley. But the talks have encountered a number of hurdles. Including the fact that, because of geopolitical frictions, Saudi Arabia has a national ban in place on BeIn Media Group, the Qatari company that pays hundreds of millions of dollars a year to broadcast major European soccer games in the Middle East and North Africa. But Saudi citizens still want to watch those games. So instead, from 2017 to 2019, Saudi Arabia—allegedly—operated a state-backed piracy program that stole BeIn’s stream and broadcast it on a Saudi network called BeoutQ. Cheeky. I hope the quality was better than the pirated streams I have encountered…I mean, that I’ve heard of other people encountering…let’s just move on.

As you can imagine, BeIn took that as a bit of a slap in the face, and thus opposed Saudi investment in a Premier League club. Now, though, things seem to be settled. Saudi Arabia reportedly indicated earlier this week that it would lift its ban on BeIn, which cleared the way for a group led by the PIF to strike a new deal today to acquire Newcastle for $380 million. The Saudi fund is teaming up with some locals on the takeover, namely the billionaire brothers David Reuben and Simon Reuben, who are among the U.K.’s wealthiest citizens, and British businesswoman Amanda Staveley.

The acquisition raises a host of questions. Silly ones, about the rise of foreign ownership and institutional investment in European soccer. And much more serious ones, like whether it would mean the Premier League is helping Saudi Arabia use sports to burnish its global reputation after the horrifying murder of Jamal Khasshogi. The Premier League obviously had some reservations. It wouldn’t allow the deal to go through until receiving “legally binding assurances” that the PIF, rather than the Saudi state, would be Newcastle’s owner, per The Wall Street Journal. Which seems like an interesting distinction to make, considering the PIF is an arm of the Saudi state that’s chaired by Crown Prince Mohammad bin Salman., who U.S. intelligence says gave personal approval for Khassogi’s assassination.

A personal business policy of mine is to walk away from a potential deal if I ever find myself navigating questions about state-sponsored killings and state-sponsored piracy. But welcome, I suppose, to the world of professional soccer.

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3. A magazine giant is on the move

The M&A action keeps on coming for Meredith, the magazine publisher behind People, Better Homes & Gardens, Entertainment Weekly and dozens of other titles.

The company announced an agreement yesterday afternoon to sell itself to Dotdash, the publishing arm of Barry Diller‘s InterActivCorp, for $2.7 billion, or $42.18 per share. The takeover will transform Dotdash, which currently owns a portfolio of 14 online media brands that report impressive traffic numbers but largely lack the broad name recognition of Meredith’s top titles. Deal Flow readers are almost certainly familiar with Investopedia, one of Dotdash’s brands. Its other sites include Verywell, The Balance and The Spruce.

It could also be a transformative occurrence for Meredith, with Dotdash executives touting their plans to aid the company’s legacy brands in adjusting to the media industry’s new realities. “Our playbook is going to drive audience performance and help the brands maintain their stance in the digital world that they have in the print world,” Dotdash CEO Neil Vogel said in an investor call. Vogel will remain at the helm of the new company, which will be called Dotdash Meredith.

The deal sent IAC shares up nearly 8% today, taking its market cap to $12.6 billion. The company is an owner of and investor in various media and internet brands. It’s probably best known for its stake in Match Group, which operates Match, Tinder and OKCupid.

When it comes to dealmaking, Meredith has experience as both the acquirer and the acquired. In 2018, it bought Time Inc. for $1.85 billion in cash, adding titles such as Fortune and People to its roster. That same year, the company flipped the flagship Time Magazine to Marc Benioff and his wife, Lynne Benioff, for $190 million. Three years before that, in 2015, Meredith had agreed to sell itself for $2.4 billion to Media General, a major owner of television stations and local newspapers. But Meredith called off the deal in early 2016, paving the way for Media General to instead be subsumed by Nexstar Broadcasting.

If Meredith had followed through with that deal, it likely would have spent the past five years on a different path. More TV stations, fewer magazines. But that’s the way the M&A cookie crumbles.

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4. Twitter’s ad exit

Twitter announced a deal Wednesday afternoon to offload the MoPub mobile advertising business for $1.05 billion to AppLovin, a maker of mobile games and marketing software that went public earlier this year.

It’s always a bit surprising to see a major tech company make a move away from advertising in any capacity, rather than embracing it wholeheartedly. But MoPub generated less than 6% of Twitter’s overall ad revenue in 2020, so this isn’t exactly a wholesale pivot. Instead, the deal seems to signal Twitter’s genuine desire to achieve a previously stated goal of doubling its revenue by the end of 2023, as the company shifts its focus to more profitable areas of advertising and cranks up the monetization knob on its base of longtime, hardcore users.

“The sale of MoPub is all about increased focus, redirecting our resources and delivering faster growth in a number of key areas,” said Bruce Falck, Twitter’s revenue product lead, in a statement.

Twitter paid $350 million to acquire MoPub in 2013, so it will turn a healthy profit on the sale. MoPub had previously raised just shy of $20 million in venture funding, according to PitchBook. Twitter has been busy buying more startups so far in 2021, mainly with an eye on building out its product offerings. One takeover target was Scroll, which makes ad-blocking tools. Another was Revue, which makes newsletter software.

AppLovin went public at a valuation of more than $28 billion back in April, creating a windfall for KKR, but its stock sunk 18.5% in its first day and continued to fall in the ensuing weeks, at one point dropping below $50 per share. A recovery has ensued in the second half, though. News of the MoPub acquisition contributed to a 9% uptick today, taking AppLovin’s stock to $84 and its market cap north of $31 billion.

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OTHER THINGS

• The biggest oil refiner in Japan is making a bet on renewable energy. On Japan Renewable Energy, to be precise. Eneos Holdings is nearing a deal to buy the Tokyo-based company for more than 200 billion yen (nearly $1.8 billion), according to a Nikkei report, a move that would result in a full exit for current JRE backers Goldman Sachs and GIC. The name is honest: JRE develops solar, wind and other renewable energy projects in Japan, with 419 KW of capacity currently in operation and another 458 KW under construction. Nikkei says the deal will be Eneos’ first major acquisition in the renewables space.
• Home fitness brand iFit is the latest company to postpone a planned IPO in the U.S. because of unfavorable market conditions. The move came despite a stock-market rally on Thursday morning after lawmakers in Washington reached a deal to increase the U.S. debt ceiling through early December. September was the most volatile month on Wall Street since the early days of the pandemic, with the S&P 500 sliding nearly 5%, causing many companies to reconsider IPO plans. iFit, which owns the NordicTrack brand, had hoped to raise nearly $650 million and attain a $6.6 billion valuation through a listing on the Nasdaq.
• Shares in Life Time Group traded slightly down today after the Minneapolis-based fitness chain conducted a downsized IPO on the NYSE, another data point to support the thesis that the reception for public debuts could be cooling off. The portfolio company of Leonard Green & Partners raised $702 million by selling 39 million shares for $18 apiece, at the low end of its expected range. Life Time had indicated plans last week to offer 46.2 million shares for as much as $21 each. Its stock is at $17.72 as of this writing in the late afternoon, down 1.5% on the day and good for a market cap of $3.5 billion.
• Evan Spiegel has joined the board of directors at KKR, becoming the private equity firm’s 11th independent director. The 31-year-old founder and CEO of Snap checks in at No. 55 on the newly released Forbes 400, with a net worth of $13.8 billion. This appears to be the first board seat he has taken outside of Snap. The only four members of KKR’s board who work for the firm are co-CEOs Henry Kravis and George Roberts and co-presidents Joseph Bae and Scott Nuttall.
• Manufacturing conglomerate Emerson Electric is in discussions about a deal to merge its software assets with Aspen Technology and take control of the combined company, according to a Bloomberg report, a move that could create a major new player in the industrial software space. Shares of AspenTech were up more than 9% today, taking its market cap north of $9 billion. The Massachusetts-based company makes asset optimization software for industrial companies. Emerson shares rose about 2% today, giving it a $58.3 billion market cap as of this writing. Overall, Emerson stock is up more than 20% this year, which could make it an attractive currency in any deal.
• Skyscrapers require a lot of energy. What if they could generate it, too? That’s the idea at the heart of Blueprint Power, which unveiled a deal today to be acquired by BP. Founded in New York in the aftermath of Hurricane Sandy, Blueprint makes software that helps buildings use energy more efficiently. It also connects buildings to outside energy markets, allowing them to save up and then sell excess power, or even power that was generated through on-site solar panels. The company says its clients in New York’s commercial real estate market currently generate 13 MW of renewable power, with plans to increase that figure to 36 MW by the end of next year under BP’s ownership. The acquisition is another step in BP’s long path toward trying to make its operations more environmentally friendly.
• In a takeover reportedly worth $2 billion, Blackstone agreed to acquire a controlling stake in VFS Global, a provider of outsourced visa processing services for governments, from fellow private equity heavyweight EQT. The Swedish firm purchased VFS in 2016 through the larger takeover of Kuoni Group; it turned around and sold Kuoni’s other business units a year later. For Blackstone, the investment is in part a bet on travel and tourism bouncing back from pandemic-induced declines. More travel means more visas.
• First, it set out to build a coffee empire. Is pet-care next? JAB Holding, the investor that manages the fortune of Germany’s rather controversial Reimann family, is aiming to raise a $5 billion fund from outside investors to make more investments in the pet sector, deepening its bet on an industry that’s seen surging sales amid the pandemic. JAB reportedly raised a prior $6 billion last year to invest in the space, with recent deals including the $1.2 billion purchase of Compassion-First Pet Hospitals and a $1.65 billion takeover of Ethos Veterinary Health. With its history in the coffee space, JAB has a track record of deploying huge sums of capital to support a single thematic bet. Its related portfolio companies include Keurig Dr Pepper, Caribou Coffee, Krispy Kreme and JDE Peet’s.
• Private equity firms are doing more deals—and doing those deals on faster timelines—than ever before. So it only makes sense that the fundraising cycle is accelerating, too. Francisco Partners plans to begin soliciting commitments for its seventh flagship fund later this year, according to The Wall Street Journal, despite having closed its previous flagship vehicle on $7.45 billion just 16 months ago, in June 2020. Since then, the tech-focused firm has announced or completed more than 60 acquisitions, according to PitchBook, including the $4 billion purchase of Boomi earlier this year (conducted jointly with TPG). Francisco Partners will reportedly target $10 billion for the new fund.

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THINGS TO READ

Ares Management has been at the forefront of a recent boom in the direct lending market, with deal sizes growing rapidly. The firm’s chief executive thinks there’s plenty of more growing to go. [Bloomberg]

So far, at least, the U.S. government’s plan to throttle Huawei through a series of sanctions has been a resounding success. [The Wall Street Journal]

Americans don’t need to go offshore to legally tuck their millions into anonymous shell companies, far away from unwanted prying eyes. Because Americans have South Dakota. [The Atlantic]

A new startup called Playbook is raising venture funding for an idea with obvious appeal to the investment community: It wants to help everyone pay as few taxes as possible. [Fortune]

People pay money to play fantasy sports. So why not fantasy venture capital? And why not throw some NFTs in for good measure? Sure, why not, nothing matters. [TechCrunch]