Issue 30

Apollo to pay $5.6B in PE's latest healthcare deal


Apollo Global Management and portfolio company RCCH HealthCare Partners have agreed to acquire LifePoint Health from the healthcare provider's shareholders for an enterprise value of $5.6 billion, marking the latest big-ticket move for a private equity firm in the healthcare space. The add-on's price of $65 per share represents a 36% premium to LifePoint's closing share price last Friday. 

A number of factors—including an aging population and the continued development of new drugs and devices to sell—have pushed private equity firms deeper into the healthcare space during the past several years. In the US, deal count in the sector more than doubled between 2008 and 2017, according to PitchBook data. The story's even more extreme in the healthcare services sub-sector, where US deal count rose from 184 in 2008 to 445 last year. 

In 2018, that increased appetite has resulted in several billion-dollar takeovers involving healthcare companies and private equity firms. Most notable is the trio of Humana, TPG Capital and Welsh, Carson, Anderson & Stowe, which have teamed this year to acquire Kindred Healthcare for $4.1 billion and Curo Health Services for $1.4 billion. KKR got in the act with a $2.4 billion add-on acquisition of American Medical Response, combining the business with portfolio company Air Medical Group to create a major provider of medivac and other medical transport services. 

Apollo's deal with LifePoint also continues a trend of private equity firms turning to add-ons with ever-increasing frequency. Buy-and-build deals are more popular so far in 2018 than at any point since the end of the financial crisis, as you can see in our recent datagraphic recapping PE activity in 2Q.

LifePoint and RCCH are both owners and operators of hospitals and other care providers throughout the US. The add-on is slated to create a business with some 60,000 employees, 12,000 licensed beds, 7,000 affiliated physicians and expected 2017 revenue of more than $8 billion. The combined company will retain the LifePoint name.
 
From - PitchBook

Big Tech is Throwing Money and Talent at Home Robots


Alphabet and Huawei join Amazon in the race to build androids, the first of which could debut by 2020.

Science fiction writers and technologists have been predicting the arrival of robot butlers for the better part of a century. So far domestic robots have been relatively pedestrian: robot dogs, vacuum cleaners, lawn mowers. Rosie of “The Jetsons” fame?

Not so much. 
That may be about to change. Behind the scenes, big tech companies are funding secret projects to develop robots. Amazon.com Inc. has been working on a robot version of its Echo voice-activated speaker for a while now and this year began throwing more money and people at the effort. Alphabet Inc. is also working on robots, and smartphone maker Huawei Technologies Inc. is building a model for the Chinese market that will teach kids to speak English.

None of these bots are capable of organizing your closet or mixing cocktails, but advances in artificial intelligence, processors and computer vision mean that simpler machines could start appearing in the next two years, according to people familiar with the companies’ stealth programs. Whether or not the robots catch on with consumers right away is almost beside the point because they’ll give these deep-pocketed companies bragging rights and a leg up in the race to build truly useful automatons.

“Robots are the next big thing,” said Gene Munster, co-founder of Loup Ventures, who expects the U.S. market for home robots to quadruple to more than $4 billion by 2025. “You know it will be a big deal because the companies with the biggest balance sheets are entering the game.”

Many companies have attempted to build domestic robots before. Nolan Bushnell, a co-founder of Atari, introduced the 3-foot-tall, snowman-shaped Topo Robot back in 1983. Though it could be programmed to move around by an Apple II computer, it did little else and sold poorly. Subsequent efforts to produce useful robotic assistants in the U.S., Japan and China have performed only marginally better.

IRobot Corp.’s Roomba is the most successful, having sold more than 20 million units since 2002, but it currently only does one thing: vacuum. The company’s shares fell as much as 3.3 percent Tuesday on the news about increased competition in the home robot space. 

More recently, Sony Corp. and LG Electronics Inc. have shown interest in the category. In January at the Consumer Electronics Show in Las Vegas, LG showed off a robot called Cloi, but the demo flopped when the bot failed to obey voice commands. Sony revealed a new version of its robotic dog Aibo, originally unveiled 20 years ago. It doesn’t do much other than bark (although Aibo has been programmed to play soccer). The canine bot also costs $1,800, or about the same price as a real dog from a breeder.

Amazon’s Project Vesta is overseen by Gregg Zehr, a veteran executive and a key leader at the company’s Lab126 hardware division. Kenneth Kiraly, who helped develop the Kindle, helps run the show and has about doubled his team of engineers and developers to roughly 500 since the beginning of the year, according to people familiar with the effort. Now a top priority, Project Vesta has expanded from a single floor at the main Lab126 R&D office in Sunnyvale, California, to a larger, more secure facility, the people said. Amazon has moved people from other projects to the Vesta effort and canceled or pushed back other initiatives, they said.

An early version of Vesta will accompany customers in parts of their home where they don’t have Echo devices. The gadget will likely leverage some of the technology Amazon has used to build its Kiva warehouse robots, one of the people said. Amazon has been investigating ways for either its first robot or a subsequent model to be able to go up and down flights of stairs, this person said. Longer term, the robot could handle more complex tasks such as retrieving items. An Amazon spokesman declined to comment.

Until recently, Alphabet had the grandest ambitions in robotics. The company shocked the industry when it went on a buying spree in 2013, acquiring a dozen robotics companies and dozens of experts. Andy Rubin, a former Google executive who led the effort, departed the company a year later, and nothing of substance has emerged from those efforts. Last year, Alphabet completed the sale of two high-profile units in its robotics division—Boston Dynamics and Schaft—to SoftBank Group Corp. In 2016, Alphabet hired Hans Peter Brondmo, a European mobile executive, to lead its robotics work.

Alphabet’s X division is working on several robotics projects and underlying technology that could, theoretically, make its way to a Jetsons-style home robot. Engineers are exploring the ability for a robot to go up and down stairs, as well as enabling it to open and close doors, a person familiar with the work said. Because the development timeline is so long, five to 10 years, the company hasn’t made the decision about how it will bring the technology to market or if it will be a consumer or commercial machine.

A spokeswoman for Alphabet’s X said the company is “optimistic that robotics combined with machine learning can help solve some of humanity's biggest problems” and that it’s “exploring a range of ways they could have a positive impact in society and on people’s lives.”

Huawei’s home robot’s main purpose is to teach kids English and do live Chinese-to-English translations, according to people with knowledge of the work. The company has sizable teams in San Francisco and Boston working on the project, which could still be abandoned. If Huawei brings the robot to market, it will be specific to China and is unlikely to be released in the U.S. and elsewhere, this person said. Huawei didn’t respond to a request for comment.

Industry experts say Apple probably isn’t currently working on a domestic bot, preferring to focus on commercial machines. In recent months, the company ramped up hiring of robotics experts with a likely focus on automating the manufacturing of future products. Apple is often heavily involved in the design of equipment used for laser etching its products, cleaning metals and applying unique colors like high-gloss black. As its products become more advanced and the company enters new categories like augmented-reality glasses, Apple will need more customized automation equipment to turn prototypes into mass-produced goods.

“I don’t think Apple will come out with a consumer-facing robot any time soon,” Munster said. He suggests that much of R&D could be used for self-driving technology. Apple abandoned efforts to build its own autonomous vehicle but still wants to provide self-driving technology to other companies.

The robot most akin to the vision big tech is pursuing is probably the Temi, a $1,500 machine that follows its owner from room to room, placing video calls, controlling smart-home devices and other tasks. Temi, the company, said it will begin shipping the bot by the end of the year and hopes to build as many as 30,000 units a month. Anki, a robotics startup that became popular after demonstrating its toy car system at an Apple conference, is debuting a new home robot in August, the company said. Robots are also moving into other parts of the home. Startup Bumblebee Spaces recently debuted a robotic system for raising and lowering home items like beds and dressers to create more space inside of small apartments.

Amazon intends to roll out test versions of its robots into controlled environments and employee homes by the end of this year, and then plans a second wider, but still controlled, test as early as 2019, people familiar with the efforts said. A full launch to consumers could happen by 2020.

Amazon is likely the furthest ahead. While Alphabet’s work is still in the early development stage, the e-commerce giant is already talking with manufacturing partners. Charlie Duncheon, a respected robotics and automation expert who once ran robot maker Grabit, said Amazon has an advantage because it can combine the navigation attributes of the Kiva robots scurrying around its warehouses with the voice-activated smarts of Alexa.

But to really change the world, Duncheon said, Amazon and its rivals will have to master articulated arms and hands that can grip objects. Such technology exists and is getting better all the time, but getting the costs low enough for a mass consumer market will take several years. For the time being Rosie will remain nothing more than a cartoon.


 
From – Bloomberg

Scoop: 23andMe is raising up to $300M

23andMe, the maker of a direct-to-consumer genetic testing kit that has also forayed into health risk reports, has authorized the sale of up to $300 million in new shares, PitchBook has learned. 

The terms of the deal have not been announced and are subject to change. The company declined to comment. A full $300 million funding could value the company at up to $2.5 billion, per a PitchBook estimate. 23andMe was valued at $1.75 billion with a $250 million funding round last September. 

Mountain View, CA-based 23andMe, which is named for the 23 pairs of chromosomes in a normal human cell, was founded in 2006 by Anne Wojcicki, Linda Avey and Paul Cusenza. It's among the most valuable companies in the world with at least one female founder; a $2.5 billion valuation would place it only behind Didi Chuxing, Grab, Houzz and Credit Karma. 

The company deploys genetic testing kits by mail. Its flagship kit provides users with an ancestry breakdown by region about six to eight weeks after a customer mails in a sample of their saliva. Results from the company can also tell customers about people who share their DNA, among other services. The method of genetic testing has skyrocketed in popularity since its launch more than a decade ago; the company has served more than 5 million customers. 

A $300 million financing would bring 23andMe's total equity raised to just over $790 million. The company's $250 million round last fall, its largest to date, was led by Sequoia. Investors including Euclidean Capital, Altimeter Capital and the Wallenberg Foundation and Casdin Capital also participated in that round. 

In 2007, the year after the company was founded, it raised $9 million at a valuation of $45 million. It garnered a unicorn valuation with a $115 million round led by Fidelity Management & Research in 2015. 23andMe's key competitor, Ancestry.com, is expected to go public sometime soon. The company filed confidentially for an IPO last year, but delayed plans following the resignation of its CEO. 

The rise of 23andMe is in line with overall VC funding trends for biotech companies focused on the genetics space. So far this year, companies in the sector have raised more than $1.25 billion across 56 deals, per PitchBook data. The year is on pace for the most capital invested in the space since at least 2006:
 
 

23andMe's latest fundraise comes a few months after it received approval from the US Food and Drug Administration to use its direct-to-consumer genetic test to evaluate risk for certain types of cancer. Specifically, the test, which is available without a prescription, tests for the BRCA1 and BRCA2, which are associated with a higher risk for breast, ovarian and prostate cancer. 

"Being the first and only direct-to-consumer genetics company to receive FDA authorization to test for cancer risk without a prescription is a major milestone for 23andMe and for the consumer," CEO and co-founder Anne Wojcicki said in a statement in March, when the approval was announced. "We believe it’s important for consumers to have direct and affordable access to this potentially life-saving information. We will continue pioneering a path for greater access to health information, and promoting a more consumer-driven, preventative approach to health care." 

Before receiving the FDA green light on BRCA testing, 23andMe was authorized to begin marketing genetic reports on personal risk for certain diseases in April 2017. The tests provides risk reports on Alzheimer’s disease, Parkinson’s disease, thrombophilia (a hereditary blood clot condition); celiac disease and several other conditions. 

On top of an expansion into genetic health risks, 23andMe has picked up its research and development efforts in recent years in an attempt to help develop cures to some of the conditions it tests. 

In January 2015, 23andMe inked an official partnership with Pfizer that allowed the pharmaceutical conglomerate access to 23andMe's data platform. Pfizer uses 23andMe's data to conduct research on links between genes and diseases. In 2016, Pfizer unveiled the results of study using 23andMe data that highlighted a link between specific genes and depression. 

The company has also partnered with the Michael J. Fox Foundation to build out a large and comprehensive study around Parkinson's disease. And Celmatix, a VC-backed women's health startup, joined forces with 23andMe to help detect and treat infertility. 

From – PitchBook
 

China's Pinduoduo raises $1.6 billion in range-topping U.S. IPO: sources

Chinese online group discounter Pinduoduo Inc (PDD.O) priced its U.S. initial public offering (IPO) at $19 per American depositary share (ADS), raising $1.63 billion in the second-biggest U.S. float by a Chinese firm this year, according to two people familiar with the situation.

The pricing values money-losing Pinduoduo - which counts Chinese internet giant Tencent Holdings Ltd (0700.HK) as a main backer - at $23.8 billion including all outstanding share options, compared with a valuation of $15 billion following a funding round in April.

The fast-growing company allows consumers to group together to get better discounts from merchants selling goods as varied as clothes, kitchenware and gadgets. It offered about 85.6 million ADS or about 6.8 percent of its enlarged share capital, at $16 to $19 each. The people declined to be named because they were not authorized to speak to the media.

Pinduoduo is the latest Chinese tech firm tapping international capital markets to bolster coffers amid ever-intensifying competition with domestic rivals, notably e-commerce heavyweights Alibaba Group Holding Ltd (BABA.N) and JD.com Inc (JD.O). It is also joining several sizable Chinese listings in New York this year even as Sino-U.S. trade tensions involving tit-for-tat tariffs rattle global markets.

Chinese video streaming service provider iQiyi Inc (IQ.O) raised $2.42 billion from a Nasdaq IPO in March, and Tencent Music Entertainment, China’s largest music-streaming firm, aims to raise up to 4 billion in a U.S. IPO planned for October.

Set up by former Google engineer Colin Huang in 2015, Pinduoduo will begin trading on Nasdaq under the symbol PDD on Thursday. It said in U.S. regulatory filings that it had attracted over 300 million active buyers and more than 1 million merchants to its platform.

Due to low-priced products and a large user base in China’s smaller cities, the firm’s gross merchandise volume exceeded 100 billion yuan ($14.98 billion) last year. Alibaba’s Taobao marketplace took five years to reach that milestone, while JD.com took 10 years.

Investors and analysts also attribute its rapid growth to the online traffic derived from Tencent’s messaging-to-shopping app WeChat, which helps direct many of its more than 1 billion users to Pinduoduo.

“We believe WeChat accounts for the majority of buyer traffic, and Pinduoduo could not have built up its large user base cost-effectively and rapidly without WeChat,” wrote Arun George, a technology analyst who publishes on independent research platform Smartkarma.

Pinduoduo’s revenue has grown sharply, reaching 1.38 billion yuan in January-March from 37 million yuan in the same period a year prior. Its net loss, however, remained broadly steady at 201 million yuan.

 
From – Reuters
 

Chinese chipmaker Tsinghua Unigroup to buy France's Linxens for $2.6 billion: sources

China’s top state chip manufacturer Tsinghua Unigroup Ltd has signed a deal to acquire French smart chip components maker Linxens for about 2.2 billion euros ($2.6 billion), five people with direct knowledge of the matter said.

The deal, which the sources said was signed over a month ago but has not yet been announced publicly, will be a key test of European regulators’ stance on Chinese investment in the region that has been on the rise amid the country’s worsening trade relations with the United States.

Tsinghua’s acquisition of Linxens from private-equity group CVC is still pending regulatory clearance, three of the sources told Reuters, adding regulators in France, Germany and the company’s union need to approve the deal.

The authorities are not expected to object, the sources said on condition of anonymity as the information is confidential.
Tsinghua and Linxens did not respond to requests for comment.
According to three sources, Tsinghua has already locked in a deal with four banks for a 1.5 billion euro ($1.75 billion) bridge loan to fund the transaction. Credit Suisse, a main lender in the loan, also advised the seller, the people said. Credit Suisse declined to comment.

Before the Linxens deal, Tsinghua Unigroup accumulated a stake in Germany’s Dialog Semiconductor Plc, buying into share price weakness as the Anglo-German chipmaker faced uncertainty over its business relationship with Apple, its largest customer, towards the end of last year.

The stake, held via two wholly owned subsidiaries, reached 9 percent in December, according to company filings, making the Chinese investor the single largest shareholder in Dialog. Tsinghua did not respond to requests for comment at the time.

Failure to get local regulatory approval has previously scuttled Tsinghua’s offshore investment plans, such as share purchases totaling $2.6 billion from three Taiwanese chip makers - Powertech Technology Inc, ChipMOS Technologies Inc and Siliconware Precision Industries Co - that fell through in 2016 and 2017.

That followed a 2015 debacle when an informal $23 billion approach for U.S. giant Micron Technology Inc was rejected by the Idaho-based chipmaker amid national security concerns - a rationale that has increasingly been used to block Chinese deals in sensitive U.S. industries.

So far this year, China has spent $45.5 billion on European assets, more than double year-ago levels, while its investments in the United States has dropped 75 percent to $1.9 billion, according to Thomson Reuters data.

Linxens, headquartered close to Paris, has 535 million euros in annual sales and employs 3,500 staff at nine production sites globally. It also has offices in China, Singapore and Thailand.
Linxens, which does not have a U.S. presence according to its website, makes connectors crucial for communication between smart cards and electronic readers.

It also makes antennas and inlays for applications such as contactless payment, transport and access.

 


From – Reuters
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