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Supreme Court May Rule on PE and Pensions | SEC Again Fines Welsh Carson | FFL Partners Forms Bone-Health Platform
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Good day! We start this week with the news that what many private-equity deal makers say they fear most when putting together a transaction—uncertainty—could soon be reduced, with the help of the U.S. Supreme Court. Many private-equity firms considering a transaction fear being on the hook for the target company’s pension liability. The confused law around the question of when a firm is responsible has led to seemingly endless lawsuits, making it had for anybody—firms or workers—to say with certainty what they might need to pay, or what benefits they can count on. Now, the nation’s highest court has been asked to take a look at the issue, as part of a lawsuit between Sun Capital Partners and a Teamsters pension fund, as I report for WSJ Pro Private Equity.
Also in this morning's issue we have news of an unusual private-equity fine by the Securities and Exchange Commission and a new private-equity backed health-services platform.
Finally, we have one correction from last week: An item in Friday's newsletter about Sun Capital Partners' investment in Mancini's Sleepworld incorrectly stated that Sun's co-chief executive Marc Leder would be Mancini's CEO. Marc Fey has been promoted to that post. We have included a corrected item in today's newsletter.
Now on to today's news...
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Visitors walk the front steps of the U.S. Supreme Court, which is being asked to take up a case involving pension liabilities and companies backed by private-equity funds.
PHOTO: STEFANI REYNOLDS/BLOOMBERG NEWS
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The nation’s highest court may soon help resolve a question at the center of some bitter disputes in recent years: whether private-equity firms can walk away from the pension obligations of companies in which they invest, Chris Cumming writes. In August, the New England Teamsters & Trucking Industry Pension Fund asked the Supreme Court to revisit a lower-court ruling that said private-equity firm Sun Capital Partners Inc. isn’t responsible for $4.5 million in pension liabilities of a bankrupt company that was owned by two of the firm’s funds. The November 2019 appeals court ruling in Sun Capital’s favor overturned a 2016 district court ruling for the Teamsters.
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Private-equity firm Welsh, Carson, Anderson & Stowe has agreed to a $100,000 penalty for late disclosure that it had sold its stake in a publicly listed prosthetics company, Chris reports. The Securities and Exchange Commission announced the settlement with WCAS Management Corp., the adviser for Welsh Carson’s funds, late Thursday. Welsh Carson didn’t reply to requests for comment. It is the second SEC penalty for Welsh Carson, a New York-based investor in health-care and technology companies. In 2018, the firm agreed to pay about $779,000 for failing to disclose to investors a conflict of interest created by fees it received for the bulk purchase of supplies.
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San Francisco-based private-equity firm FFL Partners has backed the formation of U.S. Orthopedic Partners, which provides back-office services to practices offering musculoskeletal treatment, Laura Kreutzer reports for WSJ Pro Private Equity. Chicago-based Thurston Group is also investing in the platform, which is anchored by a partnership with the Mississippi Sports Medicine and Orthopaedic Center.
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Fall is approaching and we are seeking nominations for our annual Women to Watch list. Know a talented senior female deal maker or rising star deal maker who deserves recognition? Or perhaps a woman who is making strides in the fundraising or limited partner world? Let the industry know by nominating her here. We are accepting nominations until Sept. 25.
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$100,000
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The penalty that Welsh Carson Anderson & Stowe agreed to pay as part of settlement with the Securities and Exchange Commission over a late disclosure that it had sold its stake in a publicly listed prosthetics company.
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Garrett’s financial woes stem in part from its 2018 spinoff from Honeywell.
PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS
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Garrett Motion Inc. is in talks to sell itself out of bankruptcy to a private-equity firm, part of the auto supplier’s strategy to quell a commercial dispute over asbestos-injury payments with Honeywell International Inc., Andrew Scurria and Alexander Gladstone report for WSJ Pro Bankruptcy, citing people familiar with the matter. Rolle, Switzerland-based Garrett is nearing an agreement to file for bankruptcy and tap private-equity firm KPS Capital Partners LP as the leading bidder to take control of the company through the chapter 11 proceeding, these people said.
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Blackstone Group has formed a new energy-focused portfolio company, ClearGen LLC with an initial investment of $250 million through credit provider GSO Capital Partners, Dave Sebastian reports for Dow Jones Newswires. Led by George Plattenburg as chief executive and Collin Franceschi as chief development officer, the company plans to own and operate sustainable infrastructure assets serving commercial and industrial customers. Mr. Plattenburg previously served as managing partner at Burton Energy Group and Mr. Franceschi was manager of commercial development for Duke Energy Corp. ClearGen will invest in assets such as microgrids, distributed generation, and renewable energy combined with battery storage, energy efficiency, green transportation and combined heat and power plants, Blackstone said.
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The sale of Tribute Technology, a funeral-home technology provider backed by Providence Equity Partners, has launched with first round bids due this week, five bankers and private-equity executives with knowledge of the sales process told sister publication Barron's. Tribute is expected to sell for more than $1 billion, one of those people said. William Blair, an investment bank, is advising on the auction. Tribute produces about $55 million in earnings before interest, taxes, depreciation, and amortization, or Ebitda, according to those people.
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Sun Capital Partners is backing family-owned Mancini’s Sleepworld, a mattress retailer serving Northern California. Following the transaction, second-generation owner Randy Mancini will become chairman of the 33-store retailer and Marc Fey will become the company’s chief executive. Sun Capital has previously backed bedding companies, including U.S. mattress retailer Mattress Firm and foam mattress manufacturer Innocor. The firm also currently owns Dreams, a U.K. bed and mattress company.
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Singapore sovereign wealth fund GIC and Durable Capital Partners led a $500 million investment in digital commercial lender Affirm Inc. Other investors in the Series G round included Wellington Management Co., Lightspeed Venture Partners, Spark Capital, Founders Fund and Fidelity Management & Research Co., according to a news release. The financial technology company in San Francisco is also branching into consumer lending, offering financing for transactions of $50 or more. Affirm already serves 6,000 merchant partners.
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London-based Stirling Square Capital Partners has made an additional investment in Swedish portfolio company Docu Nordic Group Holdings AB. With the investment, Stirling Square becomes the majority shareholder in Docu Nordic. The investment in the data analytics company was made in partnership with TA Associates, which will acquire a significant minority stake.
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Private-equity-backed Unity Software Inc.'s stock soared after the company sold 25 million shares at $52 each, $4 more than the top of its anticipated price range, in an initial public offering Friday. The shares jumped as high as $76.79 each as the stock opened at midday Friday. Sequoia Capital and Silver Lake Partners were the company’s two biggest investors heading into the IPO and neither were expected to sell any shares, a regulatory filing shows. Sequoia funds owned 24.1% of Unity, or more than 57.4 million shares, while Silver Lake funds held an 18.2% stake, or about 43.3 million shares.
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424 Capital has launched its first new fund in the 424 series, 424 Capital Fund I, which simultaneously completed the acquisition of Hospital Energy. The target is an energy management firm that develops and manages energy procurement strategies for U.S. hospital systems.
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L Catterton led a $110 million growth-stage funding round for fitness company Tonal Systems Inc. Other investors in the San Francisco-based provider of at-home strength-building exercise systems included Shasta Ventures, Delta-v Capital and the Amazon Alexa Fund.
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Our add-on deal interactive tool allows you to sort and analyze volumes of add-on deal data compiled by WSJ Pro. View more.
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Apax Partners has agreed to sell its remaining interest in medical technology company Amplitude Surgical SA to PAI Partners through its Auroralux portfolio company, Valence, France-based Amplitude said Friday. The agreement concludes negotiations that began in late July. PAI agreed to pay €2.15 (equivalent to about $2.55) per share, Amplitude said. Once the sale closes, PAI will control about 52.3% of the publicly traded shares and will offer to buy the rest of the stock outstanding for €2.15 per share. Apax acquired Amplitude in 2011 and took it public in 2015.
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Morgenthaler Private Equity, a midmarket buyout firm with offices in Cleveland and Boston, has rounded up nearly $314 million so far for MPE Partners III LP and related parallel funds, according to regulatory filings. Morgenthaler Private Equity targets transactions ranging from $25 million to $150 million and companies with more than $5 million of earnings before interest, tax, depreciation and amortization, according to the firm’s website.
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Seaside Equity Partners, a San Diego-based lower midmarket firm focused on the Western United States, is seeking $125 million for its first institutional fund, according to filings with the Securities and Exchange Commission. Seaside was formed by Andrew Thompson, a former managing director and partner in the direct investment unit of Wafra Inc., and Bill Shen, a former managing director at Encore Consumer Capital. The firm targets investments in companies with more than $10 million in revenue and up to $100 million of enterprise value, according to its website. Shannon Advisors is placing the fund, SEC filings indicate.
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Eric Wu, co-founder and chief executive of Opendoor Labs, which last week agreed to be acquired by Social Capital Hedosophia Holdings Corp. II in a deal that gives it an enterprise value of $4.8 billion. PHOTO: DAVID PAUL MORRIS / BLOOMBERG NEWS
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Chamath Palihapitiya and Ian Osborne, the founders of the blank-check company that last week agreed to acquire digital home lender Opendoor Labs Inc., have registered three more special purpose acquisition companies using the Social Capital Hedosophia Holdings Corp. name, which would bring their SPAC capital raising total to more than $3 billion this year. The sixth SPAC in the pair’s quiver aims to raise $1 billion, a regulatory filing late Friday shows. The fourth and fifth blank-check companies—also registering Friday and using the name—are planning to raise $350 million and $650 million, respectively, all through initial public share offerings to finance the acquisitions of private companies that seek to enter the public equity markets. In April, the pair raised $414 million and $828 million in the second and third SPACs in the series. All are targeting technology companies.
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George Mattson, a private-equity executive and former Goldman Sachs Group Inc. investment banker, is teaming with former Perkin Elmer chief executive and private capital investor Gregory Summe to lead a special purpose acquisition company that aims to raise $350 million through an initial public offering, a regulatory filing shows. Mr. Mattson, a former Goldman partner and co-head of its global industrials group, is executive partner at midmarket private-equity firm Comvest Partners and is an operating partner at credit investor Star Mountain Capital. He and Mr. Summe, a former Carlyle Group Inc. partner, are co-founders
and co-chairman of NextGen Acquisition Corp., the blank check company that plans to focus its hunt for a private company to buy on the industrial and health-care sectors, the filing shows.
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Health-care investor MPM Capital has hired Matthew Roden as an executive partner in the Cambridge, Mass., firm, with responsibility for identifying and assessing new technologies and advising portfolio executives. He joins from drug maker Bristol Myers Squibb Co., where he held senior leadership roles in strategy and business development.
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Bonaccord Capital Partners, which buys stakes in the relatively untapped market of midsize private-equity firms, has allied with CAZ Investments, a Houston multi-family investment office, in an agreement that is expected to supply more than $250 million in commitments to Bonaccord private-markets strategies. Bonaccord is part of Aberdeen Standard Investments, the asset-management arm of U.K. insurer Standard Life Aberdeen PLC that manages about $86 billion in assets. Most recently, Bonaccord invested in San Francisco real estate investment firm Spear Street Capital in July.
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The Federal Reserve issued new guidance to banks Friday in an effort to improve access to new business loans through its $600 billion Main Street Lending Program, Nick Timiraos writes for The Wall Street Journal. The central bank is relying on banks to underwrite loans to qualified small and midsize businesses under the novel effort to reach firms that aren’t large enough to access corporate funding markets, which the central bank has also backstopped.
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Covestro AG's shares rose Friday following a report that New York-based private-equity firm Apollo Global Management Inc. is considering a takeover bid for the company, Mauro Orru reports for Dow Jones Newswires. The German chemicals company was approached by Apollo in recent weeks, Bloomberg News reported Thursday, citing people with knowledge of the matter, although it said talks are at an early stage and a deal isn't certain. But a spokesman for Covestro said the company is "not in takeover discussions" at the moment. Apollo wasn't immediately available for comment.
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