Friday, April 21, 2017

An Uncertain Future: New Entrants In The Food Delivery Space Decline As Existing Startups Struggle

Food delivery failure reminds us of the Dot Com era.....
Aivars Lode

Munchery's recapitalization and plummeting valuation highlight challenges in food delivery, with fewer fundings, increased M&A activity, and some companies shutting down.

Food delivery startups originally became popular among VC investors in the early 2010s, with many large players such as Blue Apron ($2B valuation) quickly reaching high valuations, thus encouraging more new competitors to enter the market. However, as competition has increased and startups have struggled to find a financially viable business model, the challenges of food delivery have become more apparent to investors and activity in the space has begun to cool.

Most recently, Munchery made headlines for a recapitalization financing worth $5.6M led by Menlo Ventures and Sherpa Capital. The recapitalization was seen as a last resort by the company to attract investors after a turbulent year in which the company burned through much of its cash and laid off employees. The new financing has lowered Munchery’s valuation to $80M from $300M.

In a climate in which an increasing number of food delivery startups have been acquired or died, we took a look at how the once-overcrowded food delivery market has changed over the past few years.

We used CB Insights data to create a timeline of first fundings to US food delivery startups between 2011 and 2017 YTD (4/3/2017). For our graphic, we only featured food delivery startups that have raised at least $5M in total funding. We also chose to highlight any subsequent mergers, acquisitions, or deaths among companies that fit the aforementioned criteria.

We define food delivery as companies facilitating the delivery of food to users’ doors, including restaurant delivery, grocery delivery startups like Instacart, farm-to-table services like Door-to-Door Organics, meal delivery startups like Delivery Hero or Sprig, and meal kit services like Blue Apron.

Notes: Graphic only includes US companies that raised their first equity funding round after 1/1/2011, and that raised over $5M in total.

Key insights from the infographic above:
  • Initial success: Notable food delivery startups like Blue Apron ($2B valuation), DoorDash ($659M), and Postmates ($609M) quickly reached large valuations after their initial financings between 2011-2013, encouraging more new competitors to enter the market.
  • A slowdown in new entrants: The heaviest flurry of first fundings took place in 2012 and 2013, and again in 2014 through the first half of 2015, periods in which notable companies like Instacart, Blue Apron, and EatWith Media first attracted investor attention. However, 2016 and 2017 have only seen a combined 7 new entrants, compared to 8 in 2014, and 12 in 2013.
Published on LinkedIn by Natan Ready - CB Insights

Wednesday, December 21, 2016

Avaya: How an $8 Billion Tech Buyout Went Wrong

As we have previously discussed ...we will see a lot more of these....
Aivars Lode

Telephony company bought by TPG and Silver Lake in 2007 is weighing chapter 11 bankruptcy filing

At a 2007 meeting to discuss a potential buyout of Avaya Inc., some employees of private-equity firm TPG expressed concerns that the company was at risk of becoming technologically outmoded, a “buggy-whip business,” as one put it.
To them, Avaya’s business of installing and managing corporate phone systems appeared vulnerable to the same forces that were making landlines scarce in households across the U.S., according to people familiar with the meeting.
But their concerns, not unusual in deal deliberations, didn’t prevent TPG from partnering with Silver Lake on a roughly $8 billion deal to take Avaya private. The firms were betting that Avaya’s sales of corporate telecommunications gear would chug along while they cut costs and teed up a profitable exit.
Instead, the ensuing financial crisis decimated corporate spending. And when companies started buying again, Avaya faced stiff competition from rivals Cisco Systems Inc., Microsoft Corp. and, later, from Internet-based phone services.
As sales fell, Avaya began to buckle under the weight of a multibillion-dollar debt load the buyout firms layered on and pension obligations largely dating back to the company’s time as a unit of AT&T.
Now Silver Lake and TPG stand to lose most of the more than $2 billion they invested in the buyout and two related acquisitions. Avaya is weighing a chapter 11 bankruptcy filing to slash its $6 billion debt load.
By Matt Jarzemsky and Marie Beaudette 

Wednesday, March 23, 2016

Refinancing woes short-circuit Aspect Software

Golden Gate Capital's equity bites the dust....Aivars Lode

Golden Gate Capital-backed Aspect Software Inc. has sought bankruptcy protection, just months after a ratings agency warned that the company would have a difficult time refinancing $1 billion in debt.
The Phoenix provider of contact center software solutions and services submitted its petition in the U.S. Bankruptcy court for the District of Delaware in Wilmington on Wednesday, March 9, along with four related entities. The companies requested joint administration of their cases with parent Aspect Software Parent Inc. serving as the lead case.
Judge Mary F. Walrath has yet to set a first-day hearing in the case.
In a Wednesday declaration, Stewart M. Bloom, chairman and CEO of ASP, said it had reached a deal on a restructuring transaction that would cut $320 million in second-lien debt. Additionally, the deal would give holders of $60 million of first-lien claims 100% of the reorganized debtor’s equity.
Funds managed by GSO Capital Partners LP, MidOcean Credit Fund Management LP and Guggenheim Partners Investment Management LLC have agreed to backstop a rights offering that would lead to the $60 million in first-lien debt, the proceeds of which would be used in the paydown of the second-lien debt.
Lenders on the company’s $585 million first-lien term loan, owed $446.4 million as of Sept. 30, would receive a restated $386 million senior secured first-lien term loan, court papers show.

Second-lien noteholders, owed $275 million on 10.625% second-lien notes due May 15, 2017, would have the right to participate in a $60 million new money investment for new PIK securities that would convert into 25% of the reorganized debtor’s equity in certain circumstances, subject to dilution. (The second-lien debt was issued on April 4, 2011.)
General unsecured creditors would be paid in full in cash, the declaration said.
Equity holders would be wiped out. Golden Gate announced the $1 billion acquisition of Aspect on July 6, 2005, but the San Francisco private equity firm won’t get completely wiped out because it does have some unsecured claims.
According to the declaration, holders of 33.3% of first-lien revolver claims, 94% of first-lien term loan claims and 42% of second-lien note claims have agreed to the deal, which would serve as the basis for a restructuring support agreement.
Aspect intends to complete its restructuring within 105 days.
In its petition, Aspect indicated that certain lenders had agreed to provide the company with debtor-in-possession financing, though it did not provide additional details about the financing. Prepetition lender Wilmington Trust NA would serve as administrative agent for the DIP. (Aspect spokesman Tim Dreyer declined to provide more details on the financing.)
Bloom said that Aspect has “left no stone unturned and no path unfollowed” in a year’s worth of pursuing strategic alternatives for the company. The software company has pursued “every realistic in-court and out-of-court restructuring solution” it could, including considering a sale, a debt-for-equity swap, a standalone reorganization, and a reorganization backed by third-party investors.

Ultimately, Aspect opted to pursue its current strategy because it provided the quickest exit from Chapter 11, maximized the value of the debtor’s estate and gave the company the flexibility to pursue alternative proposals from other interested parties.
“The term sheet and the PSA elegantly achieve these goals and leaves open the possibility of consummating a higher or better alternative, to the extent one emerges during the course of these Chapter 11 cases,” Bloom said in the declaration.
The Deal reported on Dec. 7 that Aspect may have a hard time refinancing its large debt load.
Moody’s Investors Service Inc. on Dec. 7 downgraded the company’s corporate family rating to Caa2 from B3, the first-lien debt to B3 from B1 and the second-lien notes to Caa3 from Caa2. The ratings agency said the outlook is negative.
In the report, Moody’s said the downgrade was driven by challenges the company faces in offsetting declines in its legacy product lines, high debt levels and upcoming debt maturities.
Aspect’s legacy products include its Signature call center infrastructure software, which helps a company run call centers, direct calls and control how the calls are distributed at the call center.
In the report, the ratings agency said Aspect is a longstanding leader in the contact center industry but noted: “The business is evolving, and it is unclear if the landscape will favor Aspect’s full-suite hardware and software competitors. Aspect remains particularly exposed to being displaced from its legacy installed base as customers consider contact center purchases as part of enterprise wide unified communications build-outs rather than standalone decisions – a shift that benefits some of Aspect’s key competitors.”

At the time, the company had fully drawn down on its $30 million first-lien revolver and had $446.4 million outstanding on its first-lien term loan as of Sept. 30. The revolver and term loan, led by administrative agent Wilmington Trust, are priced at Libor plus 525 basis points, with a 1.75% floor on Libor.
The revolver matures on March 8, 2016, and the term loan comes due on May 7, 2016. The first-lien debt was issued on May 7, 2010.
Aspect had $936.59 million in assets and roughly $1 billion in liabilities as of Sept. 30.
In its petition, the company said its largest unsecured creditors include U.S. Bank NA (owed $320 million), Golden Gate ($4.83 million), Microsoft Corp. (MSFT) ($1.53 million), Ernst & Young LLP ($1.16 million) and United States Advanced Network Inc. ($824,654).
William A. Guerrieri, James H.M. Sprayregen, Joshua A. Sussberg and Aparna Yenamandra at Kirkland & Ellis LLP and Morton Branzburg, Domenic E. Pacitti and Michael W. Yurkewicz at Klehr Harrison Harvey Branzburg LLP are debtor counsel. Sprayregen, Sussberg, Pacitti and Branzburg couldn’t immediately be reached for comment Wednesday.

By Kelsey Butler - The Deal

Wednesday, February 3, 2016

Mauldin Addresses Investing In Disruptive, Darwinian Economy

We tend to agree..... Aivars Lode

“If you are a pension fund trying to get a 6.7 percent return, there is a technical word for it,” financial writer John Mauldin told attendees at the Inside ETFs conference earlier this week. “You’re screwed.”

Financial advisors who can deliver clients returns of 5 or 6 percent over the next decade without taking absurd risks will eventually be rewarded by their clients. “Half of you won’t be in this business in a company that looks anything like the one you are in today,” Mauldin predicted. “Past performance will be based on fundamentals that no longer matter.”

As the pace of change in technology, health care and everyday life accelerates over the next decade, financial advisors and their clients will be compelled to adapt to a different world or suffer the consequences. While the opportunities in growth areas like nanotechnology, robotics, health care and automation will be far-reaching, Mauldin said, the number of industries and people displaced will rock modern society.

Just examine what longer longevity means for the insurance and asset management industries. Insurance companies focused on life insurance will benefit as policy liabilities get deferred into the future, while long-tailed liabilities like pensions and annuities will leave companies overweight in these areas scrambling for relief, in Mauldin’s view.
“The world will be divided into doers and thinkers,” he predicted, adding that this was relatively good news for advisors since they tend to be thinkers. “Doers won’t get paid very much.”

For the majority of people in developed nations, economic change could be threatening. Mauldin cited one study predicting that as many as 15 million workers in the U.K. and 75 million in the U.S. could lose their jobs. Signs of future problems are already surfacing, as evidenced by the growing number of white men in their 40s and 50s suddenly dying from drugs, alcohol and suicide.

“Thinkers will have to create new jobs and new industries but it will be an uncomfortable transition,” he said. “There will be a lot of angry white men and a lot of angry black men and white women and black women.”

With so many people being displaced, one can expect higher taxes, including a consumption tax. There will be a race “between how much wealth people can create and how much the government can destroy,” Mauldin declared. “It will be a close race.”
On a more positive note, Mauldin said that within a decade Iran will become one of America's best friends as the young people take over and the mullahs depart the scene.

- Evan Simonoff, Financial Advisor Magazine

Tuesday, February 2, 2016

Blackstone earnings miss forecasts as investments weaken

Blackstone underperforms, especially its credit group.  Perhaps if they had a greater industry versus generic focus the returns would be better.  Aivars Lode

Blackstone Group LP (BX.N), the world’s largest alternative asset manager, reported weaker-than-expected fourth-quarter earnings on Thursday as falling oil prices and a choppy credit market dragged on its investments.
Economic net income, which accounts for unrealized gains or losses in investments, dropped 70 percent to $435.7 million, or 37 cents per share, from $1.4 billion, or $1.25 a share, a year earlier.
On that basis, analysts on average had expected 45.5 cents per share for this key metric for private equity firms, according to Thomson Reuters I/B/E/S.
It has been a tough few months for private equity firms. Besides smarting from energy investments as oil prices tanked, dealmaking has also suffered since November due to the toughest financing conditions since the 2008 global financial crisis.
The market for high-yield bonds, the lifeblood of buyout deals, has frozen as banks struggle to sell them in syndicated sales. Banks are also lending fewer of the riskiest junk-rated loans that fund buyouts, further tightening financing conditions.
Blackstone’s income based on the performance of its investments slid across the board. The private equity, real estate, hedge fund and credit divisions all suffered, but the credit arm took the biggest hit as losses doubled to $90.5 million from a year earlier.
But even as investments weakened, investors handed Blackstone more cash to manage. Assets under management increased 16 percent to $336.4 billion, with growth in each of its investment arms.
Distributable earnings, which show the actual cash that Blackstone has available to pay dividends, slumped 23 percent to $878 million, or 72 cents per share.
Founded in 1985 with just $400,000, Blackstone is a leading buyout firm due to the sheer amount of cash that it manages. It was the first of its peers to report fourth-quarter results.
- Reuters

PE activity in U.S. MM still at record high as value falls 12%

What will that mean for the future of those deals done at a much higher valuation???  Aivars Lode

Private equity dealmakers kept up a torrid pace of investment in U.S. middle-market companies last year, closing over 2,000 deals for the second year in a row. Yet, in another instance of the general PE slackening we have observed as of late, total deal value declined by nearly 12%, according to our 2015 Annual U.S. PE Middle Market Report. The report delves into how trends affecting the overall U.S. PE landscape are manifested in the middle market, analyzing activity by MM segment and sector. It also covers MM exits and fundraising. Click here for free access to the full report, sponsored by Madison Capital Funding.

Monday, February 1, 2016

Strategists advise real estate investors to prepare for next downturn

So where next to invest if strategists advise real estate investors to prepare for next downturn?  Aivars Lode

As concerns about the global economy weigh on stock markets, real estate investors are being advised to prepare for the next downturn in their sector.
LaSalle Investment Management has published its latest strategic note, advising investors “to take out cycle insurance” to safeguard against the advent of falling or plateauing values.
The company’s investment strategy annual recommends taking precautions as more markets enter a mature phase in the “real estate pricing cycle”.
It recommends reducing portfolios of non-strategic assets, reducing leverage and being aware of liquidity needs if and when credit tightens.
In the short-term, investors should focus on taking leasing risk where markets are strong, pursuing development in strong, supply-constrained markets and “bidding on strategic long-hold assets that are most likely to be able to withstand a downturn”.
Jacques Gordon, global head of research and strategy at LaSalle, said: “Real estate investors have enjoyed six consecutive years of positive value increases in most countries and now is the time for them to take out ‘cycle insurance’ – to assess their portfolios in preparation for the inevitable transition from rising values to either a plateau or falling values.
“In this mature phase of the capital markets cycle, we highlight various forms of defensive ‘insurance’ that portfolio managers can use to prepare for an uncertain future.”
American Realty Advisors has also warned investors against the temptation to “stretch for additional yield and shoot for making outsized gains”.
In a research note, the company said: “Rather, conditions suggest that now is the time to focus on stability, superior income growth, and pricing resiliency as the likelihood of an economic downturn or financial instability event increase.”
Prepared by Chris Macke, managing director of research and strategy at American Realty Advisors, the report said: “There is more downside to being overly aggressive than overly conservative”.
It continues: ”Despite the warning signs, some investors continue to take on more risk, seeking out smaller markets in search of marginally higher yields at a time when prices are elevated, the economic recovery is entering the mature phase, global growth is weakening, and financial market volatility is increasing.
“This is likely happening since multi-asset investors are facing weak equity and bond returns and are incorrectly relying on commercial real estate to be the alpha generator in their portfolio.”
- Richard Lowe, IPE Real Estate