Apollo Global Management to acquire Rackspace Hosting in $4.3bn deal

BY Fraser Tennant

In a boost to its investments in the technology sector, private equity firm Apollo Global Management LLC has announced its intention to acquire cloud services provider Rackspace Hosting Inc in a deal with a total value of $4.3bn.

The definitive agreement, which will see Rackspace become a privately held company and its stockholders receive $32.00 per share in cash, also includes the assumption of $43m of net cash.

"We are tremendously excited about the opportunity for our managed funds to acquire Rackspace," said David Sambur, a partner at Apollo. "We have great respect for the company's talented employees and their commitment to deliver expertise and exceptional service for the world's leading cloud platforms.”

Founded in 1998, Rackspace provides businesses with expertise and exceptional customer service for the world's leading cloud platforms, including AWS, Microsoft and OpenStack (the open-source cloud platform that Rackspace co-founded in 2010, along with NASA). In 2015, the company reported revenue of $2bn.

Once completed, Rackspace expects the deal with Apollo to provide it with additional flexibility to deliver the multi-cloud services that its customers are looking for.

"This transaction is the result of diligent analysis and thoughtful strategic deliberations by our board over many months", commented Graham Weston, co-founder and chairman of the board of Rackspace. “Our board, with the assistance of independent advisors, determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our stockholders.

“We are also excited that this transaction will provide Rackspace with more flexibility to manage the business for long-term growth and enhance our product offerings. We are confident that as a private company, Rackspace will be best positioned to capitalize on our early leadership of the fast-growing managed cloud services industry."

Having unanimously approved the agreement with Apollo, the Rackspace board of directors has recommended that Rackspace stockholders vote in favour of the transaction.

Recognising a significant opportunity, Taylor Rhodes, president and CEO of Rackspace, said: “We are presented with a significant opportunity today as mainstream companies move their computing out of corporate data centres and into multi-cloud models.

“Apollo and its partners take a patient, value-oriented approach to their funds' investments, and value our strategy and unique culture. This is an exciting transaction and we look forward to working closely together."

The Apollo/Rackspace transaction is expected to close in the fourth quarter of 2016 and is subject to applicable antitrust waiting periods, stockholder approval and other customary closing conditions.

News: Rackspace Confirms Its Sale to Apollo Global Management

ChemChina’s $43bn Syngenta acquisition gets US clearance

BY Fraser Tennant

China National Chemical Corporation (ChemChina) and Swiss pesticides and seeds group Syngenta announced that have received clearance from a US regulator on their proposed $43bn transaction.

The acquisition of Syngenta by ChemChina – which, once complete, will be the biggest ever foreign acquisition by a Chinese company – was given the go-ahead by the Committee on Foreign Investment in the United States (CFIUS), a body tasked with ensuring that deals do not have national security implications (a quarter of the Swiss firm’s sales are in North America).

The decision by CFIUS to approve the deal is being viewed as the clearing of a significant hurdle, with shares in Syngenta – a Basel-based company employing 28,000 people in more than 90 countries – jumping 10 percent following the US committee’s accord.  

A joint statement issued by ChemChina and Syngenta stated: “In addition to CFIUS clearance, the closing of the transaction is subject to anti-trust review by numerous regulators around the world and other customary closing conditions. Both companies are working closely with the regulatory agencies involved and discussions remain constructive. The proposed transaction is expected to close by the end of the year."

Originally announced in February 2016, with ChemChina offering $465 per share for Syngenta, the transaction ran into problems when concerns arose that CFIUS could potentially block the deal. At this stage, Syngenta shares had fallen by approximately 20 percent.

Syngenta's chairman Michel Demaré, while stating that he was “convinced there was no security issue to be concerned about” in ChemChina’s bid for his company, also opined that the Chinese company “has a very ambitious vision of the industry in the future".

Headquartered in Beijing, state-owned ChemChina is the largest chemical corporation in China, and occupies the 234th position among the Fortune 500. The company’s main businesses include materials science, life sciences, high-end manufacturing and basic chemicals.

In addition to its current activities, ChemChina also has an impressive track record of acquisitions, having procured nine leading industrial companies in France, the United Kingdom, Israel, Italy and Germany, among others.

Although characterised as a mega deal in the chemicals industry, the ChemChina/Syngenta transaction is significantly smaller than last year’s $130bn Dow Chemical-DuPont merger in December 2015, itself the subject of an investigation, by the European Commission in Brussels, into whether or not the merger of the US chemical giant could adversely impact farmers in Europe.

News: Powerful U.S. Panel Clears Chinese Takeover of Syngenta

Pfizer seals $14bn Medivation deal

BY Richard Summerfield

In its largest deal since its $152bn merger with Allergan was terminated in April, pharmaceutical powerhouse Pfizer Inc has announced that it will acquire US drug manufacturer Medivation Inc – producer of the best selling cancer drug Xtandi – in a deal worth $14bn.

The transaction, according to a statement released by the firms, will see Pfizer pay around $81.50 a share in cash for the company which had been the subject of furious takeover speculation of late. Indeed, a number of other pharmaceutical companies made offers for Medivation in an auction after it rebuffed an offer of $9.3bn by French drug maker Sanofi. Rival US firms Merck & Co and Celgene are also believed to have pursued deals for Medivation since Sanofi’s offer proved unsuccessful; however, it was Pfizer that was able to clinch the deal.

Speculation around a potential deal for the company helped to double Medivation’s share price over the last few months. In February, its stock was trading at less than $30 per share. Although Medivation’s stock price has climbed recently, the agreed deal price will still see Pfizer pay a 21 percent premium on Medivation’s share price on Friday, the last trading day before the deal was announced.

Oncology related drugs have proved to be a popular deal driver in recent years and the success of Xtandi has also helped to send Medivation’s stock price soaring. Xtandi is the leading novel hormone therapy available in the US today and generated approximately $2.2bn in worldwide net sales over the past four quarters. Furthermore the drug is expected to generate $5.7bn in sales by 2020.

“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and chief executive of Pfizer. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.”

Though Xtandi is Medivation’s only marketed product, the company has a strong pipeline of other cancer drugs in late-stage clinical development. Potential breast cancer treatment talazoparib and a potential lymphoma drug will sit alongside Xtandi and a number of other oncology related products offered by the newly merged Pfizer who were slow out of the gates when it comes to cancer treatments. The company has been playing catch up in the oncology field and the deal for Medivation will go a long way toward closing the gap.

News: Pfizer boosts cancer drug roster with $14 billion Medivation deal

AIG to divest mortgage unit for $3.4bn

BY Richard Summerfield

American International Group Inc. (AIG), the largest commercial insurer in the United States and Canada, has announced that it has agreed a deal to sell its mortgage-guarantee unit to Arch Capital in a deal worth around $3.4bn, pending customary regulatory approvals. The deal is expected to close in either Q4 2016 or Q1 2017.

Under the terms of the deal, AIG will receive around $2.2bn in cash from the sale, $250m in Arch Capital's perpetual preferred stock and $975m in non-voting common-equivalent preferred stock from the sale of United Guaranty Corp (UGC).

The sale of the mortgage unit comes as AIG increases its efforts to return cash to its increasingly agitated shareholders. The company has come under considerable pressure from activist shareholder Carl Icahn, and as a result had agreed to pursue the sale of the mortgage unit, cut a number of jobs and sell its broker-dealer network. Mr Icahn had proposed splitting AIG into three distinct smaller companies.

According to a statement announcing the sale, the combination of Arch’s existing mortgage insurance business with UGC’s established business will create the largest private mortgage insurer in the world, based on insurance in-force, with a global footprint.

Constantine Iordanou, chairman and chief executive of Arch, noted: “We are extremely pleased to be able to expand our private mortgage insurance business through the acquisition of United Guaranty. Our mortgage insurance segment expands and complements our strengths in the specialty insurance and reinsurance businesses, which continue to be central to our global, diversified operations.”

The company will retain some aspects of its mortgage-insurance business under an existing agreement between UGC and AIG subsidiaries covering 2014 to 2016, and will therefore retain some of the earnings from the unit. UGC had been one of AIG’s most profitable units in recent years, and generated $350m in pretax operating income in the first half of 2016. AIG’s company-wide pretax income was around $2.57bn.

“We are excited about this deal and what it means to AIG and the talented professionals at UGC. It further streamlines AIG into a more focused insurer and enhances our capital position, in keeping with commitments AIG made to the market in early 2015 and restated earlier this year,” said Peter Hancock, president and chief executive of AIG. “The transaction also maintains AIG’s presence in a profitable market through a stake in a market leader that shares our focus on risk-based pricing and analytics as the foundation for our industry’s future. We are leaving UGC in the good hands of a forward looking management team.”

News: AIG to sell unit to Arch Capital for $3.4 billion

PE managers optimistic that deal and exit activity will expand in H2 2016 and beyond

BY Fraser Tennant

Private equity (PE) fund managers are predicting an increase in growth across the industry over the next 12 months, including an uptick in investor interest and exit activity, according to a new survey released this week by Preqin. 

The survey, a snapshot of the views of 187 PE fund managers by Preqin, found that two-thirds of those surveyed expect to see investors commit significantly more to the asset class over the next year.

Conversely, only 4 percent of survey respondents expect total assets under management to decrease during this time.

Additional survey finding include: (i) 47 percent of fund managers reported an increased appetite from investors in Europe, with significant interest also observed in North America (45 percent) and Asia (40 percent); (ii) respondents reported an increased appetite from family offices (58 percent) and public pension funds (41 percent) compared to 12 months ago, while there has also been increased interest shown by private pension funds and sovereign wealth funds; and (iii) valuations remain the biggest concern for PE fund managers in the present climate, with 48 percent believing that the biggest challenge facing the industry is deal pricing.  

“This latest survey shows that private equity fund managers are still seeing growing appetite from investors,” said Christopher Elvin, head of private equity products at Preqin. “The portfolio diversification and record returns provided by the industry as of late have continued to attract investors to the asset class. Although the fundraising market remains ever-more competitive, recent high fundraising levels indicate that capital is continuing to flow into the market.”

In terms of the investment by region analysis, the survey reveals that a higher proportion of PE fund managers based outside of North America and Europe are planning to put more capital to work in the coming year - with 43 percent indicating an intention to deploy significantly more capital and 35 percent planning to marginally increase their investments.

Mr Elvin concluded: “Given the positive fundraising environment and an expected uptick in exit activity, fund managers are predicting industry assets under management will continue to grow over the next 12 months. Although perennial concerns over pricing and deal valuations remain prominent, managers are confident of putting more capital to work over the next 12 months as they attempt to find well-priced assets.”

Report: Private Equity Spotlight - August 2016