VC slowdown in Greater China lingers, reveals new report

BY Fraser Tennant

Venture capital (VC) activity in Greater China dropped significantly in the first half of 2022, continuing a slowdown since late last year, according to a new report by the Apex Group.

In the ‘Greater China Venture Report H1 2022’, the Apex Group reveals that VCs invested only $28.6bn in the region in H1 – below the Q3 2021 figure – a figure which reflects the many hurdles the region has faced over the past year, including regulatory headwinds, supply chain issues and macroeconomic challenges.

“It has been a challenging period for (VC) in China, with activity in the market slowing significantly in early 2022 as the macroeconomic environment became less favourable for venture investors,” said Debbie Lee, managing director, China at the Apex Group. “Restrictions relating to technology and the coronavirus (COVID-19) pandemic, coupled with ongoing geopolitical risks, have exacerbated the challenges facing many investors.”

Drilling down, the report shows that only 56 mega-rounds of $100m or more were completed in the first six months of 2022, off pace from 2021’s regional record of 261, while exit value totalled just $40.6bn across 64 deals – a significant year-over-year slowdown, especially for initial public offerings (IPOs).

The report also notes that fundraising continued to fall in H1 2022, with the region’s dry powder ebbing to $122.7bn, raising concerns about long-term capital availability, especially if investors outside the region face more hurdles to entering the market.

“The current VC market landscape in China is seeing a slowdown in fundraising activity due to a fundamental change in the market landscape,” said Ms Lee. “In the last decade, the VC community has found opportunities created by the mobile internet increasing efficiency and disrupting traditional business models. Investors are becoming more cautious and need real returns on investment instead of just buying into the digitalisation narrative. Meanwhile, private equity (PE) managers are more inclined to find earlier-stage projects, thus creating more competition for VC investors.”

In another trend noted by the report, there has been a further expansion of the scope and depth of Chinese investment markets for foreign investors in 2022.

“The trend of continuous inflows of foreign capital in 2022 will continue, and we expect to see more international VC managers investing in Chinese businesses under the QFLP scheme,” added Ms Lee. “As a result, international service providers for financial services and talent in the China market will continue to be in demand.”

Report: Greater China Venture Report H1 2022

‘Smishing’ and other forms of cyber attack on the rise

BY Richard Summerfield

‘Smishing’, a cyber attack strategy which combines SMS and phishing, is an increasingly prevalent form of cyber attack, according to a new report from Infoblox.

In its ‘Cyber Threat Report Q2 2022’ report, Infoblox notes that smishing is a new and sophisticated mechanism to obtain personal and financial information from victims, through false forms on fraudulent sites.

Smishing messages are sent to potential victims by malicious actors in order to get them to reveal private information, including passwords, identities and financial data. Typically, smishing messages include some incentive for the recipient to click a link, which may be for a site that hosts malware or a page that attempts to convince the user to submit data through a form.

To avoid falling victim to a smishing attack, Infloblox notes that parties should: “Always be suspicious of unexpected text messages, especially those that appear to contain financial or delivery correspondences, documents or links. Never click URLs in text messages from unknown sources. In the campaign under discussion, the source was the recipient, who did not send the message, and that is a red flag.”

“Our report shares research on many dangerous malware threats,” said Mohammed Al-Moneer, regional director, META at Infoblox. “Security effectiveness depends on timely, up-to-date threat intelligence.”

The Q2 2022 report includes information on industry alerts, advisories, reports and original research published from 1 April to 30 June 2022, by the Infoblox Threat Intelligence Group (TIG), Cybersecurity and Infrastructure Security Agency (CISA), the Federal Bureau of Investigation (FBI) and the National Security Agency Central Security Service (NSA-CSS). Infoblox releases a Quarterly Cyber Threat Intelligence Report, which compiles the main threats and security breaches detected during recent months worldwide.

Report: Q2 2022 Cyberthreat Intelligence Report

EQT agrees $5.2bn THQ takeover

BY Richard Summerfield

EQT Corp, the largest natural gas producer in the US, has announced that it has agreed to acquire Quantum Energy and Tug Hill Operating-backed THQ Appalachia I LLC and associated pipeline infrastructure in a deal worth $5.2bn.

Under the terms of the deal, EQT will acquire Tug Hill’s XcL Midstream, a pipeline firm that moves gas in Appalachia to market. EQT will pay $2.6bn in cash and about $2.6bn in stock to THQ Appalachia, which has net production of around 760 million cubic feet per day. According to a statement announcing the deal, EQT believes the acquisition of the THQ assets will add an estimated 800 million cubic feet per day of gas equivalent production.

The transaction is expected to close in the fourth quarter of 2022, with an effective date of 1 July 2022. Subject to the transaction close and EQT’s board approval process, Wil VanLoh, founder and chief executive of Quantum Energy Partners, will join EQT’s board of directors.

“The acquisition of Tug Hill and XcL Midstream checks all the boxes of our guiding principles around M&A, including accretion on free cash flow per share, NAV per share, lowering our cost structure and reducing business risk, while maintaining an investment grade balance sheet,” said Toby Z. Rice, president and chief executive of EQT. “The valuation metrics are compelling and accretion from the deal should lower our NYMEX free cash flow breakeven price by approximately $0.15 per MMBtu, which gives us greater free cash flow durability through the cycle.

“As a result of even more confidence in the sustainability of our business, we are enhancing our shareholder returns framework by doubling our share repurchase authorization to $2.0 billion and increasing our year-end 2023 debt reduction goal from $2.5 billion to $4.0 billion,” he added.

“We are extremely pleased to have entered into this transaction and, in doing so, look forward to becoming a core shareholder in EQT and working closely with the EQT management team and board to enhance the long-term value of the company,” said Mr VanLoh. “We believe the company is in a uniquely strong position as the largest producer of natural gas in the country, with a differentiated track record of operational excellence, a deep core inventory base and a peer-leading commitment to ESG. The Tug Hill and XcL Midstream assets are complementary to EQT’s existing footprint, and we believe the company is now positioned to create even more value for its shareholders through this highly strategic combination.”

THQ Appalachia is an exploration and production company operating in West Virginia. Private equity firm Quantum Energy invested in Tug Hill in 2014 and also has an equity commitment in THQ Appalachia, which is operated by Tug Hill.

News: Gas producer EQT to buy peer THQ Appalachia for $5.2 bln

Shot across the bows for UK financial services’ AML practices

BY Fraser Tennant

In a shot across the bows for the UK financial services (FS) sector, a new survey has revealed that over half of FS professionals are only “somewhat confident” in their firm’s anti-money laundering (AML) practices.

In its ‘FAML Financial Services Survey’ report, which surveyed 200 FS professionals across the UK, First AML reveals that 52 percent of respondents identified an instance of money laundering in the last year, with 23 percent identifying more than one.

Respondents also selected external risks, such as the crisis in Ukraine, people trafficking, the increased focus on customer transparency and ethical customer onboarding, as well as the increased risk of fines, as key reasons why money laundering is rising up their company’s agenda.

However, although AML is moving up the agenda, many FS companies are still facing process and compliance challenges, with the top two AML weaknesses identified as document collection for individuals and companies, including passports and share registers at 27 percent,  and training staff on the latest anti-money laundering requirements at 29 percent. 

Despite this, even though many financial services organisations are facing challenges with AML processes, and the majority have found an instance of money laundering over the past year, almost a quarter (23 percent) are considering cutting AML compliance budgets in light of the expected recession. 

“Robust document collection processes and being up to date with the latest AML regulations are essential for compliance in this area,” said Simon Luke, UK country manager at First AML. “So it is shocking that AML budgets are being cut. Without the right processes in place, companies are not only at risk of fines, but also of letting dirty money pass through their organisations.” 

In terms of business priorities, respondents selected maximising returns for investors as the top priority, followed by environmental, social and governance (ESG) and improving their bottom line. 

The survey also revealed that the growth of unethical business practices is the key reason that financial services professionals care about AML compliance. This was followed by abhorrent crimes, such as drug trafficking, arms dealing and terrorism funding. 

Report: The majority of financial services professionals are only ‘somewhat confident’ in their anti-money laundering procedure

Roper Technologies to acquire Frontline Education

BY Fraser Tennant

In a move to reposition itself as a software firm, US diversified industrial company Roper Technologies, Inc. has acquired school administration software provider Frontline Education from private equity firm Thoma Bravo in an all-cash transaction valued at $3.7bn.

The sale follows a five-year partnership between Thoma Bravo and Frontline during which Thoma Bravo leveraged its specialised operating model and deep sector expertise to enable Frontline to drive profitable growth and expand its market leadership in the K-12 education sector.

Moreover, since its acquisition of Frontline in 2017, Thoma Bravo has completed six highly strategic acquisitions, significantly grown its revenue, expanded its market leading product portfolio from 16 to 30 products and increased headcount by over 70 percent – all while bringing increased value to school districts across the US.

“Thoma Bravo’s investment in Frontline is another clear example of our deep expertise across education, software and strategic M&A to accelerate growth and drive positive impacts – in this case promoting highly efficient and effective K-12 district operations,” said Brian Jaffee, a partner at Thoma Bravo. “We have enjoyed our close partnership with Mark and the Frontline management team and are excited to watch the business continue to thrive with a great new partner in Roper.”

The transaction is expected to close in the fourth quarter of 2022, subject to regulatory approvals and customary closing conditions.

“Frontline has a proven track record of strong organic and inorganic growth, excellent cash conversion and an outstanding management team that will thrive as part of Roper,” said Neil Hunn, president and chief executive of Roper Technologies. “This acquisition demonstrates our disciplined capital deployment strategy that focuses on identifying high-quality, market-leading technology businesses.”

Frontline’s management team will continue to lead the business from its Malvern, Pennsylvania headquarters. The company’s name, brands and office locations will not change as a result of the transaction.

“We are deeply appreciative of Thoma Bravo’s partnership over the last five years, which have allowed us to deliver an expanded portfolio of mission-critical solutions,” concluded Mark Gruzin, chief executive of Frontline Education. “Roper’s acquisition of Frontline Education represents the next phase of our journey.”

News: Roper eyes U.S. teacher shortage in $3.7 billion deal for Frontline Education