Changing trends or failed leadership?

1. Exxon Mobil could complete the year’s biggest deal.

• Exxon Mobil (NYSE: XOM) is currently in advanced discussions to acquire Pioneer Natural Resources Co. (NYSE: PXD) in a deal that could be worth as much as $60 billion. Sources close to the talks say an announcement could come within days.

• This would combine two of the Midland Basin’s largest acreage holders and push Exxon's Permian output to around 1.2 million barrels a day. It's strategically significant, securing a low-cost source of crude that leverages its extensive Gulf Coast refinery network.

• Exxon may have lucked into an attractive deal. Pioneer’s founder and CEO Scott Sheffield announced his retirement earlier this year and his exit likely prompted the sale. At Pioneer’s size, there are few suitable acquirers. That hands Exxon the dual negotiating power of time pressure and lack of alternatives.

• If successful, this would mark Exxon's largest deal since its merger with Mobil in 1999 and overshadows Occidental Petroleum’s 2019 purchase of Anadarko for $38 billion. CEO Darren Woods could view this as his legacy, or at least a welcome win after battling an activist attack by Engine No. 1.

2. Carlyle nears deal for Medtronic units.

• The Carlyle Group (NASDAQ: CG) is in exclusive negotiations with Medtronic (NYSE: MDT) over the potential acquisition of a majority stake in its patient monitoring and respiratory care divisions at a $7 billion valuation.

• Medtronic had originally announced plans to spin off the two Medical Surgical units last year following a slump in growth as pandemic-related bumps fell off. The announcement drew early interest from Siemens Healthineers and GE Healthcare, prompting Medtronic to consider an outright sale.

• Reuters reports the deal contemplates a 65% majority stake, with Medtronic retaining a 35% position. If successful, Carlyle would come out on top of a lengthy sale process (kicked off in early 2023) that included second-round interest from GE HealthCare, Clayton, Dubilier & Rice, and a joint Linden-ICU Medical proposal.

• March first-round bids circled a valuation of between $8 - $9 billion — Carlyle's lighter value and the lengthened timeline indicate the process may have softened somewhere along the way.

• Carlyle is working to line up a $2.5 billion debt financing package, reaching out to both banks and private credit, per Bloomberg.

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Less than a year into his new role, Carlyle CEO Harvey Schwartz is fighting to transform a business that hasn’t quite kept up with peers.

The firm announced his most recent directive this week, telling shareholders that it’s pulling back from future U.S. consumer, media, and retail investments, which no longer have a place within Carlyle’s buyout strategy.

The change will result in terminations or relocations for around a dozen dealmakers, though the consumer team will retain some talent in a portfolio oversight capacity.

Leadership Tumult

Carlyle is yet to find steady footing after co-founders David Rubenstein and Bill Conway stepped back from their leadership roles in 2018.

A pair of hand-picked successors didn’t last long: Glen Youngkin left the firm in 2020 on his way to the Virginia governorship, while Kewsong Lee was abruptly ousted in 2022 after reportedly failing to seek the counsel of Rubenstein and Conway as frequently as he should have.

Conway then stepped back into an interim CEO role, though, after becoming frustrated with the CEO search process, was said to have spent his time wandering around the firm’s Manhattan office jokingly asking younger employees whether they wanted to take over his job for him.

More than half-a-dozen candidates turned down the role, some of which reported that they’d been asked whether they could oversee a sale of the firm should they take the job.

The search eventually landed on Harvey Schwartz, former Co-Chief Operating Officer of Goldman Sachs, who had departed after losing out to David Solomon in a bid for the top job. He had spent the interim five years practicing guitar, karate, and meditation in San Diego.

A Bad Fundraising Environment Made Worse

The revolving door did not help the firm’s fundraising efforts. Limited Partners made their disapproval known and expressed concern over Carlyle’s ongoing ability to properly manage their capital.

The upshot was an embarrassing shortfall for an eighth flagship buyout fund, just months into Schwartz’s tenure.

The firm set out with a $27 billion target in 2021, which it then cut to $22 billion after limited traction. Even that proved too difficult, forcing a six-month fundraising extension that ultimately secured only two-thirds of its goal. That was despite a last-ditch Carlyle effort to help Fund VII investors sell their stakes in order to reallocate to Fund VIII.

The firm’s total fundraising declined by 48% year-over-year through March and forced a downward revision to 2023 guidance.

What’s Wrong With Consumer?

In his first week on the job, Schwartz held a firm-wide virtual town hall meeting. His message to employees: a core focus on growing the firm. Attendees quoted Schwartz as saying “You want to have some fun, and growth is fun.”

Not long after, the fall-out from the unexpectedly low asset base started working its way through the firm.

By August, Schwartz had tasked himself with a “line-by-line review” in an effort to salvage falling margins. Sources close to the matter say he has been actively soliciting feedback from investors and business heads to determine where he can reduce headcount.

Discussing this week’s consumer decision, Carlyle's Americas private equity co-heads Sandra Horbach and Brian Bernasek cited “increasingly challenging investment trends in this space." The reality is that this move was probably more focused on cost-cutting than any reaction to a secular shift in the industry.

Carlyle plans to continue its consumer investments in Europe and Asia, geographies that happen to have their own dedicated funds less impacted by fundraising shortfalls.

Under pressure to realign capacity with less money to put to work, Schwartz appears to have made the calculus that it was cleaner to simply cut an entire team than to try and slim down across the board.

And, in a headline few saw coming, the final nail in Carlyle’s consumer coffin may have been hammered by Kim Kardashian. She partnered with Jay Sammons, Carlyle’s former global head of consumer, on the 2022 launch of her consumer-focused fund Skyy Partners. Carlyle never found a permanent replacement.

Kardashian and Sammons appear not to have been put off by any challenging investment trends in the space.

 DEALS, DEALS, DEALS

• General Atlantic is exploring a sale of payment software vendor EngageSmart, trading at a market value of $3.3 billion.

• Vista Equity Partners is seeking a buyer for Quickbase, a platform for no-code enterprise application development, that could fetch more than $2.5 billion.

• Triton is considering a sale of All4Labels Global Packaging, a German label printer, that could be worth more than $2.1 billion.

• Elliott Investment Management is seeking a buyer for Gigamon, a company offering network-based intelligence and insights, that could fetch more than $2 billion.

• Eli Lilly agreed to acquire Point Biopharma Global, a firm developing radioligand therapies for cancer treatment, for $1.4 billion.

• Partners Group agreed to invest up to €1 billion in Exus, a Spanish firm specializing in renewable energy infrastructure asset management and development.

• Armada Materials, launched by Kelso & Company, acquired Volunteer Materials, a producer of aggregates and construction materials.

• Ascend Capital Partners acquired a majority stake in Seoul Medical Group, a physician-run care provider.

• RedBird IMI and International Media Investments, agreed to acquire newsletter-first media startup Front Office Sports.

• Unity Partners acquired a majority stake in Poolie, a pool services business.

• Standard BioTools and SomaLogic, both backed by Casdin Capital, agreed to merge in an all-stock deal that values the new company at more than $1 billion.

• SK Capital Partners completed the acquisition of Milestone Environmental Services, a company focused on environmental services and carbon management solutions, from Amberjack Capital Partners.

• VSS Capital Partners invested in Eximia Research Network, a firm specializing in clinical trial research.

• Krispy Kreme is exploring strategic alternatives, including a sale, of its majority stake in Insomnia Cookies, a retailer specializing in late-night cookies.

• TDC, Denmark's largest telecom provider, hired LionTree to explore strategic options.

• Arlington Capital Partners acquired Avenu, a firm providing revenue and operational software to state and local governments, from Mill Point Capital.

• Brookfield agreed to acquire Britain's Banks Group’s onshore wind energy division for around $1 billion.

• Vista Equity Partners acquired a majority stake in TRG Screen, a firm specializing in subscription expenditure management software, from sellers including Pamlico. Vista is also committing $250 million in growth capital.

• Cinven hired Goldman Sachs and Fenchurch Advisory to explore a sale of German life insurer Viridium.

• iA agreed to acquire Vericity, a life insurance provider primarily owned by J.C. Flowers & Co., for around $170 million.

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