Happy Friday. Here’s what we’ve got today…

• A look at HPS’ allegations of wrongdoing at Chicken Soup for the Soul

• Plus, Alphabet’s interest in HubSpot cools

Chicken Soup’s messy bankruptcy:

Chicken Soup for the Soul Entertainment (CSSE), the parent company of DVD rental kiosk operator Redbox, filed for Chapter 11 bankruptcy protection last month, citing a nearly $1 billion debt burden and an inability to secure additional financing.

The filing comes less than two years after CSSE acquired Redbox in a $375 million deal financed almost entirely by $360 million in additional debt. At the time, management characterized the acquisition as a strategic move to expand the business’ media footprint. Unsurprisingly, the questionable bet on a post-pandemic resurgence in DVD rentals failed to materialize, leaving CSSE struggling to service its mounting debt obligations.

This month’s proceedings have quickly devolved into an acrimonious dispute between CSSE and its lenders.

HPS Investment Partners, acting as agent for the lender group, has accused the company's leadership of "gross mismanagement and self-dealing" and last week asked the court to appoint a Chapter 11 trustee to oversee the company's operations through its restructuring — an unusual step typically reserved for cases of severe mismanagement or fraud.

Arguing that this is exactly what is occurring, HPS added that the idea of "entrusting the future of the Company to the very individual who thrust it into despair is akin to hiring an arsonist to put out the raging fire she began."

The individual in question is CSSE chairman William Rouhana, whose financial relationship with the company may have been as disastrous for shareholders (excluding Rouhana’s own 80 percent stake) as a DVD rental acquisition. Through management and licensing agreements, entities controlled by Rouhana received 10 percent of CSSE's gross revenues, regardless of the company's overall financial performance—an $18.4 million payout in 2023, even as the business booked a net loss of $636.6 million.

HPS alleges that Rouhana continued to extract substantial payments for himself even as the company spiraled towards insolvency: a total of $9 million in management and license fees in the first quarter, along with a series of cash dividends.

This was despite the company’s inability to pay its own employees. According to filings, two weeks before entering into Chapter 11, CSSE failed to make payroll for more than 1,000 employees and missed payments that resulted in the termination of their medical benefits.

HPS also shared details of what it called a pattern of “dishonesty and gamesmanship” in recent months.

The company’s initial default was triggered after an incident in which CSSE allegedly attempted to make an interest payment by delivering a check to an abandoned office building in Greenwich, Connecticut, which HPS had vacated years earlier.

Shortly after, the company failed to deliver required financial statements to lenders, and, in March, again missed a required interest payment — though in this instance, as HPS noted in its filing, CSSE went "without first purporting to make the payment by dropping a check in an abandoned building."

HPS also accused CSSE of falsifications in its public filings, claiming that CSSE “actively misled the public.” They point to the company’s September-end quarterly earnings report, in which CSSE noted that it was in “active discussions to modify the terms of its existing loan agreement.”

No discussions took place, says HPS, who maintains CSSE had demanded a debt-to-equity conversion in a letter sent to HPS, which promptly rejected the proposal. CSSE subsequently notified HPS that bankruptcy was imminent and received a debtor-in-possession financing term sheet from the lender—19 days before the September earnings report was issued.

In the weeks before CSSE’s filing, chairman Rouhana fired all other directors on the company’s board, including independent directors approved by HPS. On the eve of the filing, Rouhana then installed an entirely new board and CEO in violation of the company’s credit agreement and corporate governance, according to HPS.

The newly-helmed CSSE filed a series of first day motions which HPS called “not only half-baked, but shocking in their lies, inaccuracies, and lack of merit.” This included a DIP motion that sought to prime the collateral securing $500 million in outstanding first lien debt with a new facility of up to $100 million, brought with claims that an equity cushion existed of at least 20 percent (despite CSSE’s book value deficit of $550 million and the prior year’s $637 million net loss).

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On Wednesday, recently-appointed debtor’s counsel Richard Pachulski notified the court that, since mid-May, CSSE had been deducting health insurance premiums from its employee’s paychecks but had not been paying those premiums to insurance provider Anthem.

The account that once held these premiums had been largely emptied. “This was criminal,” said Pachulski, adding that it was also “highly doubtful” that CSSE was properly depositing 401(k) withholdings into employee accounts.

Judge Thomas Horan called the alleged misappropriation “incredibly disturbing” and said he would appoint a trustee to investigate potential wrongdoing.

Rouhana has obtained separate personal counsel.

Citing the situation, HPS declined to provide additional DIP financing this week after CSSE exhausted its initial $8 million facility. In response, Horan granted a motion to transition proceedings from a Chapter 11 reorganization to a Chapter 7 liquidation.

CSSE, whose parent entity self-describes as a “socially conscious company that combines storytelling with making the world a better place,” will now lay off around 1,000 employees who will go without pay for any work done since June 29th.

• Bain Capital agreed to acquire Envestnet (NYSE: ENV), a provider of wealth management software, for $4.5 billion or $63.15 per share.

• Genstar Capital is in advanced talks to purchase a stake in AffiniPay, a payments processor for professional services firms, at a valuation of close to $3 billion, with existing backer TA Associates retaining a significant stake and joint control, per Reuters.

• Platinum Equity agreed to acquire Héroux-Devtek (TSX: HRX), a manufacturer of aerospace products and landing gear, for C$1.35 billion.

• Blackstone acquired a 30 percent stake in Tallgrass Energy, a Kansas-based energy infrastructure business, from Engas for $1.1 billion.

• Alphabet (Nasdaq: GOOG) has decided against further pursuit of a possible HubSpot (NYSE: HUBS) acquisition, per Bloomberg.

• China Merchants Capital and private equity firms, including KKR, are considering bids for Loscam Asia Pacific Co., a pallet maker owned by China Merchants Group, Trustar Capital, and FountainVest Partners, which could fetch up to $2.5 billion.

• Crédit Agricole is in advanced talks to acquire Hanseatic Bank, a German consumer-finance business owned by Société Générale, for around €600 million, per Bloomberg.

• SoftBank Group Corp agreed to acquire Graphcore, a UK-based AI chip manufacturer, for around $500 million.

• Railsr and TowerBrook Capital Partners submitted an improved offer to acquire Equals Group (AIM: EQLS), a UK-based B2B payments fintech, valuing the company at around £253 million.

• Penguin Random House agreed to acquire Boom! Studios, a comic book and graphic novel publisher from the Walt Disney Company.

• Sanford Health agreed to acquire Marshfield Clinic Health System, an 11-hospital system in Wisconsin and Michigan.

• Quest Diagnostics (NYSE: DGX) agreed to acquire certain assets from OhioHealth's outreach laboratory services business.

• Long Ridge Equity Partners invested in QX Global Group, a UK-based provider of business process management services, for more than £100 million.

• PSG Equity invested in Benchmark Analytics, a SaaS-based platform for public safety agency personnel management.

• TA Associates acquired a $400 million minority stake in Vastu Housing Finance, an Indian affordable housing lender, per The Economic Times.

• Madison River Capital invested in JDC Power Systems, an electrical systems integrator for data centers.

Portfolio Company Add-Ons

• AQUA Dermatology, backed by Gryphon Investors and GTCR, acquired First Coast Mohs, a dermatology and skin cancer group serving North Florida and Southern Georgia.

• Lamons, a portfolio company of First Reserve, acquired Auge Industrial Fasteners.

• Insurcomm, a portfolio company of Summit Partners, acquired Soil-Away Restoration Services, a Hooksett, New Hampshire-based provider of water, fire, and mold damage restoration services.

• Access Infusion Care, a portfolio company of New Harbor Capital, acquired Big Sky I.V. Care, a Montana-based provider of home infusion services.

• Med Learning Group, a portfolio company of DW Healthcare Partners, acquired Talem Health, a provider of accredited medical education focused on clinicians serving rural communities.

• Thrive, backed by Court Square Capital Partners and M/C Partners, acquired The Longleaf Network, a North Carolina-based provider of IT managed services.

• TGI Sport, backed by Bruin Capital and Quadrant Private Equity, agreed to acquire Supponor, a provider of virtual advertising tech for live sports broadcasts, for around €100 million.

• Vivendi is exploring a spin-off and public listing for its Canal+ TV unit, per Bloomberg.

• Shift Up, a South Korean game developer backed by Tencent, raised $320 million in its local IPO, reaching a market value of around $3.3 billion after trading up nearly 20 percent in its first day.

Tech, Vertical SaaS, & Misc. Enterprise

• Skild AI, a Pittsburgh-based AI robotics startup, raised $300 million in Series A funding led by Lightspeed Venture Partners, Coatue, SoftBank Group, and Bezos Expeditions, with participation from Felicis Ventures, Sequoia, Menlo Ventures, General Catalyst, CRV, and SV Angel.

• Fireworks AI, a generative AI inference platform, raised $52 million in Series B funding led by Sequoia Capital, with participation from NVIDIA, AMD, MongoDB Ventures, Benchmark, and Databricks Ventures.

• HERO Software, a platform for tradesmen in the DACH region, raised €40 million in Series B funding led by Eight Roads Ventures, with participation from Cusp Capital and Federated Hermes.

• Armada, an edge computing startup, raised $40 million in new funding led by M12, with participation from Founders Fund, Lux Capital, Felicis, Valor Equity Partners, 8VC, and Shield Capital.

• Arya.ag, an integrated grain commerce platform, raised $29 million in pre-Series D funding led by Blue Earth Capital, with participation from Asia Impact and Quona Capital.

• Nagish, an AI-powered communication platform for the deaf and hard-of-hearing, raised $16 million in Series A funding led by Canaan Partners, with participation from K5 Global, Tokyo Black, Cardumen Capital, Vertex Ventures Israel, Contour Venture Partners, and Precursor Ventures.

• Exein, an embedded IoT cybersecurity startup, raised €15 million in Series B funding led by 33N, with participation from Partech, United Ventures, eCAPITAL, and Future Industry Ventures.

• Buildots, an AI construction software startup, raised $15 million in new funding led by Intel Capital, with participation from OG Tech Partners.

• Soda, an AI-enabled data quality platform, raised $14 million in new funding from Singular and Point Nine.

• Beeble AI, a South Korean virtual production startup, raised $4.75 million in seed funding led by Basis Set Ventures, with participation from Fika Ventures.

Fintech

• Earned Wealth, a tech-enabled financial services firm for medical professionals, raised $200 million in new funding co-led by Summit Partners and Silversmith Capital Partners, with participation from Juxtapose, Hudson Structured Capital Management, and Breyer Capital.

• lemon.markets, a Berlin-based brokerage-as-a-service platform, raised €12 million in new funding led by CommerzVentures, with participation from Heliad, Creandum, Lakestar, Lightspeed, and System.one.

• Term Labs, a blockchain R&D company developing fixed-rate lending solutions, raised $5.5 million in strategic funding led by Electric Capital, with participation from Maelstrom, Ava Labs Blizzard Fund, Arete Capital, Inception, and Delta Blockchain Fund.

Consumer & Media

• Xiaohongshu, China's fastest-growing social media platform, raised an undisclosed amount in new funding at a $17 billion valuation from DST Global, HongShan, Hillhouse Investment, Boyu Capital, and Citic Capital.

Healthcare

• Element Biosciences, a DNA sequencing startup, raised $277 million in Series D funding led by Wellington Management, with participation from Samsung Electronics, Fidelity, Foresite Capital, T. Rowe Price Associates, and Venrock.

• Headway, a mental health startup connecting patients to in-network therapists, is raising $100 million in new funding at a $2.3 billion valuation led by Spark Capital, per Bloomberg.

• Regard, an AI-powered clinical insights platform for healthcare providers, raised $61 million in Series B funding led by Oak HC/FT, with participation from Cedars-Sinai Health Ventures, TenOneTen Ventures, Calibrate Ventures, and Techstars.

• Adona Medical, a pre-clinical developer of adjustable interatrial shunts for heart failure, raised $33.5 million in Series C funding led by Cormorant Asset Management and TCP Health Ventures, with participation from Excelestar Ventures, PA MedTech VC Fund II, Unorthodox Ventures, and AMED Ventures.

Industrials, Greentech, & Other

• NLine Energy, a startup converting wasted steam energy into renewable power, raised $11 million in new funding led by Mirova, with participation from Steyn Group and Burnt Island Ventures.

• ALDORIA, a space situational awareness startup, raised €10 million in Series A funding led by Starquest Capital, with participation from the European Innovation Council Fund, Bpifrance, Expansion Ventures, Space Founders France, and Wind Capital.

• Manulife Investment Management raised $810 million for its second private equity fund-of-funds.

• Alliance Consumer Growth raised $160 million for its fifth early-stage fund.

• Alpine Space Ventures raised €170 million for its debut fund focused on investments in early-stage European space technology startups.

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