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

• A look at the surge in non-bank staple financings

• The deal sheet, plus Soros Fund Management’s legacy media purchases

‘Creative’ staple financing likely to spur M&A activity, bankers say

By Bob Clair

Private credit firms are encroaching into territory historically dominated by banks, providing staple financing to help close sponsor-backed deals.

As deal volume accelerates after a sluggish 2023, more and more sellers and buyers are turning to staple financing — a debt package arranged prior to the launch of a sale process and made available to all potential bidders.

“The pent-up pipeline of M&A is so massive right now that when that finally gets going, it’s going to be big,” said Augusto Sasso, global head of capital markets at Moelis. “This is a creative way to get that moving sooner rather than later. At the end of the day the biggest issue in M&A is financing. The second biggest issue is sellers’ expectations versus buyers’ expectations, but solving the financing question is a big question. In those cases, those kinds of deals will go quicker.”

Sasso explained how things work at Moelis.

“We run a mini process with a bunch of lenders and then get them to compete with each other to get to a staple financing that we want to show the buyers. Buyers can still go off and find their own solutions but we’re trying to find what we think is the best financing, the best terms that are tailored to that company that should end up being the best financing for whoever the buyer is. It could be that the buyer comes up with a better solution but unlike staple financing of old, more and more of these staples will actually get used because they are customized for this company.”

Many current staples allow the private equity seller and banker to confirm that there is a lender willing to provide leverage and provides an early market check on their asset’s potential valuation. For buyers, staples allow them to prioritize diligence workstreams and can help get better pricing on debt — sponsors can shop the staple term sheet to other lenders for a more competitive lender process.

Sasso also notes that many staples are now offered by a third-party.

“That’s a key factor. It used to be that staples were done by the sell-side bank. They were not third party, they were not independent. They were the bank that’s actually trying to sell the business. This is different. This is a third-party capital provider that’s coming in and saying we’d like to finance whoever the buyer is and here are the terms,” Sasso said.

For years, staples were the domain of large investment banks, but banks’ trend to conservatism in terms offered for committed financing has left an opportunity that private credit and hybrid credit firms are taking advantage of, says Matt Plooster, co-founder and CEO of investment bank Bridgepoint.

It’s a similar story across all parts of the market.

“This goes for regional banks also in the lower and middle market” Plooster said. “They aren’t as active as they have been in the past and private credit is stepping in.”

Sasso pointed out that while staple financing has been around for a long time, current staples have become more creative.

“These staples, unlike the old staples that were purely for the buyer, are portable,” Sasso said. “So, if you’re a sponsor that owns a great company today, you can put this financing on it today. You can take money off the table, you can return money to your LPs and you can still, when you go to sell the company, move that capitalization with the new buyer, so they are portable to the new buyer.”

Sasso and Plooster both said that while banks are aware of the increased use of staples — Sasso speculated that about 30 percent of the deals he’s seen this year are using some sort of staple — they do not anticipate a return to prior levels of activity from traditional banks.

“Their balance sheet and the regulators are what govern their ability to lend so they aren’t going to lower their underwriting criteria,” Sasso said. “I think what they’re going to do is work more closely with these other capital providers to be part of the capital stack.

Indeed, that is what Plooster saw happen with a deal he completed about six months ago. He said in that deal the incumbent bank lender found a mezzanine provider to put together a staple, explaining that the bank needed the private credit partner to provide competitive staple packs and maintain the relationship with the existing borrower.

Sasso added that adding staple financing to a deal shows prospective buyers that there are financing options available.

“What you’re seeing more and more now on capital structures is that banks are doing the most senior part and other institutions and funds are doing the more junior parts of the capital stack. By letting the banks do the senior part they can lend at a lower cost of capital in general. It ends up being a combination of the banks and these private credit/hybrid capital providers.”

Plooster said he believes staple financing is here to stay because of the meaningful benefits provided to both buyer and seller.

Sasso agreed, saying staples provide an important solution between senior debt and equity that everyone needs to solve.

“The fact that you can be much more bespoke, you can be more creative, there’s no question that private credit is here to stay.”

• Blackstone agreed to acquire AIR Communities (NYSE: AIR), a REIT focused on apartment investments, for $10 billion or $39.12 per share (a 25 percent premium to last close).

• Jersey Mike's, a sandwich chain with over 2,300 U.S. locations, is weighing a potential sale at a valuation of around $8 billion, with Blackstone among the interested parties, per the WSJ.

• DB Schenker, a transportation and logistics provider owned by Deutsche Bahn, is inviting a smaller group of bidders to proceed to a second round of non-binding offers for the asset that could fetch up to $16 billion.

• TKO Group (NYSE: TKO) submitted a competing €4.4 billion bid for MotoGP rights-holder Dorna Sports, which had last week accepeted a €4.2 billion proposal from Formula One owner Liberty Media.

• Naturgy, a Spanish multinational utility company, called off its plans to sell its Australian unit, which was rumored to be valued at around A$4 billion, per Bloomberg.

• Vista Equity Partners has agreed to acquire Model N (NYSE: MODN), a provider of cloud-based revenue management solutions for the life sciences, for $1.25 billion.

• Warburg Pincus, Permira, EQT, Bain and TPG may join the bidding process to acquire Bharat Serums and Vaccines, an Advent International majority-owned India-based pharmaceutical firm that could be valued at more than $1 billion.

• Tradeweb Markets has agreed to acquire Institutional Cash Distributors, a U.S. institutional money-market fund portal serving about 500 corporations, for $785 million from Parthenon Capital Partners.

• Digi Communications has agreed to sell a portion of its Spanish fiber assets to a group led by Macquarie Infrastructure and Real Assets for €750 million.

• Buyers Edge Platform, a data-enabled foodservice procurement platform, raised $425 million in new equity funding led by GA Credit, alongside Blackstone and Morgan Stanley, with Bregal Sagemount exiting its minority stake.

• CData, a Chapel Hill data management software solutions provider backed by Updata Partners, acquired Data Virtuality, an enterprise data virtualization technology company.

• First Abu Dhabi Bank, the largest bank in the UAE by assets, is reportedly weighing a takeover bid for Turkish bank Yapi Ve Kredi Bankasi.

• UL Solutions, a provider of scientific safety solutions, is hoping to raise up to $812 million at a $5.8 billion valuation in its upcoming U.S. IPO.

Tech, Vertical SaaS, & Misc. Enterprise

• Innoviti, a Bengaluru-based SaaS platform focused on cloud-based payment services, raised $18.4 million in Series E funding led by Bessemer Venture Partners, alongside Patni Family Office and various other angels.

• Scrut Automation, a developer of risk-focused compliance automation software, raised $10 million in Series A funding led by Lightspeed, with participation from MassMutual Ventures and Endiya Partners.

Healthcare

• Velox, an industrial manufacturer of digital printing solutions for container labeling, raised $38 million in new funding led by Fortissimo Capital, with participation from JAL Ventures, O.R.T. Technologies, Ilan Holdings, Waypoint Investors, Evonik, and Migdal Insurance & Finance.

• Windfall Bio, a developer of methane transformation and resource recovery technologies, raised $28 million in Series A funding. Prelude Ventures led, with participation from Amazon's Climate Pledge Fund, Global Brain, Incite Ventures, Positive Ventures, and existing investors, including Breakthrough Energy Ventures, Mayfield, and Untitled.

• Liberation Labs, a U.S. biotech manufacturer specializing in fermented proteins, raised $12.5 million in new funding from Agronomics and Siddhi Capital.

• Leash Biosciences, a biotech leveraging an AI-enabled drug discovery platform, raised $9.3 million in Seed funding. Springtide Ventures led, with participation from MetaPlanet, Top Harvest Capital, Mitsui Global Investment, MFV Partners, and Recursion co-founders Chris Gibson and Blake Borgeson.

Industrials, Greentech, & Other

• Varda Space Industries, a space manufacturing company, raised $90 million in new funding led by Caffeinated Capital, with participation from Lux Capital, General Catalyst, Founders Fund, and Khosla Ventures.

• Archetype AI, a developer of physical artificial intelligence tech, raised $13 million in seed funding. Venrock led, with participation from Amazon Industrial Innovation Fund, Hitachi Ventures, Buckley Ventures, and Plug and Play Ventures.

• Miura Partners raised more than €200 million for a fund backing European dental distribution business Proclinic.

• Boston Seed Capital is targeting up to $60 million for its latest venture fund.

• Centre Court Capital is raising $42 million for a new fund focused on Indian sports technology and gaming startups, per Bloomberg.

1. Soros fund is building an audio empire.

• Soros Fund Management has become an increasingly key player in the oldest electronic mass media: radio. — Semafor

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