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Discount diapers and destroyed value

VMG Partners nears the end of a difficult deal after this week's Hello Bello bankruptcy filing

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

  • A single headline deal and a bit of sponsor-on-sponsor fraud

  • A bad investment made worse for VMG Partners: a closer look at Hello Bello’s bankruptcy filing

  • The week’s deal sheet, plus a trading scandal at Two Sigma

1. H.I.G. Capital says Audax committed fraud.

H.I.G. Capital sued Audax Group over HI.G.’s 2022 purchase of a majority stake in Audax-owned telecom software business Mobileum for $915 million.

• H.I.G. says the target’s financials were artificially inflated in a “brazen, massive, systemic fraud” that involved the creation of phony client invoices from a fake company. As a result, they think they overpaid by $250 million.

• The complaint quotes internal Mobileum emails in which management acknowledged its revenue assumptions “may be wrong,” but said they were counting on their CFO to act like “Mandrake the Magician” and smooth over any irregularities.

• Audax disputes the accusations and announced it’s planning to counter-sue. The firm also retains a 23.5% stake in Mobileum after rolling over around $100 million as part of the 2022 deal.

2. Chevron picks up Hess.

Chevron agreed to acquire Hess Corp. for $53 billion in an all-stock deal. It’s the energy industry’s second major deal in as many weeks, following Exxon Mobil’s $58 billion acquisition of Pioneer Natural Resources Co.

• Hess’ prized asset is an offshore Guyana oil project that, in partnership with Exxon, produces 400,000 barrels a day (1%+ of global output). It’s one of the industry’s most attractive new ventures.

• The deal would add about 10 percent more output to Chevron’s daily production, and analysts see the purchase as a positive move toward a more diversified portfolio.


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As a strategy, celebrity-backed brands have been hugely successful in recent years, but they’re not immune to the realities of a difficult direct-to-consumer market.

This week, diaper and baby care business Hello Bello, backed by Kristen Bell and Dax Shepard, filed for bankruptcy.

Bell, Shepard, and a management team formed the company in 2019, partnering with Walmart to develop a brand that made premium, natural baby products accessible to lower-income consumers. It launched exclusively in Walmart stores and on Hellobello.com, hitting $80 million in sales within twelve months.

Hello Bello’s early success led to an investment from VMG Partners in July 2020. The deal handed VMG a 35% stake for $20 million, with proceeds to support accelerated international growth and an expanded retail presence across grocery, drug, wholesale, and specialty markets.

The ensuing pandemic provided an early sales bump, and by December 2021 Hello Bello had become the largest direct-to-consumer diaper brand in the U.S., boasting 130,000 subscription customers (on top of its retail business).

Diaper Production Soiled

Hello Bello produced its diapers via a fixed-price contract with a single outsourced contract manufacturer, Irving Products, but when that contract came up for renewal in 2021, Irving pushed through a more than 18% price increase.

The revised pricing wasn’t surprising in an era of accelerating inflation and tangled supply chains. Hello Bello, however, found itself stuck between a sole-source manufacturing rock and a wholesale retail hard place.

Its primary channel partners, Walmart and Amazon, refused to accept a price increase of more than 10%. Where other businesses could have passed on the cost to consumers, Hello Bello had no option but to take a meaningful hit to its unit economics.

Worse, the company’s margins were already paper thin, a function of its launch into a mature market with price as its only competitive differentiator — Hello Bello was so reliant on its low-cost value prop that management said that, even if Walmart and Amazon had allowed it, this level of price growth might’ve killed the business anyway.

Manufacturing Mistakes

Hello Bello responded with a bet-the-company move into vertically integrated manufacturing, believing they could regain their lost margin by taking production in-house.

The decision appears borne on questionable logic: assuming Irving raised prices based on the same macro headwinds faced by everyone else, the move to vertical integration should provide no more margin than the contribution Irving was taking from its contract with Hello Bello.

But, because Irving was a contract manufacturer operating a meaningfully more scaled and sophisticated platform, Hello Bello could realistically have hoped to capture just a small portion of what Irving’s take had been.

That’s not to mention the gap in institutional knowledge. A full-scale manufacturing launch under a financially induced time crunch is not the type of scenario that typically leads to successful outcomes for inexperienced execs. But, whatever the thought process, Hello Bello felt the move made sense on paper (or Excel).

Unsurprisingly, it quickly turned into a logistical nightmare.

The company hired an Italian manufacturing design firm to custom-build its diaper production line. In normal course, Hello Bello would’ve sent an employee to collaborate on development in Italy before the machines were disassembled and shipped to a newly-purchased Texas manufacturing facility. The design firm’s engineers would have accompanied the parts to Texas, overseeing final installation and qualification.

None of that was possible in the midst of a global pandemic (which the company presumably knew prior to proceeding with this option). Instead, unfamiliar third-party U.S.-based engineers took control and struggled to stand up the lines at the Texas site.

After a more than six-month delay, Hello Bello kicked off production at the owned facility, only to immediately run into prolonged raw materials issues.

Ongoing supply chain woes combined with sourcing and quality control shortfalls meant a stop-start production schedule. That, in turn, killed Hello Bello’s employee recruitment and retention — after hiring a full cohort of floor employees (a feat in a historically tight labor market), production would halt, and the recently hired team would quit after their hours were cut or placed on indefinite hold.

Sorting through the mess, it took until June 2022 to fully insource diaper manufacturing. A feat in itself, but rather than provide a much-needed lifeline, Hello Bello’s vertical integration produced diapers at roughly the same prices they’d been charged by Irving, the outsourced provider they’d been working to ditch for more than a year.

In management’s words, the only thing vertical manufacturing delivered was an “untenable position with severe liquidity constraints.”

Heading for the Exit

Pandemic-related inflation and supply chain issues quickly replaced the early COVID revenue bump. Higher shipping costs (both raw materials and finished product) and increased raw materials costs worsened margins, while delayed product shipments prevented the business from fulfilling customer orders.

Taken in context with the concurrent manufacturing-related hit, Hello Bello’s unit economics were badly upside-down. For the most recent fiscal year ended January 31, 2023, the company reported negative $15 million of EBITDA on $179 million of revenue.

Around the same time, Hello Bello hired Jefferies to find a buyer, while also taking $30 million of rescue capital (in the form of subordinated notes) from VMG Partners to fund the cash burn until exit.

The sale process launched with initial outreach to 155 parties. Eighty signed NDAs, of which only four opted to submit IOIs. By February, all four of the bidders had declined to proceed.

Continued outreach managed to get a non-binding LOI signed in August with cleaning products business Grove Collaborative. They also backed out shortly thereafter, concerned with further acceleration in cash burn and late vendor payments, per The Information.


This month, Hello Bello finally managed to secure a deal with Hildred Capital Management. The healthcare-focused investor signed a stalking horse asset purchase agreement valued at $64.9 million, leading to this week’s Chapter 11 filing.

The filing also contemplates debtor-in-possession financing of $47 million from Hello Bello’s existing lender, including $12 million of new money. Based on the Hildred proposal, and after taking into account the new money DIP, VMG looks set to take a meaningful loss on the rescue financing it provided last year (on top of its worthless equity stake). An expensive lesson on the perils of direct-to-consumer.


Endeavor (NYSE: EDR) announced it’s considering strategic alternatives, with largest shareholder Silver Lake saying it’s now working to submit an offer for the business.

Stonepeak agreed to buy container lessor Textainer (NYSE: TGH) for around $7.4 billion, including debt.

Vista Equity Partners agreed to buy customer engagement platform EngageSmart (NYSE: ESMT) for around $4 billion.

Roche (Swiss: ROG) agreed to pay $7.1 billion upfront, plus milestone payments, to Roivant (Nasdaq: ROIV) and Pfizer (NYSE: PFE) for U.S. and Japan rights to a bowel disease candidate.

Ares Management is providing capital via a preferred equity deal for Consolidated Precision Products, a Warburg Pincus-owned defense components manufacturer.

Pearl Street Equity acquired Famous Brands International, owner of food brands including Mrs. Fields and TCBY.

Apollo Global Management agreed to acquire Restaurant Group (LSE: RTN) for £506 million.

Ridgemont Equity Partners acquired National Power, a Raleigh-based provider of power and network infrastructure solutions owned by Valley Ridge Investment Partners, Tecum Capital, and C3 Capital.

Bain Capital is preparing to exit Rocket Software, a Waltham, Mass.-based IT automation solutions business that could be worth more than $5 billion.

ConocoPhillips (NYSE: COP) is considering an approach for CrownRock, a Permian Basin producer owned by Lime Rock Partners that could be valued between $10 billion and $15 billion.

Ares Management acquired an equal stake in Interstate Waste Services, a Teaneck, N.J.-based waste management business backed by Littlejohn & Co.

Macquarie is investing $275 million for a majority stake in SwyftFiber, a Milan, Tenn.-based provider of fiber internet services.

Redwood Holdings agreed to buy food distributor Newly Weds Foods in a deal that could be worth around $4 billion.

Outfront Media (NYSE: OUT) agreed to sell its Canadian outdoor advertising unit to BCE (NYSE: BCE).

Align Capital Partners acquired outsourced legal services provider Counsel Press from Gladstone.

Gemspring acquired Inflow Communications, a call center support services business, with plans to combine it with portfolio company Amplix.

Lovell Minnick Partners acquired a majority stake in healthcare RCM business ACU-Serve.

Oaktree Capital Management has agreed to acquire a 27.5% stake in the utilities infrastructure unit of Canada's Aecon (TSX: ARE) for C$150 million.

Bregal Unternehmerkapital agreed to sell EA Elektro-Automatik, a German provider of electronic power hardware products products to Fortive (NYSE: FTV) for $1.45 billion.

H.I.G. Capital is prepping an exit for sports marketing agency Sportfive and has hired Citi to lead a process.

International Flavors & Fragrances (NYSE: IFF) is seeking to sell its pharma services unit, which could be worth around $3.5 billion.

Blue Owl Capital is considering an offer for private credit firm Hayfin, following earlier speculation on interest from Antares.

Charlesbank Capital Partners agreed to acquire a majority stake in private fund administration services provider Petra.

General Atlantic agreed to buy a minority stake in travel distribution platform TBO from Affirma Capital.

RRJ Capital is considering a €5 billion offer for Vodafone's (LSE: VOS) Spanish unit.

Nexus Capital Management has agreed to purchase a 65% stake in Dollar Shave Club from Unilever (NYSE: UL), which acquired the brand for $1 billion in 2016.

Performant Capital acquired SquadUP, a provider of ticketing, event management, and audience management solutions.

WestView Capital Partners invested in Roko Labs, a custom software development firm.

Wind Point Partners acquired Central Moloney, a developer of electrical infrastructure products.

Rithm Capital agreed to buy hedge fund Sculptor Capital Management for around $720 million.

Partners Group is considering a takeover offer for Australian resort business Hamilton Island.

Hg is considering a sale process for F24, a developer of emergency notification software that could be worth up to €1 billion.

PAI Partners is preparing to launch a sale process for Italian eyewear brand Marcolin that could fetch around €1.35 billion.

SolarWinds, an IT management software provider controlled by Silver Lake and Thoma Bravo, is considering a sale.


Cargo Therapeutics, focused on CAR T-cell oncology therapies, filed for a $100 million Nasdaq IPO under ticker CRGX. Existing backers include Samsara BioCapital, Red Tree VC, Perceptive Advisors, Third Rock Ventures, Nextech, Janus Henderson, RTW Investments, T. Rowe Price, Wellington, Ally Bridge Group, Emerson Collective, and Cormorant Asset Management.

Invea Therapeutics, focused on treatment of immune-mediated inflammatory diseases, filed for a $75 million Nasdaq IPO under ticker INAI.


PSG invested in AirWorks, a provider of geospatial data analytics solutions.

Aiolos Bio, an asthma therapeutics developer, raised $245 million in Series A funding from RA Capital Management, Atlas Venture, Bain Capital Life Sciences, Forbion, and Soffinova.

Keyfactor, a machine identity management provider, raised around $500 million in growth capital from Sixth Street at a $1.3 billion enterprise value.

Island, an enterprise Chromium browser, raised $100 million co-led by Prysm Capital and Canapi Ventures at a $1.5 billion valuation, with participation from existing backers Insight Partners, Stripes, Sequoia Capital, Cyberstarts, and Georgian.

Qosmosys, a lunar landing technology developer, raised $100 million in seed funding from undisclosed investors.

Adlumin, a cybersecurity platform, raised $70 million in Series B funding. SYN Ventures led, with participation from existing backers First In Ventures, Washington Harbour Partners, and BankTech Ventures.

Triveni Bio, a developer of precision medicines for immunological and inflammatory disorders, raised $92 million in Series A funding. Atlas Venture and Cormorant Asset Management co-led, with participation from OrbiMed, Viking Global, Invus, Polaris Partners, and Alexandria Venture Investments.

MangoBoost, a provider of scalable datacenter tech, raised $55 million in Series A funding. IMM Investment and Shinhan Venture Investment co-led, with participation from existing backers Korea Development Bank, KB Investment, IM Capital, and Premier Partners.

Censys, a cybersecurity threat hunting and exposure management provider, raised $50 million in Series C funding from Decibel Partners, GV, Greylock, Intel Capital, Ascension Ventures, Four Rivers, and Hamilton Lane. It also secured $25 million in debt funding led by SVB Capital.

YouTrip, a multicurrency travel wallet, raised $50 million in Series B funding led by Lightspeed Venture Partners.

HqO, a commercial real estate experience software platform, raised $50 million in Series D funding. Koch Real Estate Investments led, with participation from Accomplice, Insight Partners, and Related.

AgentSync, an insurtech startup providing compliance software solutions, raised $50 million in Series B extension funding co-led by existing backers Craft Ventures and Valor Equity Partners.

Daiz, a maker of plant-based proteins, raised around $47.4 million in Series C funding from Mitsubishi UFJ Capital, Roquette, Miyoshi Oil & Fat, and Kagoshima Bank.

Husk Power Systems, a developer of solar mini-grids, raised $43 million in Series D equity funding. STOA Infra & Energy co-led, with participation from existing backers Shell Ventures, Swedfund, and FMO. It also secured $60 million in debt from IFC and EIB.

Oxide Computer Co., a developer of on-premise cloud computing solutions, raised $44 million in Series A funding led by Eclipse.

Arteria AI, a streamlined documentation platform for finance applications, raised $30 million in Series B funding. GGV Capital U.S. led, with participation from existing backers Illuminate Financial, Information Venture Partners, BDC Capital, and Citi.

Abridge, a clinical documentation provider, raised $30 million in Series B funding led by Spark Capital.

Debut, a developer of sustainable fragrance offerings, raised $40 million in Series B funding led by the venture fund of L'Oréal.

Eavor, a geothermal energy producer, raised C$182 million. Australia's OMV led, with participation from existing backers Canada Growth Fund, Japan Energy Fund, Monaco Asset Management, and Microsoft's Climate Innovation Fund.

Quantum Systems, a drone developer, raised €63.8 million in Series B funding co-led by HV Capital and DTCP.

CentML, an ML training optimization platform, raised $27 million in seed extension funding from Gradient Ventures, TR Ventures, and Nvidia.


OrbiMed raised a combined $4.3 billion for its ninth flagship venture, its fifth Asia-focused fund, and its fourth royalties and credit fund.

Alpine Investors raised $3.4 billion for a continuation fund for its HVAC services portfolio company Apex Service Partners.

Fortress Investment Group is targeting $8 billion for its sixth credit opportunities fund.

Norvestor raised €1.5 billion for its ninth fund.

Flourish Ventures received $350 million in new capital commitments.

Brynwood Partners raised $750 million for its ninth fund.

Revelation Partners raised $608 million for its fourth fund.

1315 Capital raised more than $500 million for its third flagship fund and first growth buyout fund.

Wellington Management raised $150 million for its first early-stage venture fund, Wellington Access Ventures.

Rebalance Capital is targeting $100 million for a debut fund.


1. A Trading scandal at Two Sigma.

• A researcher at hedge fund Two Sigma is alleged to have tweaked trading models to boost his returns (and compensation) at the expense of the firm’s other funds. Two Sigma says it made investors whole, but is facing SEC scrutiny.— Two Sigma Is Hit by Trading Scandal, Wall Street Journal


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