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

• A look at FanDuel litigation involving KKR and Shamrock Capital

• Plus, Klarna plans 2025 IPO

The fight over FanDuel:

The founders and early investors of sports betting giant FanDuel are continuing their legal battle against Series D and E investors KKR and Shamrock Capital, filing a lawsuit earlier this week in New York’s Supreme Court. The plaintiffs, led by co-founder Nigel Eccles, allege the firms conspired to steal billions in equity value during FanDuel's 2018 tie-up with Paddy Power Betfair (now Flutter Entertainment).

The Paddy Power deal was structured as an all-stock merger, which gave FanDuel shareholders a 40 percent stake in the combined business. According to the complaint, KKR and Shamrock engineered a transaction structure that handed the entire go-forward stake to FanDuel’s preferred equity holders, leaving the company’s common shareholders with nothing.

Sellers generally get the best outcome by maximizing valuation at exit. If FanDuel had sold for an all-cash consideration, for example, the interests of the preferred and common shareholders would have been aligned: everyone benefits by exiting for as much cash as possible.

Instead, the all-stock deal created a zero-sum situation in which preferred shareholders’ liquidation preference (the right to receive all proceeds up to a certain amount prior to any participation for common equity) meant they would be better off the lower the valuation of FanDuel.

To illustrate, at a relatively low FanDuel valuation, a greater portion of the 40 percent go-forward stake is needed to hit the liquidation preference hurdle. At a relatively high FanDuel valuation, the liquidation preference is met with a smaller portion of the stake, which leaves more for common equity.

The plaintiffs say that KKR and Shamrock artificially depressed the company's valuation to take advantage of this dynamic — the deal assigned a $559.4 million valuation to FanDuel, which also happened to be the exact threshold of the liquidation preference. With no remaining value after preferred shareholders were made whole, common equity was wiped out (including the common held by KKR and Shamrock, in addition to their preferred).

Common equity holders had no recourse. KKR and Shamrock forced shareholders into the transaction by exercising their drag-along right, which allowed them to require all FanDuel shareholders to accept a change-in-control offer without a full shareholder vote.

Arguing that the final valuation was not an accurate representation of the true worth of the business, the lawsuit points to a May 2018 decision by the U.S. Supreme Court, handed down 8 days prior to the deal’s signing, which ruled the Professional and Amateur Sports Protection Act (PASPA) unconstitutional and overturned a federal ban on sports betting.

This opened up an untapped, very large, and closely adjacent market for FanDuel. The potential (and since realized) upside from the ruling was entirely excluded from the merger's valuation calculation, despite, the plaintiffs say, KKR and Shamrock's clear understanding of the opportunity.

In support of its phony valuation allegations, the lawsuit points to evidence including projections from prior fundraising, advisor Moelis' provided market analyses, and internal communications at both KKR and Shamrock, including a KKR partner's email noting that “if PASPA is repealed, I think valuations will improve meaningfully.”

KKR and Shamrock, say the plaintiffs, specifically directed Moelis not to issue a fairness opinion, and no third-party was engaged to complete an independent valuation analysis.

The suit also contains a series of emails from Global Eagle Acquisition Corp., a SPAC that aggressively pursued FanDuel in the period between signing and closing of the Paddy Power deal: “There’s a very good chance the public markets will value this asset much higher than private or strategic,” read one note that was sent to KKR.

Just 14 days post-merger, FanDuel CEO Matt King allegedly circulated a financial model valuing FanDuel's 40 percent stake in the combined entity at over $1.3 billion. Calling it "a smoking gun," the lawsuit notes that the model was built not just for internal use but was also formally presented to Boyd Gaming as part of a partnership negotiation.

The filing also details what it says were KKR’s moves to solidify power in advance of the exit, including the 2017 firing of co-founder and CEO Eccles and his replacement with King, who had previously joined KKR as an associate and spent 11 years with the firm.

King took over Eccles' board seat, and was joined by two additional board appointments around the same time. Internal discussions on communication strategy urged caution: “Because [new appointment] Carl Vogel currently has KKR as his most recent employment on his LinkedIn, and Matt King is also KKR - there is a possibility that some reporters put those together and draw a conclusion that KKR drove this.”

The result, says the lawsuit, was an 8-person board comprised of 7 representatives who were conflicted against the interests of common shareholders, either because of their own firms' preferred stake, ties to KKR, or negotiated side-agreements that incentivized a pro-merger vote (characterized as “bribery”).

This week's filing continues the more than six years of litigation over the deal, which has already seen a dismissal and successful appeal. KKR and Shamrock have yet to formally respond to the amended complaint, but in a 2020 joint statement, they expressed confidence that "the facts will demonstrate that the allegations in this lawsuit are completely baseless."

The combined business now trades at a market value north of £28 billion, though KKR and Shamrock sold their interests in late 2020 at an implied FanDuel standalone enterprise value of $11.2 billion. The big winner, however, may be Matt King: he walked away with a payout of more than $120 million for his 40-month tenure.

• Lone Star Funds agreed to acquire Carrier’s (NYSE: CARR) Commercial and Residential Fire business at a $3 billion valuation.

• EQT agreed to acquire PropertyGuru (NYSE: PGRU), an online property search platform operating in Southeast Asia, for $1.1 billion in cash.

• Warburg Pincus acquired Service Express, a UK-based datacenter maintenance provider, from Harvest Partners.

• Blackstone Growth acquired a majority stake in M3, a hospitality accounting software.

• A consortium led by Sixth Street Partners agreed to acquire Select Portfolio Servicing, Credit Suisse's US mortgage servicing business, from UBS Group AG (NYSE: UBS).

• Klarna, a Swedish buy-now-pay-later fintech, is said to be planning a NYSE IPO for the first half of 2025, with Goldman Sachs likely to lead an offering that could value the business at around $20 billion.

• MidOcean Partners acquired SI Solutions, a provider of engineering and maintenance services for power and infrastructure markets.

• EIG is weighing the sale of Maverick Natural Resources, a Houston-based oil and gas producer with operations in Oklahoma and New Mexico, which could be valued at up to $3 billion, per Reuters.

• Following an announcement that it’s considering strategic alternatives, electronic health records vendor Veradigm has received initial bids from suitors, with Thoma Bravo among those interested, per Axios.

• Regent acquired Bally International, a Swiss luxury brand, from JAB Holding.

• Summit Park acquired a majority stake in Hylaine, a Charlotte-based technology consulting firm.

• Experian (LSE: EXPN) acquired NeuroID, a provider of behavioral analytics for fraud prevention.

• Prytek agreed to acquire TipRanks, an investment research platform, for $200 million.

• Hewlett Packard Enterprise (NYSE: HPE) agreed to acquire Morpheus Data, a provider of hybrid cloud management and platform operations software.

• Lockheed Martin (NYSE: LMT) agreed to acquire Terran Orbital (NYSE: LLAP), a spacecraft manufacturer, for $450 million.

• InfraVia Capital Partners is considering the sale of Green, a Swiss data center operator, which could value the company at around €1 billion, per Bloomberg.

• XPO (NYSE: XPO) is exploring the sale of its European transportation unit, which could be valued at around $2 billion.

• New Mountain Capital and Energy Impact Partners invested in Site 20/20, a traffic control and road safety business.

• Southern Home Services, backed by Gryphon Investors, acquired Elite Electric, Plumbing & Air, a Port St. Lucie, Florida-based provider of electrical, plumbing, and HVAC services.

• PrimeSource Brands, backed by Clearlake Capital Group, acquired Cobra Anchors, a Montreal-based provider of hollow-wall, universal, and masonry anchors.

• Strategic Value Partners agreed to acquire Blanchardstown Centre, Ireland's largest shopping mall with 180 stores, from Goldman Sachs Group (NYSE: GS) for less than €650 million.

• American Homes 4 Rent (NYSE: AMH) is in advanced talks to acquire a portfolio of around 1,700 U.S. rental homes from Man Group (LSE: EMG).

• Shur-Co, a portfolio company of Behrman Capital, acquired US Tarp, a manufacturer and distributor of truck and trailer tarping systems, from Brighton Partners.

• Xceed Foodservice Group, a portfolio company of San Francisco Equity Partners, invested in JG Neil & Co., a foodservice brokerage with offices in Washington, Oregon, Idaho, and Utah.

• Co-founder and co-CEO Bryant Riley offered to acquire the remaining shares he doesn't already own of investment bank B. Riley Financial (Nasdaq: RILY) for $7 per share, valuing the business at around $212 million.

Tech, Vertical SaaS, & Misc. Enterprise

• Quantum Circuits, a superconducting quantum computing startup, raised $60 million in Series B funding led by ARCH Venture Partners, F-Prime Capital, Sequoia Capital, and Hither Creek Ventures, with participation from Canaan Partners, Fitz Gate Ventures, In-Q-Tel, Osage University Partners, Connecticut Innovations, Tao Capital Partners, and Tribeca Venture Partners.

• Sahara AI, a blockchain platform for equitable AI, raised $43 million in new funding co-led by Pantera Capital, Binance Labs, and Polychain Capital, with participation from Samsung NEXT, Matrix Partners, dao5, Geekcartel, Nomad Capital, SCB 10X, Canonical Capital, Mirana Ventures, Foresight Ventures, Dispersion Capital, Aegis Ventures, Alumni Ventures, and Tangent Ventures.

• CruxOCM, a provider of co-pilot tech for energy control rooms, raised $17 million in Series A funding led by M12, with participation from ONEOK, Raven Indigenous Capital Partners, EIC Rose Rock Fund, Angular Ventures, Bullpen Capital, Root Ventures, Industry Ventures, Cendana Capital, Pipeline Capital Partners, and Golden Ventures.

• Garden, an AI-powered patent intelligence platform, raised $6.8 million in seed funding led by Spark Capital, with participation from Craft Ventures, Uncommon Capital, and Mischief.

• Holonym Foundation, a developer of digital identity security solutions, raised $5.5 million in seed funding led by Finality Capital and Paper Ventures, with participation from Draper Dragon, Arrington Capital, Lightshift, Zero Knowledge Ventures, and Zero DAO.

Fintech

• Chaos Labs, an on-chain risk management platform for DeFi protocols, raised $55 million in Series A funding led by Haun Ventures, with participation from F-Prime Capital, Slow Ventures, Spartan Capital, Lightspeed Venture Partners, Galaxy Ventures, Wintermute Ventures, PayPal Ventures, General Catalyst, Bessemer Venture Partners, and Coinbase Ventures.

• Yuze, a UAE-based fintech providing digital financial services for SMEs, raised $30 million in new funding led by Osten Investments.

• Syfe, a Singapore-based digital investment platform, raised $27 million in Series C funding from two UK-based family offices, with participation from Valar Ventures and Unbound.

• Vayana, a trade credit infrastructure platform, raised $20.5 million in Series D funding led by SMBC's Asia Rising Fund, with participation from International Finance Corporation, Chiratae Ventures, Jungle Ventures, Quantum State Investment Fund, and Emerald Company.

• Sling Money, a blockchain-based money transfer app, raised $15 million in Series A funding led by Union Square Ventures, Ribbit Capital, and Slow Ventures.

Healthcare

• Caresyntax, a vendor-neutral precision surgery platform, raised $180 million in Series C extension and growth debt from Symbiotic Capital, MTIP AG, BIONIQ Capital, PFM Health Sciences, Pictet Alternative Advisors, surgical.ai, BlackRock Innovation Capital, Aescuvest, Optum Ventures, Cure Capital, Relyens Group, Vesalius Biocapital, Lauxera Capital, Plug & Play Growth Fund and ProAssurance Corp.

• HistoSonics, developer of a histotripsy therapy platform for liver tumors, raised $102 million in Series D funding led by Alpha Wave Ventures, with participation from Amzak Health, HealthQuest Capital, Johnson & Johnson Innovation, Lumira Ventures, Yonjin Venture, and the State of Wisconsin Investment Board.

• Companion Protect, a Kansas City-based pet health administration business, raised $20.25 million in Series A extension funding from Avanta Ventures, Liberty Mutual Insurance, Old Republic International Corporation, and Stray Dog Enterprises.

• Hexarad, a London-based radiology technology company, raised €13 million in growth funding led by MTIP, with participation from Foresight Group.

• Levels, a startup developing real-time feedback on how food affects health, raised $10 million in Series A extension funding from Long Journey and a16z.

• Photon Health, a digital health e-prescribing platform, raised $9 million in Series A funding led by Notation Capital and Flare Capital Partners, with participation from Box Group.

Industrials, Greentech, & Other

• Re:Build Manufacturing, a manufacturing design and engineering startup, raised $120 million in Series C funding led by General Catalyst.

• Promethean Particles, a carbon capture materials company, raised £8 million in Series A funding led by Mercia Ventures and Aramco Ventures, with participation from Midlands Engine Investment Fund I, University of Nottingham, TSP Ventures, and East Midlands Early Growth Fund.

• EQT set a $12.5 billion target for its latest Asian private equity fund, BPEA Private Equity Fund IX.

• Resurgens Technology Partners raised $800 million for its third fund focused on lower middle-market software investments in North America and Europe.

• HIPstr, the early-stage investment arm of HighPost Capital, raised $100 million for its debut fund to invest in consumer and technology startups.

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