Lenders come along for the ride

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

• A look at the potential uptick in portability provisions

• The deal sheet, plus venture’s newfound love for defense tech

The concept of debt portability, historically a relatively rare provision in credit agreements, has seen an uptick in recent months as both private equity and lenders navigate the current market environment.

Portability is effectively an exception to standard change of control requirements, which ordinarily force the selling sponsor to repay outstanding debt in full upon a portfolio company exit event.

Rather than returning cash to the existing lender, forcing the buyer to line up their own separate debt financing, portability instead allows the existing debt package to remain in place through the transaction.

Take It if You Can Get It

For financial sponsors, portability is an attractive option and can be a needle mover.

Standard credit agreements usually include prepayment penalties should a change of control occur early on in the term of the loan. A typical three-year stepdown would require the selling sponsor to repay 103% of initial principal for an exit within the first 12 months of a new facility, dropping to 102% and 101% in years two and three.

While it would be unusual for a sponsor to exit an investment that early in its hold, it’s often not the original debt financing that causes prepayment issues. Additional mid-hold financings for add-on acquisitions, dividend recapitalizations, or refinancings in advance of an upcoming maturity could all come relatively close to a potential exit event.

With portability, however, selling sponsors can sidestep these penalties altogether—the loan doesn’t need to be repaid. Most portability provisions included in loans are valid for 18 - 36 months post-close, which generally covers the timeline of the worst prepayment penalties.

Portability may also be beneficial to the buyer of the target company. In uncertain markets, when debt financing is relatively more challenging to obtain, the prospect of a pre-existing package could be quite attractive. That’s especially true if the terms on the existing debt are likely to be unattainable in the current environment.

Even if financing is readily available on favorable terms, portability would still allow the acquirer to avoid underwriting fees that they would otherwise incur from a new lender.

Isolated Cases or the Start of a Trend?

A concept that appears more frequently in infrastructure deals, with the lower risk profile of the asset class, portability has only ever seen sporadic use in mainstream buyout private equity.

In recent months, however, it has become marginally more commonplace—roughly mirroring a more general trend of erosion in terms and covenants, particularly for larger private credit financings.

A number of late 2023 deals included portability language, per Bloomberg and Pitchbook…

• Veritas Capital’s sale of consulting firm Guidehouse to Bain Capital, transferring a $3.1 billion facility

• BC Partners’ dividend recap for portfolio company NAVEX Global with a new $1.2 billion portable loan from Antares Capital

• Kohlberg & Co. requested and received portability on additional add-on financing for portfolio company AWP Safety

• In the syndicated market, Aquiline Capital Partners secured a portable $575 million cov-lite Term Loan B for its human resources business CoAdvantage, refinancing its existing debt and facilitating a dividend

Changing Market Dynamics

Sponsor-backed transaction volume has declined meaningfully over the past twelve months. For buyout firms, it’s become more difficult to secure favorable exits, and has meant fewer actionable opportunities as new process launches are pushed back.

That’s also a problem for private credit. Less activity means less origination, and there’s mounting pressure to boost deployment, ideally to levels closer to the heights hit in 2021 and 2022. At the same time, lenders now face increased competition from newly raised funds and investment banks that want to stem the market share loss of their traditional bank-led syndications.

With these dynamics at play, the opportunity for lenders to remain invested in an asset via portability has become relatively more attractive. And for those trying to win competitive lender processes, portability could be a reasonable concession to provide.

Any extra edge direct lenders can find may prove helpful as they compete in a private credit market that’s expected to hit $1.8 trillion by the end of this year, more than double its pre-pandemic size.

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• Health Care Service Corporation (Nasdaq: HCSC) is in advanced talks with Cigna (NYSE: CI) to acquire its Medicare Advantage business for between $3 to $4 billion.

• Advent International denies it’s in acquisition talks with Fisher Investments, contradicting a previous Wall Street Journal report.

• Brookfield Asset Management has agreed to acquire the Indian operations of American Tower Corp. (NYSE: AMT) for $2.5 billion.

• Macquarie, Stirling Square Capital Partners, and TA Associates have made a €1 billion ($1.2 billion) offer to acquire Byggfakta, a Swedish construction software firm.

• Bain Capital hired Citi and Jefferies to lead a sale process for Centrient Pharma, a Dutch producer of active pharmaceutical ingredients that could be valued at up to €1 billion.

• HSBC (NYSE: HSBC) has submitted a bid to acquire Tesco Bank, the retail bank and mortgage lender subsidiary of the UK’s largest supermarket chain.

• Mimecast, a cloud-based email management solutions provider backed by Permira and CPP Investments, has acquired Elevate Security, a developer of a risk behavior analytics platform.

• Attivo Group acquired advertising agencies Deutsch New York and Hill Holliday from Interpublic Group (NYSE: IPG).

• Copenhagen Infrastructure Partners (CIP) acquired a 600 MW solar project portfolio in Denmark from Soltec.

• Black Bay Energy Capital acquired Merichem Co.'s technology business.

• HCI Equity Partners acquired two lawn care companies, Delaware Valley Turf and Brookside Lawn Service.

• Renovus Capital Partners invested in Behavioral Framework, a provider of ABA therapy for children with autism.

• Whistler Capital Partners has invested in Heart + Paw, a Berwyn-based veterinary and pet care services company.

• Atai Life Sciences (Nasdaq: ATAI) has reached an agreement to acquire a 35 percent stake in Beckley Psytech at a $143 million valuation.

• L'Occitane has agreed to acquire Dr. Vranjes Firenze, an Italian luxury home fragrance brand, from Bluegem Capital Partners for approximately €160 million.

• Boyne Capital is preparing to sell Infusion Associates, a Michigan-based provider of infusion therapy services. TripleTree has been tapped to advise on the process.

• Johnsonville acquired Salm Partners, a Sheboygan-based sausage producer owned by Entrepreneurial Equity Partners.

• Enpro Inc. (NYSE: NPO) has agreed to acquire AMI, a provider of application-specific analyzers and sensing technologies, from McNally Capital.

• Peak Rock Capital agreed to sell Paragon, a home infusion provider, to Elevance Health (NYSE: ELV).

• KindCard, Inc. (OTC: KCRD) has agreed to acquire OpenTransact, a New York-based banking and payments integrator.

• MSCI (NYSE: MSCI) acquired Fabric, an ESG data and analytics company.

• Obra Capital invested in Unified Life Insurance Co., an Overland Park-based provider of life insurance and annuity products.

• SonicWall, a cybersecurity company owned by Francisco Partners, has acquired Banyan Security, an enterprise security solutions provider.

• Twin Star Home, a portfolio company of Z Capital Group, acquired Grand Basket, an Aurora, Colorado-based provider of outdoor patio furniture and accessories.

• Veradigm (Nasdaq: MDRX), a healthcare technology and analytics company, has acquired Koha Health, a Merrimack, New Hampshire-based provider of revenue cycle management (RCM) services for healthcare providers.

• A group of conservative investors and media operators led by Omeed Malik has offered to acquire a majority stake in The Messenger, an upstart digital news platform, for $30 million, per Axios.

• AUA Private Equity Partners has acquired Weaver Popcorn Manufacturing, an Indiana-based popcorn and snacking products producer.

• One Rock Capital Partners acquired Constantia Flexibles, a manufacturer of flexible packaging solutions, from Wendel and Maxburg Capital Partners.

• Summit Park acquired Michelli Weighing & Measurement, a provider of scale and measurement solutions.

• The Bhathal Family acquired the Portland Thorns women’s soccer team from Merritt Paulson for $63 million.

• Amer Sports, the Finland-based owner of the Wilson tennis and Salomon ski brands, filed for an IPO that is expected to raise north of $1 billion.

• BrightSpring Health Services, a home health provider backed by KKR, filed for an IPO.

• CG Oncology, a biotech focused on development novel therapeutics for bladder cancer, filed for a $100 million Nasdaq IPO.

• Innovex Downhole Solutions, an Amberjack Capital Partners-backed manufacturer and installer of oil and gas production equipment, filed for an IPO.

• Travelport, a travel technologies provider, raised $570 million from existing shareholders and debt holders, including Elliot Investment Management, Davidson Kempner, Canyon Partners, and Siris Capital.

• Entropy, a carbon capture company, raised $150 million from Canada Growth Fund.

• Devoted Health, a home healthcare-focused Medicare Advantage insurance startup, raised $175 million. The round was led by Fearless Ventures, Highbury Holdings, Stardust Equity, GIC, Maverick Ventures, The Space Between, General Catalyst, F-Prime Capital Partners, and GreatPoint Ventures.

• Avistone Biotechnology, an oncology biotech focused on small-molecule inhibitors, raised $140 million in Series B funding led by SDIC CS Capital and IDG Capital, with participation from Yanchang Capital, Cathay Capital, and existing investor Bain Capital.

• Human Immunology Biosciences (HI-Bio), a biotech developing treatments for immune-mediated diseases, raised $95 million in Series B funding led by Alpha Wave Global, with participation from Viking Global Investors, Arkin Bio Capital, Jeito Capital, and ARCH Venture Partners.

• RedBird IMI invested in Media Res, the production studio behind Apple TV's The Morning Show.

• Sporting Lisbon, a Portuguese soccer club, is considering approaches from private equity investors ArrowMedia Group and CVC Capital Partners for a minority stake.

• Perplexity, a developer of AI-enabled search and answer technologies, raised $73.6 million in Series B funding at a $520 million post-money valuation. IVP led, with participation from Nvidia, Databricks, NEA, Gil-Tech, and Bezos Expeditions.

• Nalu Medical, a developer of neurostimulation tech to treat chronic pain, raised $65 million in Series E funding led by Novo Holdings, with participation from Gilde Healthcare, MVM Partners, Endeavor Vision, Decheng Capital, Longitude Capital, Advent Life Sciences, Pura Vida, and Aperture Venture Partners.

• Remix Therapeutics, a clinical-stage biotech focused on RNA processing therapies, raised $60 million in funding led by The Column Group, with participation from WTT Investment, Willett Advisors, and existing investors Atlas Venture, Foresite Capital, and Alexandria Venture Investments, among others.

• Aqua Security, a provider of cloud-native application security, raised $60 million at a valuation above $1 billion. Evolution Equity Partners led, with participation from existing investors Insight Partners, Lightspeed Venture Partners, and StepStone Group.

• Moonwalk Biosciences, an epigenetic medicine developer, raised $57 million in seed and Series A funding led by Alpha Wave Ventures, with participation from ARCH Venture Partners, Future Ventures, GV, Khosla Ventures, and YK Bioventures.

• Radionetics Oncology, a radiopharmaceutical oncology company, raised $52.5 million in Series A funding. Frazier Life Sciences, 5AM Ventures, and DCVC Bio led, with participation from Crinetics Pharmaceuticals and GordonMD Global Investments.

• Bumper, a provider of installment payment solutions for automotive repairs, raised $48 million. Autotech Ventures led, with participation from Shell Ventures, InMotion Ventures, Porsche Ventures, and Revo Capital.

• Full-Life Technologies, a radiotherapeutics company, raised $47.3 million in Series B funding and $16 million in loan facilities. The round was led by Prosperity7 Ventures, with participation from Sky9 Capital, Summer Capital, and GuanghuaWutong Fund, among others.

• Vita Inclinata Technologies, a developer of load stability systems, raised $44 million in funding led by 3&1 Fund.

• Nabla, a developer of an AI chatbot and transcription tool for medical professionals, raised $24 million in Series B funding. The round was led by Cathay Innovation, with participation from Zebox Ventures.

• Swap Energy, an Indonesian electric vehicle battery swapping startup, raised $22 million in Series A funding from Qiming Venture Partners, GGV Capital, and Ondine Capital.

• Solva, a Kazakhstan-based microfinance provider, raised $20 million from the Sawiris family and ZCP.

• DTE, an industrial tech company focusing on in-situ material analysis from liquid metals, extended its Series A-2 funding to $16 million led by Eyrir Vöxtur, with participation from the European Innovation Council (EIC) Fund.

• SolarDuck, a developer of offshore floating solar power solutions, raised €15 million from Katapult Ocean, Green Tower, Energy Transition Fund Rotterdam, and Invest-NL.

• RevFin, an Indian digital lender focused on electric vehicle financing, raised $14 million in Series B funding. Omidyar Network led, with participation from The Asian Development Bank, Companion Capital, and existing backers Green Frontiers Capital and LC Nueva.

• Nesterly, a housing platform focused on intergenerational living arrangements, raised $14 million in Series A funding. XL Innovate led, with participation from Intact Ventures, NEA, Blindsight Labs, Hidden Road Partners, Scrum Ventures, and Grand Scenic.

• Medallion, developing an artist-to-fan direct sales and marketing platform, raised $13.7 million of Series A funding co-led by Dragonfly and Lightspeed Faction. Coinbase Ventures, Infinite Capital, J17, The Chernin Group, Third Prime, and Zeal Capital also participated.

• Resalis Therapeutics, an Italian developer of non-coding RNA drugs, raised €10 million in Series A funding. Sunstone Life Science Partners led, with participation from Claris Venture Partners and unnamed angel investors.

• Arbital Health, a developer of technology for the healthcare industry, raised $10 million in Series A funding led by Transformation Capital, with participation from Shaper Capital, Healthy Ventures, Flex Capital, and Underdog Labs.

• Backer, a provider of college savings 529 tech solutions, raised $9.5 million in Series A funding led by WndrCo.

• Annabella, an Israel-based breast pump developer, raised $8.5 million in seed funding led by Zohar Gilon, Oren Dobronsky, Menachem Weinfeld, and Yasmin Lukatz.

• Vasa Therapeutics, a preclinical biotech focused on cardiovascular aging, raised $6 million in seed funding led by Orphinic Scientific.

• Komunal, an Indonesian fintech focused on responsible lending for underbanked businesses, raised $5.5 million in an extended Series A round led by Sumitomo Corporation Equity Asia and JAFCO Asia.

• SalarySe, an Indian firm providing a credit-on-UPI app, raised $5.2 million in seed funding led by Surge Ventures, with participation from Pravega Ventures.

• UrbanStems, an on-demand flower delivery and gifting company, raised $5 million in Series C funding led by SWaN & Legend, DF Enterprises, and existing investor Mercury.

• Amini, a climate tech startup building solutions for Africa's regenerative agriculture supply chain, raised $4 million in seed funding from Salesforce Ventures, Female Founders Fund, Satgana, Pale Blue Dot, and Superorganism.

• Crew, a developer of family-focused banking and savings products, raised $2.5 million in pre-seed funding led by Kickstart Seed Fund, with participation from Pelion, Sepio, Signal Peak Ventures, Convoi, Spacestation, Influence Ventures, and strategic angels.

• LivNSense, an industrial AI firm developing a carbon reduction platform, raised $2.75 million led by Pavestone Technology Fund.

• Sourcefit, a provider of business process outsourcing services with operations in the Philippines, South Africa, Dominican Republic, and Armenia, received a strategic investment from 9Basil, NextGen Ventures, and Rocket Equities.

• Hatz AI, a provider of a management system enabling MSPs to deliver AI-as-a-Service, raised $2.5 million in seed funding. Vestigo Ventures led, with participation from ClearSky, RSE, Long Ridge, DVx Ventures, Venmo co-founder Iqram Magdon-Ismail, and Nadia Partners.

• Vigilant Ops, an automation platform focused on software bill of materials, raised $2 million in seed funding from DataTribe.

• UniFAHS, a Bangkok-based biotech developing phages for use in agriculture, raised $1.4 million in seed funding. A2D Ventures led, with participation from ADB Ventures and InnoSpace.

• Banner Ridge Partners raised $2.2 billion for a secondary fund focused on distressed debt and special situations stakes.

• Hidden Hill Capital announced the $1.1 billion final close of its second logistics and proptech fund.

• Goldman Sachs Asset Management raised $650 million for a new healthcare-focused growth equity fund named West Street Life Sciences

• Palladium Equity Partners raised a $450 million continuation fund for portfolio companies Sky Zone, Del Real Foods, and Jordan's Skinny Mixes.

• Forward Consumer Partners raised a $425 million debut fund.

• Baird Capital raised $218 million for its sixth venture fund.

• Exponent Founders Capital raised $75 million for its debut early-stage venture fund.

• Morgan Stanley is considering a move to allocate capital from its balance sheet to support a new private credit fund that would also be open to outside capital.

1. Venture’s new appetite for defense tech.

• Semafor’s Reed Albergotti takes a look at Silicon Valley’s change of heart on the defense industry. — Defense tech is having its moment in Silicon Valley, Semafor

2. Bain & Co. releases latest healthcare private equity report.

• Bain’s healthcare private equity coverage team published its annual sector update. — Global Healthcare Private Equity Report 2024, Bain & Company

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