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

• A look at the private equity exit option for venture-backed startups

• Plus, sponsors show interest in Unilever’s ice cream business

Buyout investors offer another option:

Private equity is finding a new source of deals: venture-backed startups. The recent shift in early-stage dynamics means that once out-of-reach opportunities are now in play, and sponsors are increasingly stepping in to acquire startups that have struggled to find traditional exits.

Data compiled by tech-focused investment bank Clipperton show the volume of venture capital exits to private equity buyers has tripled over the past decade. From 2006 to 2010, only 8 percent of venture-backed startups exited to buyout firms. From 2021 to the first half of 2023, that figure jumped to 24 percent of total exits.

Such transactions have generally fallen into two distinct buckets: (1) high-performing startups that find an IPO less feasible in today's conditions or for whom larger strategics haven't come knocking with the same valuation premium they once might have; and (2) slower-growth startups who may have been written-off by their backers and are struggling to raise additional funding, but who have still built a sustainable business, or at least something of real value.

For the second bucket, in particular, tighter fundraising conditions can mean that venture's rejects are now a higher-quality group of targets than they might have been in years past—when they would have had no trouble raising their next round.

And, as we've covered in recent months, the general slowdown in exit opportunities means that venture capital may now be more likely to push for any exit they can get, even if those exits don't exactly hit the lofty valuations that they'd hoped for. This is especially true for their more middling portfolio companies, which may not have a clear path to a home-run outcome.

While many startups lack the requisite scale for a platform, they’re often interesting options for an add-on acquisition. This type of deal can be particularly appealing for sponsors with a services-first platform who may be looking for opportunities to unlock higher-growth and recurring revenue business lines (and an accompanying bump to their exit multiple).

The best-fit deals can provide interesting vertical-specific product synergies by leveraging underutilized (or not yet collected) proprietary data from the existing platform to build a differentiated SaaS offering that would not have been possible for either party on their own.

That said, these acquisitions still face the same fundamental hurdles they always have. Later-stage sponsors are not usually amenable to cash-burning purchases that re-lever their platform. Earnouts and other unique structuring options have become a popular workaround, though even if the seller is receptive, that may not be enough.

The upshot is that many venture-backed startups are finding themselves in a rush to hit profitability much earlier than they would have expected—either to increase the odds of a sponsor-backed exit or just out of necessity when additional fundraising is slow to materialize.

• Unilever (NYSE: UL) is exploring the sale of its ice cream business, which could fetch around £15 billion, and is in discussions with buyout firms, including KKR, CVC, Advent, and Cinven.

• Sponsors, including CVC, are in talks to acquire Rentokil Initial, a pest control provider trading at a market value above $16 billion, per Bloomberg.

• KKR is in the lead to acquire EdTech business Instructure Holdings for around $4.7 billion, per Bloomberg.

• Blackstone is considering a sale of its minority stake in HH Global, a British outsourced marketing provider, which could value the company at up to £2.5 billion, per Bloomberg.

• The Czechoslovak Group submitted an improved $2.15 billion offer to acquire Kinetic Group, Vista Outdoor's ammunition business.

• Panera Brands, backed by JAB Holding, is exploring the sale of Caribou Coffee and Einstein Bros Bagels, as well as its other bagel brands, in a deal that could value the restaurant chains at more than $1.5 billion.

• Terex Corporation (NYSE: TEX) agreed to acquire Environmental Solutions Group, a provider of refuse collection vehicles and waste management equipment, from Dover Corporation (NYSE: DOV) for $2 billion in cash.

• Snowhawk invested in SecureVision, a fiber connectivity provider for Gulf Coast resort communities.

• H.I.G. Capital acquired a majority stake in Best Trash, a Houston-based municipal solid waste platform, from Amberjack Capital Partners.

• Sky Island Capital acquired a majority stake in Pacific Paper Tube, a Stockton, California-based manufacturer of sustainable paper tubes and cores.

• Stonepeak agreed to acquire Arvida Group (NZX: ARV), a New Zealand retirement village operator with 35 locations, for $1.25 billion.

• MiddleGround Capital offered to acquire STEMMER IMAGING, a German provider of machine vision technology, for €48 per share in cash, valuing the company at €312 million.

Consumer & Media

• NPC Labs, a Web3 gaming infrastructure startup, raised $21 million in seed funding led by Pantera Capital, with participation from Makers Fund, Hashed, Collab+Currency, Sfermion, Mirana Ventures, Bitscale Capital, and Mantle EcoFund.

Healthcare

• Vitable Health, an accessible primary care provider, raised $16 million in Series A funding led by Cherryrock Capital, with participation from First Round Capital, Citi Impact Fund, and Commerce Ventures.

• After.com, an online platform for end-of-life services, raised $10 million in Series A funding led by HIPstr, with participation from HighPost Capital.

Industrials, Greentech, & Other

• Saronic, a developer of autonomous military vehicles, raised $175 million in Series B funding at a $1 billion valuation led by Andreessen Horowitz.

• Bregal Sagemount raised $500 million for its debut small-cap fund, Bregal Sagemount Basecamp I, targeting equity investments between $20 and $75 million.

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Partner Disclaimer: Alternative investments are speculative and possess a high level of risk. No assurance can be given that investors will receive a return of their capital. Those investors who cannot afford to lose their entire investment should not invest. Investments in private placements are highly illiquid and those investors who cannot hold an investment for an indefinite term should not invest. Private credit investments may be complex investments and they are subject to default risk.