_{DEALS GONE WRONG}

Private Equity Wars

H.I.G. Capital is suing rival PE firm Audax Group for “brazen, massive, systemic fraud” relating to its investment in telecom software company Mobileum.

HIG purchased a 67% stake in Mobileum from Audax for $915 million back in 2022.

H.I.G. is arguing that it was presented financials that were artificially inflated, including the creation of a fake customer. How much did this fake customer cost H.I.G.? Well, they are arguing that it caused them to overpay by $250 million.

Typically, PE funds don’t go after each other in these situations, but rather, they tend to sue company management, sell-side banks, the board or auditors.

This time it is different. H.I.G. has argued that Audax was instrumental in installing certain company management, who were faithfully executing on orders from on-high. Even worse, H.I.G. argues that Audax was aware of the financial wrongdoings and even helped direct it.

Audax will follow the standard battle practice here and respond to H.I.G.’s opening salvo with a volley of its own via a countersuit. This countersuit will likely allege, in addition to other things, that H.I.G. has mismanaged the asset, which is what actually caused the destruction of value.

It is worth also noting that Audax is still a shareholder in Mobileum, holding just shy of a quarter of the equity, and management owns another ~10% of Mobileum.

So, get your popcorn ready, because y’all are in for a front-row seat at the Battle of the Mids. We'll keep you updated on this future Netflix documentary.

_{DEAL OF THE MONTH}

Big Oil is so Back

‘Tis officially Mariah Carey and black gold M&A season.

In an all stock deal valued at ~$53billion, Chevron - the second largest US oil & gas firm - agreed to acquire Hess, a mid-sized US oil & gas firm. This deal follows Exxon Mobil’s $60 billion acquisition of shale driller Pioneer Natural Resources earlier in October.

The addition of Hess, PDC and Noble to Chevron will bring its total oil & gas output to ~3.7 million barrels per day. Additionally, it will increase Chevron’s shale output by 40% to 1.3 million barrels per day, which would put it close to Exxon’s shale output (pro forma for the Pioneer acquisition).

This deal shows an increasing desire for big oil to want to bring production closer to home. Pro forma for the deal, Chevron will add oil output in the US Gulf of Mexico and add the Bakken shale in North Dakota. And as a cherry on top, this deal gives Chevron a 30% stake in Exxon’s oil project in Guyana as well.

Chevron offered 1.025 shares for each Hess share, implying a premium of ~4.9% vs. the close prior to announcement. Chevron expects the combined company to find ~$1 billion of cost synergies within the year immediately following the deal. The deal is expected to close in early 2024.

Chevron has indicated that it plans to sell somewhere between $15-$20 billion of assets and spend between $19-$21 billion per year on major projects following the deal closes.

Unlike their European rivals, US oil & gas peers have not allocated as much capital towards renewables, so they have amassed war chests following strong energy prices. Depending on oil prices, Chevron has a strong share buyback and dividend program, and expects to increase its buybacks by another $2.5 billion after the transaction.

_{EXIT OF THE MONTH}

Another Unicorn is Looming

In early October, Altassian announced it would be acquiring Loom, the tech software used to make work videos, for $975 million. The total cash proceeds were $880 million with the remaining balance funded by equity in Altassian.

Loom was initially launched in 2016 and quickly garnered interest from the who’s-who of Silicon Valley, including General Catalyst, Sequoia, Coatue and Andreessen Horowitz, among others.

The Company’s latest raise was in May 2021, which as many of us remember, was part of the two plus year COVID fever dream we all had. In that round, they raised $130 million at a valuation of $1.5 billion, not bad.

Despite this being a down round for the last set of Loom investors, dropping a nearly $1 billion valuation post-COVID for a work-from-home bet is nothing to scoff at. The Loom team and (most) of their investors can ride off into the sunset happy with how this one turned out.

_{NEWS ROUNDUP}

Top Reads

• Unilever Selling Dollar Shave Club to Nexus Capital

• Elon Has Owned Twitter for a Year

• Progressives Are Trying to Kill M&A

• Banks Are Finally Seeing Deals Again

• Hello Bello Says Hello to Bankruptcy 

• Apollo Acquires Restaurant Group

• Pearl Street Equity Acquires Famous Brands

_VISUAL

RIP Levering TF Up

Equity contributions in US LBOs

High interest rates have caused equity checks to account for >50% of LBO value for the first time. For those of you who don’t know how LBOs work, this basically means that PE funds are putting up more and more of their cash for deals rather than using extra leverage.