Term Sheet: Nov. 22, 2019

Our daily brief on deals and dealmakers. Is this email not displaying correctly? View it in your browser. follow Subscribe Send Tip November 22, 2019 Fortune's 2020 Investor's Guide is out this week, and it makes for excellent weekend reading.  We asked a roundtable of investing experts to share their best advice for 2020. This year's panel included Savita Subramanian, head of U.S. equity and quantitative strategy and head of global ESG research at Bank of America Merrill Lynch; Josh Brown, CEO of Ritholtz Wealth Management; Karina Funk, co-manager with David Powell of the top-performing Brown Advisory Large-Cap Sustainable Growth investment strategy; Rob Sharps, head of investments and group chief investment officer at T. Rowe Price; and Angela Strange, general partner at Andreessen Horowitz. Here is an excerpt of the highlights from their discussion. Where do you see the greatest risks and greatest opportunities in 2020? Brown: I genuinely believe that most of the market is expecting some extreme move out of interest rates. They either think this whole thing is a fake-out and there's going to be a bout of inflation, or that rates are headed to zero. But what if there's just more of this as far as the eye can see? There have been 100-year spans where there wasn't much volatility in interest rates. So it's entirely possible that people with extreme opinions will lose and people that are doing asset allocation will win. The biggest risk is you. You are your own biggest risk. Last year, we had a 16% drawdown in winter. We followed it up with a 20% rebound. How did you act? What did you do? Did you call your broker, "Get me out"? If you did, then recognize that you are the one doing the things that will have the bigger effect on your portfolio. It's not the Fed, it's not Trump, it's you. The minute you get that through your head, you start becoming a better investor. Funk: There are a lot of risks, whether it's interest rates, geopolitical, trade wars, and there's a whole lot out there that we can't predict and we can't control. Frankly, I worry about what I can control, which is going out there, doing the research, and finding great companies. Health care has been a poor performer in the past 12 months. But some companies there are very, very strong. So tools, diagnostics companies that are helping with drug discovery, and the move to this trend from small molecule chemistry-based drugs to large molecule. There's a lot more legs in digital transformation whether it's transforming business-as-usual processes, moving that to the cloud, and just modernization. And then finally I'll mention this trend of resource constraints. That's not going away. Sharps: There was a sentiment poll cited recently that had the fewest number of bulls in the history of the poll. But the opportunity for me is to lean away from safety and lean into cyclicality and unexpected earnings growth. I like industrials in the U.S., names like Union Pacific or UPS where you can get double-digit returns. If you want to take on a little more risk, you could buy United Airlines or even GE. GE is messy right now. But they're stabilizing the balance sheet, and you have a new CEO, with a proven track record, who can build on some strong underlying franchises. In terms of risks I do think that there is an outcome from the election where political leadership implements some antibusiness policy that raises cost, that increases the regulatory burden, and ultimately will lead to a negative productivity shock. It could be particularly acute in sectors like financial services or energy. Angela, what's the greatest— Strange: Not risk! [Laughter] I'm too positive. Venture capital! I think the biggest opportunity is to create companies that will serve the 50% of the U.S. and the more than 2 billion people worldwide that are under-banked or unbanked. I often state that the Amazon Web Services era is coming to financial services. What that means is, there are several different infrastructure companies that will partner with banks and package up the licensing process and some regulatory work, and all the different payment-type networks that you need. So if you want to start a financial company, instead of spending two years and millions of dollars in forming tons of partnerships, you can get all of that as a service and get going. So what does that do? It will unleash all of these experiments, some of which will become large companies of the future. Read more here. CHINA'S PRIVATE EQUITY CHAMPION: The next piece of recommended reading is by my brilliant colleague Shawn Tully. In a revealing profile, he focuses on Weijian Shan, the leader of Asia's largest private equity firm. "The trade war is yesterday's conflict," Shan says. "The prize is winning the Chinese consumer." Shan is a successful dealmaker, managing $35 billion in assets. He's also a U.S.-trained Ph.D. economist and former business-school professor. Here, from Shawn's story, is how Shan was able to win big. So where has Shan been reaping his gains? From the start, PAG has focused on businesses that cater to consumers and require relatively little capital to grow. Some of its earliest successes were outside China. PAG was a big investor in the Universal Studios theme park in Osaka, Japan, for example. Japan's own growth was tepid, Shan explains, "but we thought [the park] would take off because of the explosive growth of visitors from China and other Asian countries. And that's what happened." PAG's original investment was $120 million. In 2016, it sold its stake for $1.25 billion.  One of Shan's biggest scores has been in digital music. Shan saw huge potential in an owner of music copyrights called China Music Corp. "It was a vehicle for purchasing the rights to songs, lyrics, and music labels," Shan explains, "and it owned 70% of all the digital rights in China." The problem: The streaming platforms at the time were paying no royalties. But Shan anticipated that legal trends in China would turn against music piracy. In 2014, PAG invested $100 million in CMC, enabling it to buy two popular streaming services—vertically integrating a musical rights holder with a means of transmission. And in 2016, he helped orchestrate a merger between CMC and QQ Music, the streaming platform of tech conglomerate Tencent, to create Tencent Music Entertainment. Today, that service's dominant position has swelled its audience to 800 million active users—and strong copyright enforcement means it's earning huge revenue. Late in 2018, Tencent Music went public on the New York Stock Exchange, and PAG's $100 million investment is now worth around $2 billion. Tencent Music's pop-oriented patrons don't include Shan himself, who says, "I only listen to classical music, and I don't mind jazz." Read the full profile here. Polina Marinova Twitter: @polina_marinova Email: polina.marinova@fortune.com  . . VENTURE DEALS - Automation Anywhere, a San Francisco-based provider of robotic process automation solutions, raised $290 million in Series B funding. Salesforce Ventures led the round, and was joined by investors including SoftBank Investment Advisers and Goldman Sachs. - Celonis, a Munich-based startup that tracks data produced by a company's software, raised $290 million in a Series C funding at a post-money valuation of $2.5 billion. Arena Holdings led the round, and was joined by investors including Ryan Smith, Tooey Courtemanche, 83North and Accel. - GenapSys Inc, a Redwood City, Calif.-based provider of electronic sequencing technology, raised $90 million in funding. Foresite Capital led the round. - Rightway Healthcare, a New York-based patient navigation and healthcare advocacy platform for employers and their employees, raised $20 million in Series B funding. Thrive Capital led the round. - Banyan Security, a San Francisco-based provider of zero trust network access for cloud and hybrid environments, raised $17 million in funding. Shasta Ventures led the round, and was joined by investors including Unusual Ventures.  - Nines, a Palo Alto, Calif.-based teleradiology practice, raised $16.5 million in Series A funding. Investors include Accel, 8VC, Lori Goler, Kim Hammonds, and Mark Leslie. - Samasource, a San Francisco-based provider of training data to companies, raised $14.8 million in Series A funding. Ridge Ventures led the round, and was joined by investors including Social Impact Ventures, Bestseller Foundation, and Bluecrest Limited Capital. - Plantix, a Germany-based platform that drives efficient agricultural production, raised €6.6 million ($7.3 million) in Series A funding. RTP Global led the round, and was joined by investors including Piton Capital, Atlantic Labs and Index Ventures. - Combinostics, a Finland-based health tech company, raised €3.9 million ($4.3 million) in Series A funding. Industrifonden and NordicNinja VC co-led the round. Searchlight, a software platform that gathers and analyzes reference data to help companies hire diverse teams, raised $2.5 million in seed funding. Investors include Accel, Founders Fund and Soma Capital. - Groundbreaker, a Chicago-based developer of real estate investment software, raised $2 million in funding. Andrew Bluhm led the round. - Shotgun Seltzer, an Austin-based craft spiked seltzer maker, raised $1 million in funding. Investors include Unorthodox Ventures. HEALTH & LIFE SCIENCES DEALS - AN2 Therapeutics Inc, a Menlo Park, Calif.-based biopharmaceutical company focused on infectious diseases, raised $12 million in Series A funding. Mountain Group Partners led the round, and were joined by investors including Adjuvant Capital, Brii Biosciences and BioRock Ventures. PRIVATE EQUITY DEALS - Bregal Sagemount made an investment in SurePrep, a provider of tax automation software and software-powered services to the professional tax return preparation market. Financial terms weren't disclosed.  - King Tester Corporation, a portfolio company of Salt Creek Capital, acquired Cianflone Scientific Group, a manufacturer of testing and measurement equipment. Financial terms weren't disclosed.  - Gen Cap America, Inc. will acquire Griffin Gear, Inc, a Roebuck, S.C.-based manufacturer of quality replacement gearing. Financial terms weren't disclosed.  - Levine Leichtman Capital Partners will acquire Milton Industries, Inc., a Chicago-based manufacturer of air accessories and equipment. Financial terms weren't disclosed.  OTHER DEALS - HMS Holdings Corp. agreed to acquire Accent, a payment accuracy and cost containment business, for approximately $155 million. The seller was the Intrado Corporation.  - OjO Electric Corp. will acquire Gotcha Mobility, a Charleston, S.C.-based electric scooter startup. Financial terms weren't disclosed. Ojo will acquire 100% of the equity of Gotcha, and it will pay $2.5 million at the time of closing, with another $2.5 million to be paid out five months later. It will also issue $7 million in stock, half of which will be issued on closing, and the other half will be issued six months later.  EXITS - Aon plc (NYSE: AON) agreed to acquire CoverWallet, a New York-based digital insurance platform for small and medium-sized businesses. Financial terms weren't disclosed. CoverWallet had raised approximately $28.3 million in venture funding from investors including Zurich Insurance Group, Union Square Ventures, Foundation Capital, Index Ventures, and Two Sigma Ventures. - Canadian Pacific agreed to acquire Central Maine & Quebec Railway, a Bangor, Maine-based provider of rail freight transportation, from Fortress Investment Group. Financial terms weren't disclosed.  - MetLife Inc agreed to acquire Willing, a Miami-based online platform for creating wills and estate-planning documents. Financial terms weren't disclosed. Willing had raised approximately $7.1 million in venture funding from investors including Vayner/RSE, Y Combinator, Switch VC, Sound Ventures and 500 Startups. FIRMS + FUNDS - Founders Fund, a San Francisco-based venture capital firm, raised nearly $1.5 billion for its seventh fund, according to an SEC filing.  - Next Coast Ventures, an Austin-based venture capital firm, raised $130 million for its second fund. . 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