One private credit takeover to start: A group of private credit lenders led by Blue Owl Capital and Ares Management have agreed to take over troubled software company Pluralsight, wiping out $4bn that Vista Equity Partners and other investors had put into the business since they bought it less than four years ago.
In today’s newsletter:
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Unsolicited offer for 7-Eleven upends M&A in Japan
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Hedge funds retreat from tech
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Lidl’s accidental cloud computing business
Bid for 7-Eleven rattles M&A status quo
Japan’s beloved convenience store 7-Eleven is a fixture on practically every block in the country’s major cities. And as of last week, it has also been the target of an interested foreign buyer.
Canadian chain Alimentation Couche-Tard’s (ACT) interest in buying the chain’s parent company has sent shockwaves through corporate Japan, with its prized brands historically shielded from the prying eyes of potential buyers abroad.
The list of iconic brands is lengthy. There are beverage makers Asahi, Kirin and Suntory, which fill up the country’s abundant vending machines. Then there’s Nintendo, Mitsubishi, chocolate maker Meiji, skincare brand Shiseido, Yamaha and Canon.
All of them suddenly feel within takeover grasp of strategic companies and private equity firms around the world, the FT’s Leo Lewis writes. One M&A banker said: think of a Japanese company, and there is someone, somewhere, wondering whether they should pounce.
The shift comes as a result of ACT’s unsolicited interest in 7&I Holdings, the Tokyo-listed parent company of 7-Eleven, which has a market valuation of $36bn.
For decades, would-be foreign buyers have gotten nowhere in Japan. This is at least in part because companies have never been forced to prioritise shareholder interests.
The Tokyo Stock Exchange is filled with companies with global name recognition that are seriously undervalued. The C-suite has historically had a great deal of flexibility and hasn’t had to take unsolicited offers seriously.
There’s a reason for ACT’s boldness. The yen has probably already bottomed out and activist investors have become an accepted part of the market.
But perhaps the biggest shift came last year, when the Ministry of Economy, Trade and Industry (Meti) changed takeover guidelines to prod CEOs to take offers seriously.
The hope was to stimulate domestic consolidation, but it might have the unintended effect of opening up Japan’s most famed companies to foreign interests.
Hedge funds take a break from Big Tech
Over the past year, Magnificent Seven technology stocks have become a welcome landing pad for hedge funds. But now, many fund managers are deciding to pull back.
Goldman Sachs took score of hedge funds’ recent regulatory filings and found that they’re falling out of love with names like Nvidia and Microsoft, FT’s Alphaville reports.
Hedge funds that made a Mag7 member one of their top positions fell almost across the board, with the stocks now accounting for just 13 per cent of the typical hedge fund portfolio. Apple is the big exception (AI-enabled iPhones, maybe?).
Hedge funds are opting for different targets like industrials and financials instead (albeit slightly different — six of the Mag7 stocks are still at the top of this quarter’s most-loved company list).
That’s more interesting for clients — and getting out of Big Tech stocks before their July stock slide has been good for returns. Long-short equity hedge funds have gained 9 per cent on the year.
Some software-focused investors are even opting for stocks that could be beneficiaries of the tech sector’s power demands, rather than the companies themselves, according to DD’s reporting.
“All of my friends have become energy analysts over the past few months,” one software investor said.
Even as hedge funds move away from tech, they’re looking for alpha in less picked-over small-cap companies. Russell 3000 stocks not in the S&P 500 make up nearly half of the value of long equity positions.
Still, hedge funds are getting more concentrated on a fund-by-fund level. They’re holding about 72 per cent of their long portfolios in their top-10 positions (which Alphaville says appears to be a new record).
So while investors are moving away from the crowd, we can still expect volatility in company share prices as hedge funds gear up for the next group of stocks to pile into.
Germany’s discount superstore embraces the cloud
Lidl has made its name by selling food staples like bread and butter at cut-throat prices.
But the discount retailer’s octogenarian founder Dieter Schwarz has quietly branched out beyond the grocery aisles.
In the past few years, Schwarz has helped oversee the creation of a very different staple in the modern world: a cloud computing and cyber security service known as Schwarz Digits.
The company’s system was first built in 2021 for internal use when Lidl couldn’t find a European-based provider that met its needs. It eventually became a standalone business two years after inception.
And Schwarz Digits has already attracted some big-name clients. Germany’s biggest software group SAP has signed up, alongside German football club Bayern Munich. The company generated €1.9bn in annual sales last year and employs 7,500 staff.
While cloud-computing giants like Amazon Web Services, Google and Microsoft have a razor-sharp focus on the cloud, Schwarz Digits instead stumbled into the business by accident.
“We did not start with a commercial motivation in mind but just wanted to address our own needs,” Christian Müller, the company’s co-chief executive told the FT. “We’re on a very steep growth path.”
Schwarz Digits is taking advantage of Big Tech’s sceptics as well as a complete lack of European-based providers. All client data is stored in Germany and Austria, which each have stringent data protection laws.
While Schwarz’s computing group is still at a serious disadvantage size-wise to the AWSs of the world, there’s a strong regional market: European-based companies that are more privacy-attuned, and don’t want to store all their data in the US or China.
The FT’s Olaf Storbeck got a rare look at the group by venturing inside its IT nerve centre — a place so strict on privacy, he had to agree to not disclose its location on the parent company’s sprawling estate.
Job moves
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Nestlé’s chief executive Mark Schneider has stepped down after eight years, following a period of underperformance that has hit the company’s share price. He will be replaced by Laurent Freixe, who was most recently executive vice-president and chief executive in Latin America.
Smart reads
Big Ag Behind the image of farmers working away in fields is a vast industry with a sweeping lobbying apparatus, the FT writes.
Compliance stumbles The lender TD Bank is on the defensive after alleged compliance failures caught up with it, Lex writes.
Golden Triangle A Chinese businessman convinced officials to set up a special economic zone in a remote region of Laos. It has a darker side, Bloomberg reveals.
News round-up
Gatwick airport waits for approval to expand as business booms (FT)
Uber partners with GM’s Cruise to offer self-driving car rides (FT)
AstraZeneca threatens to move UK vaccine manufacturing to US (FT)
Jonathan Bloomberg: City executive who was key witness in Mike Lynch trial (FT)
Alzheimer’s drug approved by UK regulator but too costly for NHS (FT)
Starboard urges Autodesk to hold CEO accountable after probe (Bloomberg)
Skydance demands that Paramount stop negotiating with Edgar Bronfman (WSJ)
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