Aclaris in talks with potential partners in Asia, EU – CEO

Aclaris Therapeutics [NASDAQ:ACRS] is in talks with potential European and Asian partners to market its novel treatment for a common skin condition called seborrheic keratosis (SK), according to CEO Neal Walker.

The Malvern, Pennsylvania-based company has completed Phase III clinical trials involving nearly 1,000 patients for the treatment, called A-101, and plans to file for FDA approval sometime this quarter, the company previously announced. If approved, the company plans to launch the product in 1Q18.

Aclaris is a venture-backed company that listed on NASDAQ in mid-2015. Its current market cap is roughly USD 660m. It reported cash and equivalents of USD 182m as of 30 September, 2016.

In an interview, Walker said that the company plans to market A-101 on its own in the US. It has begun hiring for what it expects will be a 50- to 60-person sales force to market the treatment to an estimated 3,000 to 4,000 dermatologists in the US market.

The company is in talks with a number of potential European drug companies to market the treatment there and expects to file for EU approval in 2017, said Walker. In Asia, the company plans to seek a partner who could conduct clinical trials and eventually also market the treatment there, he said.

A-101 is a topical treatment that uses a much stronger formulation – 40% or so – of hydrogen peroxide than the 3% formula normally sold in pharmacies. The company is also in Phase II testing of A-101 to treat common warts.

An estimated 83.8m people in the US have seborrheic keratosis, and there is no FDA-approved topical treatment, according to the company. Common treatments include cryosurgery using liquid nitrogen, along with surgical methods.

Aclaris is aiming to get into a growing market for aesthetic treatments that is expected to reach USD 12.6bn by 2020, according to company literature. A top player in the market is Allergan [NYSE:AGN], with its Botox and Juvederm wrinkle treatments. Allergan in 2015 also purchased Kythera Biopharmaceuticals for USD 1.95bn, which makes treatments for double chin.

Walker said he is not looking to sell the company, but said that “all options” could be interesting and that “you never know where business development takes you.” He declined to say if the company has held talks with any potential acquirers.

A year ago, Aclaris purchased privately held Vixen Pharmaceuticals, a developer of hair loss treatments, for about USD 43m. Walker said that the company is looking at a number of other acquisition opportunities to similarly build its pipeline in complementary products.

by Dane Hamilton

Provided exclusively by Mergermarket

As seen in the mergermarket newsletter on 07/02/2017

NeuLion eyes acquisition in Japan to broaden video streaming business – CEO

NeuLion [TSE:NLN], a provider of live and on-demand digital video solutions, is looking to expand its business in Japan through an acquisition, said President and CEO Roy Reichbach.

Plainview, New York-based NeuLion has a small office in Japan for its consumer electronics (CE) licensing business, which serves major CE companies such as Sony [TYO:6758] and Panasonic [TYO:6752] that embed NeuLion’s software in their hardware. Now, the company is looking to launch its digital video platform business in the country through an acquisition of a local target in the space as it did in Europe, Reichbach told Mergermarket on the sidelines of the Cantech Investment Conference 2017.

As there is an abundance of sports content available in Japan, including unique sports such as Japanese sumo wrestling, NeuLion recognizes opportunities to market its digital video streaming platform in the nation. The company is targeting sports property owners and operators and sports content rights holders as prospective customers, according to Reichbach, who said he is planning a trip to Japan in a couple of months to speak with potential clients.

NeuLion would also consider acquisitions in Latin America to establish an operational footprint there, the CEO noted.

Last June, NeuLion bought UK-based Saffron Digital, a developer of multi-platform digital video services for entertainment delivered over-the-top (OTT) to Internet connected devices. The all cash transaction was valued at USD 9m.

Reichbach said the acquisition enabled NeuLion to launch a platform operation center with a control room to handle live sports games and helped expand its four-person sales and support team to a 60-person operation.

While NeuLion previously carried out a larger acquisition, paying USD 62.5m for California-based DivX Corporation in January 2015, it prefers to buy smaller companies with its cash holdings, according to Reichbach. NeuLion had USD 69.6m in cash and cash equivalents as of 30 September 2016.

However, NeuLion could conduct a large-scale acquisition coinciding with a capital raise prior to uplisting to the NASDAQ exchange, Reichbach said. The company would require at least six months before beginning to prepare for the move, as it needs to grow revenue first, he mentioned.

NeuLion’s video streaming platform enables digital video broadcasting, distribution and monetization of live and on-demand sports and entertainment content up to 4K Ultra HD to connected devices. The company’s clients include professional sports leagues such as the NBA, NFL, NHL and UFC, as well as content providers such as Rogers Communications [TSE:RCI.A], Univision Communications and Sky UK.

Reichbach identified BAMTech as NeuLion’s main competition as well as its potential and current clients’ internal IT department. BAMTech is a subsidiary of Major League Baseball’s digital business, MLB Advanced Media (MLBAM). In August 2016, The Walt Disney Company [NYSE:DIS] announced it would buy a 33% stake in BAMTech for USD 1bn.

NeuLion generated CAD 32m (USD 24m) in revenue and posted a CAD 3.5m (USD 2.7m) net loss for the quarter ended 30 September 2016. During the same quarter a year prior the company recorded revenue of CAD 29m (USD 22m) and a net loss of CAD 4.1m (USD 3.1m). Its market capitalization is CAD 321m (USD 245m).

by Yumi Otagaki

Provided exclusively by Mergermarket

As seen in the mergermarket newsletter on 06/02/2017

5 IDEAS YOU MISSED ACG PRIVATE EQUITY: NOT THE SAME OLD LP

1 LPs have evolved and are becoming more than capital providers: LPs need to develop a strategic relationship with GPs and leverage it to the greatest possible extent. Alcina Goosby, Senior Investment Officer at NY State Retirement, said, “GPs are information sources: they are out in the field, they are the advisors, the ones doing the research and the ones going out and deploying the capital.”

2 LPs insist on co-investing: “They are asking for more co-investing. Every single one of our side letters has co-investment language in it,” said Blinn Cirella, CFO at Sawmill Capital. SEC has shown interest in co-investing, and that has been one of the factors that have influenced LPs. Co-investing creates a difficult compliance task for the GP, as there is typically a requirement to provide the interested LP’s with a term sheet up to 30 days in advance of the deal closing. “Everyone wants co-investments, but the infrastructure, the process, and the personnel to process co-investments is a big hurdle,” said Dina Said Dwyer, Founder and Managing Director at EDEN Capital. LPs need to have everything before the GP acts on it. There are LPs who have their own in-house co-investment team, and some others have a co-investing manager.

3 Large institutions and family offices are looking to invest directly: “It’s an interesting relationship. On one end, LPs invest with the GPs and on the other end, large LPs are starting compete with the GPs. That is the new reality and it is not going away,” said Dina Said Dwyer, Managing Director at EDEN Capital. Some groups are apprehensive about family offices directly funding them, whereas others would prefer direct funding because then they can have a more flexible structure and ownership for a longer period than they would have had with a fund. So that they aren’t directly competing, most individuals who invest with independent sponsors have allocations for GPs as well.

4 Increase in fundless sponsors: “More and more, you are seeing the participation of fundless sponsors. I think the genesis of that is the diaspora of bankers from large firms who have sector expertise they can leverage. They generally have family offices and institutions behind them who see the sponsors as another source of deal flow,” said Nancy Hament, Partner at Scura Paley. These bankers use their family offices and large institutions’ investor contacts to raise funds after finding opportunities and doing their due diligence regarding the investment. The independent sponsors might even have a fixed amount per annum instead of funds based on the deal. Family offices can use independent offices as a means to pay less in fees, access a particular sector, get closer to a deal. Independent offices can also help family offices that aren’t comfortable directly investing or do not have the time to do the due diligence before investing.

5 LPs demand more involvement with GPs: There is an increase in data requests from LPs. “They are pushing harder on terms and pushing their views on how we should use credit or not use credit at the fund level,” said Blinn Cirella. In addition to this, LPs are also focused on paying minimum fees and demand 100% offset. While considering the transparency on the fees and possibility of ratings on GPs, “I think we need to be careful about how we present information to the LP community. Every firm does things a little differently, which creates for an environment where data can be easily misinterpreted,” said Blinn Cirella.

LPs Plan to Maintain or Boost Investment in Offshore PE Funds—Survey

Some 60 percent of limited partners in a recent international survey said they plan to maintain or increase the amount of capital they have invested in private equity funds in offshore locations in the next five years.

The survey, which polled 260 limited partners and general partners worldwide including 70 in North America, was commissioned by Mourant Ozannes, a leading offshore law firm based in the Cayman Islands.

Released on Jan. 5, the study also found that more than 51 percent of LPs planned to maintain or increase their mid-shore investments.

“It is clear that both GPs and institutional investors across the globe remain positive about the role well-regulated and transparent offshore financial centers play in the PE market,” said Alex Last, a Mourant Ozannes partner, in a statement announcing the results of the survey.

“A significant majority are refocusing their attention on jurisdictions that provide tested, flexible and cost-effective structures for holding or financing international assets or operations.”

Provided exclusively by Mergermarket

As seen in the mergermarket newsletter on 09/01/2017

Proposed Loss Of Interest Deduction Would Boost Cost of PE Deals

Republican lawmakers have introduced proposals that may serve as the basis for tax reform in 2017. Private equity transactions could cost significantly more if legislation ultimately is passed that would eliminate the deduction for net interest expense, as is the case in “A Better Way,” a blueprint for tax reform introduced by House Speaker Paul Ryan.

Private Equity Transactions Generally

The typical private equity acquisition involves the acquisition of stock or assets of a target corporation, partnership or limited liability company using both cash called by the fund from its limited partners and third-party leverage. Under current law, subject to various limitations (e.g., AHYDO, earnings stripping, case law distinguishing debt from equity and newly enacted regulations that deem debt as equity in certain cases), the target company or special purpose vehicle formed to effect the acquisition may deduct the interest expense as the interest accrues on the debt.

Elimination of Interest Expense and Immediate Expensing

The “A Better Way” blueprint would eliminate the deduction for interest expense, except to the extent of interest income. It also would permit businesses to immediately write off (i.e., depreciate for tax purposes) the cost of assets purchased by the taxpayer and used in a business, rather than depreciating or amortizing those assets, as under current law. The elimination of the interest deduction would help offset the loss of tax revenue from permitting immediate depreciation, and is designed to remove the tax preference which debt financing clearly has over equity financing.

Although immediate expensing of capital assets would be a huge tax benefit, in a private equity transaction where indebtedness is incurred to help finance the purchase of stock (as opposed to assets or partnership interests), immediate expensing may not overcome the additional cost related to the loss of the interest deduction, because the cost of stock can never be depreciated.

“Private equity transactions could cost significantly more if legislation ultimately is passed that would eliminate the deduction for net interest expense, as is the case in “A Better Way,” a blueprint for tax reform introduced by House Speaker Paul Ryan.”

Additional Focus on Asset and Deemed Asset Deals

Under both current and proposed tax law, there is a significant tax benefit to effecting a transaction as an asset deal, namely, the ability to increase the basis of depreciable/amortizable assets (including goodwill) to the fair market value, represented by the purchase price. This benefit would be available in both a straight asset sale or upon making an election to treat a stock purchase as an asset purchase. Although typically beneficial for the buyer, there could be an offsetting cost to the seller in the form of a corporate level tax on the gain recognized in the transaction.

This additional tax cost generally does not apply in the case of the acquisition of assets from an S corporation or a partnership (typically including an LLC), or the acquisition of an S corporation or a subsidiary out of a consolidated group, although there may be additional state and local tax costs, and the character of some of the income may change in the case of an S corporation acquisition. Additionally, if the target has net-operating-loss carryovers, the corporate-level taxable income may be reduced by the NOLs. Moreover, a special election is available to partnerships that has a similar effect without any entity-level tax.

Immediate deductibility of capital costs, coupled with the loss of an interest deduction would significantly favor asset deals, or stock deals with an election.

Additional Focus on Equity-Financing

Where asset acquisitions or deemed asset acquisitions are not available, the loss of the interest deduction would likely result in an increased focus on pure equity-funded transactions, although the (non-tax) financial engineering benefits of using leverage would still be a factor for funds to consider.

by Steven D. Bortnick and Bruce K. Fenton, Pepper Hamilton LLP

As seen in the mergermarket newsletter on 13/01/2017

5 IDEAS YOU MISSED FROM ACG PRIVATE EQUITY: NY MONTHLY LUNCHEON MEETING

1 The incoming administration will engage in counter-cyclical fiscal policy: The new administration is expected to engage in counter-cyclical fiscal policy largely because the U.S. economy has experienced secular stagnation, characterized by long periods of slow growth, low interest rates, and low inflation. “While the low-interest rates and low inflation are going to persist for some time, the political entity refused to wait till the demographics change, where we would see a natural pick up in productivity and growth, and they intend to break the Gordian Knot now,” said Joe Brusuelas, Chief Economist at RSM. It is believed that the new administration will pursue comprehensive tax reforms including tax cuts paired along with massive deregulation of laws to achieve their objective. Regarding deregulations of laws put by the previous administration, Joe remarked that “There have been 8,000 regulations that have been put in place, that carry a deadweight loss to the economy of $872bn.” Paired with business-friendly tax reforms, this will bring in the age of risk taking in the US investment market.
2 The proposed tax reforms will have a major impact on the U.S. Economy: The tax reforms will include the proposed Border Arrangement Tax, which will be akin to a destination based cash flow tax with border arrangement. As emphasized by Joe, “This is the single most revolutionary step put forward by the federal government since the inception of the income tax via constitutional amendment in 1913. If put in place, it will give favor to exports over imports, equity over debt, and private fixed business investment, which is certainly needed due to a slowdown in productivity, to around 0.5% per annum, and immediate depreciation of expenses.” This tax is expected to generate $120bn in revenue which will help offset the cost of incoming tax cuts. The tax reform will also favor the PE players as without tax deductions on interest expense there will be a significant movement towards raising money through private equity and IPOs over time.
 
3 Domestic M&A Volume in 2017 is expected to be volatile: M&A volume witnessed a slowdown in 2016, as transaction volume was down over 20% y-o-y, including a deceleration in the fourth quarter. On the other hand, the panel also observed that valuations are reaching their peak and credit availability is at an all-time high. Speaking about the outlook for M&A in 2017, Dan Galpern, Partner, TPZ Group said, “You have two things happening, number one is the anticipatory run-up in the markets in the hopes that things will be better and growth will return, and on the other side you have a sense of massive uncertainty as to what is actually going to happen.” This will cause increased volatility in the M&A market in 2017, which is expected to benefit sell-side players. The proposed amendment to tax laws and its impact on the sector will also play a major role in increasing volatility. As Carl Roston, co-chair of Akerman’s M&A and Private Equity Practice pointed out, “We see, and increasingly so, from the entrepreneurs perspective, that there is so much uncertainty that is it cutting both ways. For those who are heavily regulated, all of a sudden there is no pressure to exit, and for those who are concerned about the economy being long or are concerned the taxes will drop in 2018, we see a lot of discordance in whether the entrepreneur is interested in selling the business.”.
 
4 Infrastructure and Power will be the most attractive sectors for M&A Activity: An uptick in M&A activity is expected in 2017 as improved public market conditions help justify higher valuations for both the sellers & buyers. The amount of capital raised is at its peak since 2005, leading Philip Edwards – Managing Director, Stifel Financial Corp to remark, “If there’s a middle market business that is not owned by private equity today, it will be owned by private equity soon.” The increased focus of the new administration on infrastructure and power will be one of the primary reasons for the increased investment activities in these sectors.
 
5 Buyout and Private Debt Funds are the most promising sectors for PE Deal-Making: Private debt fund businesses have seen the most capital raised than any other sector in the U.S. in 2016. A large number of these funds are using subscription finance lines as an alternative to warehouse lines. This source of the fund has primarily been the capital deployed to originate loans to the companies that are being acquired by other mid-market equity companies. With respect to the buyout side, Stephen said, “When these buyout funds go on and acquire a company, and they call capital, put it in as the equity, finance the rest of the balance sheet, there are times, where buyout funds are borrowing at the fund level, to enhance returns, and back-levering the equity investment they made.” This has prompted certain PE funds to target secondary debt in the secondary market as an attractive market opportunity tapping onto the LPs who are concerned about over leveraging.

Voxx shopping for complementary consumer electronics acquisitions, CEO says

Provided exclusively by Mergermarket

Voxx International (NASDAQ:VOXX) is interested in making complementary acquisitions that allow the consumer electronics company to enter new markets or expand its presence in existing ones, CEO Patrick Lavelle said.

Hauppauge, New York-based Voxx is most interested in buying businesses that manufacture consumer electronics and accessories that complement its existing product portfolio, Lavelle said. Synergistic automotive and audio brands are also of interest, he said.

Targets should be accretive and include a management team willing to work with Voxx, he said.

The US is the primary geographic focus for Voxx’s M&A activities so it can leverage its existing overhead but Lavelle said Europe, particularly Germany, and Asia are also regions of interest.

The company reported it had a little more than USD 5.6m in cash as of 30 November. It also has a USD 140m revolving credit facility, which is provided by a number of banks led by Wells Fargo and can be expanded up to USD 175m.

Voxx spent USD 20.2m when it acquired a 54% stake in biometrics technology provider Eyelock in September 2015. Eyelock falls within Voxx’s consumer electronics and accessories segment.

Voxx makes a broad range of consumer electronics products for a diversified customer base that consists of automotive OEMs, specialty consumer electronics, and mass merchandise retailers, power retailers, 12-volt specialists, and other commercial entities.

It introduced a number of new products at CES in Las Vegas earlier this month, including wireless speakers for the indoors and outdoors, a portable Singtrix-branded karaoke system and an aftermarket power lift-gate system for vehicles.

The new products should help Voxx show improved top- and bottom-line growth in the year ahead, Lavelle said. Voxx has a USD 101m market cap.

by Troy Hooper in San Francisco

As seen in the mergermarket newsletter on 20/01/2017