August 22nd

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Welcome Back! We’ve got some really interesting stories for you today, so let’s dive in!

The Main Stories 🔍

Multi-millionaires may have to pay taxes on their unrealized gains: Vice President Harris is floating taxing unrealized long term capital gains. Harris recently backed Biden's proposed tax plan, which includes a controversial measure targeting unrealized capital gains for individuals with assets over $100 million, imposing a 25% minimum tax on these gains.

Biden’s proposal, affecting less than 0.004% of the U.S. population, aims to raise significant revenue — potentially generating around $4 trillion over ten years — and by also increasing the corporate tax rate from 21% to 28%. Critics suggest that doing so would lead to wealth flooding out of the country, just as it has from states like California and New York into Florida and Texas. Or, that the $100 Million bar would eventually be lowered over time once implemented. More broadly, analysts argue that the measures are unsustainable, impractical, and harmful to growth.

Although cap gains are overwhelmingly concentrated among a small subset of the population, most of the U.S. concurs. A 2021 study found Americans reject the policy of taxing unrealized gains by a three-to-one margin, including 76% of independent voters.

The Big Payroll Revision Isn’t Enough To Shake The Markets: US employment numbers fell by 818,000 in the latest government revision. This was the largest negative adjustment since 2009, but it wasn’t a big deal in the markets - and for good reason. This revision implies that monthly job gains were more like 174,000/month, as opposed to original estimates of 242,000/month. So by that standard, prior job growth pace is fine, but this revision allows for the Fed to start cutting rates modestly in September.

Golub is building out a Trading Desk to add liquidity to the Private Credit Market:  Golub Capital, a large credit asset manager, is trying to solve the liquidity issues that so many Private Credit skeptics worry about. Private market (especially distressed) investors are seeking access to liquidity and to de-risk through increased trading. Though Golub has traded private credit loans for more than a decade, the firm is expanding its desk to compete with the likes of JP Morgan and has impressively traded more than $1 Billion of private debt through 1H24. It sounds like Golub has mainly focused on providing liquidity when syndicating out new issue, so adding more secondary, post-close liquidity will be a crucial test in the maturation of the private credit markets.

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More Headlines 🍿 

• Twitter (X) debt is officially the worst deal for banks since the global financial crisis. Led by Morgan Stanley and BofA, the seven banks which financed the acquisition now have $13B stuck on their balance sheets – hung longer than any comps since ‘08. Although Musk himself noted that the deal was overvalued, the banks saw an opportunity to potentially vie for the eventual IPO of SpaceX, which is currently valued at over $200 Billion

• Alex Cooper’s Call Her Daddy is moving from Spotify to SiriusXM and getting a massive bag. As part of SiriusXM’s “double down” on podcasting, Cooper’s company will be paid $100 million over 3 years. The radio broadcaster’s move is a bold one, especially since Spotify had to go on a cost cutting campaign after splurging more than $1B on podcasting

• Sports betting is having a troubling impact on the economy. A new paper revealed that sports betting is driving Americans towards “higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play.” Apparently legalization (now complete in 38 states and continuing to gain traction) reduces bettors’ net investments by 14% and pushes them to pull-back from retirement and savings accounts

• After two decades struggling through strategic instability, Carlyle’s credit arm is racing to catch up with rivals like Apollo. A year into his tenure as CEO, Harvey Schwartz is angling to shift his firm’s reliance on private equity (as 60% of Carlyle’s management fees came from the category in ‘23) with a series of major credit fundraising rounds

• Lowes cut its annual profit and sales forecasts, in line with Home Depot’s concerns regarding home improvement demand last week. Comp sales are expected to fall 3.5%-4%, with lower demand for DIY projects due in part to high mortgage rates

• It turns out that Starbucks' new CEO will supercommute 1,000 miles instead of relocating to Seattle. Following corporate hybrid work policy, Brian Niccol is expected to be in the office 3x/week. After Starbucks banned plastic straws in the name of sustainability, X users are flaming Niccol and the Company for this less-than eco-conscious move (or lack thereof)

• Macy’s missed 2Q sales, as the consumer remains under pressure and looking for value. After ending conversations around a potential take-private (at $24.80/share) by major shareholder Arkhouse, the Company has embarked on a turnaround strategy which includes selling off chunks of its real estate portfolio, closing underperforming stores, and prioritizing digital sales

• Meanwhile, Target saw comp sales and revenue beat expectations, with meaningful improvement across discretionary categories. The Company also reported significant progress in reducing shrink (theft/loss of inventory), which had been a $1B headwind from 2022 to 2023

• Kamala Harris has raised nearly $500 million in the past month

• Shein sued Temu over copyright infringement and alleged their rival loses money on every sale. The claims come a year after Shein sued Temu for intimidating sellers and misleading customers. Locked in a remarkably intense competition, both companies are among the fastest growing in the U.S. and send nearly 1mm packages everyday from Chinese warehouses to American customers

• The FTC’s effort to ban noncompete agreements for employees was rejected by a federal judge in Texas. The Court noted that the FTC overstepped in approving the ban and lacked “substantive rulemaking authority with respect to unfair methods of competition.” The 30 million Americans bound by noncompetes, should, according to Judge Ada Brown, be protected by Congress not Lina Khan

• The Morgan Stanley International Chair is among 6 missing after British tech entrepreneur Mike Lynch’s yacht sank off the Sicilian coast on Monday

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M&A Transactions💭 

Nakhon Luang Cement, provider of construction material, was acquired for $337.55M by Dawn Fairness.

i3 Energy (LON: I3E), an oil and gas company, has reached a definitive agreement to be acquired for $223.41M by Gran Tierra Energy (TSE: GTE).

SK Rent-A-Car, car rental service company, was acquired for $597.25M by Affinity Equity Partners.

Kyte Powertech, manufacturer of distribution transformers, has reached a definitive agreement to be acquired for $272.88M by R&S Group (SWX: RSGN).

Book4Time, developer of a cloud based business management software, has reached a definitive agreement to be acquired for $150.0M by Agilysys (NYS: AGYS).

Alpha FMC, provides consulting and related services, was acquired for $803.44M by Bridgepoint Advisers. Berenberg Bank and Investec advised on the sale.

Vector Group (NYS: VGR), a holding company that sells tobacco products and invests in real estate, has reached a definitive agreement to be acquired for $2.4B by Japan Tobacco (TKS: 2914). Jefferies advised on the sale.

Stronghold Digital Mining (NAS: SDIG), vertically integrated crypto asset mining company, has reached a definitive agreement to be acquired for $125.0M by Bitfarms (TSE: BITF). Cohen & Company advised on the sale.

Pinon Midstream, a mine treating facility, has reached a definitive agreement to be acquired for $950.0M by Enterprise Products Partners (NYS: EPD). Piper Sandler advised on the sale.

Monga Strayfield, manufacturer of radio frequency heaters and dryers, has reached a definitive agreement to be acquired for $1.23B by Kilburn Engineering (BOM: 522101).

Private Placement Transactions💭 

Pathalys Pharma, developer of advanced therapeutics, raised $105.0M of Series B venture funding led by TCG Crossover Management.

Grafana Labs, developer of a performance monitoring platform, has raised $270.0M of venture funding led by Lightspeed Venture Partners at a pre-money valuation of $5.73B.

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