JetBlue beats Frontier to buy Spirit; Oak Hill expands internet access; carried interest is under siege

JetBlue inks deal to buy Spirit for $3.8 billion.

Good morning, Hubsters. MK Flynn here with today’s Wire on a busy Thursday.

There’s a lot to talk about today, with a merger of two budget airline carriers, insights on high-speed internet access, an interview about European healthcare and analysis of a Senate deal that puts carried interest in the crosshairs.

Sky high. JetBlue just announced it has agreed to buy Spirit Airlines for $3.8 billion, unseating Frontier as the original buyer. If the deal is approved by antitrust authorities, it will create the fifth largest US carrier, behind American Airlines, Delta, United Airlines and Southwest.

As the travel industry struggles to rebound from the covid pandemic, we expect to see more private equity and venture capital deals in the airline business.

Last week, for example, Boeing expanded its partnership with AE Industrial Partners, investing $50 million in AEI HorizonX, which was formed between the two companies last year to invest in aerospace technology startups. The new funding will anchor AEI HorizonX’s second venture fund, which plans to raise $250 million.

Internet access. Pent-up demand for high-speed internet services in homes and businesses offers a resilient investment opportunity that can withstand macro-economic turbulence, Scott Baker, partner at Oak Hill Capital, a New York-based private equity firm, told PE Hub’s  Obey Martin Manayiti.

The firm recently committed $250 million for the formation of Omni Fiber, a company providing fiber-to-the-premises (FTTP) internet services. Omni Fiber will focus on underserved communities in the Midwest, with initial projects in Ohio, Pennsylvania and Michigan.

Entertainment, especially streaming services, presents an opportunity for the growth of fiber-to-the-premises services, Obey writes. For businesses, continuing demand for cloud computing will likely spur growth for the sector. The government also is earmarking revenue meant to develop faster, reliable and high-speed internet services, especially in rural and underserved communities.

“In all aspects of our lives today, high speed and reliable connection to the internet is critical,” Baker said.

For more, read Obey’s story.

European expansion. Gyrus Capital wants to extend the reach of its latest acquisition, Swiss healthcare platform Consulcesi Group, across all of Europe and then globally, partner Guy Semmens told PE Hub Europe editor Craig McGlashan. The after-effects of the covid pandemic are helping drive interest in such businesses, Semmens said.

Gyrus, a Geneva-based private equity company focused on middle-market healthcare and sustainability, bought Consulcesi alongside the firm’s founders and management in early July. Consulcesi, based in Balerna, is a provider of continuous medical education, legal services, data analytics and digital marketing to the healthcare industry.

“We like it because it’s entrepreneur-built, owned and led,” said Semmens. “We like it because the medical profession is resilient – it’s not exposed to the ups and downs of the consumer world. We like it because there is a digital transformation going on. You can get a higher quality product to more people at a low cost.”

Consulcesi is predominantly active in Switzerland and Italy, with some operations in the UK and Brussels. But that could soon change – despite the challenges inherent in the fragmented European healthcare industry, where “nothing’s easy to get across borders,” said Semmens.

“Language is an issue, regulation is an issue, culture is an issue,” he said. “But fundamentally, it’s the same product.”

For more, read Craig’s story.

Tax code. Carried interest has been in the crosshairs of tax reform talk for years, and now it seems Congress may be getting ready to pull the trigger.

Yesterday, after more than a year of negotiations, U.S. Senator Joe Manchin (D-WV) announced he has reached an agreement with Senate Majority Leader Chuck Schumer (D-NY) to vote on the Inflation Reduction Act of 2022. The Act “will address record inflation by paying down our national debt, lowering energy costs and lowering healthcare costs,” said Manchin in a statement.

“Our tax code should not favor red state or blue state elites with loopholes like SALT and should focus more on closing unfair loopholes like carried interest,” Manchin said. “Through the enforcement of a fair tax code, we can use the revenue to cut the deficit and lower the cost of healthcare for working families and small businesses.”

The move is “yet another body blow to the private equity industry,” writes my colleague Bill Myers on Private Equity International. “Private funds suddenly find themselves too close to Washington’s punching radius, with new laws, rulemaking proposals and even prosecutorial priorities aimed at the asset class. Under US Securities and Exchange Commission chairman Gary Gensler, the regulator is considering some of the most radical changes to private fund regulation since the Dodd-Frank era began.”

Most private equity investors – and the LPs who back them – see no need for the additional regulations and taxes.

“Over 74 percent of private equity investment went to small businesses last year,” points out Drew Maloney, president and CEO of the American Investment Council, an advocacy group for PE.

“As small business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”

That’s a lot to mull over for today. Tomorrow, PE Hub’s Aaron Weitzman will write the Wire, and I’ll be back on Monday.

All the best until then,

MK