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In case you missed it: DD’s Rob Smith sat down with Carson Block, the short-seller behind Muddy Waters Research, for a fascinating discussion on his career and how he landed on some of the most high-profile accounting scandals in recent years. Watch the unfiltered conversation on-demand here.

Dyal, Owl Rock and HPS: it’s complicated 

Here’s a love triangle for the ages. 

In 2018 Dyal Capital, one among a small number of companies that buy general partner stakes in private equity and other alternative investment companies, acquired a stake in HPS Investment Partners, a US specialist debt investment group. It’s one of a few direct lenders that can single-handedly underwrite loans as large as $1bn without leaning on larger private equity groups like many of its peers.

A year later Dyal also bought a 20 per cent stake in Owl Rock Capital, a company best known for providing direct lending to finance leveraged buyouts. 

Now Dyal and Owl Rock have decided to join forces and go public. They’re doing that through a special purpose acquisition company, Altimar Acquisition Corporation, set up by none other than HPS. Got it?

Yes, we’ve reached that point in the Spac craze where things are starting to get a little weird, and more complicated. The companies are effectively trying to negotiate two deals simultaneously. 

But more interesting is Dyal’s part in this — to help buy out older partners in these firms so more junior professionals can enjoy the spoils too. It also helps PE firms raise more cash for more deals.

Scott Kapnick, chief executive of HPS Investment Partners © Getty Images for Room To Read

If they can pull it off, it could turn an asset class that is fairly illiquid into one that can be traded on the stock market. Investors in firms such as Dyal, who don’t want to tie up their money permanently but still want access to the lucrative cash flow and performance fees enjoyed by buyout shops, can buy shares in the company instead. 

The transaction also shows that Spacs are targeting bigger companies — Dyal and Owl Rock have a $13bn valuation combined (at least that’s what people close to them are spinning) — and getting more creative with the kind of deals they’re doing. 

That’s important to note. Because as the Spac boom hit fever pitch in the summer, there were concerns about whether too many vehicles were chasing too few deals. 

Unlike most love triangles though, it sounds like this will end up making everyone involved in the deal happy (ie, rich). As for investors, that remains to be seen.

Flutter/FanDuel: raising the stakes

Sports betting is heating up in the US, for gamers and investors. The industry has it all — easing regulations, rapidly growing wagering platforms and US states hungry for new tax revenues scrambling to get in.

Which is why Flutter, the Irish gambling behemoth behind SkyBet, Betfair and Paddy Power, moved on Thursday to increase its stake in the US daily fantasy sports platform FanDuel to 95 per cent. 

The transaction values FanDuel at $11.2bn, behind its fantasy sports rival DraftKings, which went public in April through a Spac merger and has a market capitalisation of about $20bn.

© Reuters

Flutter executives had an existing agreement to buy out minority stakeholder Fastball Holdings of its 37 per cent stake in FanDuel, a consortium led by KKR, by 2023. But the fast adoption of sports betting in the US has accelerated Flutter’s plans.

And it’s only fitting that the deal stems from a few cunningly wagered bets on Flutter’s part. 

The gaming group, once known as PaddyPower Betfair, paid $158m for a majority stake in FanDuel in 2018 — a total steal considering the ensuing rapid ascent of the fantasy sports platform, which now makes up a huge portion of Flutter’s value.

Then Flutter managed to close a £10bn merger with Stars Group in March, the owner of PokerStars, diversifying its offerings just as sports betting began to dry up amid coronavirus-enforced event cancellations and gamblers in lockdown turned instead to online gaming.

The news that Flutter was increasing its stake in FanDuel on Thursday lifted the group’s share price by almost 6 per cent. That’s a win for shareholders including Rupert Murdoch’s Fox Corporation, which had a 2.6 per cent stake in the company by way of a previous investment in Stars

DD notes how keen the Murdochs appeared to be in boasting about their shareholding, with Lachlan Murdoch making a rare appearance in the press release announcing Flutter’s plans to raise equity capital to fund the deal.

Other big winners from the run of dealmaking since the Paddy Power Betfair merger are Goldman Sachs and the lead banker to Flutter, Anthony Gutman

The question now for Flutter is how the market will value FanDuel and its performance relative to DraftKings. If Flutter management arrives at a view that they’re not getting a fair valuation for it, DD wonders whether there’s more dealmaking on the way, perhaps via a spin-off.

That’s a discussion for a later date. For now, DD is now taking bets to see which major sports betting deal comes next. 

Bad genes: Ancestry.com’s polarising debt deal 

What’s Blackstone been up to since it clinched that $4.7bn deal to acquire a 75 per cent stake in Ancestry.com, the website where people can pay to map out their family tree?

Playing around with the popular genealogical database’s shareholder DNA, no doubt.

© Alamy

Nestled within the fine print of a $1.2bn debt deal helping to fund the private equity mega manager’s buyout of the group is a provision capping investor voting rights to 20 per cent, throwing a wrench in the corporate bond market’s long-upheld “one bond, one vote” policy which grants investors voting power proportionate to their holdings.

Critics warn the arrangement threatens to erode a “cornerstone” of the corporate debt market. (Here’s a piece from Reuters’ Breakingviews that just about sums up that argument.)

Blackstone’s DNA debacle is just the latest in an abundance of loosening credit lending standards irking analysts, policymakers, and investors alike — take the emergence of risky PIK “toggle” bonds, which allow issuers to defer payments until the bond matures, or the recent trend in which private equity owners pile on leverage to pay themselves dividends.

Amid all the frothiness, however, bondholders didn’t seem too put off by the asset manager’s controversial fundraising — Ancestry’s bonds were more than eight times subscribed, insiders told the FT’s Joe Rennison. Read the full story here.

Hopefully investors know what they’re getting themselves into. As Blackstone’s chief Stephen Schwarzman likes to say, “Don’t. Lose. Money.”

Job moves

  • After heading CQS and, before that, the London Stock Exchange, Xavier Rolet has joined Golden Falcon Acquisition Corp, a newly established blank-cheque company run by former senior Barclays banker Makram Azar, as an independent director.

  • Nicholas Gravante is leaving Boies Schiller for Cadwalader, Wickersham & Taft after two decades at the firm, along with three other partners.* Boies Schiller founder David Boies has been criticised for his representations of convicted sex offender Harvey Weinstein and the fallen blood testing start-up Theranos. More here from The Wall Street Journal.

  • Building materials manufacturer CRH added two non-executive directors to its board: vice-chairman and chief financial and planning officer of Eaton Corporation, Richard Fearon, and chief transition officer of BP, Lamar McKay.

  • King & Spalding has hired 16 new partners across the US.

Smart reads

Skimming the top Kazakh billionaire Timur Kulibayev pocketed at least tens of millions of dollars from a secret scheme linked to the construction of a multibillion-dollar gas pipeline between Central Asia and China, an investigation by the FT’s Tom Burgis reveals. (FT)

The Special Relationship It’s been a calamitous year for US-China relations — everywhere but on Wall Street, that is, where executives play the dual role of diplomat and dealmaker. (Wall Street Journal)

One man show Projected to generate $3m in revenue this year, tech journalist Ben Thompson’s solo newsletter Stratechery has become a favourite of Silicon Valley and a source of professional envy. As it turns out, his formula for success is hard to replicate. (Business Insider)

News round-up

The ‘everything rally’: vaccines prompt wave of market exuberance (FT)

EY hits back at German audit watchdog over alleged misconduct (FT)

Electric sports car chief attacks blank-cheque deals (FT) 

Grab and Gojek each claim strength in merger talks (FT)

Luminar rises in market debut, making 25-year-old founder a billionaire (FT)

Clawbacks/Gary Cohn: asking nicely (FT Lex)

CaixaBank shareholders pave way to create Spain's biggest bank with Bankia (Reuters) 

‘Tiger cub’ hedge fund Coatue surges to 52% gain (FT)

Office property/Entra: immunised against low bids (FT Lex)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

* This article has been amended since original publication to correct the number of years Nicholas Gravante worked at Boies Schiller

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