London’s Calling Microsoft

Plus: Why Rolex is loving that your adult kids won’t leave home ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 13, 2022

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TOGETHER WITH

Good morning.

Turns out, when Congress invites you to testify about the role you played in your crypto exchange losing $51 billion seemingly overnight, it’s less of an invitation and more of an “invitation.”

Sam Bankman-Fried was arrested in the Bahamas on Monday night, and will be extradited to the US under an indictment from the Southern District of New York. The arrest came just hours after SBF made it clear he would, in fact, not testify before a House Financial Services Committee hearing. That hearing, also on Tuesday morning, is part of a congressional probe into the collapse of FTX, the massive crypto exchange SBF founded in May 2019. He had been invited to testify before the committee but had twice declined. Let’s see this for what it is: yet another object lesson in always properly filling out that RSVP card.

Morning Brief

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Living with mom and dad means more spending cash.

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Grill maker Weber is the subject of the latest big take-private deal.

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Microsoft cloud forecast in London.

Luxury Goods

Big Kids Living at Home are Spending a Fortune on Luxury Brands

It’s one thing when your 27-year-old is living in their childhood bedroom, but it’s quite another when they’re doing so wearing a Rolex and Golden Goose flats.

Historic numbers of young adults still living at home with their parents are fueling a luxury boom in the US and UK.

‘Rents Pay the Rent

In a development not seen since 1940, today nearly half of all US and UK adults ages 18-29 are living with their parents, according to census data. Some never left while others are what’s known as “boomerang children.” Most stick with their folks because they want to save money to pursue higher education or wait until the rental and housing market isn’t so cruel. Also, fewer young couples are keen on settling down as marriage and cohabitation rates have dropped from 71% in 1990 to 62% now.

Since more and more working people are relying on mom and dad for daily costs like utilities and groceries, this frees up disposable income for watches, handbags, and jewelry. While ‘rents looking forward to retirement might want their progeny out of the house, Louis Vuitton and Tiffany couldn’t be happier:

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Like a cartoon hustler who just rolled up their sleeves to reveal multiple wristwatches, the US’ “big kids” have become obsessed with expensive timepieces. Companies like Watches of Switzerland saw US revenue skyrocket to $512 million in its most recent fiscal year, a 44% annual increase.

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US tourists in Europe are also taking advantage of the strong dollar against the British pound and Euro. Luxury boutiques like Gucci have normally relied on Chinese spending during the holiday season, but during Black Friday, American tourist spending rose more than 40% compared to the same time in 2019. The average transaction amount was an eye-watering $1,313.

Not So Dependent Now: If Gen X is the competent older sibling with a cool record collection and Gen Z somehow got famous for dancing on TikTok, Millennials are the lazy, awkward middle children still sleeping on mom’s couch. Or at least that’s what stereotypes would have you believe. Once they do finally move out, their champagne taste extends to real estate as well. According to Bloomberg, Millennials are playing an increasingly important role in the luxury, multi-million dollar housing market. Leaving the nest with panache.

– Griffin Kelly

Private Equity

Weber Grill is Exiting the Public Market

(Photo credit: John Lustig/Flickr)

If you can’t stand the heat, back away from the grill. Or, in this case, the New York Stock Exchange.

On Monday, grill maker Weber announced it is accepting a buyout deal from private equity firm BDT Capital Partners, which has remained its majority owner since taking the company public way back in… August 2021. Some initial sizzle aside, the take-private action comes after a brief public market stint that left Weber decidedly undercooked.

Raked Over the Charcoals

Weber was one of the more analog beneficiaries of pandemic lockdowns, when no one could go out to eat and seemingly everyone had the time and money to invest in their back patio cooking equipment. In the six months ending March 2021, Weber says its sales increased by 60% year-over-year, generating nearly $1 billion in revenue.

The company made its market debut in August 2021 and has faced nothing but grill flare-ups since. Its share price fell below its $14 IPO price in November 2021, and it hasn’t recovered. Sales have dropped off precipitously (grills tend to last), the crunched supply chain sent costs soaring, and this summer Weber replaced its CEO while suspending its dividend and withdrawing its financial guidance for the year. Now, BDT — which you may know as Warren Buffett’s bank of choice — is paying up to make Weber feel more at home as a private company:

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In early October, Bloomberg reported Weber was considering debt financing from BDT Capital, but by the end of the month BDT was placing a takeover bid at $6.25 a share. The final deal, set at $8.05 a share, represents a 24% premium over Weber’s closing price Friday.

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The takeover would value Weber at around $2.3 billion, with an overall enterprise value of $3.7 billion including debt. BDT owned roughly half of all Weber shares, according to Bloomberg.

Join the Club: The grill maker isn’t the only one making a public market retreat this week. Also on Monday, private equity firm Thoma Bravo announced an all-cash take-private acquisition of cloud-based business-spend management platform Coupa Software in a deal worth $8 billion. Though Coupa is yet another publicly traded SaaS company squeezed this year as investors yearn for, you know, actual profits, a loud contingent of activist shareholders had been urging the company to resist any buyout offer less than $95 a share — meaning Thoma Bravo’s $81 a share offer, while still a 77% premium for shareholders, represents something of a Coupa d’état.

– Brian Boyle

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Stock Markets

Microsoft buys 4% stake in London Stock Exchange

Soon, the opening bell on the London Stock Exchange might be the Windows start sound.

Microsoft and the London Stock Exchange Group announced Monday that the Seattle-based tech giant will buy up to 4% of the group for $1.8 billion. The investment comes with a 10-year partnership that will enmesh Microsoft’s services into the exchange’s operations.

Big Tech Goes All-In On Finance

Microsoft isn’t the first Big Tech company with a cloud division to go chasing after a major exchange. Google Cloud bagged a decade-long deal with CME Group for $1 billion in November last year, and around the same time Amazon Web Services (the market leader in cloud software and Amazon’s most-profitable wing) announced a partnership with NASDAQ.

Normally, big tech firms charge other businesses to use their services, but Microsoft will invest billions to use its own tools to overhaul LSEG’s software architecture. This includes employing proprietary AI to create financial modeling and analysis, which should appeal to LSEG clients and give Bill Gates’ baby a foothold in the world of global financial data. Microsoft will share in LSEG’s future profits — and could increase those profits by using its tech to increase trading volume:

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Microsoft says it’s going to thread both its cloud and its AI tech into LSEG’s analytics infrastructure, with LSEG promising to spend $2.8 billion on cloud-related tech over the course of the partnership, eventually making LSEG’s platform indistinguishable from Microsoft’s suite.

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LSEG customers — i.e. traders — will no longer be using the exchange’s proprietary messaging service, which will be absorbed into Microsoft Teams. Just don’t forget to leave yourself on mute while discussing that short sale.

Fossil fuel furor: While the London Stock Exchange gets a cash injection from Microsoft, Westminster is facing an uphill battle in its bid to juice the UK economy using fossil fuels. The government has been hit with a legal challenge from environmental groups over 130 new licenses it wants to issue for offshore oil and gas exploration. This comes a week after the government announced it intends to open a coal mine in the north of England, the first new one in 30 years. If you’re wondering why there’s been such a long gap, we recommend a viewing of Billy Elliot.

– Isobel Asher Hamilton

Extra Upside

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Chinese police arrested 63 in a $1.7 billion crypto-laundering operation.

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Hit the Brakes: Rivian and Mercedes-Benz are pausing plans to make electric vans.

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Above practically all else, consumers have been dominated by one theme in the last three years: housing crisis. And that’s exactly what construction tech firm Apis Cor is solving. Using 3D printing robots, Apis Cor is able to build durable homes and low-rise buildings 3x faster with up to 30% lower costs. With 4 patents and 117 letters of intent from US construction firms, investors are lining up almost as fast as homebuilders. There’s just 2 weeks left to invest in Apis Cor before this funding round closes. TDU reader’s can invest here.

Just For Fun

Some things never change.

Check your mirrors.

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