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Funding enables fitness tracker start-up to challenge tech giants in health monitoring business

Whoop, which makes a fitness tracker that is popular with professional athletes, reached a $3.6bn valuation following an investment from Japan’s SoftBank, signalling a willingness from investors to challenge tech giants in the health monitoring business.

SoftBank’s second Vision Fund led a $200m investment in Whoop, making it the most valuable standalone fitness monitoring start-up, the company said. The new funding increased Whoop’s valuation three-fold from a previous financing in October.

Whoop chief executive Will Ahmed said the new capital would help the company compete with Amazon, Apple and Google, which each sell wearable health tracking devices. 

“We’re competing with trillion-dollar companies,” Ahmed said. “Being well capitalised as a start-up when you take on the biggest companies in the world tends to be a good strategy.”

Whoop’s fundraising is the newest sign that investors are warming to wearable technologies despite a string of recent high-profile failures, as SoftBank and other deep-pocketed backers flood tech start-ups with record amounts of capital.

Oura, which makes a ring that measures a user’s quality of sleep, raised $100m in May from investors including Singapore’s Temasek, valuing the company at $800m. The second Vision Fund also led a $100m investment round last year in Biofourmis, a health company that uses a wrist sensor to monitor physiological data and predict medical problems.

The tech giants have pushed deeper into digital health in recent years. Apple chief executive Tim Cook has said he wants the company’s greatest legacy to be in the areas of health and wellness, through products like the Apple Watch.

In January, Google completed a $2.1bn deal to purchase the fitness-tracking company Fitbit, following extended regulatory reviews during which rivals raised concerns about competition and the handling of health data. Ahmed said Whoop does not sell customer data to third parties.

Whoop sells a subscription health coaching app that uses data from a wrist strap to recommend changes to a user’s sleep and exercise habits. 

Ahmed said Whoop had developed “proprietary algorithms” to measure strain and recovery, metrics that take into account data like heart rate variability.

Amazon has recently moved into Whoop’s territory, selling a screenless fitness tracker called Halo with a subscription app.

Ahmed said Whoop has retained a rising percentage of users over time since switching to a subscription-based business model in 2018. He declined to comment on the size of the company’s customer base.

“Sometimes, when you go to a wider audience you can experience more churn,” Ahmed said. “For Whoop, it’s actually been the opposite.”

Ahmed, a former captain of the Harvard University squash team, founded Whoop in 2012 with two fellow students after growing frustrated at his lack of visibility into his own fitness.

The basketball player LeBron James and swimmer Michael Phelps became two early users of the product. Whoop has also signed deals to provide wristbands to the professional golfing and American football leagues, and its list of investors includes the golfer Rory McIlroy and the basketball player Kevin Durant’s Thirty Five Ventures.

Ahmed said Whoop had not yet spent most of the $100m in capital it raised in its last financing led by Institutional Venture Partners, which also invested in the latest round of funding.

Earlier attempts at wearables had been, “to put it politely, underwhelming”, he said. “I think people are underestimating the power of this technology.”

Ida is region’s most severe storm since Hurricane Katrina; The first death from Ida is reported

Inspectors cite evidence of resumed operations at the plutonium-producing plant, which had been shut down since 2018

North Korea appears to have resumed operation of its plutonium-producing reactor at Yongbyon in a move that could enable the reclusive country to expand its nuclear-weapons arsenal, the U.N. atomic agency said.

The development, disclosed in the agency’s annual report on North Korea’s nuclear activities, adds a new challenge to President Biden’s foreign policy agenda, alongside the dangerous U.S. withdrawal from Afghanistan and stalemated talks on restoring the 2015 deal on Iran’s nuclear program.

“Since early July, there have been indications, including the discharge of cooling water, consistent with the operation of the reactor,” said the report by the International Atomic Energy Agency.

The Yongbyon reactor appeared to have been inactive from December 2018 until the beginning of July 2021, the report noted. It added that signs that the reactor is now being operated coincide with indications that North Korea is also using a nearby laboratory to separate plutonium from spent fuel previously removed from the reactor.

The agency, whose inspectors were kicked out of North Korea in 2009, described the twin developments as “deeply troubling” and a clear violation of United Nations Security Council resolutions.

A senior Biden administration official said the U.S. agrees that the disclosure is troubling. “This report underscores the urgent need for dialogue and diplomacy so we can achieve the complete denuclearization of the Korean Peninsula,” the official said.

The North Korean Mission to the United Nations didn’t respond to a request for comment.

“It appears to indicate North Korea has resumed producing plutonium for its nuclear weapons program,” said Gary Samore, director of the Crown Center for Middle East Studies at Brandeis University.

“While North Korea already has a significant stockpile of nuclear weapons, this suggests it is moving to expand its current arsenal,” added Mr. Samore, a former National Security Council expert on weapons of mass destruction.

The Biden administration has said that it is prepared to engage in talks with Pyongyang over its nuclear weapons program, but North Korea hasn’t taken Washington up on its offer.

In explaining its approach, the White House has said it is pursuing a “calibrated” strategy that would attempt to steer a middle course between former President Trump’s top-level summitry and the Obama administration’s patient stance.

Former officials have said, however, that pursuing talks with North Korea has been a less urgent matter for President Biden than seeking a way to revive the Iran nuclear deal, dealing with the fallout over leaving Afghanistan and continuing arms control discussions with Russia.

“The activities at Yongbyon shows that North Korea’s nuclear weapons program can’t be ignored and needs to be a higher priority for the Biden administration,” said Joel Wit, a former State Department official, now a fellow at the Stimson Center, a Washington think tank.

Siegfried Hecker, former director of the Los Alamos National Laboratory and an expert on North Korea’s nuclear program, has estimated that the country may have 20 to 60 nuclear weapons using plutonium and highly enriched uranium.

During then-President Donald Trump’s 2019 meeting with North Korean leader Kim Jong Un in Hanoi, the North Korean side offered to shut its Yongbyon complex, encompassing the reactor and other facilities, in return for major sanctions relief. The Trump administration rejected that offer as insufficient.

“The recent inactivity of key facilities at Yongbyon seems related to Kim Jong Un’s offer at the Hanoi summit to shut down Yongbyon,” said Robert Einhorn, a former senior State Department official who negotiated with North Korea. “Resumed operations at the reactor and reprocessing facility may be an indication that he sees little prospect of a nuclear deal.”

In June, IAEA Director-General Rafael Grossi said the agency was seeing indications of possible reprocessing work to separate plutonium from spent nuclear fuel. However, at the time, there was no indication that the reactor plant at Yongbyon was operating.

In January, North Korea’s leader laid out a plan to modernize its nuclear technology, including developing miniaturized nuclear weapons and nuclear-powered submarines.

He is facing growing troubles at home, acknowledging food shortages over the summer for the country, which faces tight international sanctions and closed its borders last year to stymie the spread of the coronavirus.

The Biden administration’s North Korean envoy said Monday, during a trip to South Korea, that he was ready to meet North Korean counterparts at any time and stressed that Washington doesn’t have any “hostile intention” toward Pyongyang.

Deal would add high-growth gummy vitamins and supplements to the contract drug manufacturer’s portfolio

Contract drug manufacturer Catalent Inc. CTLT -0.35% is expected to announce Monday that it has agreed to buy closely held Bettera Holdings LLC for $1 billion, according to people familiar with the matter, the latest deal involving nutritional supplement companies.

The all-cash deal, which is expected to be announced Monday morning, would expand Catalent’s manufacturing capabilities for vitamins, minerals and supplements to make them in gummy form, the people said. The transaction is expected to close by the end of the fourth quarter.

Bettera, based in Plano, Texas, and backed by private-equity firm Highlander Partners LP, manufactures gummy, soft-chew and lozenge forms of vitamins and supplements. Bettera has about 500 employees.

Bettera’s sales last year totaled about $150 million, according to the people, and are forecast to grow at least 20% annually in the short term.

Gummy vitamins and supplements, initially created and marketed for children, are increasingly popular among adults, especially younger demographics. The global gummy vitamins market is projected to reach $9.3 billion by 2026, compared with $5.7 billion in 2018, according to an Allied Market Research report released last year.

The Catalent deal is the latest tie-up involving the vitamin and supplement industry. In April, Nestlé SA agreed to buy the main brands of vitamins maker Bountiful Co. for $5.75 billion. Unilever UL -0.41% PLC also said in April it would buy food-supplement brand Onnit.

Catalent, of Somerset, N.J., has helped manufacture Covid-19 vaccines and treatments for several companies. Shares of the company have more than doubled since health authorities declared the pandemic in March 2020. The stock closed at nearly $130 on Friday.

Catalent, which develops and manufactures drugs for pharmaceutical companies, had about $3.1 billion in sales last year.

Before the pandemic, Chief Executive John Chiminski was trying to build up the company’s capabilities by acquiring companies, or plants, in markets with high-growth potential, such as gene therapies, where it didn’t previously have a presence. Among the deals in recent years was a $1.2 billion acquisition in 2019 for Paragon Bioservices Inc.

‘Financial sponsors’ increasingly press their advantage against investment banks

In the legal mudslinging between Leon Black and a woman with whom he once had an extramarital relationship, a curious third party appears: Goldman Sachs. In legal papers, the Apollo Global Management co-founder and the woman, Guzel Ganieva, agree that the venerable investment bank interviewed her for an entry-level position in 2014 at Black’s behest.

Remarkably, Goldman even gave her face time with two of its most senior dealmakers despite Ganieva’s youth and professional inexperience. Top fee-payers such as Apollo have long had considerable sway with big Wall Street banks. But the power imbalance may be tipping even further. 

The occasional favour paid, such as an interview request, may seem harmless. And the typical back-scratching and back-stabbing among Wall Street firms, while unseemly, most often does not cause a legal or public policy issue. But private equity firms now have amassed $3tn in dry powder, according to the data provider Preqin.

The five biggest listed private equity firms are collectively worth more than $250bn. In the mergers and acquisitions market alone, so far in 2021, the proportion of US deals attributable to private equity has jumped to roughly 40 per cent, up from 25 per cent a decade ago, according to Dealogic. Such market power concentrated in a small number of firms is creating ethical challenges for investment banks and even legal ones in some instances.

“They are a complete pain in the ass,” lamented one M&A managing director, referring to his private equity clients. “Financial sponsors”, as bankers refer to them, prove exceptionally demanding. Often a senior banker is at the mercy of a 30-year-old PE vice-president who requests, at all hours, tedious financial analysis or due diligence for immediate reply with nary a “please” or “thank you”.

Bankers labour under the hopes that when a leveraged buyout needs to be financed, a portfolio company prepares an initial public offering or a hot acquisition idea surfaces, the goodwill earned from any grunt work will turn into a juicy fee. The money makes the torture worthwhile.

Among the top 10 fee-payers over a multiyear period at Goldman Sachs, nine would typically be private capital firms and their portfolio companies, according to one top executive. “PE is 25-35 per cent of revenues among a concentrated client set. So they do get attention,” this person said. 

“The amount of capital flowing into an industry called private equity or alternatives or sovereign wealth [is growing]. And these entities, these institutions are getting extremely large,” investment banker Ken Moelis said at a recent investor event. “And by the way, I think as a result of 2020, [this] will accelerate because they did not at least report the volatility that the public capital markets did . . . So we’re seeing just a whole new M&A market.”

Private capital, which once just focused on leveraged buyouts, now includes debt, infrastructure and real estate. Investment banks are expanding their businesses to help such firms raise new funds, sell themselves and manage the wealth of newly-minted millionaire employees.

In truth, this group may not enjoy interacting with bankers. “PE firms think of banks as a necessary evil, often helpful but not entirely trustworthy,” says Gustavo Schwed, a New York University professor and former executive at Providence Equity, referring to incentives for banks to push deals that generate their fees.

In a series of recent court fights, the tension between private equity and investment banking has been laid bare. JPMorgan and a group of defendants earlier this summer settled legal claims for $27.5m. These included the allegation that the bank had improperly steered the 2016 auction of The Fresh Market, a billion-dollar grocer, to Apollo.

The Fresh Market shareholders suing JPMorgan learnt in discovery that Apollo had paid $116m in fees to the investment bank between 2014 and 2016 period. They alleged this relationship corrupted JPMorgan’s duty to get the highest price for public shareholders of The Fresh Market. The bank, while resolving its potential liability, did not contribute money to the settlement.

In another case still in progress, the boutique investment bank LionTree has been accused of steering the 2019 sale of Presidio, a technology company, away from one private equity firm, CD&R, to another, BC Partners, in order to curry favour with a third, Apollo, with which LionTree occasionally invested. That shareholder claim has survived a motion to dismiss, and LionTree has denied wrongdoing.

Investment banks, more than anything, traffic in information and deal flow. Even as private equity firms build up their own internal mini-investment banks, Wall Street cannot be so easily disintermediated. “It is a love-hate relationship on both sides,” explains Schwed, the investor turned professor.

And are all stocks expensive, or just some?

Should we worry about corporate debt levels?

Here’s a chart you might worry about, if you were in a worrying mood. From the national accounts:

Corporate debt has never been higher, neither in absolute terms nor relative to GDP. From 2010 to 2020, corporate debt grew at over 6 per cent a year, almost twice the rate of the economy. This seems a little spooky. At finance school, they teach you that as companies depend more on debt for financing, their returns and earnings per share rise, but they become less stable in the face of financial stress, because debt costs are rigid, and debt has to be paid back. 

So in theory we should be worried that all this debt will make the next recession or financial crisis worse. And recently people mention this risk quite often. But Hans Mikkelsen, credit strategist with Bank of America, thinks that we can relax a little, because of this chart:

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Stock prices have risen even faster than levels of debt. Mikkelsen writes that “claims of US corporate bond and loan investors have never been backed by more equity value”.

That doesn’t strike me as at all reassuring. If a company, or companies in general, get into a nasty situation where servicing or rolling over their debt is a worry, that equity value is going to disappear fast. It is an umbrella companies can only use when the sun is shining. Mikkelsen goes on:

Providing an offset to that benefit, the bar is set really high for companies to justify equity valuations organically without leveraging up. That means large BBBs [companies rated at the bottom rung of investment grade] and financials, for which maintaining ratings is important, are the sweet spots in investment grade credit. Finally note that both equities and credit struggled following prior lows in this leverage ratio (end of 4Q-72, 1Q-00 and 2Q-07).

Mikkelsen likes the debt of companies that are constrained from adding even more debt, suggesting he isn’t all that reassured by equity value, either. And his reference to the fact that stocks and debt struggled after what he calls the “leverage ratio” hit lows shows exactly why. The ratio gets low when stocks are really expensive, that changes when bad things happen (1972, 2000, 2007, where the little red circles on his chart are), and when bad things happen is when defaults becomes a problem. 

But there is another way to look at this. Here is total corporate debt as a percentage of corporate net worth, that is, equity value in the balance sheet rather than the stock market sense:

Leverage in this sense is higher than in Mikkelsen’s sense, but it is right at its 30-year average. And isn’t this the kind of leverage we should be worried about? The problems start when your debt is almost as much as, or more than, your assets. Looking at that last chart, it doesn’t look like US companies have that problem right now. So I’m not terribly inclined to put corporate debt on my list of pressing worries. 

Am I missing something?