Term Sheet — Monday, July 9

UNDER FIRE

Good morning, Term Sheet readers.

Nineteen members of Congress sent a letter to the private equity firms that backed Toys “R” Us Inc, according to The Wall Street Journal. The letter was addressed to KKR, Bain Capital and Vornado Realty Trust, questioning the firms’ role in the bankruptcy and critiquing the leveraged buyout model so common in the industry.

The letter reads:

“Leveraged buyouts—such as those facilitated by your companies—often result in mass job loss, closure of profitable businesses and unnecessary financial burdens for local government. Such buyouts harm communities, while investment managers walk away with significant gains.”

It goes on to urge the firms to compensate the approximately 33,000 workers who lost their jobs as a result of the bankruptcy. But it’s not as simple as the letter makes it out to be. The private equity firms were not in favor of liquidation. KKR issued a statement that the embattled retailer faced turmoil because of market forces, saying “To be clear, we did not want the U.S. Operations to be liquidated. We wanted the company to restructure, return to health and vitality and stay in business — but the creditors had a different and prevailing view.”

This is an important wrinkle in the history of Toys ‘R’ Us because its demise was one of the most expensive and spectacular public failures in recent history. Here’s a quick summary: In 2005, the trio of private equity firms took over the company in a $7.5 billion leveraged buyout. For the next 13 years, Toys ‘R’ Us would wrestle to pay off mountains of debt amid a recession & a retail disruption.

In March, all efforts to rebuff competition and recover from crushing debts became futile. The debt-laden toy chain announced it would go out of business and shutter its U.S. Operations. This meant more than 30,000 workers would lose their jobs.

Some former employees rallied outside the offices of Bain, KKR, and Vornado to protest losing their jobs without severance. Now, laid-off employees, along with union representative and advocacy groups, are asking for a total of $75 million in severance. According to Bloomberg, Bain, KKR, and Vornado, which together collected $470 million in fees and interest payments over the years, will end up losing well over a billion dollars combined. KKR and Vornado have written off their investments.

We can argue about how much of Toys ‘R’ Us’s downfall was caused by an industry-wide retail upheaval and how much of it was a heavy debt burden, but one question remains unanswered — do the PE firms have an obligation (and of what kind) to the former employees of the toy giant?

HOUSEKEEPING: I’ll be out of the office for the rest of the week, so please send all deals, tips, and feedback to my colleague Lucinda Shen at [email protected].

THE LATEST FROM FORTUNE...

• Hackers Have a New Favorite Target: Gas Stations (by Chris Morris)

• Here’s What the World’s Biggest Investor Thinks the Markets Will Do Next (by Matthew Heimer)

• Tencent Makes It Official: It Will Spin Out Its Spotify Rival With an IPO in the U.S (by David Meyer)

• The Onion Faces Layoffs by Univision, Says Report (by Glenn Fleishman)

VENTURE DEALS

• Oasis Labs, a Berkeley, Calif.-based provider of cloud computing platform for the blockchain, raised $45 million in funding. Investors include a16zcrypto, Accel, Binance, Polychain, Metastable, and Bitmain.

• Moneybox, a London-based mobile savings and investment app, raised £14 million ($18.7 million) in Series B funding. Eight Roads led the round, and was joined by investors including Oxford Capital Partners and Samos Investments.

PRIVATE EQUITY DEALS

• Source Code LLC, a portfolio company of JMC Capital Partners, acquired certain assets of Aberdeen Servers and Storage, a Santa Fe Springs, Calif.-based provider of custom services and computing solutions. Financial terms weren't disclosed.

• Cerberus agreed to buy 57% of Officine CST SpA, an Italy-based provider of credit management services to large enterprises. Financial terms weren’t disclosed.

• Anne Arundel Dermatology Management, a portfolio company of New MainStream Capital, acquired Virginia Dermatology & Skin Care Center, a provider of surgical and cosmetic dermatology services to the Virginia market. Financial terms weren't disclosed.

• Carrick Capital Partners invested $80 million in Exiger, a New York-based provider of regulatory, financial crime, risk and compliance solutions.

OTHER DEALS

• Univision Communications Inc has put Fusion Media Group, a Wenham, Mass-based media company, up for sale, according to The Wall Street Journal. Read more.

IPOs

• Tencent Music, the music streaming arm of the Chinese tech giant, plans to list in the U.S. An IPO could list the firm upward of $30 billion. Terms were not disclosed. Read more.

• Arlo Technologies, a San Jose, Calif-based security camera firm spinning out of Netgear, filed for a $100 million IPO. The firm posted $6.6 million in income on $370.7 million in revenue for 2017. BofA Merrill Lynch, Deutsche Bank, and Guggenheim Securities are underwriters. It plans to list on the NYSE as “ARLO.” Read more.

• Sonos, a Santa Barbara, Calif.-based wireless speaker maker, filed to raise $100 million in an IPO. It posted loss of $14.2 million on revenue of $992.5 million in the year ending Sept. 2017. KKR (25.7% pre-offering), Index Ventures (13%), and former CEO/co-founder John Macfarlane (12.9%) back the firm. Morgan Stanley, Goldman Sachs, Allen & Company, RBC Capital Markets, Jefferies, and KKR are underwriters. It plans to list on the Nasdaq as “SONO.”

EXITS

• EQT will buy Banking Circle, a Denmark-based provider of infrastructure for online cross-border payments, from Saxo Bank. Financial terms weren’t disclosed.

FIRMS + FUNDS

• Index Ventures, a venture capital firm, raised $1.65 billion across two new funds. The firm raised $650 million for its ninth venture fund and $1 billion for its fourth growth fund.

• Abingworth, a London-based private equity and venture capital firm, raised $315 million for its latest fund, Abingworth Bioventures VII.