PE Week Wire — 11/14-11/24

Random Ramblings

Some notes for our international readers, and for those domestics unfortunate enough to be working today (trust me, I can sympathize):

*** PE Week will report on Monday that Worldview Technology Partners has begun looking to raise between $250 million and $300 million for its fifth fund, which is a significant step-down from the $1 billion it raised for Fund IV in 2000 (although not as significant when one considers that Fund IV was later reduced to $600 million). Of particular note are a pair of personnel changes: Firm co-founder Mike Orsak will cut back his responsibilities by transitioning from a “general partner” to a “partner” role, which basically means that he’ll just do one or two deals per year. Also, general partner Susumu Tanaka is beginning semi-retirement with a new title of chairman of Japanese operations. Again, a much more detailed story by Constance Loizos in Monday’s print edition for paid subscribers.

*** Quiz Time #1: Can you name the venerable VC firm that is partnering with New Enterprise Associates on its China-focused Northern Light endeavor? Hint: It’s got an office in Massachusetts.

*** Quiz Time #2: Can you name the high-tech gadget maker that will have a major strategic/financial announcement next week? Hint: It won’t be on store shelves for Friday sales, but should nonetheless be available before the holiday shopping season is up.

*** Quiz Time #3: Can you name the latest U.S.-based VC firm to (quietly) open an Israel office? Hint: It has U.S. offices on both coasts.

*** A couple of you have inquired about the fund-raising status of Vesbridge Partners, which began looking for $250 million this past April (inclusive of a $50 million nut from former parent St. Paul Travelers Cos.). Expect a first close in Q1.

*** Just checked with the Delaware Chancery Court, and Providence Equity Partners has not yet filed an answer to the Abry Partners complaint. They still have a couple more weeks.

*** I have a lot of respect for the Columbia Journalism Review, even if they still haven’t fixed their link to the PE Week Wire. But this “buyout bubble” analysis mostly misses the point.

I agree that a mega-buyout bubble has nothing to do with either Refco or the sagging IPO market. The former is an isolated incident of thieving and inadequate due diligence, while the latter may be inoperative once today’s investments come to fruition. But it does have everything to do with the points Sorkin made in the NYT, about rising purchase price multiples being supported by: (A) Massive fund sizes and (B) Extremely generous debt markets. The tail is wagging the dog here, and Sorkin is right when he points out that that private equity fund limited partners will be the ones left holding the bag. Many lenders already have begun reexamining their generosity, even though private equity deals are representing up an ever-increasing percentage of their business.

CRJ writes: “This is all true. But should we worry about a ‘Great Global Buyout Bubble’? As with all ‘bubble’ stories, Mr. Sorkin’s report overstates the point. There are always cycles in business; valuations don’t go up forever or go down forever. To say that something that is “up” today will go “down” someday isn’t very insightful or interesting.”

What CJR is missing is that financial bubbles don’t deflate – they pop. And the buyouts market is ripe for this. Not only are there existing deals that will hang around IRRs like bloated albatrosses, but the real bubble effect will be felt once the lenders begin to bail and the multi-billion fund sizes remain intact. Buyout firms make a killing on transactional fees, and are unlikely to follow the venture capital example of cutting fund sizes (i.e., handing back unused committed capital). Instead, they are likely to spike the equity tranches even further in order to get deals done. Oh, and you can forget about the recent rash of financial engineering via dividend recaps.

Of equal import is the fact that predictions of a mega-buyout bubble are coming at the exact same time that multiple firms are raising $7 billion-plus funds (Blackstone, Apollo, Tom Lee and, coming next year, KKR). This isn’t like the VC burst when the realization generally hit once it was already too late (remember the non-Buffett consensus that economic cycles are not applicable in the New Economy?). CJR plays on the term “hot air” in its headline, but is too clever by half. The real hot air is, as Sorkin wrote, in the bowels of the buyouts industry. He’s just the messenger.

Publishing Note:The PE Week Wire will not publish tomorrow or Friday, but will be back kicking and screaming on Monday. Have a good Thanksgiving.

    Top Three

 

Kohlberg Kravis Roberts & Co. and Bain Capital have completed their $1.27 billion acquisition of Accellent Inc. from a private equity consortium led by KRG Capital Partners and DLJ Merchant Banking Partners. Accellent is a Collegeville, Pa.-based provider of integrated contract manufacturing and design services to the medical device industry. CSFB served as financial advisor to the sellers. www.kkr.com www.accellent.com

Brightcove Inc., a Cambridge, Mass.-based Internet TV company, has raised $16.2 million in Series B funding. New backers include AOL, IAC/InterActive Corp., The Hearst Corp. and Allen & Co., while returning shareholders include Accel Partners and General Catalyst Partners. Brightcove was founded last year by Jeremy Allaire, co-founder of Allaire Corp. and, subsequently, an entrepreneur-in-residence with General Catalyst. Jim Breyer of Accel and David Orfao of General Catalyst are on the Brightcove board of directors, and now will be joined by Barry Diller, chairman and CEO of IAC/InterActive Corp. and chairman of Expedia Inc. As part of the deal, Brightcove has signed a video content distribution partnership with AOL. Goodwin Proctor LLP represented Brightcove on the transaction. www.brightcove.com

Actions Semiconductor Inc., a China-based chip design company, has postponed its IPO. The company had planned to float yesterday, and earlier this week had reduced its proposed IPO terms to 10 million American depository shares (ADS) being offered at between $8 and $9 per ADS. CSFB is serving as lead underwriter, and the company plans to trade on the Nasdaq under ticker symbol ACTS. Shareholders include Tetrad Ventures Ltd. and rich Dragon Consultants Ltd. Press reports have suggested that the company is closing in on $80 million in Series A funding — largely from U.S.-based firms – but there is no mention of the funding in Actions’ amended S-1 filing.

 

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The 8th Annual MIT VC Conference
December 3rd, 2005

The MIT VCPE Club invites you to the 8 th Annual MIT Venture Capital Conference, “Capitalizing on a Flat World,” at the MIT Tang Center on Saturday, December 3.  This year’s conference explores how to take advantage of the new ways that businesses create, communicate, and access data-rich content from anywhere, at any time. The keynote addresses will feature Jim Champy, Chairman of Perot Systems’ Consulting Practice, and Jeremy Allaire, former CTO of Macromedia Inc. and founder of Brightcove Inc.

To register online, visit
www.mitvcconference.com

 

    VC Deals

 

CopperGate Communications Inc., a Tel Aviv, Israel–based supplier of chipset solutions for multi-media home networking, has raised around $14.5 million in third-round funding. Carmel Ventures led the deal, and was joined by return backers Tamir Fishman Ventures and the Challenge Fund. www.copper-gate.com

Radiate Inc., a Menlo Park, Calif.-based developer of location-based social networking software, has raised $1.55 million in Series A funding, according to a regulatory filing. Backers include Sequoia Capital and New Enterprise Associates, with Greg McAdoo of Sequoia and Patrick Chung of NEA taking board seats.

Dictate IT Ltd., a London-based provider of online medical transcription services, has raised Gbp250,000 from The Capital Fund. www.dictate.it www.thecapitalfund.co.uk

Communication Synergy Technologies Inc., a Rochester, N.Y.–based developer of document management solutions, has received an undisclosed amount of VC funding from the Trillium Group. www.comsyntech.com

Aethon Inc., a Pittsburgh-based provider of robotic transport solutions, has raised $11 million in fourth-round funding. Trident Capital led the deal, and was joined by return backers Draper Triangle Ventures, Salix Ventures, Ascension Health Ventures and Pacific Venture Group. The company has raised nearly $23 million in total VC funding since its 1997 inception. www.aethon.com

    Buyout Deals

 

Fenway Partners has completed its $382.5 million acquisition of Targus Group International Inc. from Apax Partners. A senior bank facility and junior capital was provided by York Street Capital Partners. Targus is an Anaheim, Calif.-based provider of mobile computer carrying cases. www.targus.com www.fenwaypartners.com

SS&C Technologies Inc. (Nasdaq: SSNC) shareholders have approved the company’s proposed acquisition by The Carlyle Group. The deal is expected to close today, and is valued at around $941 million, or $37.25 per share. Leverage will be provided by Wachovia, JPMorgan and Bank of America. Also as part of the deal, SS&C CEO William Stone will contribute certain of his shares of SS&C common stock in exchange for 28% of the equity in an acquisition vehicle created by Carlyle for the purposes of this deal. www.carlyle.com www.ssctech.com

The Cypress Group reportedly is considering bids for The Meow Mix Co., a Secaucus, N.J.-based maker of Meow Mix and Alley Cat brand dry cat foods. Cypress acquired the company for $425 million in 2003 from J.W. Childs & Co.

Sterling Investment Partners has sold Tidewater Holdings to Endeavour Capital and company management for an undisclosed amount. Tidewater is a Vancouver, Wash.–based transportation company focused on the Pacific Northwest, and was acquired by Sterling in 1996. Harris Williams & Co. advised Tidewater on the sale. www.tidewater.com

Drax Power Ltd., a UK-based coal-fired power producer, has ended takeover bids, and instead will proceed with a public flotation. It had received three bids, including: a Gbp2 billion offer from International Power PLC and Mitsui & Co.; a Gbp1.9 billion offer from Constellation Energy and Perry Capital; and a Gbp2.075 billion bid from Apollo Management, Texas Pacific Group and TowerBrook Capital Partners. www.draxpower.com

ABRY Partners reportedly has agreed to buy Houston, Texas-based satellite services company CapRock Services Corp. from Riverside Co. for approximately $200 million. www.caprock.com

    PE-Backed IPOs

Aearo Technologies Inc., an Indianapolis-based provider of personal protection equipment, has filed to raise $230 million via an IPO of common stock. It plans to trade on the NYSE under ticker symbol AER, with Bear Stearns, Banc of America Securities and Deutsche Bank Securities serving as lead underwriters. Bear Stearns Merchant Banking acquired the company in 2004 from Vestar Capital Partners for $385 million, including around $210 million in assumed debt. Vestar still holds an undisclosed number of shares. www.aearo.com

Basic Energy Services Inc., a Midland, Texas-based provider of well site services to oil and gas drilling and production companies, has set its proposed IPO terms to 12.5 million common shares being offered at between $18 and $20 per share. It plans to trade on the NYSE under ticker symbol BAS, with Goldman Sachs and Credit Suisse First Boston serving as lead underwriters. DLJ Merchant Banking is Basic Energy’s majority shareholder, based on a December 2000 recapitalization. First Reserve, Fortress Capital and Southwest Partners also hold equity positions. www.basicnrg.com

    PE-Backed M&A

Navtech Inc. (OTC BB: NAVH), a provider of flight operations software, has acquired European Aeronautical Group AB from SAS Group AB. The deal is valued at SEK 162 million (approx. $20 million), with additional milestone payments possible. Financing for the deal came from ABRY Partners, Cambridge Information Group and Externalis (Belgium). www.navtechinc.com

SAP AG (NYSE: SAP) has agreed to acquire Khimetrics Inc., a Scottsdale, Ariz.-based provider of enterprise software solutions that help retailers analyze how to best price and position items. No financial terms were disclosed for the deal, which is expected to close in January. Khimetrics has raised around $16 million in VC funding since its 1997 inception, from firms like Boston Capital Ventures, Oracle, RWI Ventures, Telos Venture Partners and Crown Advisors. www.sap.com www.khimetrics.com

Click Commerce Inc. (Nasdaq: CKCM) has acquired Requisite Technology Inc., a Westminster, Colo.-based provider of master data management solutions for transforming disorganized plant, material, and finished product data into consistent information repositories. The deal is valued at approximately $21 million, including around 800,000 shares of Click Commerce common stock and $1 million in cash. Requite has raised around $77 million in VC funding since its 1993 inception, including a 430 million Series F deal in 2000 at a post-money valuation of approximately $280 million. Backers include Trinity Ventures, Sequel Venture Partners, Mohr, Davidow Ventures, Bowman Capita, JPMorgan Partners, Oracle, SAP and Sumitomo. www.clickcommerce.com www.requisite.com

Powermill Service Group AB, a Nordic electronics aftermarket services company owned by private equity firm Segulah, has acquired the service business of TCE Service AB No financial terms were disclosed. www.segulah.se

    Firm & Fund News

 
Bairdhas established Robert W. Baird GmbH, an I-banking office in Frankfurt focused on M&A advisory in the industrial sector and middle-market sector. It will be managed by Michael Wolff, who previously has been with HBB with Deutsche Bank. www.rwbaird.com

    Human Resources

Paul Short has been named an entrepreneur-in-residence with the Verge, a New Mexico-focused seed-stage venture fund. He is the founder of design services company InnovASIC, and has held engineering positions at both Honeywell and New Mexico State University’s physical science laboratory. www.vergefund.com

Robert Levesque has joined Desjardins Venture Capital as a vice president focused on technology deals. He previously was a senior partner with Barrontech Investments. www.dcrdesjardins.com

Jason Mendelson, general counsel for Mobius Venture Capital, has been promoted to the position of managing director. He will continue to serve as general counsel, which he became five years ago after leaving Cooley Godward LLP. www.mobiusvc.com

Shaun Kingsbury has joined 3i Group as an industrialist-in-residence, focused on the midstream gas and power market. He most recently served as commercial director for ITI Energy and, before that, worked at both Centrica and Shell. www.3i.com

Just Linking Around…

*** Venture Capital Journal this month explores how VC firms are turning toward professional therapists or mediators to handle particularly thorny problems. Find the preview here, and a full list of November stories here.

*** I would like to comment/get your thoughts on what Paul Kedrosky wrote in this post – particularly when one considers early adoption of technologies like video streaming, micro-payments, etc. – but that conversation must remain with bloggers like Paul who don’t have to deal with email spam filters. I just don’t think I could do it and still get the Wire into your inbox.

*** Speaking of email spam filters, you can avoid them by using our new RSS/XML feed (found just above the Login button on the right). I know it’s not pretty, but is a direct and timely link to the Wire that avoids all email slowdown problems.

*** The Boston Globe now has a business blog, although it doesn’t yet have a comment section or enough contributors.

*** The Columbia Journalism Review is now analyzing business covering via an new blog that can be found here. The PE Week Wire link is still wrong, but the idea is interesting. Take particular note of CJR’s analysis of recent “buyout bubble” pieces in the NYT and BusinessWeek. It argues that talk of this particular bubble is “a lot of hot air.” Regular readers know that I disagree strongly with such a conclusion, and tomorrow will analyze CJR’s analysis of the original analysis, and remake the case for an impending buyouts bubble (I would do it today, but all of our deadlines have been pushed up due to Thanksgiving).

*** Finally, the Boston Business Journal yesterday reported that Lowell, Mass.-based Bitwave Semiconductor Inc. has raised $13 million in Series A funding from Apex Venture Partners, e-Century Capital and Techno Venture Management. VentureWire, however, today reports that the company only has raised $9 million of the round, and that it remains open with a $13 million target (citing the company’s CEO as its source). I spoke briefly with Bitwave chief marketing officer Russ Cyr, who says that the BBJ got it right, and added that the deal actually closed in November 2004. Just wanted to clear that up…

    Top Three

 

Madison Dearborn Partners of Chicago is raising upwards of $5 billion for its fifth private equity fund, according to a regulatory filing. Its prior fund was capped at $4 billion in 2001. www.madisondearborn.com

Computer Sciences Corp. (NYSE: CSC) has lost its suitors. The company had been in talks to be acquired for at least $65 per share by Lockheed Martin Corp., which then would have kept CSC’s defense-contracting business and sold off its commercial business to Warburg Pincus, Texas Pacific Group and Blackstone Group. Lockheed and the private equity firms have now backed out of the talks, according to multiple press reports.

Merrill Corp. has agreed to acquire WordWave Inc. from Berkshire Partners, Highland Capital Partners and TCW/Crescent. No financial terms were disclosed. WordWave is a Boston-based provider of court reporting, transcription, captioning and videography services for law firms and corporate litigation clients, television networks and Web-based content providers. It was advised on the prospective sale by Harris Williams & Co. www.wordwave.com

 

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The 8th Annual MIT VC Conference
December 3rd, 2005

The MIT VCPE Club invites you to the 8 th Annual MIT Venture Capital Conference, “Capitalizing on a Flat World,” at the MIT Tang Center on Saturday, December 3.  This year’s conference explores how to take advantage of the new ways that businesses create, communicate, and access data-rich content from anywhere, at any time. The keynote addresses will feature Jim Champy, Chairman of Perot Systems’ Consulting Practice, and Jeremy Allaire, former CTO of Macromedia Inc. and founder of Brightcove Inc.

To register online, visit
www.mitvcconference.com

 

    VC Deals

 

cMarket Inc., a Cambridge, Mass.–based provider of charitable online auction services for the nonprofit community, has raised $10 million in new VC funding from Canaan Partners was joined on the deal by return backer Morningside Ventures. www.cmarket.com

Reksoft, a Russia-based software development company, has raised $2 million from Nordic venture capital firm MartinsonTrigon. www.reksoft.com www.martinsontrigon.com 

    Buyout Deals

 

Sun Capital Partners has sold Hünnebeck Group GmbH to Harsco Corp. (NYSE: HSC) for 140 million euros. Hünnebeck Group is a Germany-based provider of engineered construction framework and scaffolding access equipment services, and was acquired by Sun Capital from ThyssenKrupp AG in August 2003. Brown Gibbons Lang & Co. and its German M&A partner InterFinanz represented Hünnebeck on the deal. www.harsco.com

Trimaran Capital Partners has completed its acquisition of El Pollo Loco, an Irvine, Calif.–based quick-service restaurant chain, from American Securities Capital Partners. No financial terms were disclosed. American Securities Capital Partners originally bought El Pollo Loco from Advantica Restaurant Group in December 1999. www.trimarancapital.com www.elpolloloco.com

    PE-Backed IPOs

Brookdale Senior Living Inc., a Chicago-based operator of senior living facilities throughout the United States, priced 11.72 million shares at $18 per share (middle of $17-$19 range), for an IPO take of approximately $211 million. It plans to trade on the NYSE under ticker symbol BKD, while Goldman Sachs and Lehman Brothers served as lead underwriters. Fortress Investment Holdings LLC remains Brookdale’s majority shareholder, while Capital Z Partners also holds an equity position. www.brookdaleliving.com

    PE-Backed M&A

The Cooper Companies Inc. (NYSE: COO) has acquired Inlet Medical Inc., an Eden Prairie, Minn.-based maker of trocar closure systems and pelvic floor reconstruction procedure kits. No financial terms were disclosed. Inlet Medical has raised over $3 million in VC funding from firms like Quatris Fund and Ascent/Meredith Asset Management. In other Cooper Cos. news, the company also acquired NeoSurg Technologies Inc., a developer of reusable and disposable trocar access systems used in laparoscopic surgery. www.coopercos.com www.inletmedical.com

SonicWall Inc. (Nasdaq: SNWL) has acquired Lasso Logic Inc., a San Francisco–based provider of continuous data protection for backup and recovery solutions. No financial terms were disclosed. Lasso Logic has raised VC funding from Outlook Ventures. In related news, SonicWall also has acquired enKoo Inc., a San Jose, Calif.–based developer of remote access technology. www.sonicwall.com www.lassologic.com

    Firm & Fund News

 
Monomoy Capital Partnersof New York is looking to raise upwards of $200 million for its inaugural fund, according to a regulatory filing. MVision Private Equity Advisors is serving as placement agent. Monomoy focuses on turnaround opportunities in the smaller end of the middle-markets. www.mcpfunds.com

Walkers, a global offshore law firm, has opened an office in the Dubai International Finance Center. www.walkersglobal.com

    Human Resources

The Wicks Group of Cos. has promoted Daniel Black and Jamie Weston to the position of partner. Black joined Wicks in July 2003 after having served as a managing director and co-head of merchant banking at BNY Capital Markets. Weston has been with Wicks since July 1995, and has been a principal since September 1998. www.wicksgroup.com

Kathleen Johnston, Brian Scullion and Mio Stojkovich have been named managing directors with William Blair Capital Partners. Johnson previously served as a principal wit Lake Capital Partners, and will oversee opportunities in the business and financial services sector. Scullion will oversee healthcare products and services deals, after having spent six years in the healthcare I-banking group of William Blair & Co. Stojkovich will lead technology deals, and earlier had spent five years with WBCP. www.wbcapitalpartners.com

Aatif Hassan has joined Kleinwort Capital Ltd. as an associate. He previously was with Close Brothers Corporate Finance, and also has held positions with PricewaterhouseCoopers and Freshgroup.com. Kleinwort Capital says that it plans to continue expanding its team over the next year. www.kleinwortcapital.com

Defensive Options

It seems that I am a bit naïve when it comes to legal expediency in Delaware. My original assumption was that Providence Equity Partners only had until next Thursday to respond to fraud charges from Abry Partners, because it would have been 20 business days from when Abry filed its complaint. But it turns out that Providence actually has an extra couple of weeks, because it wasn’t served with the summons until last Wednesday. So, while we wait for the response, let’s briefly consider three hypothetical possibilities (there probably are more, but let’s stick with these):

Option #1: Ladies and gentleman of the Wire readership, we Providence Equity Partners were wrong. We throw ourselves on your mercy (not to mention that of the court), and ask you to understand that we artificially inflated the sale price of F&W so that we could return more money to the working-class folks of Pensions X, Y and Z. We now regret our decision, and agree to rescind the deal, pay Abry Partners’ legal fees and not sell our SunGard stake until after every other private equity firm.”

Verdict? Ummmm… no. Sure, a last-minute out-of-court settlement is theoretically possible in the next few weeks, but I don’t see how it would get done with both firms saving face (which often is viewed as tantamount to saving dollars). Abry is extremely angry, and arguably has staked its reputation on this suit. Providence also has its own LP agreements/relationships to consider, and it already is on the record as denying any wrongdoing.

Option #2: Ladies and gentleman of the Wire readership, we Providence Equity Partners believe that Abry Partners doesn’t know its GP from its LP, and is simply making things up out of a misguided sense of buyer’s remorse. There was no channel-stuffing, no back-starting and the circulation/distribution technology system was running like the Pontiac when it was still trusty. We sold them a good company. Don’t blame us if they messed in up in just three months time.

Verdict? More likely than Option #1, less likely then Option #3 (which you haven’t seen yet, unless you skipped ahead). Actually, there could be a less absolutist scenario than the one I laid out, with Providence admitting certain lesser acts occurred, but that the big accusations are unfounded. The burden is obviously on Abry is this scenario, in that it must prove that things like channel-stuffing not only occurred, but were not standard practice for F&W. It also must validate the legitimacy/veracity of the alleged second set of books kept by an employee in the magazine unit.

Option #3: Ladies and gentleman of the Wire readership, we Providence Equity Partners acknowledge that various acts of fraud occurred, but it was perpetrated by overzealous F&W employees without our knowledge or consent. After all, if Abry didn’t discover such things during its exhaustive due diligence, how were we to know as cloud-riding board-sitters? This is regrettable, but we are not liable. It’s simply a case of private equity risk.

Verdict? Yahtzee! This is a tricky option, but by far the most likely defense tact. Company employees knew the company was for sale, and that it would be extremely important to hit quarterly targets (both for the sale and, perhaps, for being retained by new ownership). They over-reached, Providence could argue, and the results were subtle – and fast – enough that Providence didn’t notice. There is the obvious downside here of appearing to be absentee/passive owners, but it’s better than being intentionally duplicitous. My money would be on Option #3 to be in effect when the formal response is filed, although I don’t have much money, so it’s a small bet.

    Top Three

 

Technology Crossover Ventures has closed its sixth fund with $1.4 billion in capital commitments. Limit