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Abry Partners vs. ProvidenceEquity Partners
I have learned an important lesson in covering this case: Court clerks can be very literal. This is particularly true of clerks in the Chancery Court of Delaware, who I have spoken to a half dozen times in the past few weeks about whether or not Providence Equity Partners had issued an “answer” or “response” to charges of fraud brought by Abry (background info here). The response was always negative, which is why I discussed defensive options on the exact same day that
Providence issued a 31-page “Memorandum of Law in Opposition to Plaintiffs’ Motion for Expedited ! Proceedings.” This is apparently different from a formal “answer,” but not for our purposes (note/credit: Dow Jones figured this out before I did). So, without further exposition of my failings:

Providence apparently is following the legal precedent of No Givsies Backsies, which was issued by Lunchlady Midge after Bobby Johnson foolishly traded his cookies for an apple (Johnson v. School Board of Akron). Its over-arching point is that recission of the F&W deal is impossible at this point, because Abry has owned the company for more than three months, changed ownership and added to the company’s debt load. Kind of like annulment after buying a house, having some kids and giving up your career to raise them.

But Providence has a bunch of arguments that it uses to build up to the preceding point. First, it argues that Abry’s allegations are not specific enough to merit judicial consideration (i.e., a dismissal is in order). For example, where are the specific revenue figures attached to the alleged channel-stuffing? Second, it argues that any information provided to Abry by F&W employees/management is legally separate from info provided to Abry to Providence itself (parent vs. seller). As such, Providence does not feel it is liable for any possible misstatements made by F&W during due diligence. This is, according to attorneys, debatable. It completely depends on the reps and warrants in the stock purchase agreement (SPA), and whether or not there a 10-B5 catch-all was included. I will get the SPA today, and let you know next week.

In a  similar vein, Providence says that Abry is not allowed to allege fraud for information that was not explicitly addressed in the SPA. Since the SPA allegedly did not include things like six-month trailing revenue figures or promises about the company’s distribution technology, Providence argues that they cannot be the basis of fraud allegations. This is, to be kind, ridiculous. Here’s an analogy: You agree to buy a red brick house, get the inspection done and go to an attorney’s office to sign the closing papers. After doing so, you return to the house (which you had inspected just two days earlier), and find that the bricks have been painted purple and that the once-lush lawn has been replaced with gravel. You call up the seller, demanding restitution. He replies: “Hey, the closing agreement didn’t include anything about the lawn or what color the bricks would be. You should! n’t have made assumptions based on observations.”

BostonHerald for Sale
Two points I should have made in yesterday’s Boston Herald piece: (1) The deal likely would include Herald Media’s headquarters, which could be worth more than the Boston Herald itself. The paper operates out of a prime parcel sort of near Chinatown/Theater District, and could be made into a lovely parking garage or condominium complex. In other words, a real estate firm theoretically could be involved with a bidder. (2) A judge has asked a court to freeze Herald Media’s assets, because he’s due a multi-million dollar libel judgment. This liability would probably be negotiated out in any sale agreement, but it’s worth you knowing. Today’s Boston Globe follows up with this (no credit for little ole’ me, nach). For whatever it’s worth, I also received a similar statement from Ross Posner over at Heritage, but he specifically said not to assume that Heritage would, or wouldn’t, bid. But I still suspect that they did (or possibly could even sell its own assets in a package deal).

Quiz Answer:
*** Last Wednesday, I asked: “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.”

The answer is Greylock. It is worth noting, however, that while Greylock/NEA/Northern Light negotiations are fairly far along, the deal is not yet finalized.

*** I also asked: “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.”

Turns out that “next week” (i.e., this week) now means next Monday. We’ll discuss then, but have a great weekend in the meantime.

    Top Three


Punch Taverns PLC has agreed to acquire UK pub chain Spirit Group Ltd. from private equity firms Texas Pacific Group, Blackstone Group and CVC Capital Partners. The deal is valued at Gbp2.68 billion, including the assumption of Gbp1.25 billion in debt.

Resolvyx Pharmaceuticals Inc., a biotech startup being incubated in Atlas Venture’s Waltham, Mass. offices, has secured $17 million in Series A commitments. The company has called down $3 million of the tranched-out deal, from backers like Atlas, CHL Medical Partners and Flagship Ventures. Resolvyx is co-founded by Daniel Goodman, co-founder and former CEO of PsychoGenetics, while Martin Becker is listed as president and CEO.

Blackstone Group, Providence Equity Partners and KKR are considering a bid for newspaper company Knight Ridder Corp. (NYSE: KRI), according to multiple press reports. Morgan Stanley and Goldman Sachs are running the sale, with initial bids due next Friday.

    VC Deals

Touchdown Technologies Inc., a Baldwin Park, Calif.-based provider of test probes for the semiconductor market, has raised $13.15 million in Series B funding, according to a regulatory filing. Backers include Adams Capital Management, Pequot Capital, Invesco Private Capital and AIG. The company has now raised over $85 million in total VC funding since its 1995 inception, including a Series AA recap in 2004.

HexaTech Inc., a Raleigh, N.C.–based developer of single crystalline aluminum nitride substrates for electronic and optoelectronic semiconductor devices, has raised $8.9 million in Series A funding. Participants included H.I.G. Ventures, Sevin Rosen Funds and NC IDEA.

IDesia Inc., an Israel-based biometrics startup, has raised an undisclosed amount of Series A funding from Partech International.

Day4 Energy Inc., a Vancouver-based solar-energy company, has raised an undisclosed amount of venture capital funding from Chrysalix Energy Management.

    Buyout Deals


Greenbriar Equity Group has acquired majority positions in Western Peterbilt and Western Truck Partners and Equipment Company LLC for an undisclosed amount. The companies are known together as WPI, and are Seattle-based operators of heavy-truck equipment dealerships in the Pacific Northwest. Transaction financing was arranged by Nordbank AG.

Radnor Holdings Corp., a Radnor, Pa.–based provider of foodservice products like expandable polystyrene, has raised $120 million in private equity and debt funding from Tennenbaum Capital Partners. The deal makes Tennenbaum the company’s largest shareholder.

JH Partners has acquired Frette SpA, an Italy-based retail and wholesale company that markets luxury fabrics and linens to individuals and hospitality businesses. The selling party was Fin.Part Group, and no financial terms were disclosed. The official buyer is Coraline SpA, which was formed expressly for this transaction by JH Partners almost a year ago.

    PE-Backed IPOs

Morton’s Restaurant Group Inc., a New Hyde Park, N.Y.-based steakhouse chain operator, has filed to raise $150 million via an IPO of common stock. It plans to trade on the NYSE under ticker symbol MRT, with Wachovia Securities serving as lead underwriter. Castle Harlan paid $93.7 million for a majority equity stake in Morton’s, as part of a July 2002 going-private transaction.

Directed Electronics Inc., a Vista, Calif.-based maker of consumer-branded vehicle security and convenience systems, has set its proposed IPO terms to 9.375 million common shares to be offered at between $15 and $17 per share. It plans to trade on the Nasdaq under ticker symbol DEIX, with Goldman Sachs and JPMorgan serving as lead underwriters. Significant shareholders include Trivest Partners, BancBoston Inv*stments and MassMutual.

    PE-Backed M&A

Spring Wireless of Brazil has merged with Sysgold of Miami, Fla., in order to form a combined corporate mobile data technology solutions provider of Latin America. No financial terms were disclosed. Spring Wireless had raised VC funding from Intel Capital, while Sysgold backers included Darby Technology Ventures, Mifactory Ventures and Intel Capital.

Eagle Rock Energy Inc., a Houston, Texas-based portfolio company of Natural Gas Partners, has acquired certain natural gas gathering and processing assets in Texas from ONEOK Field Services, a subsidiary of ONEOK Inc. (NYSE: OKE). The deal was valued at $528 million, with Eagle Rock expected to retain approximately 90 employees currently associated with the assets. It also plans to hire an additional 30 employees.

Iron Mountain Inc. (NYSE: IRM) has agreed to acquire LiveVault Corp., a Marlborough, Mass.-based today provider of disk-based online server backup and recovery solutions for the enterprise. The total deal is valued at approximately $50 million. LiveVault has raised nearly $60 million in total VC funding from firms like Atlas Venture, Kleiner Perkins, New Enterprise Associates, Adams Street Partners and Sevin Rosen funds.

    Firm & Fund News


Hirtle Callaghan, a West Conshohocken, Pa.-based provider of outsourced CIO operations, is raising up to $50 million for its fifth private equity fund, according to a regulatory filing.

Russel Bernard has decided to launch Westport Capital Partners, which will provide real estate inv*stment opportunities to institutional and private clients. He previously served as the real estate portfolio manager for Oaktree Capital Management.

    Human Resources


Chamath Palihapitiva has agreed to join Mayfield Fund as a principal, according to The Wall Street Journal. He has spent the past year in charge of America Online’s instant messenger division.


Get Your BostonHerald…

First-round bids are due today for Herald Media Inc., which publishes both The Boston Herald and more than 100 community dailies and weeklies in Massachusetts. Most prospective buyers weren’t tipping their hands yesterday – either to me or to deal agent Wachovia Capital Markets – but expect both private equity firms and strategic buyers to take a shot. You might even see some pre-made combinations of the two, like the Enterprise NewsMedia LLC platform controlled by Heritage Partners. It already owns papers like The Patriot Ledger, and could be looking for some serious regional expansion (Heritage declined to comment on any aspect of the deal, including its level of interest). There also are a lot of other media-focused private equity firms in and around Boston that answered Wachovia’s teaser for the blue book, plus some firms a bit further south that have expressed some interest.

For the uninitiated, Herald Media was basically wholly-owned by publisher Pat Purcell until it decided to acquire the community papers from Fidelity in early 2001 for $150 million. To help finance the deal, Purcell enlisted a trio of private equity firms – Audax Group, BMO Halyard Partners and Weston Presidio — to invest around $60 million. Those firms recouped around 90% of their commitments via a dividend recap last year, but in September told Purcell that they needed a complete exit due to basic fund-lifecycle/timing issues. Herald Media then retained Wachovia Capital Markets to and Dirks, Van Essen & Murray to pursue strategic options.

Since doing so, one giant question has swirled through Boston media circles: What exactly is for sale? Is it just the private equity consortium’s minority stake? Is it just the community papers? Is it also The Boston Herald itself?

The answer is that Wachovia is seeking bids for the entirety of Herald Media Inc., and that it hasn’t been too receptive to partial proposals. Why? Because, on a cash-flow basis, the community newspapers are the jewel while the Boston Herald is the millstone. As I’ve discussed previously, community papers continue to outshine most big city dailies because (A) They often has exclusive news-you-can-use content (school lunch menus, pee-wee football scores, church events, etc.) and (B) Their classifieds have not been cannibalized too much by Monster, Craigslist, etc. This dichotomy is particularly striking in the case of Herald Media, where the big-city daily is a secondary read that doesn’t have much home delivery distribution outside the city limits. It also has been hurt by a free tabloid partially owned by The Boston Globe (thus lessening the Herald’s number of subway/bus readers).

To reiterate, bids are due today. Expect offers anywhere from 9x-12x cash-flow, and a new Herald Media owner by springtime.

Unrelated: Actions Semiconductor Inc., a China-based chip design company, yesterday raised a $72 million IPO and finished slightly up on its first day of trading. Each of my news notes since Actions filed included the following line: “Shareholders include Tetrad Ventures Ltd. and Rich Dragon Consultants Ltd., while press reports have suggested that the company is closing in on $80 million in Series A funding, largely from U.S.-based firms.” It turns out that the Series A deal did close prior to the IPO (September, to be specific), but it actually was for $95.8 million. Paul Hsiao, a principal with New Enterprise Associates, says that participants included GIC, NEA and Intel Capital, and that it was a secondary purchase from family shareholders.

    Top Three

NeurogesX Inc., a San Carlos, Calif.-based drug company focused on neuropathic pain, has raised $20 million in fourth-round funding. New backers MC Life Sciences Ventures (a Mitsubishi subsidiary), MunMun International Ltd. and Saudi Venture Development Co. were joined by returning shareholders like Arch Venture Partners, Alta Partners, Montreaux Equity Partners, Global Life Sciences Ventures and Walden International. The company now has raised around $85 million in total VC funding since June 2000.

Carlyle/Riverstone and Goldman Sachs Capital Partners have committed $500 million to launch Cobalt International Energy LP, a Houston, Texas-based oil and gas exploration company and production company in the Deepwater Gulf of Mexico and other high-potential global basins. Cobalt management will include chairman and CEO Joseph Bryant, former president and COO of Unocal Corp., and vice chairman Samuel Gillespie, former general counsel of both Mobil Corp. and Unocal Corp.

3i Group has paid 60 million euros for a minority ownership stake in Poliris, a Paris, France-based publisher of online real estate listings directories.

    VC Deals

Antisense Pharma GmbH, a Regensburg, Germany-based drug company focused on treatments for malignant tumors, has raised $18 million in private equity funding from the MIG Fonds of Germany. Past VC backers include the Global Asset Capital, S-Refit and Global Chance Fund.

SignalDemand Inc., a San Francisco-based provider of demand-driven supply network enterprise software, has called down $7 million of a $7.5 million Series B round, according to a regulatory filing. Backers include General Catalyst Partners, Catamount Ventures and Hummer Winblad Venture Partners.

Novaled GmbH, a Dresden, Germany-based developer of organic light-emitting diode technologies, has raised 15 million euros in second-round funding. Credit Agricole Private Equity led the deal, and was joined by fellow new backers Caisse des Depots et Consignations, KfW Bankengruppe and eCapital New Technologies Fonds AG. Returning shareholders included TechnoStart, TechFund Capital Europe, FCPI 123MultiNova and Dresden Fonds GmbH.

    Buyout Deals


Dresser Inc. (NYSE: DRC) has completed the sale of its Dresser Instruments business to KPS Special Situations Fund. No pricing terms were disclosed. Dresser Instruments manufactures a variety of pressure gauges, transducers, transmitters, pressure and temperature switches and other devices.

Veronis Suhler Stevenson and Mecom Group PLC have completed their acquisition of Berlin, Germany daily newspaper Berliner Verlag from Verlagsgruppe Georg von Holtzbrinck. No financial terms were disclosed.

Charterhouse Group has completed its acquisition of Towne Holdings Inc., a South Bend, Ind.–based provider of asset-light logistics solutions and deferred air freight transportation services. No financial terms were disclosed. Sellers include Chicago Growth Partners.

AXA Private Equity has agreed to sell its majority stake in French connector manufacturer Souriau to Sagard and company management. No financial terms were disclosed for the deal, which also will include a debt package from Société Générale.

    PE-Backed M&A

Endeavour Ports Ltd. of Australia has agreed to acquire UK port operator PD Ports PLC for Gbp246 million. Industry Funds Management owns approximately half of Endeavour Ports, with oitrher significant shareholders including 3i Group and Challenger Financial Services Group.

Edgen Corp., a Baton Rouge, La.-based distributor of specialty steel pipes, fittings and flanges for use in niche applications, has agreed to acquire Murray International Metals Ltd., a distributor of structural steel products for use in niche applications. No financial terms were disclosed. Jefferies Capital Partners is Edgen’s principal shareholder.

ESCO Technologies Inc. (NYSE: ESE) has acquired Nexus Energy Software Inc., a Waltham, Mass.-based provider of enterprise software for energy companies. The deal was valued at $28.5 million in cash. Nexus had raised around $12 million in VC funding from Perseus and Wayfinder Group.

    Firm & Fund News


Citigroup (NYSE: C) has completed the sale of its Asset Management business to Legg Mason Inc. (NYSE: LM), in exchange for Legg Mason’s broker-dealer business and other consideration. Citigroup also announced that, simultaneous with the closing of its transaction with Legg Mason, it has completed the previously announced sale of Legg Mason’s capital markets business to Stifel Financial Corp. (NYSE: SF).

GSC Partners and Tishman Speyer have formed an exclusive joint venture to inv*st in the Chinese real estate market.

SES Iberian Fund I has held a final close with 50 million euros in capital commitments. The fund was formed in June 2004, with a focus on growth capital and leveraged buyout deals for middle-market companies in Spain, Portugal and France. It is jointly managed by Espirito Santo Capital and Sigéfi Private Equity.

    Human Resources

Patrick Kenealy has rejoined IDG Ventures Pacific as a general partner, after having spent the past three years as CEO of International Data Group.

Stephen Miles and Craig Korte have joined the Chicago office of Goldsmith Agio Helms. Both men previously were with Brown, Gibbons, Lang & Co.

John Alm has decided to leave his position as president and CEO of Coca-Cola Enterprises (NYSE: CCE), effective January 1. In a press release, Alms said that he looks forward “to evaluating the opportunities that have been presented to me to serve on other companies’ boards of directors, as well as joining a private equity firm as a partner or in an advisory role.”

BerchWood Partners, a placement agency for private equity funds, has hired Bruce Pflaum in San Francisco, Doug Jarrett in New York and Alexander Apponyi in London. Pflaum previously worked with Capital Advisors, Jarrett previously was with Bank of America and Apponyi was with UBS Inv*stment Bank.

Thomas Scozzafava has joined GreenShift Corp. (OTC BB: GSHF) as vice president of acquisitions and strategic inv*stments. He most recently served as president and CEO of retailer WiseBuys Stores Inc., and before that was a director with Prudential’s merchant banking group. GreenShift is a Mt. Arlington, N.J.-based business development company focused on developing and supporting companies that facilitate the efficient use of natural resources and catalyze transformational environmental gains.



Random Ramblings

I planned today to discuss a major strategic partnership/funding announcement for a well-known VC-backed company, but the formal press release seems to be caught up in PR limbo. Normally this wouldn’t be a problem, except that I’m only making an educated guess as to some of the release’s contents (some contents I know), so this will have to wait another day. Need a hint? The company publicized a new distribution agreement earlier this week. In the meantime:

*** Most juicy political scandals contain at least peripheral ties to private equity, and the disgraceful case of Rep. Randy “Duke” Cunningham is no exception. For those who don’t know, Cunningham is was a San Diego-area Congressman who resigned this week after pleading guilty to tax evasion and accepting $2.4 million in bribes from defense contractors. The tenuous linkage goes like this: One of Cunningham’s sugar daddies was Mitchell Wade, founder and CEO of Washington, D.C.-based defense contractor MZM Inc. In fact, the entire investigation began after Cunningham sold his house to Wade for $1.67 million, and then Wade sold it at a $700,000 loss just one year later. Anyway, once Wade’s dealings became public earlier this year, he put MZM on the block, where it was acquired a couple of months ago by Veritas Capital. The private equity firm said that it negotiated away the Wade-related liabilities, and changed the company’s name to Athena Innovative Solutions Inc.

*** Speaking of private equity-related political scandals (or at least potential ones), the issue of Decker College and New York gubernatorial candidate William Weld seems to be heating up. As we’ve discussed before, Weld was a partner with Leeds Weld Equity Partners (now just Leeds Equity Partners), before deciding a few months ago to re-enter the political ring (he used to be governor of Massachusetts). While still a private equity pro, Weld took over as CEO of a troubled portfolio company called Decker College, which since has gone bankrupt and is the center of a federal fraud investigation. Weld defended himself on Nov. 17 in the New York Times, but this could certainly be something that lingers on the campaign trail.

*** Gene-IT, a provider of sequence search software for the life sciences industry, today announced that it has secured $4.1 million in Series A funding. Why does this deal get special mention while the other myriad of VC deals are stuck below in black (including much larger deals)? Because Gene-IT is based in Worcester, and very little VC cash ever flows to my semi-hometown (father lived in Worcester, mother in Westborough). Like a true Wormtown resident, however, the company’s press release says that it is based “near Boston.’ Oh well. I proclaim my Worcester heritage proudly, and am glad that our newest reporter on Buyouts Magazine – Mark Cecil – does the same. Also worth noting that last year I toured the MBI incubator facility where Gene-IT is based, and came away very impressed.

*** Best line I heard yesterday came from a VC who’s firm is exploring an investment partnership in China: “The lobby of the Shanghai Four Seasons might as well be Buck’s.”

*** Lots of emails about my two-line quote about Google in BusinessWeek, particularly because of my IPO-related Google goof last year (I felt the VCs should sell some stock at the IPO price, because the value was sure to drop). “How can you be considered an expert on anything related to Google?” asks one beligerant emailer. One-word answer angry man: Forgiveness. 

*** Finally, a bit of news for you. I just stumbled across a regulatory filing showing that General Catalyst Partners has basically closed its fourth fund. The filing indicates an upper target of $375 million, with $365 million already committed. I spoke briefly to an investor there this morning, who directed me to an internal PR person. No word back yet on whether the final close has, indeed, occured.

    Top Three

TDCAS, a Danish telecom carrier, has agreed to be bought out by a private equity consortium for $15.3 billion (6% premium on yesterday’s closing stock price). Buyers include Apax Partners, Blackstone Group, KKR, Permira and Providence Equity Partners. If completed, this would rank as the record-largest leveraged buyout in history, only behind KKR’s acquisition of RJR Nabisco.

Plastic Logic Ltd., a Cambridge, UK-based developer of plastic electronics, has raised $24 million in Series C funding. New backers include BASF Venture Capital, Intel Capital, Morningside Technology Ventures and Quest for Growth. Returning shareholders include Amadeus Capital Partners, Bank of America, Dow Chemical, Nanotech Partners, PolyTechnos Venture-Partners, Siemens and Yasuda. The company has raised approximately $47 million in total VC funding since its 2000 inception.

Visicu Inc., a Baltimore, Md.-based provider of network monitoring of critical care patients in hospitals, has filed to raise $65 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol EICU, with Morgan Stanley serving as lead underwriter. It has raised over $20 million in VC funding since its 1998 inception, from firms like Abell Ventures, Cardinal Partners, Partech International, Pacific Venture Group, Sterling Venture Partners and Envest Ventures.

    VC Deals

Alimera Sciences Inc., a