PE Week Wire: Fri., June 15, 2007

There have been two groups of private equity pros over the past few months: Those who believe Congress is serious about changing tax treatment of carried interest, and those who think it’s an academic exercise being conducted by low-level Senatorial staffers in search of extra government revenue. If there is still anyone left in that second group, please sit over in the corner with those who still think O.J. didn’t do it.

Senate Finance Committee Chairman Max Baucus (D-MO) and ranking minority member Chuck Grassley (R-IA) yesterday introduced legislation that would require private equity firms to pay taxes as corporations (35% rate) rather than as partnerships (15% capital gains rate), when selling shares to the public. Now whoever could this be aimed at? Is there a big-name private equity firm out there looking to go public?

Of course there is, and I nearly laughed when Senate Finance Committee spokeswoman Carol Guthrie told me last night that the legislation is “not aimed at any one particular vehicle, but is instead intended to address a trend.” Come on. This is the Blackstone Bill, and to pretend otherwise is absurd.

But Blackstone did get at least one bouquet, in that the bill includes a five-year grace period for partnerships that either: (A) Already are publicly-traded, or (B) Have registered to go public by June 14. Some reports this was the result of Blackstone’s lobbying efforts, which means it’s doing some work outside of the recently-formed Private Equity Council (whose other public-leaning members would be penalized by the June 14 date).

I’m already on record as saying that this bill – if ratified — is unlikely to kill the Blackstone IPO, although it could cause a slight delay. But the more I think about it, I wonder if death has a slightly greater chance of occurring. A public Blackstone could have serious trouble attracting junior talent in what already is a tight labor market, given that these folks would eventually see their carry taxed twice as high as if they took a similar job elsewhere. Plus, it could heighten inequity concerns among current Blackstone employees, who could feel left in the lurch in order that their leaders gain immediate liquidity. And, as I said this morning on CNBC, Schwarzman certainly wants his billions, but he also wants a sustainable legacy.

Two final notes, before moving on to other business: (1) Don’t be surprised if this is simply a precursor to bills that affect private partnerships, although that would be a much tougher legislative fight. (2) Expect that current presidential candidates will be forced to voice opinions on this bill in short order. I can guess where Romney stands, which likely means he’ll increase his financial edge among private equity contributors.

Go here for the full text of the legislation, explanations and statements from Baucus and Grassley.

*** I wasn’t actually on CNBC to discuss taxation, but rather the dearth of buyout-backed IPOs. Too bad too, because Thomson Financial pulled me some disturbing new data. The average U.S. buyout-backed IPO from 2006 was trading at 27.7% as of market close yesterday. That is significantly lower than the 40.2% mark of all other U.S. IPOs to price in 2006. Ditto for 2007 offerings, where buyout-backed IPOs are up 3.7%, whereas the others are at 11 percent. Maybe below-average aftermarket performance is one reason for the slowdown…

*** Some major roster shifts over at CCMP Capital, which is comprised of the former growth equity and buyout team of JPMorgan Partners. The firm recently dismissed three principals and one partner, after CCMP management decided that its roster was too heavy on financial professionals and too light on operational ones. So CCMP laid off Carty Chock, Jason Friedman, Stephan Oppenheimer and Lauren Tyler. Replacing them will be a group of new fulltime operating partners who will be announced within the next few months. In other CCMP personnel news, managing director Matthew Lori has left to join New Mountain Capital.

CCMP declined to comment, citing regulatory restrictions related to fundraising. The firm’s first independent fund is scheduled to close on July 30, with Credit Suisse serving as placement agent. It has a $3.5 billion target.

*** Speaking of new funds, offering docs are floating around for a debut vehicle from Sante Health Ventures. The name is kind of redundant (“sante” means “health” in French), but the Austin, Texas-based firm apparently wants to be clear that it will invest in early-stage healthcare opportunities. It was quietly founded earlier this year by three former members of Austin Ventures: principal Kevin Lalande; venture partner Doug French, former president and CEO of Ascension Health; and venture partner Joe Cunningham, former chief medical officer of the Providence Health System.

*** Finally, an administrative note. I’m off Monday for a wedding in Vermont, so Amanda Palmer will be pinch-hitting from London. Be back Tuesday…

Top Three

Veoh Networks Inc., a San Diego-based operator of an online video-sharing platform, has raised around $26 million in Series C funding! , as first reported by peHUB. Goldman Sachs led the deal, and was joined by return backers like Spark Capital and Shelter Capital Partners. Read more here.

Inves! tcorp has agreed to acquire Icopal, a Denmark-based manufacturer and provider of roofing products and installation services, from Acxel, Carlisle Cos., Kirkbu and FIH. The deal is valued at €850 million on a debt-free basis, and is expected to close in August.

Home ! Depot received a pair of $10 billion offers for its supply unit, according to Bloomberg. Final bids are due today. One group includes Bain Capital, Carlyle Group and Clayton Dubilier & Rice, while the other includes Thomas H. Lee Partners and CCMP Capital.

VC Deals

Bag Borrow or Steal, a Seattle-based renter of high-end handbags and jewelry to consumers, has raised $15 million in Series C funding, according to The Seattle Post-Intelligencer. The company has now raised $27 million in total VC funding since its 2004 inception. Participants included Madrona Venture Group, Steelpoint Capital, Kuwait Holding Co. and Hilltop Investments.

Infinia Corp., a Kennewick, Wash.-based provider of solar thermal engine technology, has raised $9.5 million in second-round. Participants include Equus Total Return, Idealab, Khosla Ventures, Vulcan Capital and return backer Power Play Energy LLC.

Mobile Armor LLC, a St. Louis-based managed services provider of enterprise mobile data security, has raised $6 million in Series A funding co-led by Chrysalis Ventures and Dolphin Equity Partners.

Trellia Networks Inc., a Montreal-based provider of intelligent mobility solutions, has raised US$3.5 million in Series B funding from Solidarity Fund QFL and Skypoint Capital.

StudioNow, a Nashville, Tenn.-based online video editing company, has raised $1.5 million in Series A funding. Claritas Capital led the deal, and was joined by angels Fred Goad and Jim Kever.

Buyout Deals

KBC Private Equity has sold its 30% stake in audiovisual production house D&D Media Group to Palamon Capital Partners, for an undisclosed amount. D&D specializes in drama, entertainment and factual entertainment for both television and other media. KBC Private Equity first invested in D&D Media Group in August 2002.

3i Group, Allianz Capital and German ferry company Deutsche Seereederei have agreed to acquire Scandlines, the largest ferry company in the southern part of the Baltic Sea. Scandlines was originally formed as a 50/50 joint venture between the Danish government and German state-owned railway Deutsche Bahn AG. The deal is valued at approximately €1.5 billion, with 3i and Allianz reportedly each taking a 40% position. Deutsche Seereederei will get the remaining 20 percent.

Altor Equity Partners has agreed to acquire Q-Matic Holding AB from 3i Group, Litorina Kapital and the founding Q-Matic families. No financial terms were disclosed. Q-Matic is a Sweden–based provider of queue management systems and customer flow management. It sold a 70% stake to 3i and Litorina in late 2004.

Cerberus Capital Management has expressed interest in acquiring the non-coal assets of German conglomerate RAG, for approximately $10.6 billion. But the deal might have trouble with German regulators, as an unnamed government source told Reuters that a Cerberus purchase would be blocked. RAG had announced on Wednesday that it would float the assets, which include energy, chemicals and property businesses.

Focus DIY has confirmed that it is in talks with Cerberus Capital Management about a possible sale. A source familiar with the situation told Thomson Merger News that Focus is likely to announce a deal within the week. Focus DIY is currently owned by Duke Street Capital and Apax Partners.

Marlin Equity Partners has acquired Ultra*Pro, a Commerce, Calif.-based manufacturer and marketer of storage products for sports and gaming collectibles, photographs and multi-media products.Ultra*Pro also manufactures and distributes a leading line of scrapbooking tools and supplies, marketed under the 7gypsies brand name.No financial terms were disclosed.

Bain Capital Partners and Catterton Partners have completed their $3.2 billion take-private buyout of OSI Restaurant Partners Inc., a restaurant operator whose brands include Outback Steakhouse, Cheeseburger in Paradise, Roy’s and Carrabba’s Italian Grill. OSI stockholders received $41.15 per share.

Sterling Capital Partners and Citigroup Private Equity have completed their $535 million take-private buyout of Educate Inc., a Baltimore–based provider of supplemental education products and services to the pre-K-12 market. Educate stockholders received $8 per share. They included Apollo Management, which held a majority stake in Educate via its position in Sylvan Learning.

PE-Backed IPOs

Aegerion Pharmaceuticals Inc., a Bridgewater, N.J.-based drug company focused on cardiovascular and metabolic disease, has withdrawn registration of an IPO designed to raise upwards of $70 million. It blamed “market conditions” for the decision. Lehman Brothers had been serving as lead underwriter. Aegerion raised around $22.5 million in Series A funding in 2005 from firms like Alta Partners, Advent International, Index Ventures, MVM Life Science Partners and Scheer & Co.

PROS Holdings Inc., a Houston, Texas-based provider of pricing and revenue optimization software, has set its proposed IPO terms to6.825 million common shares being offered at between $10 and 412 per share. If it prices at the high end, it would be valued at approximately $309.5 million. PROS plans to trade on the Nasdaq under ticker symbol PROZ, with JPMorgan and Deutsche Bank Securities serving as co-lead underwriters. Shareholders include TA Associates (35.6% pre-IPO stake) and JMI Equity (11.2%).

PE Exits

KPS Capital Partners has sold Blue Ridge Paper Products for $338 million to Rank Group Ltd. of New Zealand. Blue Ridge is a Canton, N.C.-based manufacturer of specialty paperboard packaging products. KPS acquired a majority position in 1999, while employees hold a 39% position.

Sopheon PLC has agreed to acquire Alignent Software Inc., an Irvine, Calif.-based supplier of product and technology road-mapping software for complex global companies. The all-cash deal is valued at approximately $5.5 million. Alignent had raised VC funding from Horizon Ventures and Mission Ventures in 2005.

PE-Backed M&A

Post Capital Partners has sold portfolio company Agent Media Corp. to Summit Business Media LLC, a portfolio company of Wind Point Partners. No financial terms were disclosed. Agent Media is a Clearwater, Fla.-based provider of database, publishing and marketing solutions provider for the insurance industry.

The Quadrangle Group has sold Global Energy Decisions LLC to Ventyx, a service delivery management platform company of Vista Equity Partners. No financial terms were disclosed. Global Energy is a Boulder, Colo.-based provider of software, data and advisory services to the global energy utility industry and its supply chain.

Visant Corp. (a.k.a. Jostens), a portfolio company of KKR and DLJ Merchant Banking, has acquired Visual Systems Inc., a Milwaukee–based supplier in the overhead transparency and book component business. No financial terms were disclosed.

Firms & Funds

PTV Sciences, a Texas-based VC firm focused on life and material sciences, has closed its second fund with $190 million in capital commitments. It also has added two venture partners: Nancy Chang, former president and CEO of Tanox Inc.; and Stephen Slade, a fellow at the American Academy of Ophthalmology and the American College of Surgeons.

Earlybird Venture Capital of Germany has held a $70 million million first close for its fourth fund, according to a regulatory filing. It is targeting upwards of $340 million, with MA Private Equity Partners serving as placement agent.

Sigvion Capital is planning to raise up to $100 million for its second fund, according to VentureWire. The Chicago-based VC firm specializes in companies focused on therapeutics and drug-device combinations treat metabolic disease and

Bear Stearns Cos. yesterday reported that fiscal second-quarter profit sank as a downturn in the U.S. mortgage market slammed the company’s business of issuing and dealing bonds backed by pools of home loans. Its shares fell nearly 2 percent. The Wall Street brokerage said, for purposes of calculating diluted earnings per share, it reported a profit for the three months ended May 31 of $374.6 million, or $2.52 per share, down from $558.2 million, or $3.72 per share, a year ago.

Goldman Sachs yesterday reported second-quarter results edged slightly higher, with profits squeezed by a slowdown in its mortgage business. Profit after paying preferred dividends rose to $2.29 billion, or $4.93 per share, from $2.29 billion, or $4.78 per share, a year earlier. Despite a strong performance in its investment banking and asset management businesses, revenue slipped to $10.18 billion from $10.24 billion a year earlier.

Human Resources

Brad Henske has agreed to join Hellman & Friedman as a managing director in the firm’s San Francisco office. He previously was general manager of Intuit Corp.’s consumer tax group (maker of TurboTax), after previously having served as the company’s CFO.

George Arnold has joined Knightsbridge Advisers as a managing partner. He previously led venture capital and growth equity investments at Citigroup Private Equity. Knightsbridge is a fund-of-funds focused on early-stage venture capital.

Paul Longhenry has joined 3i Group as a director with the firm’s venture capital group. He previously was director of business development with 3i portfolio company Sonim Technologies, and will work out of Menlo Park, California.

Vincent Pappalardo has joined Dresner Partners as a managing director focused on middle-market transactions in the metals and general industrial sectors. He previously was a director in the basic industrial group at Houlihan Lokey Howard & Zukin.