PE Week Wire: Fri., June 8, 2007

I ventured outside the home office yesterday to have lunch with an out-of-town VC, at the picnic-tabled Barking Crab on Fan Pier in Boston. Be forewarned that if you ever go out to lunch with me, that’s probably where you’ll end up. Great place, but the shoulder-to-shoulder lunch crowd wasn’t terribly conducive for sharing gossip. So instead we got into issues of investor responsibility that basically boiled down to a question worth posing to the larger Wire audience: “Who is your primary customer?”

Specifically, is your customer the company in which you invest? Or is it the limited partner who invests in your fund? This might seem most relevant for VCs who often form tight bonds with early-stage entrepreneurs, but I think it’s also salient for the buyout crowd.

My lunch-mate went for the company, arguing that such a focus is the best way to produce returns that will satisfy the limited partner. He used the metaphor of Starbucks, in that the customer is the one buying the coffee – and that customer satisfaction leads to added revenue that leads to increases in shareholder value. I countered by pointing out that Starbucks coffee is priced higher than that of its competitors, largely because of its employee benefits package. If Starbucks is most concerned with its coffee-buyers, wouldn’t it lower the cup price by cutting some benefits? He replied something about happier employees leading to a better store environment that leads to happier customers, and around we went…

My initial reaction was that the primary customer is the limited partner, because without the LP there is no capital to invest in the company. Lunch-mate replied that it may be easier to find another LP than another good company, which I’d term as the “easier to find another coffee farmer…” argument. Works for a veteran firm in an era of excess LP liquidity, but seems a bit short-sighted to me. Plus, LP agreements are often quite explicit about which side wins out in case of a severe conflict. Pick the company, and violate your contract.

Like all black-or-white arguments, the real answer here is a shade of gray. Something like: Your primary customer is the company, but your ultimate responsibility is to the limited partner. But let’s pretend we’re political pundits on a cable screamfest, and take sides. I’m still sticking with LPs unless convinced otherwise.

So I ask you: Who is your customer?

Top Three

Benchmark Capital Europe announced that it is spinning out as an independent entity called Balderton Capital, seven years after being formed by its Silicon Valley namesake. Read more at peHUB.

Limelight Networks Inc., a Tempe, Ariz.-based provider of a network for delivering live and on-demand digital media online, raised $240 million in its IPO. The company priced 16 million shares at $15 per share, after having originally filed to price 14.4 million shares at between $12 and $14 per share. It will to trade on the Nasdaq under ticker symbol LLNW, while Goldman Sachs and Morgan Stanley served as co-lead underwriters. Limelight raised $130 million in VC funding last year from GS Capital Partners (45.2% pre-IPO stake) and Oak Investment Partners (9.2%).

Jon Symonds has resigned as CFO of AstraZeneca, in order to join Goldman Sachs as a managing director focused on increasing the firm’s private equity activities in the healthcare sector.

VC Deals

Nanoradio AB, a Stockholm, Sweden-based provider of low-lower WiFi solutions, has raised $27 million in new VC funding. Ferd Ventures led the deal, and was joined by Nordic Venture Partners, Innovacom, Teknoinvest and Industrifonden. Nanoradio has raised over $56 million in total VC funding since its 2004 inception.

ARCA Discovery Inc., a Denver-based developer of genetically-targeted therapies for cardiovascular diseases, has raised $18 million in second-round funding, according to VentureWire. InterWest Partners and Skyline Ventures co-led the deal, with return backers Atlas Venture and Boulder Ventures also participating. ARCA spun out of Myogen in 2005, and raised a $15 million Series A round.

Sonoma Orthopedic Products Inc., a Santa Rosa, Calif.-based developer of a minimally-invasive long bone fixation system, has raised $10 million in Series B funding, according to a regulatory filing. MedVenture Associates was joined by return backers Asset Management Co and EDF Ventures.

Corrigo Inc., a Wilsonville, Ore.-based maker of service management and time-tracking software, has secured $8 million of a $10.1 million Series 5 round, according to a regulatory filing. Return backers include Sierra Ventures, Sycamore Ventures, Asset Management Partners, Staenberg Venture Partners and Amicus Capital. Corrigo had previously raised around $42 million since its 1999 inception.

Integral Wave Technologies, an Austin, Texas-based developer of analog-intensive mixed-signal products, has raised $6 million in additional Series A funding. The round is now closed with a total of $16 million. CenterPoint Ventures led the deal, while other Series A backers include Hunt Ventures and Rho Ventures.

NeoEdge Networks Inc., a Mountain View, Calif.-based provider of digital content delivery software, has secured $3 million of an $8 million Series B round, according to a regulatory filing. Return backers include Jefferson Partners and Vimac Ventures.

CleanFish Inc., a San Francisco-based sourcer and distributor of sustainably-produced seafood, has raised $2.1 million in Series A funding led by Mindful Capital Partners.

Buyout Deals

Audax Group has acquired Lewis-Goetz & Co., a Pittsburgh, Pa.-based distributor of rubber products to the power generation, aggregate, coal mining, steel, and general industrial end-markets. No financial terms were disclosed. GE Antares Capital led the leveraged finance syndicate, while Vetus Group advised Lewis-Goetz.

Greenhill Capital Partners and Abrams Capital have acquired a majority interest in FCC Holdings Inc. from TA Associates. No financial terms were disclosed. FCC is a Lauderdale Lakes, Fla.-based accredited private career college. It was advised on the sale by BMO Capital Markets, which also co-arranged the deal’s debt financing, alongside LaSalle Bank.

ICICI Ventures has led a buyout of Radiant Research, a Bellevue, Wash.–based provider of clinical research services for the pharmaceutical, medical device and nutrition markets. No financial terms were disclosed.

The Riverside Company has acquired the U.S. power services unit — Integrated Power Services — of Baldor Electric for an undisclosed amount.

Stone Arch Capital has acquired Wholesale Produce Supply Co., a Minneapolis-based produce distributor. LBO Wire reports that the sale price was approximately $50 million.

Summit Partners has acquired a 20% position in, a France-based host of online events in which members can purchase high-end consumer products. No financial terms were disclosed.

PE-Backed IPOs

Einstein Noah Restaurant Group Inc., a Golden, Colo.-based franchisor and operator of Einstein Bros. and Noah’s bagel shops, raised around $90 million in its IPO. The company priced five million common at $18 per share ($19-$21 range), and will trade on the Nasdaq under ticker symbol BAGL. Morgan Stanley and Cowen & Co. served as co-lead underwriters. Greenlight Capital held a 94.1% pre-IPO position.

PE-Backed M&A

Broadview Networks Holdings Inc., a Rye Brook, N.Y.-based provider of integrated communications and managed security services, has completed its acquisition of InfoHighway Communications, a New York-based provider of hosted and managed communications solutions for business customers in the Mid-Atlantic and Northeastern U.S. No financial terms were disclosed. Broadview shareholders include Baker Capital, MCG Capital, New Enterprise Associates, ComVentures and Lightspeed Venture Partners. InfoHighway backers included Apollo Real Estate Advisors, LLR Partners, Liberty Venture Partners, Spectrum Equity Investors and Trimaran Capital Partners.

JetDirect Aviation LLC has completed its acquisition of fellow private jet company Sentient Jet Inc. No financial terms were disclosed. JetDirect shareholders include CD Ventures, Argosy Capital, ABS Capital Partners, Brantley Partners, HSBC and AIG.

Prospect Mortgage Co., a platform acquisition company of Sterling Capital Partners, has acquired Metrocities Mortgage LLC, a Sherman Oaks, Calif.–based residential mortgage lender. No financial terms were disclosed.

Questex Media Group Inc., a B2B media acquisition platform of Audax Group, has acquired Imaging Network, a Fort Lauderdale, Fla.–based B2B multimedia marketing company focused on the office products channel. No financial terms were disclosed.

TruckPro Inc., a Memphis, Tenn.–based distributor of aftermarket truck parts, has acquired five stores in Kentucky from Auto Wheel & Rim Service Co. No financial terms were disclosed. Code Hennessy & Simmons acquired TruckPro last year from Cravey Green & Whalen.

PE Exits

Ericsson (Nasdaq: ERIC) has agreed to acquire Drutt Corp., a Stockholm, Sweden–based provider of service delivery platform solutions. No financial terms were disclosed. Drutt has raised VC funding from Provider Venture Partners and TeliaSonera.

First Reserve has sold its remaining 48.3% stake in gas production and storage company Chart Industries Inc. (Nasdaq: GTLS), via a secondary public offering. First Reserve sold around 12.37 million at $21.25 per share, for approximately $263 million. First Reserve originally acquired a majority stake in Chart Industries in late 2005, for just over $111 million.

YP Corp. (OTC BB: TPNT) has acquired LiveDeal Inc., an operator of online local classified and Yellow Pages marketplaces. The all-stock deal is valued at approximately $11 million. LiveDeal had raised around $5 million in VC funding from Draper Richards, Torstar Corp. and individual angels.

Firms & Funds

Duke Street Capital is nearing a final close on its sixth middle-market fund. The UK-based firm has been targeting €850 million, and also is in the process of hiring both a new investment director and investment manager. The fund will be the first since Duke Street founder Ed Truell left to set up Pension Insurance Corp., which buys pension fund assets. Truell sold the majority of his share in Duke Street earlier in the year.

Flagship Ventures is targeting $250 million for its next fund, and yesterday received a $20 million commitment from MassPRIM. The Cambridge, Mass.-based firm’s previous fund closed on just over $150 million in 2004.

Societe Generale has issued a “no comment,” in response to a press report that it is considering a takeover attempt of French rival BNP Paribas. Les Echoes reported that SocGen chairman Daniel Bouton is working with two U.S. banks – including Morgan Stanley – to consider takeover scenarios for BNP, which could possibly include a hostile bid.

Human Resources

Ben Hewetson has decided to leave UK buyout shop HgCapital, where he has been responsible for most of the firm’s leisure sector investments. Reports say that the move is partially the result of a recent managerial restructuring at HgCapital, whereby Hewetson’s leisure team was merged with its consumer team. No word yet on his future plans.

Merrill Lynch has named Purna Saggurti as head of I-banking and capital markets origination for the Americas, according to Bloomberg. Mark Aedy will be his European counterpart.

Julien De Marco has joined Activa Capital as an investment analyst. He spent the past two years with Ernst & Young, in the transaction services and corporate restructuring department.

H&Q Asia Pacific has promoted Jong Won (John) Lee and Yuchul (YC) Rhim to managing directors in the firm’s Seoul office. Both had previously been senior vice presidents.