PE Week Wire: Fri., May 25, 2007

*** David Toll takes some time on peHUB this morning to discuss fair-value accounting, which is something that private equity firms have assiduously avoided for years. Instead, most firms just carried portfolio companies at cost until liquidity – believing that conservatism was the most responsible course of action. Plus, low expectations are easier to exceed.

Last September, however, the Financial Accounting Standards Board issued FAS 157, which basically told private equity firms (both buyout and venture) that this discounting would no longer be considered GAAP-compliant. Not necessarily a huge deal for VC firms, since they often revisit company values due to follow-on financing rounds. But buyout firms were none too pleased.

This rule goes into effect for different firms at different times, based on their fiscal years. Overall, however, it should raise short-term private equity benchmarks by at least a few percentage points.

But the big issue isn’t aggregate IRRs. Instead, it’s what LPs should do about those firms that refuse to comply. There’s at least one such shop based in New York – and certainly more I haven’t yet heard about. If just a small percentage of an LPs portfolio funds do not abide by FAS 157, there’s no real harm done – save for the difficulty of judging complaint fund IRRs against non-complaint fund IRRs. But if a significant percentage declines, then the LP itself might not be able to get certified as being GAAP-complaint by its own accountants. And that would be a major problem for almost all LPs – and particularly for public systems that are legislatively required to conduct annual audits.

Just last month, Ernst & Young dropped the University of Texas Investment Management Co. as its client, citing discomfort with how UTIMCO valued its private equity and hedge fund investments. I don’t expect this to be a widespread problem, but all GPs should really put their investors’ convenience over their own stubbornness on this matter. After all, in the end, everyone’s going to know exactly how the fund performed – discounts or not.

*** Three weeks ago, I got a tip that Peter Adderton was out as CEO of Amp’d Mobile, a mobile virtual network operator that has raised over $350 million in venture capital. I made two calls. First to Adderton himself, who told me that the rumor was untrue. “If I’m leaving, no one told me,” he said. Next I checked in with a source that has regularly supplied this space with ahead-of-the-curve financing news on Amp’d – and he called the rumors “ridiculous.”

Why do I bring all of this up this morning? Because ValleyWag printed the rumor yesterday, and it was picked up by reputable (and influential) blogs like GigaOm and PaidContent. The result has been nearly a dozen emails in my inbox, asking if it’s true. After all, I am on record as having hyped this company while most everyone else was bashing it over the skull with the tattered remains of Mobile ESPN. In other words, my dear readers are asking me to eat some crow.

And that may be what ends up happening (I’ll eat anything with enough BBQ sauce on it), but not quite yet. First, I don’t believe that this particular source would have lied to me. Perhaps that’s being naïve, but all I can do is trust my judgment in the absence of countervailing evidence. More importantly, the “Adderton is out” tip has clearly been pushed all over town. That doesn’t make it right or wrong – but could mean that ValleyWag was simply the first outlet willing to print it without proof. Not a knock on ValleyWag (they are unabashedly in the rumor biz), but rather a point of fact.

I have left a message with my financing source this morning, and will ring Adderton as soon as it’s reasonable to do so (he’s West Coast, and I don’t know his alarm clock tendencies). Once I have something to share beyond the preceding blather, I’ll let you know via peHUB. Again, my gut says he’s staying.

*** PE Week Wire will not publish on Monday, in observance of the Memorial Day holiday. We’ll chat again on Tuesday…

Top Three

Warburg Pincus may have some competition for Bausch & Lomb (NYSE: BOL), which it recently agreed to acquire for approximately $4.5 billion. Yesterday, eye-care rival Advanced Medical Optics Inc. said that it might make a higher offer, and that the Warburg Pincus bid “undervalues Bausch & Lomb.” Under terms of the Warburg Pincus agreement, Bausch & Lomb may solicit superior proposals for the next 50 days, but would be required to pay a $40 million breakup fee were it to accept an alternate offer. Bausch & Lomb is being advised by Morgan Stanley.

Mformation Technologies Inc., an Edison, N.J.-based provider of mobile device management solutions, has raised $20 million in fifth-round funding. QuestMark Partners led the deal, and was joined by Wasatch Cross Creek Capital and return backers Battery Ventures, Carmel Ventures, Intel Capital and North Bridge Venture Partners. Mformation has raised just over $70 million in total VC funding since its 1999 inception.

Helicos Biosciences Corp., a Cambridge, Mass.-based DNA sequencing company, priced 5.4 million common shares at $9 per share, for an IPO take of approximately $48.6 million. It originally planned to price the shares at $13-$15 per share, and later lowered the target to $10-$11 per share. It will trade on the Nasdaq under ticker symbol HLCS, while UBS served as lead underwriter. Helicos had raised around $67 million in VC funding from firms like Flagship Ventures (20.6% pre-IPO stake), Atlas Venture (17.6%), Highland Capital Partners (17.6%), MPM Capital (12.9%) and Versant Ventures (9.9%).

VC Deals

Magnum Semiconductor Inc., a Fremont, Calif.-based supplier of ICs, software and reference platforms for audio and video content, announced that it has raised $27 million in Series C funding. PE Week Wire first reported on the deal earlier this month, based on a regulatory filing. Investor Growth Capital led the deal, and was joined by WK Technology Fund, KTB Ventures, Gold Hill Capital and return backers August Capital and Investcorp Technology Ventures. Magnum was spun out of Cirrus Logic in 2005.

Implanet Partners, a Bordeaux, France-based surgical implant startup, has raised €13 million in first-round funding. Backers include Auriga Capital, Edmond de Rothschild Investment Partners and Wellington Partners.

Buyout Deals

Brynwood Partners has agreed to acquire the Turtles confectionery brand from the US unit of Nestle SA, through a newly formed group called DeMet’s Candy Company. Separately, Brynwood Partners will acquire the Turtles production facility based in Toronto, Canada, from Nestle Canada. No financial details for either deal were disclosed.

Hunt Private Equity Group and BB&T Capital Partners have acquired GInsey Industries Inc., a Bellmawr, N.J.-based provider of private-label bath products. No financial terms were disclosed. Former majority owner Harry Haber will remain as CEO.

Symphony Technology Group has offered to acquire Aldata Solution Oyj (Helsinki: ALD1V), a Finland-based provider of supply chain software for retail, wholesale and logistics companies. The €1.82 per share offer would value Aldata at around €124 million. Clearlake Capital is helping to lead the leveraged financing package.

Merit Capital Partners has acquired Active Minerals Inc., a producer and supplier of kaolin- and attapulgite-based industrial clays. No financial terms were disclosed for the deal, which also included participation by company management. Baird advised Active Minerals.

Houlihan’s Restaurants Inc., a Leawood, Kan.-based casual dining chain, has raised $28 million in private equity funding from Goldner Hawn Johnson & Morrison. It also secured a $40 million senior credit facility from Wells Fargo Foothill Restaurant Finance. Proceeds will be used to fuel future growth for Houlihan’s, which expects 2007 sales in excess of $350 million.

Fillmore Capital Partners has withdrawn its offer to acquire Genesis HealthCare Corp. (Nasdaq: GHCI) for $69.25 per share, after Genesis accepted a $69.35 per share offer from original bidders Formation Capital and JER Partners. Fillmore did say, however, that it would consider reentering the process is Genesis shareholders rejected the Formation/JER offer. Genesis is a Kennett Square, Pa.-based long-term care provider with over 200 skilled nursing centers and assisted living residences in 13 eastern states.

The SEC has opened an inquiry into unauthorized talks a former Dow Chemical Co. executive and a former board member held about selling the company, The New York Times reported Friday. Last month, the chemicals maker fired former board member Pedro Reinhard and former officer Romeo Kreinberg. The SEC wants more information about a takeover proposal investment bank JPMorgan Chase & Co. had worked on, the Times said. Citing a Dow Chemical lawsuit against Reinhard and Kreinberg, the NYT said JPMorgan Chase was working on behalf of a client in the Middle East interested in the company. Also, the SEC is looking at an “overture” Dow Chemical made last fall to buy its rival DuPont Co. for mo! re than $40 billion.

PE-Backed IPOs

DemandTec Inc., a San Carlos, Calif.-based provider of consumer-centric merchandising software, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol DMAC, with Credit Suisse and Morgan Stanley serving as co-lead underwriters. DemandTec has raised around $50 million in total VC funding since 1999, from firms like Crosspoint Venture Partners (34.8% pre-IPO stake), Cargill Ventures (15.9%), Altos Ventures (8.3%) and Athena Technology Ventures. Late last year it acquired TradePoint Solutions Inc., a Pleasanton, Calif.-based provider of online deal management software.

PE Exits

Alchemy Partners has agreed to sell ICS Triplex to Rockwell Automation Inc. (NYSE: ROK) for Gbp110 million in cash. ICS Triplex is a Waldon, UK-based provider of critical control engineering services and products. Alchemy acquired ICS in 2000 for Gbp29 million, and in 2005 sold a unit called Transmitton Ltd. to Siemens. The sale of Triplex represents a complete exit.

Apax Partners’ expected bid for Iberia Lineas Aereas de Espana SA will likely speed up its exit from low cost carrier Vueling SA, in which it holds 20.9%, Expansion reported, citing comments from Vueling CEO Carlos Munoz. Apax’s lock-up period in Vueling ends May 31, and analysts have widely speculated the capital risk group will cash in its stake and earmark the funds for an Iberia offer. Apax reportedly has been in talks with Air France-KLM and Deutsche Lufthansa AG about a potential Gbp2.3 billion takeover for Iberia.

Firms & Funds

Bulgari SpA is ready to sell its private equity unit Opera to Michele Russo, a banker with a long international experience in private equity, according to Il Sole 24 Ore. Russo would buy a 75% stake. Opera has a portfolio worth more than €300 million. Bulgari currently holds 50% of Opera with the remaining stake held by Opera’s management.

Human Resources

Geoff McKay has joined Vulcan Capital as a managing director in the firm’s private equity group. He previously was a general partner with Forstmann Little & Co.

Amy Long and Gregory Tansey have joined Riverlake Partners as vice presidents. Long previously was a VP of commercial banking with LaSalle Bank in Chicago, while Tansey was a principal with SmartForest Venture.

Michael Li has joined Bisys Alternative Investment Services as a Hong Kong-based director, responsible for managing day-to-day private equity operations in Asia. He previously worked for Deloitte & Touche and Arthur Andersen in San Francisco, with a focus on private equity and venture capital clients.

Daniel Freed has joined Rutland Partners, after having spent the past three years working on European M&A transactions at CIBC World Markets.