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PE Week Wire — Friday, February 11

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Dagres Goes Angel

1. Did you hear the one about how Todd Dagres is opening an East Coast office for Kleiner Perkins? Or maybe that he’s been dating some notable movie starlets?

No? Well Dagres has heard (and denied) them all since leaving Battery Ventures in 2003 to become a small-time Hollywood movie producer. The latest gossip is that Dagres – fresh off his first film premiering at Sundance – is launching a digital media/entertainment-focused VC fund in Boston, with the help of a few entrepreneurs and Charles River Ventures partner Santo Politi. Further fueling such speculation is the fact that Dagres seems to have relocated back to Red Sox Nation, at least judging from his cell phone’s area code.

Dagres, however, says the rumor is simply untrue, no matter how rampant. He acknowledges having teamed up with a few folks (including CRV’s Politi) to do some one-off angel investing in media and entertainment deals, but that he is not planning to create any formal VC firm or fund. He doesn’t even want a Boston version of Band of Angels or The Dinner Club, as both would be “much too organized” for Dagres’ tastes. Politi did not return repeated calls for comment.

2. Remember when Nishan Systems founder Aamer Latif sued both ComVentures and Lightspeed Venture Partners (among others), claiming that they had engaged in fraudulent vote-buying to gain shareholder support for McData’s acquisition of Nishan? Well, PE Week‘s Connie Loizos is reporting today that the suit has been settled. Read all about it.

3. We’ll do a proper Feedback column on Monday, but lots of you have asked how Thomson Venture Economics calculates private equity market overhang (due to yesterday’s brief CalPERS discussion). Our research editor Toby Walters provides the following explanation, in a helpful bullet point format:

·          Estimate aggregate fund size for the performance sample on a rolling five vintage year basis using themost recent five vintage years.

·          Compute total takedowns for these funds.

·          Estimate un-invested capital forthese funds.

·          Extrapolate the overall figure from the sample to the universe of all funds with committed capital for the same five vintage years. The VE VentureXpert database has a module in the performance analytics section that calculates this estimate for the sample funds in the performance database.

By the way, CalPERS says that CIO Mark Anson is returning to work on Monday, so hopefully he’ll be able to elaborate on his comments then. Have a great weekend…

Onex Partners, the private equity arm of Onex Corp. (TSX: OCX), acquired two subsidiaries of Laidlaw International Inc. (NYSE: LI): American Medical Response Inc. and EmCare Inc. The deal was worth $1 billion, including approximately $270 million of equity for a 98% ownership stake. AMR is a Denver-based provider of ambulance transport services, while EnCare is a Dallas, Texas-based provider of outsourced hospital emergency department physician staffing and management services.

Huntsman Corp., a Salt Lake City-based chemicals company, priced over 60.27 million common shares at $23 per share (high end of $21-$23 range), for an IPO take of approximately $1.39 billion. Among the selling shareholders was MatlinPatterson Global Advisors, which had sponsored a financial restructuring of Huntsman in 2002.

ArthroSurface Inc., a Franklin, Mass.-based developer of joint resurfacing systems, has raised $10.5 million in Series D funding led by return backer Boston Millennia Partners. The company has raised approximately $22 million in total VC funding since its 2002 inception.

Pionetics Inc., a San Carlos, Calif.-based provider of water purification solutions, has raised $6.4 million in Series C funding. Epcor Water Services Inc. and return backer NGEN Partners co-led the deal. Also participating was new inve*tor Unilever Technology Ventures, and return backers RockPort Capital Partners, Firelake Strategic Technology Fund, Topspin Partners and Pangaea Venture Fund.

Ometric Corp., a Columbia, S.C.-based designer and fabricator of optical components for application-specific spectroscopy, has raised $250,000 in seed funding from The Trelys Funds.

Sara Lee Corp. (NYSE: SLE) of Chicago yesterday announced a major corporate restructuring that puts approximately $8.2 billion in assets up for auction. Among the to-be-divested assets include Sara Lee’s apparel (worth up to $4 billion), European packaged meats, direct-sale and U.S. retail coffee units.

Black Diamond Capital Management has sponsored a financial restructuring of Smarte Carte Inc., a St. Paul, Minn.-based concessionaire of baggage cart, stroller and electronic locker services. Under terms of the deal, $163 million of Smarte Carte’s bank notes and unsecured notes will be converted into new equity, with Black Diamond receiving 72% of the new stock, GE Commercial Finance receiving another 23% and Bank Austria Creditanstalt Finance holding the remaining 5 percent. The deal is subject to U.S. Bankruptcy Court approval.

The European Union Commission has approved AXA Private Equity’s proposed acquisition of a 37.7% stake in publicly-traded French clothing retailer Camaieu SA from certain members of company management and the Torck and Giraud-Verspieren families. AXA will pay 85 euros per share, valuing the deal at just over 200 million euros.

McCown De Leeuw & Co. has begun shopping portfolio company 24 Hour Fitness Worldwide Inc., according to the New York Post. The San Ramon, Calif.-based health-club chain could command more than $1 billion, with interested suitors reported to include Apollo Management, Bain Capital, Cerbeus Capital Management and Texas Pacific Group.

Electra Partners Europe reportedly has agreed to sell UK nursing home-care company Ashbourne Healthcare Services to HBOS PLC for approximately GBP 275 million. Losing bidders are reported to include Blackstone Group and Allianz Capital Partners.

Lord Waheed Alli, a UK media entrepreneur, has secured backing from 3i Group for his GBP 100 million bid for SMG PLC‘s Virgin Radio business. The problem, however, is that SMG already has turned down the offer.

Amphastar Pharmaceuticals Inc., a Rancho Cucamonga, Calif.-based developer of injectable and inhalable drugs, has filed to raise $115 million via an IPO of common stock on the Nasdaq under proposed ticker symbol AMPR. Significant shareholders include the Applied Physics & Chemistry Laboratory and the China Development Industrial Bank.

Aspreva Pharmaceuticals Corp., a British Columbia, Canada-based drug company focused on new applications for on-the-market medications, has set its proposed IPO terms to 7.2 million common shares being offered at between $13 and $15 per share. It plans to trade on both the Nasdaq and TSX. Aspreva has raised venture capital funding from firms like Sprout Group, InterWest Partners and HBM BioVentures.

AlgoRx Pharmaceuticals Inc., a Secaucus, N.J.-based drug company focused on pain management, has reduced its proposed IPO price to $7-$8 per share, from $10-$12 per share. It still plans to offer 6.8 million shares. AlgoRx has raised approximately $97 million in total VC funding since its 2001 inception, with significant shareholders including InterWest Partners, JPMorgan Partners, Sofinnova Ventures, Advent International, Index Ventures and Pacific Rim Ventures.

Strategic Management Group Inc., a Philadelphia-based provider of corporate simulation products and services, has agreed to sell its learning solutions assets to BTS USA. No financial terms were disclosed. SMG is a portfolio company of Behrman Capital.

Richard Barton has joined Benchmark Capital as a venture partner. Barton is the founder of online travel agent Expedia Inc. (Nasdaq: EXPEW), and currently serves as chairman and CEO of a Seattle-based Internet startup named Zillow Inc.

Praesidian Capital, a New York-based provider of mezzanine de*t for mid-market companies, has closed its debut fund with $156 million. Limited partners include Banc of America Capital Access Funds, The Lincoln National Life Insurance Co., Citicorp Venture Capital, Citibank Community Development, JP Morgan Chase & Co., MBNA America and North Fork Bank. The $156 million also includes both private capital and leverage from the U.S. Small Business Administration.

Union Square Ventures has held a $125 million final close on its inaugural fund. The firm was launched in October 2003 by Fred Wilson (formerly of Flatiron Partners) and Brad Burnham (formerly of AT&T Ventures), and already has invested in both Tacoda Systems and Instant Information.

Ireland‘s state pension fund – the National Pensions Reserve Fund (NPRD) – has decided to increase its alternative asset allocation, according to PrivateEquityOnline. The plan is to have 8% of its 12 billion euros invested in private equity (approx, 960 million euros) by the end of 2009.

Thursday, February 10

On CalPERS and Biotech IPOs

I just got back from a poorly-timed breakfast meeting with a VC (my fault, not hers), so just time for two quick notes:

1. Mark Anson, CIO of CalPERS, was not available yesterday for further discussion of his Geneva speech, in which he warned of a pending private equity market bubble. Hopefully he’ll pick up his cell today, because CalPERS carries extraordinary weight as the world’s second-largest private equity investor (AlpInvest is first, thanks to the euro-dollar conversion gap). Moreover, CalPERS continues to pump huge sums into the market, recently approving such things as a $300 million commitment to The Carlyle Group’s new fund (which has not yet held a final close), and a $75 million commitment to Oak Hill Capital Partners’ second effort. In other words, there seems to be some sort of disconnect between Ansen’s comments and actions, particularly when one considers that he has never raised “bubble” concerns with the CalPERS board.

By the way, Anson used year-end 2003 numbers to suggest that the private equity market overhang was $182 billion. I was able to get some more current figures from Thomson Venture Economics (our affiliated data provider), which show a $99.5 billion overhang in the buyouts and mezzanine markets as of 9/30/04, and $206 billion for the private equity market as a whole (inclusive of VC and other assorted sub-asset classes). Either way, Anson has a point, particularly with tons of new LBO and VC fund capital rushing into market. The question is what he plans to do about it. We’ll keep watching.

2. More possible evidence of the biotech IPO window closing: AlgoRx just cut its proposed offering price range, and Peninsula Pharmaceuticals has (again) postponed its IPO, this time because it has entered merger talks with an unknown drug company. BusinessWeek’s Sarah Lacy keeps making her case here, but I have a quick public question: Isn’t it possible that reduced-price IPOs still make sense for many of these companies, plus for public market buyers?

Sure, they all file to raise $86.25 million and don’t get close, but the M&A market still isn’t great for biotech, and most of these companies can’t get the types of private valuations they got in late-2003 or early-2004 (when there was a mini-biotech valuation bubble). Consider these financing events more than exits, and wait for a pop when products get through the clinic. Still just thinking out loud.

Cytyc Corp. (Nasdaq: CYTC) has agreed to acquire Proxima Therapeutics Inc., an Alpharetta, Ga.-based developer of cancer treatment systems, with a particular focus on radiation treatment systems for breast cancer. The deal is valued at $160 million in cash, plus an unspecified two-year earnout based on sales milestones. Proxima Therapeutics has raised over $50 million in VC funding since its 1995 inception, including a $14 million Series E infusion in 2002 at a post-money valuation of approximately $91 million. Company backers include Domain Associates, New Enterprise Associates, Hillman Ventures, Boston Scientific Corp., Liberty Ridge Capital, Merrill Lynch, Montagu Newhall Associates, NeuroVentures Capital and Lovett Miller & Co.

Ronald Rittenmeyer, former president and CEO of Safety-Kleen Corp., has joined The Cypress Group as a managing director. The Cypress Group is currently raising a new fund.

BinOptics Corp., an Ithaca, N.Y.-based provider of integrated microphotonic chips for datacom, telecom and optical storage applications, has raised $10 million in Series B funding. FA Technology Ventures and ArrowPath Capital were joined on the deal by return backers Draper fisher Jurvetson and Cayuga Venture Fund.

Vericept Corp., an Englewood, Colo.-based provider of compliance and content control solutions, has raised $12.5 million in new venture capital funding. Globespan Capital Partners led the deal, and was joined by return backers Sigma Partners, William Blair Capital Partners and Sequel Venture Partners. The company has raised approximately $35 million in total VC funding since its 1999 funding.

The Mobile Media Co., an Oslo, Norway-based provider of wireless games and other interactive entertainment services, has raised 7 million euros, via a convertible bond issued on the London Capital market. Inc., a Waltham, Mass.-based provider of video and multimedia software and services, last year raised $14 million in Series A funding from Matrix Partners, Norwest Venture Partners and North Bridge Venture Partners.

Secure Software Inc., a McLean, Va.-based , has raised $9.25 million in Series B funding. Updata Partners led the deal, and was joined by return backers Charles River Ventures, Valhalla Partners and Amalia Ltd.

Industrial Growth Partners has acquired Global Power Systems LLC, a Houma, La.-based provider of repair and maintenance services for marine diesel engines operated primarily in the Gulf Coast region. No financial terms were disclosed, except that Golub Capital helped finance the deal with $7.5 million in subordinated notes and equity.

Altor is sponsoring a management buyout of Danish life sciences company Ferrosan AS, which includes the acquisition of a 29% stake from Novo Nordisk.

Prestige Brands Holdings Inc., an Irvington, N.Y.-based provider of over-the-counter drugs, personal care products and household cleaning products (including Comet), priced 28 million common shares at $16 per share, for a total IPO take of approximately $448 million. It had only filed to piece around 23.33 million shares at between $14 and $16 per share. Prestige Brands was launched as a consumer products acquisition platform in 1999 by MidOcean Partners, which later sold it to GTCR Golder-Rauner.

Syniverse Holdings Inc., a Tampa, Fla.-based provider of mission-critical technology services to wireless telecom companies, priced 17.62 million common shares at $16 per share (below its $20-$22 offering range), for an IPO take of approximately $282 million. The company was founded in 1987 as a unit of GTE, which later merged with Bell Atlantic to form Verizon Communications. In February 2002, senior management of the unit participated in a management buyout sponsored by GTCR-Golder Rauner.

Peninsula Pharmaceuticals Inc., an Alameda, Calif.-based drug company focused on anti-infective products, has entered talks to be acquired by an undisclosed pharmaceutical company. As a result, Peninsula has (again) postponed its planned IPO. Company backers include Domain Associates, Canaan Partners, A.M. Pappas & Associates, Montreux Equity Partners and OrbiMed Advisors.

Powerwave Technologies Inc. (Nasdaq: PWAV) has acquired the core assets of Kaval Wireless Technologies Inc., an Ontario, Canada-based supplier of in-building wireless coverage solutions. The deal is valued at approximately $10.8 million in cash, plus certain assumed liabilities. Kaval had received private funding from Capital Alliance Ventures, Ventures West Management and The B.E.S.T. Fund.

WebSideStory Inc. (Nasdaq: WSSI) has agreed to acquire Avivo Corp. (a.k.a. Atomz), a San Francisco-based provider of on-demand digital marketing applications, including site search and Web content management. The deal is worth approximately $41.34 million, including $4.3 million in cash and 3.1 million common shares of WebSideStory stock. Avivo has raised over $20 million in venture capital funding from firms like New Enterprise Associates, Sofinnova Partners, Fenwick & West and WS Investments.

Marie Brizard & Roger International, a France-based beverage company controlled by Duke Street Capital, has acquired French spirits provider William Pitters International. No financial terms were disclosed.

Broadcast Electronics Inc. of Quincy, Ill. portfolio company of Thompson Street Capital Partners, has acquired the assets of radio de-casting company The Radio Experience. No financial terms were disclosed.

Freescale Semiconductor Inc. (NYSE: FSL) has acquired the assets of PrairieComm Inc., a Rolling Meadows, Ill.-based developer of 3G baseband solutions. No financial terms were disclosed. PrairieComm has raised over $45 million in venture capital funding from firms like Greylock and Lucent Venture Partners.

Greenbriar Equity Group, a Rye, N.Y.-based private equity firm focused on the transportation industry, has named CFO Kathleen Moran and principals John Daileader and Jill Raker as managing directors.

William Greshak has joined Stout Stout Risius Ross Inc. as a director in its Valuation & Litigation Advisory Services Group. He previously served as a senior manager in Ernst & Young’s Investigative and Dispute Services practice.

Jonathan Aberman and David Dutil have been named of counsel in the business and finance practice of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. Both men previously worked in the corporate and securities group of Fish & Richardson.

The BioStar Private Equity Fund of Irvine, Calif. has closed with $26 million in limited partner commitments.

Pillsbury Winthrop LLP and Shaw Pittman LLP have agreed to merge, creating a law firm with around 900 attorneys in 16 offices around the globe.

Wednesday, February 9

Random Ramblings

Big news and deadline day, which means I’m running more behind schedule than usual. But I’d feel bad if all I contributed to your morning routine were news blurbs, so here are a few things to start the day (unless you’re in Europe or Asia, in which case this could be considered late afternoon or bedtime reading):

* Mark Anson, chief investment officer for CalPERS, yesterday said that the U.S. private equity market could be setting itself up for a crash, due to a confluence of LBO fund overhang, rising interest rates and the intrusion of hedge funds. A startlingly dour assertion for one of the asset class’ large investors.

* PE Week’s Jerry Borrell talks to some investors about the 2005 outlook for VC-backed biotech IPOs.

* Tim Oren of Pacifica Fund blogs on the activities of In-Q-Tel (scroll down a bit).

* Finally, does this editorial cartoon in today’s Boston Globe remind you of anything you read yesterday?

Five Prime Therapeutics Inc., a South San Francisco-based drug discovery company, has raised $45 million in fourth-round funding (each round has involved Series A preferred stock). Domain Associates led the deal, and was joined by HealthCap, JP Morgan Bay Area Equity Fund and return backers Kleiner Perkins Caufield & Byers, Versant Ventures, Texas Pacific Group, Advanced Technology Ventures, The Wellcome Trust, Diamond Capital Co. and a Bio*One subsidiary named Singapore BioInnovations Pte. Ltd. The company has raised nearly $85 million in total venture funding since its 2002 inception, including a $9.5 million infusion in late 2003 at a post-money valuation of approximately $50.5 million.

SBS Broadcasting SA (Nasdaq: SBTV) has agreed to purchase Sweden-based C More Group AB from Baker Capital and Nordic Capital for 269.8 million euros in cash. C More was created in October 2003, when Baker and Nordic acquired pay-TV provider Canal+ Television from Vivendi Universal.

Accel-KKR is raising its second fund, with a target capitalization of $200 million, according to a regulatory filing.

LVL7 Systems Inc., a Morrisville, N.C.-based provider of networking software for communications system manufacturers, has raised $21 million in Series C funding. U.S. Venture Partners led the deal, and was joined by Lighthouse Capital Partners and return backers Carlyle Venture Partners, Gabriel Venture Partners, H.I.G. Ventures and Research Triangle Ventures.

Method Products Inc., a San Francisco-based provider of branded home products, has raised $10 million in Series C funding. London Merchant Securities led the deal, and was joined by return backers H&S Blue Chip, Sumitomo Corp. and former Yahoo CEO Tim Koogle.

CallMiner Inc., a Cape Coral, Fla.-based provider of speech analytics software, has received an undisclosed amount of funding from In-Q-Tel, the venture capital wing of the Central Intelligence Agency. Existing CallMiner backers include Inflexion Partners, Intersouth Partners and Village Ventures.

Pelion Systems Inc., a Lafayette, Colo.-based provider of manufacturing process optimization solutions, has received an undisclosed amount of venture capital funding from the UPS Strategic Enterprise Fund. Existing Pelion backers include Inverness Capital Partners and Cordova Ventures.

Alfa Leisure Inc., a Chino, Calif.-based maker of motor-homes and fifth-wheel travel trailers, has received $10.9 million in funding from Nogales Investors.

Ko-Brite Corp., an LED manufacturer with operations in Asia, has been formed by Kopin Corp. (Nasdaq: KOPN), WK Technology Fund, Taiwanese semiconductor company KTC and an unnamed LED packaging manufacturer. The company is capitalized with $14.5 million.

Investcorp has agreed to acquire American Tire Distributors Inc. from majority shareholder Charlesbank Capital Partners. No financial terms were disclosed on the deal, which is expected to close in late March. American Tire Distributors is a Charlotte, N.C.-based distributor of tires to the U.S. replacement tire market.

The Blackstone Group has teamed with Robert Krakoff to pursue opportunities in the B2B communications and media industry. Krakoff is the former chairman and CEO of Advanstar Inc., and also the former vice chairman of Reed Elsevier Inc.

Lime Rock Partners has committed up to $30 million in equity financing over the next three years to Slate River Resources LLC, a new Denver-based oil and natural gas exploration and production company.

Wind Point Partners has acquired Waterbury Acquisition Corp. from J.O. Hambro Capital Management and Mezzanine Management for an undisclosed amount. Waterbury Acquisition is a Waterbury, Conn.-based maker of environmental hygiene products. Brown Gibbons Lang & Co. advised Waterbury on the deal.

Builders TradeSource Corp., an acquisition platform company formed by SKM Growth Investors and Four Corners Capital Partners, has acquired Paradise Electric Inc., a provider of electrical contracting services in Southern California. No financial terms were disclosed.

The Baring English Growth Fund has sponsored a GBP 20 million management buyout of Stone Computers, a UK-based provider of desktop computers and other branded IT hardware to the public sector and educational markets.

Woolworths Group PLC reportedly has rejected an informal GBP 789 million buyout bid from Apax Partners, claiming the price was too low.

Emageon Inc., a Birmingham, Ala.-based provider of IT solutions for the clinical analysis and management of digital medical images within healthcare provider groups, priced five million common shares at $13 per share (low end of $13-$15 range), for an IPO take of approximately $65 million. The company had raised venture capital funding from such firms as Southeastern Management Co., Aurora Funds, Paradigm Venture Partners and Greystone Capital Partners. It will trade on the Nasdaq under ticker symbol EMAG.

Valor Communications Group Inc., an Irving, Texas-based provider of telecom services, priced 29.37 million common shares at $15 per share (below $16-$18 range), for a total IPO take of approximately $440.55 million. The company was formed in 2000 after the acquisition of select telephone assets from GTW Southwest Corp., which now is part of Verizon. Equity sponsors on the deal – and subsequent shareholders in Valor – were Welsh, Carson, Anderson & Stowe, Citicorp Venture Capital and Vestar Capital Partners. It plans to trade on the NYSE under ticker symbol VCG.

FTD Group Inc., a Downers Grove, Ill.-based provider of floral products, priced 13.1 million common shares at $13 per share (middle of $12-$14 offering range). Leonard Green & Partners acquired FTD last year in a public-to-private transaction worth approximately $420 million, and was expected to hold a 53.6% post-IPO position. FTD plans to trade on the NYSE under ticker symbol FTD.

Infiniti Solutions Ltd., a Singapore-based provider of semiconductor test and assembly services, has withdrawn registration papers for its proposed $66.35 million IPO on the Nasdaq, citing “current market conditions.” The company listed both 3i Group and EDB Investments as significant shareholders.

Microsoft Corp. (Nasdaq: MSFT) has agreed to acquire Sybari Software Inc., an East Northport, N.Y.-based provider of anti-v*rus, anti-sp*m and content filtering software. No financial terms were disclosed. Sybari currently is in registration for a $57.5 million IPO, and has received funding from Summit Partners (25% ownership position). It is expected to withdraw its IPO registration papers.

Genzyme Corp. (Nasdaq: GENZ) has acquired Verigen AG, a Germany-based developer of cell therapy solutions for cartilage repair. The deal includes $10 million in initial payments, and the potential for up to $40 million in additional milestone payments over the next six years. Genzyne so far has acquired 96% of Verigen’s shares, and expects to acquire the remaining 4% during the first half of this year. Verigen has raised venture capital funding from firms like Candover Investments, DB Investor and HgCapital.

Infotrieve Inc., a Los Angeles-based provider of content software technology and information services, has acquired GenSys Software Inc., a Santa Monica, Calif.-based provider of the electronic laboratory research notebooks. No financial terms were disclosed. Infotrieve has raised over $36 million in venture capital funding from firms like Signal Equity Partners, Trident Capital, Boston Millennia Partners and Capital Resource Partners.

ULocate Communications Inc., a Framingham, Mass.-based application service provider for wireless location-based services, has acquired, a Palo Alto, Calif.-based developer of GPS photography. No financial terms were disclosed. ULocate has raised over $5 million in venture capital funding from firms like GrandBanks Capital and Kodiak Venture Partners.

180Solutions Inc., a Bellevue, Wash.-based provider of search marketing solutions, has acquired application development company Easy Message. No financial terms were disclosed. 180Solutions is backed by Spectrum Equity Investors.

IMI PLC has acquired Syron Engineering & Manufacturing LLC, a Saline, Mich.-based provider of transfer automation tooling solutions for high-volume metal stamping presses. Sellers included Cedar Creek Partners, Midwest Mezzanine and company management. No financial terms were disclosed. Brown Gibbons Lang & Co. advised Syron on the deal.

New Horizons Worldwide Inc. (Nasdaq: NEWH) has received $6 million in PIPE funding from Camden Partners, in exchange for a 13% ownership position and board seat for Camden Partners co-founding partner David Warnock.

O’Melveny & Myers reportedly has hired Spencer Klein, former head of the M&A practice at McDermott Will & Emery. Also moving over with Klein are fellow M&A partners Gregory Puff and Paul Scrivano. In related news, O’Melveny & Myers also rep