PE Week Wire — Friday, February 17

Random Ramblings

*** It’s only been 24 hours, but I’ve already developed a love/hate relationship with the new pandemic and bio defense fund formed by Kleiner Perkins Caufield & Byers. What I love is its nobility. With avian flu now spreading into Western Europe and lots of real-life baddies hoping to mimic the Chechnyan thugs on 24, there is a profound need to do everything possible to promote preventives, diagnostics and treatments (As a brief aside, how much is one willing to wager that this fund will eventually back this company?). The primary responsibility resides with government but, in this case, there is no such thing as too many cooks in the kitchen. Moreover, KP last year added Colin Powell as an advisor, which means that they have extraordinary access to threat information, and potential solutions that already are being developed. Finally, KP ! has made a wise decision by focusing on later-stage efforts, since its traditional early-stage focus – particularly in terms of pharmaceuticals – would not provide the near-term solutions that KP realizes we need.

Now hate may be a strong word, but what makes me uncomfortable is that KP is straying way outside of its knitting here. The later-stage focus makes sense from an industry perspective, but KP has hit its homeruns playing early-stage ball. Moreover, no KP partners are dedicated to this fund, instead splitting their time with a new $600 million “traditional” vehicle. As someone wrote to me yesterday: “So a guy who specializes in chips is now going to be cutting deals involving finding a cure for the bird flu?” It’s a fair point. Even if the KP team has some folks who really know this area well – and some folks like John Doerr and Bill Joy have talked a good game here – why make them split their attentions when national well-being is at stake? Finally, there is the troubling ROI prospect of what would happen were an actual pandemic to break out. Any company with a potential cure would have only one real customer – the federal government – and there is no way that free market ! rules would apply.

*** Pity the poor toy-making industry. First it saw board games get usurped by the digital age. Now it might also be losing dolls. At least that’s the hope of, an online company that just raised $4 million in Series A funding led by Index Ventures. What makes this company so interesting isn’t so much its product (virtual celebrity “paper” dolls than can be dressed up and made over) or its prospects (bright, if it can cross over into apparel retailing), but rather its back-story.

The company was launched in 2002 as the personal homepage of a 50-something Scandinavian woman only known as Liisa S. She was a paper doll hobbyist who learned to use HTML and Flash, and then began posting various celebrity dolls online. The site caught on among European teenage girls, and now has 900,000 users (50% in Europe) with a target demographic of females 7 to 17 years old. Now if I could only find a way to translate my one time baseball card obsession into a viable online business…

Liisa S. has now stepped aside as CEO for Mattias Miksche, whose previous efforts include E*trade Northern Europe and DVD rental site Boxman (recently sold to Lovefilm). He was approached by Index last year, and had the following reaction: “My first answer was: ‘Of course, I’ve spent my whole life working toward online paper dolls and makeover virtualizations,’” he says. “But I tested it out on both my wife, who’s 35, and my daughter, who’s five, and realized that they were onto something big.”

*** One of Bain Capital’s limited partners thinks that the buyout firm is trying to kill him: “We’ve already had lunches of Domino’s Pizza and Burger King. Now they’ll be adding Dunkin’ Donuts on top of it.”

*** Some lawyers wrote in to say that while ABRY Partners can – and apparently will – proceed to trial against Providence Equity Partners, Tuesday’s ruling mostly went in Providence’s favor. Why? Because ABRY must now prove not that channel-stuffing and other such things occurred, but that Providence was aware they were occurring and knowingly lied about it. A tough burden of proof, although ABRY’s initial filing did allege such knowing trickery in its original complaint.

*** I spoke briefly yesterday with Peter Levine, who just took over as CEO of open-source virtualization company XenSource. He says that the VC fund he was raising with fellow ex-Mayfielder Todd Brooks was 2x oversubscribed, and close to closing (that would presumably mean $400m in commitments, given our earlier report of a $200m target). He hadn’t been looking for a CEO gig, but the opportunity to run XenSource was a “chance of a decade.” Levine first became familiar with XenSource when he was still with Mayfield and the company was raising Series A funding. He even wanted to get in on the deal, but ultimately couldn’t.

As for Brooks, he told my colleague Constance Loizos that fundraising is on hold until he can find a new partner: “I remain passionate and focused on the fund formation process and continue my discussions with several potential investment professionals who have been under consideration as team members throughout the fundraising process.”

*** Cadence Design Corp. CFO William Porter yesterday confirmed what this space reported earlier: It has shut down Telos Venture Partners. Telos’ $100 million first fund (1995 vintage) reached the end of its cycle at the end of 2005, its $60 million second fund (2000 vintage) will be terminated at the end of 2006 and its $50 million third fund (2004 vintage) was terminated on December 31, 2005. Telos general partner Bruce Bourbon will manage TVP II until year-end, but that the firm’s other two partners — James Hogan and Charlie Huang — have moved on to other endeavors. The firm’s website is still up, but its phones have been disconnected.

*** Paul Kedrosky offers his take on fund size shrinkage.

*** We’ll be publishing on Monday, despite the President’s Day holiday. Talk to you then.


Cleantech Venture Forum IX 
The premiere showcase for clean technology investments

March 21-23  San Francisco, CA 
Top speakers,including Ali Erfan of 3i and Dr. Robert Grubbs, recipient of 2005 Nobel Prize in Chemistry, discuss cleantech developments from business, scientific, and policy perspectives.

Enjoy high-quality investment opportunities and networking with
mainstream and clean technology investors.

Premier Sponsors   
Global Environment Fund
Wilson Sonsini Goodrich & Rosati

Lead Sponsors
Heller Ehrman, Sail Venture Partners, RockPort Capital Partners 
Canaccord Adams, Expansion Capital Partner, SAM Private Equity



    Top Three

Burger King Holdings Inc. of Miami, Fla. has filed to raise $400 million via an IPO of common stock. It plans to trade on the NYSE under ticker symbol BKC, with JPMorgan serving as lead underwriter. The company was acquired in December 2002 for $1.5 billion by Texas Pacific Group, Bain Capital and Goldman Sachs.

Space Adventures Ltd., an Arlington, Va.-based space tourism startup, has received private equity funding from VC firm Prodea to developer of fleet of suborbital spaceflight vehicles for commercial use. No financial terms were disclosed. Space Adventures also signed a separate fleet-development contract with the Federal Space Agency of the Russian Federation.

Apollo Management has completed its $975 million acquisition of Tyco International’s (NYSE: TYC) Plastics and Adhesives business. The newly-private company has been renamed Covalence Specialty Materials Inc., and has named Terry Sutter, former president of the predecessor business, as its president and CEO. Marvin Schlanger, former CEO of Arco Chemical and Resolution Performance Products, has been named chairman.


ColoradoInvestment Firm Seeks Associate

Highly acquisitive investment firm generating industry leading returns and
managing several billion in equity, seeks an Associate for their
office. This is an opportunity to be a key member of the deal team,
including the evaluation and structuring of acquisitions in the middle
market, implementing efficiency initiatives and management of portfolio

Candidates will have 2-5 years experience in Investment Banking or Private Equity. Must have excellent financial modeling expertise.

Apply: Subject: ID#352627



    VC Deals (f.k.a. Paperdoll Heaven), a Sweden-based operator of an online dress-up and makeover destination, has raised $4 million in Series A funding led by Index Ventures.

Plasco Energy Group, an Ottawa-based provider of plasma gasification technology design and commercialization, has raised Cdn7.3 million in venture funding. Killick Capital led the deal with a Cdn$4.5 million commitment, and was joined by The Rose Corp. and Hera Holdings.

Wellkeeper, an Albuquerque, N.M.-based provider of remote oil and gas well monitoring systems, has raised $1.2 million in venture funding led by the Verge Fund.


Buyouts Symposium East
March 8-9 in New Yorkat the PierreHotel

Don’t miss your chance to attend this premier networking event. Keynote speakers include Steve Pagliuca of Bain Capital, former U.S. Secretary of Defense William Cohen and NFL great Phil Simms.

Register or get more info at:



    Buyout Deals

Wellspring Capital Managementhas agreed to acquire Tampa, Fla.-based Checkers Drive-In Restaurants (Nasdaq: CHKR). The deal is valued at $15 per share, or approximately $188 million (including the assumption of debt).

European Capital has acquired an 88% stake in Action Sport Holding, a France-based distributor of motorcycle and bicycle gear and accessories. No pricing terms were disclosed, except that European Capital provided common equity, senior term loans, mezzanine notes and redeemable bonds.

Enterasys Networks Inc. (NYSE: ETS) shareholders have approved a $13.92 per share buyout offer from The Gores Group and Tennenbaum Capital Partners. The entire deal is valued at approximately $396 million, and is expected to close on March 1.

Mid Europa Partners has acquired WG Global Inc. from Bard Capital Group. No financial terms were disclosed. WG Group is a provider of surface preparation and finishing equipment, and was acquired Bard from U.S. Filter Corp. in 2003. Other selling shareholders include First Atlantic Capital, Hunt Capital, The GlenRock Group and CapitalSource. Lehman Brothers and Legacy Partners advised WG Group on the sale.

Audax Group has acquired Broadcast Electronics from Thompson Street Capital Partners for more than $100 million. Harris Williams advised served as advisor to Broadcast Electronics, a Quincy, Ill.-based provider of equipment and software solutions to the broadcast radio market.

Energy Investors Funds has acquired a 74% stake in Tenaska Washington Partners LP, a nominal 270 megawatt natural gas and oil-cogeneration facility located near Ferndale, Washington. No financial terms were disclosed. Tenaska sells all of its electrical capacity and energy to Puget Sound Energy Inc., and its steam to the adjacent ConocoPhillips refinery.

Linsalata Capital Partners has sponsored a recapitalization of Harden Manufacturing Corp., a Haleyville, Ala.-based manufacturer and importer of promotional and moderately-priced wood furniture. No financial terms were disclosed. Arlington Capital of Birmingham, Ala. Advised the sellers.

MTS Health Investors has sponsored a recapitalization of Loving Care Agency Inc., a Fort Lee, N.J.-based provider of home health aides. No financial terms were disclosed for the deal, which also included participation from Oaktree Capital Management and Loving Care management.

Duke Street Capital is putting UK residential care company Paragon Healthcare back on the block, according to The Independent of London. The original auction bids came in at around Gbp300 million (lower than the Gbp350 million asking price), but Duke Street is asking those earlier bidders like Apax Partners and Consensus Business Group to resubmit offers.

Matrix Capital Markets Group has sponsored a management buyout of PolyOne Corp.’s (NYSE: POL) Engineered Films business unit. The transaction was valued at $27 million, with senior financing provided by LaSalle Business Credit.

    PE-Backed IPOs


Corus Pharma Inc., a Seattle-based drug company focused on severe respiratory diseases, has withdrawn registration papers for a proposed $100 million IPO. It originally filed in September 2004, with Merrill Lynch as the lead underwriter. Corus has raised over $123 million in total VC funding since its 2001 inception, including a $65 million Series C infusion in early 2004 at a post-money valuation of approximately $155 million. Significant shareholders include JPMorgan Partners, Burrill & Co., Cascade Investment, OrbiMed Advisors, Bear Stearns Health Innoventures, RBC Capital Partners, MDS Health Ventures and Novo AS.

KKR BDC, the business development company once planned by Kohlberg Kravis Roberts & Co., formally withdrew registration papers for a proposed $750 million IPO. The move had been expected for well over a year, as KKR instead opted to raise an REIT.

    PE-Related M&A

3i Group has agreed to sell Germany generic drug company Betapharm GmbH to Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) for 480 million euros in cash. The deal will be funded using a combination of Dr. Reddy’s internal cash reserves and committed credit facilities.

ANSYS Inc. (Nasdaq: ANSS) has agreed to acquire Aavid Thermal Technologies Inc., a Concord, N.H.–based developer of computational fluid dynamics software and thermal management solutions for electronics. The transaction is valued at approximately $565 million, including six million shares of Ansys common stock and around $300 million in cash. Prior to the closing of the transaction, the Company’s thermal management solutions business (Aavid Thermalloy) will be spun-off to the company’s stockholders, including Willis Stein & Partners, and will operate as an independent company.

DSI Holding Company Inc. of Nashville, Tenn. has agreed to acquire over 100 dialysis clinics from Fresenius Medical Care Holdings Inc. and Renal Care Group. No financial terms were disclosed. DSI was recently formed by Centre Partners as an acquisition platform for kidney dialysis clinics, hospitals and acute care centers.

QLogic Corp. (Nasdaq: QLGC) has agreed to acquire PathScale Inc., a Mountain View, Calif.–based provider of high-performance computing solutions. The deal is valued at approximately $109 million in cash, and is expected to close in early April. PathScale has raised around $44 million in VC funding since its 2000 inception, from firms like CMEA Ventures, Charles River Ventures, Enterprise Partners Venture Capital, Skymoon Ventures, Adams Street Partners and ChevronTexaco Technology Ventures.

    Firm & Fund News

GTCR Golder-Rauner plans to launch a $2 billion fund-raising drive next quarter, according to comments GTCR principal Ned Jannotta made to The Chicago Tribune. Its current fund – GTCR VIII – closed in 2003 on $1.85 billion.

Advent International has opened a new office in Amsterdam. It will be led by Teartse Schaper, a principal who will relocate from London, and supported by Advent managing director John Singer, who will remain in London.

HEI Hospitality of Norwalk, Conn. has closed on a $425 million discretionary private equity fund that will acquire hotel-related assets. Its previous fund was capped at $275 million.

WWC Capital Group of Reston, Va. is raising up to $60 million for its second VC fund, according to a regulatory filing. It already has secured around $17.5 million in commitments.

    Human Resources

Robert Donahue has agreed to join Quadrangle Group as a managing principal. He currently is founder and CIO of New York-based principal trading firm Harpoon Equity Management, which focuses primarily on the media and communication sectors. In addition, Harpoon pros Ryan Brown and John Hill also will join Quadrangle as vice presidents.

Martin Anthonsen has joined private equity placement agent Monument Group as a director in the firm’s newly-opened London office. He previously served as CIO for Nordic Alternative Investment Advisors AB.

G. Scott Cantini has joined Morgan Joseph & Co. as an I-banking managing director focused on providing growth equity to private and public companies. He most recently was a partner with America’s Growth Capital and, before that, was a senior member in the private equity groups of both SG Cowen and Smith Barney.

Ting Pau Oei, a partner with L Capital Partners, has joined the board of ProRhythm Inc., an East Setauket, N.Y.-based medical device company that recently raised $5 million in funding from L Capital. He joined L Capital in 2004, after having spent 12 years as a vice president with Johnson & Johnson Development Corp.

James Newgard has resigned as executive director of the $1.5 billion Fort Worth Employees’ Retirement Fund. According to the Fort Worth Star Telegram, Newgard will go to work for multi-national corporation in Houston, but he declined to say which one.

Michael Devlin, managing partner of Pharos Capital Group, has been named a director of Pharos portfolio company Travel Holdings Inc. He also joined the company’s audit committee.