PE Week Wire — Friday, October 22

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Friday Feedback

The sky is gray, a gallon of gas is almost worth more than the un-trusty Pontiac and the red sox are preparing to exact vengeance for 1946, 1967 and the revival of Jeff Suppan. In other words, it’s time for Friday Feedback.

Lots of emails this week concerned Tuesday’s column, which eviscerated the Wall Street Journal editorial board for what I believed was an unfair and poorly-reasoned attack on CalPERS. J was typical of reader reaction, which mostly suggested that the paper had politics, not pensioners, on its mind. He writes: “I think your comments are right on. The lack of vintage disclosure or J-curve discussion was totally irresponsible, and strange for such a sophisticated publication. Cronyism may exist, but it is a far stretch to apply it only to Democrats. I would be curious to know the percentage of Republican GPs enjoying CalPERS’s asset allocation largesse. The whole thing felt a bit smarmy to me. Chalk it up to the political season, I guess.”

Andy adds: “This goes to show how editorial boards and editorial staffs often don’t talk at major newspapers. The WSJ has some very good reporters covering the venture capital industry, but it is clear that the editorial board doesn’t have any clue about how the market works. Its dismissal of the J-curve argument was beyond laughable. It was embarrassing.” Then there was Dan: “Shouldn’t you have to prove political cronyism before accusing someone of it? I guess the WSJ doesn’t think so.”

Finally there was F: “While I agree the use of returns as a point for argument was problematic, and certainly wouldn’t dream of making a claim that opinions published by an openly conservative editorial board aren’t politically motivated, I still don’t think the issue of returns is as important in this case as the decision process underlying certain allocations. It should be enough to raise some eyebrows that the fund has chosen to allocate to managers with the habit of donating to the political campaigns of the fund’s board members, returns be damned. I understand the issue is more complex than this, but given that the fund exists to serve out the promises made to its claimants, it would seem only proper that they have the ability to gauge whether or not their future earnings are being used to promote a political agenda that might not be to their own liking. Why then pick on CalPERS? The fact that CalPERS has adopted such an overt reform agenda as part of its investment strategy makes it THE target for groups or individuals who think such organizations should stick to trying to earn a good risk-adjusted rate of return. There the Journal would certainly qualify. That CalPERS is having to be dragged kicking and screaming toward increased transparency smacks of just a little hypocrisy.”

It is worth noting that the vast majority of emails this week concerned baseball. Specifically, questions on why my gloating seemed so subdued yesterday. The truth is that I’m simply too happy to rub it in. I didn’t think this would be true, but my joy has come almost exclusively from watching the red sox win, rather than from watching the Yankees lose. Also, it’s worth noting that my unpublished prediction of a Sox-Astros World Series will not happen. Too bad, because I thought Boston v. Houston would have been a good table-setter for Kerry v. Bush.

Finally, tomorrow is the annual City Year Serve-A-Thon in Boston. It should be good weather, and I encourage everyone in the area to participate in an event that both raises money and betters the local community. If you cannot participate, but are interested in sponsoring me, or giving to City Year independently, just send me an email and I’ll respond with instructions. I hope to see you there.

Dan Primack

Francisco Partners, a San Francisco-based buyout firm focused on the technology market, has agreed to acquire G International, a business established to own and operate IBM‘s electronic data interchange and business exchange services units. No financial terms were disclosed. As part of the deal, Gary Greenfield, an operating partner with Francisco and president and CEO of Francisco portfolio company Global eXchange Services Inc. (GXS), will serve as CEO of G International. Francisco plans to merge GXS and G International within the next six months.

Australian Pharmaceutical Industries Ltd. has acquired New Price Retail, an Australia-based retailer of health and beauty aids, for approximately Aus $167 million (US $123 million). The seller was an investor consortium that included ABN AMRO Capital, Investec Wentworth Private Equity, company management and CHAMP, the Australian affiliate of New York-based buyout firm Castle Harlan.

Cisco Systems Inc. (Nasdaq: CSCO) has agreed to acquire Perfigo Inc., a San Francisco-based provider of packaged network access control solutions for endpoint policy analysis, compliance and access enforcement capabilities. The deal is valued at $74 million in cash, and is expected to close by January 29, 2005. Perfigo raised VC funding from Greylock in 2002.

ServiceFactory, a Stockholm, Sweden-based provider of broadband Internet access and service management systems, has raised Euro 5.5 million in new venture capital funding. POD Holding led the deal, and was joined by return backers BrainHeart Capital and TeliaSonera. The company now has raised Euro 10 million in total VC funding since its 1999 inception.

Paratek Microwave Inc., a Columbia, Md.-based provider of smart scanning antennas and miniaturized tunable radio frequency front-ends, has signed a strategic investment and development agreement with In-Q-Tel, the venture capital arm of the central Intelligence agency (CIA). No financial terms were disclosed, although the company previously had raised nearly $80 million from VC firms like Polaris Venture Partners, Novak Biddle Venture Partners, Morgenthaler, Investor AB and ABS Ventures.

AP-Aqua, a Hungary-based bottled water deliver company, has received Euro 1.5 million in venture capital funding from Euroventures.

Network Inference Inc., a Carlsbad, Calif.-based provider of adaptive software infrastructure, announced that it had raised $8.1 million in Series B funding during Q1 2004. Palomar Ventures and Nokia Venture Partners co-led the deal.

Visual Sciences LLC, a McLean, Va.-based provider of real-time visual analysis software, has signed a strategic investment and licensing agreement with In-Q-Tel, the venture capital arm of the central Intelligence agency (CIA). No financial terms were disclosed.

EKO Systems Inc., a Fairfax, Va.-based provider of software and hardware systems for the healthcare industry, has raised $5 million in Series B funding from Kaupthing Bank, through Uppspretta Icelandic Capital Venture SA.

U.S. Xpress Enterprises Inc. (Nasdaq: XPRSA) has agreed to sponsor a management buyout of Arnold Transportation Services Inc. from Jefferies Capital Partners. U.S. Xpress would make a $6.4 million equity investment, alongside an undisclosed amount of senior debt financing. Current Arnold management would obtain a 51% stake by rolling over existing stock holdings, while U.S. Xpress would receive a 49% stake. The deal is expected to close next month. Arnold Transportation Services is a Jacksonville, Fla.-based dry can truckload carrier acquired in 2003 by Jefferies.

ABN AMRO has sponsored a management buyout of France-based outsourced restaurant chain Score Groupe. The MBO is valued at Euro 100 million, with ABN AMRO receiving a 52% ownership position.

Merchants Capital Partners has sold telecom portfolio company NewTel Holdings LLC to Orion Telecommunications Ltd., a publicly-held telecom company in Australia. As part of the deal, Merchants Capital Partners will retain its ownership of New Access Communications LLC, a NewTel U.S. affiliate that serves as a non-facilities-based CLEC. No financial terms of the exit were disclosed.

Energy Investors Funds has acquired a 12.5% general partner interest in MassPower from El Paso Corp. (NYSE: EP). MassPower is a 270 megawatt gas-fire cogeneration plant located in Springfield, Mass., which has been in operation since 1993. No financial terms were disclosed on the investment, which was made out of EIF’s U.S. Power Fund. The firm previously had acquired a 17.5% stake in MassPower via its Project Finance Fund III.

NTL Inc. (Nasdaq: NTLI) has narrowed the auction for its broadcasting business, according to Dow Jones. Remaining bidders reportedly include the tandem of BC Partners and Cinven Group, plus Macquarie Communications Infrastructure Group, Apax Partners, Providence Equity Partners and Blackstone Group.

Thomas H. Lee Partners plans to sell portfolio company Eye Care Centers of America Inc. for approximately $350 million, according to The Deal. TH Lee did not comment for the story.

TeamSystem SPA, an Italy-based provider of accounting, tax and payroll management software, reportedly plans to float an IPO on the Milan Stock Exchange. The company is controlled by UK-based private equity firm Palamon Capital Partners. Co. Ltd., a Seoul, South Korea-based provider of mobile Internet solutions, has acquired Ztango Inc., a Reston, Va.-based provider of wireless multimedia and messaging services. Financial terms of the all-stock deal were not disclosed. WidenThan has raised VC funding from Nokia Venture Partners, while Ztango has raised over $50 million in VC funding from General Atlantic Partners and Sands Brothers & Co.

C-Cor Inc. (Nasdaq: CCBL) has agreed to acquire nCube Corp., a Beaverton, Ore.-based provider of on-demand media and digital advertising systems. The deal is valued at $89.9 million, including 4.5 million shares of C-Cube common stock, $20 million in cash, the assumption of certain liabilities and $35 million of senior unsecured convertible notes. NCube counted Oracle Corp. and Tako Ventures among its shareholders.

Carl Zeiss Meitec Inc. has agreed to acquire Laser Diagnostic Technologies Inc., a San Diego-based medical device company focused on glaucoma detection. No financial terms have been disclosed for the deal, which is expected to close within 45 days. Laser Diagnostic has raised over $13 million in VC funding from firms like Sigma Partners, GC&H Partners, Newtek Ventures, Sorrento Ventures and Vector Fund Management.

MEMSCAP (Euronext: MEN) has agreed to acquire Optogone, UK-based company focused on optical components integration for DWDM networks, for Euro 3.8 million worth of MEMSCAP stock. Optogone had been spun out of France-based ENST, with the backing of France Telecom, Spef Ventures and T-Souce.

The Mobile Media Company AS, an Oslo, Norway-based provider of wireless games and interactive entertainment, has acquired Telenor Interactive, a Rockville, Md.-based provider of mobile applications and messaging services in North America. Both companies have received VC support from Telenor Venture.

Kurt Vedder has been named director of strategic business development and research with De Novo Ventures, where he will be responsible for identifying emerging trends in the medical device sector and supporting existing portfolio companies. He previously has held management positions with companies like Guidant Corp. and Medtronic.

Joe Hayashi and Jason Wisniewski have joined the Irvine, Calif. office of Dorsey & Whitney LLP as associates in the firm’s corporate group. Hayashi previously worked with Montgomery & Co., while Wisniewski recently received his Master of Laws (LLM) from Georgetown University and his JD from the University of San Diego School of Law.

Edith Aviles has joined BNP Paribas as a managing director in the firm’s leveraged finance group. She previously was responsible for origination and execution of private equity placements and corporate finance advisory services with D.F. Hadley & Co.

NewSpring Capital has held a $40 million first close on its inaugural mezzanine fund. The vehicle is being marketed with a $100 million target capitalization, and is expected to conclude fundraising in the middle of next year.

   Thursday, October 21

Boston-Run Venture Capital?

It has been a long time since this space has tackled the notion of state, or city, government-managed venture capital investing into local companies. I don’t recall exactly why it even came up last time, but do remember that it culminated in my appearance in New York City as the designated “bad guy” on a panel otherwise filled with CAPCO managers and local economic development folks. In short, folks there weren’t too appreciative of my belief that money managing should be left to better-trained and better-incentived managers (i.e. fulltime professionals), as opposed to political hacks and/or VC market newbies. Moreover, I believed that the purported need for many of these local funds was questionable, given the market overcapitalization spurred by the massive fundraising drives of 1999-2001.

It is important to note that I maintained a general caveat to this general position: It does not apply to programs in geographically underserved markets. Iowa, for example, or Arkansas. Even Western Massachusetts or upstate New York. I still think companies in those regions would be better served by private professional managers, but too many of those folks seem to believe that the world ends at Sand Hill Road, and begins again at Rt. 128. In other words, startup companies in underserved regions are better with something than with nothing at all.

All of this brings me to October 2004, and a Boston Globe report that City of Boston officials “are considering plans to invest city funds directly into biotechnology companies as part of a broader effort to stimulate the hot industry within city limits and create jobs. In one scenario under discussion, officials would set up a venture capital fund of up to $10 million meant to supplement other investments in local companies, said Mark Maloney, director of the Boston Redevelopment Authority, and other officials.”

This clearly does not fall into my caveat, as Boston is awash with venture capital firms, including many that focus exclusively on life sciences or biotech investments. Nonetheless, part of me initially wanted to believe this was a good idea. Not because I’m from the area, but because I truly believe that most venerable VC firms are no longer meeting the needs of

startup companies. Instead, they’ve moved up the investment ladder, often making their first investment at the Series B round, or in a Series A round for a two-year old company that had to scavenge for seed funding elsewhere. In other words, I had begun to think that my original paradigm had lost some of its validity.

But then I kept reading the article, written by Ross Kerber. In it, Maloney insinuates that Boston would not actually be sourcing deals and doing much due diligence. Instead, it would partner with other firms. I know what you’re thinking: “Dan, this works for you, because professional money managers would be making most of the decisions.” Last year I would have agreed, but Maloney’s plan no longer works with my paradigm shift. The only reason I give Boston as pass for the plan is, as I just wrote, because the existing investor community has largely abandoned startups (not all of you, but many of you). If Boston is just teaming up with the abandoners, who does it help? Do any of these firms really need that extra $100,000 on a $12 million Series B deal? Moreover, Maloney says that Boston‘s money would come with strings, like that the companies must maintain certain local employment levels, and the like. Again, what VC firm in the age of off-shoring would want to be constrained by such burdens for just a tiny bit of co-investment.

I’m softening on this issue, but the Boston plan just doesn’t work for me yet. But, as the article says, it’s still a plan in progress.

Finally, thank you to everyone I met at the Buyouts Symposium West these past two days. It was a good time had by all, particularly the unscheduled baseball watching during cocktail hours. Now it is time for me to get some rest, as I stayed up well past my bedtime watching ESPN, Fox and anything else that showed the ecstatic faces of Bostonians everywhere. Congrats to all the Sox fans who have consistently written me over the past two years, and my insincere condolences to Yankees fans. On to the World “bleeping” Series!

Dan Primack

The Blackstone Group has agreed to acquire Boca Resorts Inc. (NYSE: RST), a Boca Raton, Fla.-based owner and operator of luxury resorts in Florida. The transaction is valued at $1.25 billion, including debt, with existing Boca shareholders to receive $24 per share. It is expected to close by early next year. Debt financial is being provided by Bank of America, Bear Stearns and Merrill Lynch.

Pentadyne Power Corp., a Chatsworth, Calif.-based provider of flywheel power systems, has held an $8 million first close on its Series C funding round, with an eye toward an additional $12 million. Investors included Nth Power, DTE Energy Ventures, Accera Venture Partners and Sempra Energy.

Tom Hicks is accelerating his departure from buyout firm Hicks, Muse,Tate & Furst, from March 2005 to year-end 2004.

Clinical MicroArrays Inc., a Natick, Mass.-based developer of tools for use in drug development and clinical diagnostics, has raised $7.5 million in Series A funding. Oxford Bioscience Partners led the deal, and was joined by Rock Maple Ventures, Fletcher Spaght Venture Partners and individual investors.

BioXell SPA, an Italy-based drug company focused on urological and chronic inflammatory diseases, has raised Euro 23 million in new venture capital funding. BB Biotech led the deal, and was joined by fellow new investors NIF Ventures and QVentures. Return backers included MPM Capital, Index Ventures, AlpInvest Partners, Life Science Partners and Investimenti Piccole Imprese. The company now has raised Euro 63 million in total VC funding since being spun out of Roche three years ago.

Intelsat Ltd., a Bermuda-based satellite company, has received shareholder approval for its acquisition by Apax Partners, Apollo Management, Madison Dearborn Partners and Permira (collectively known as Zeus Holdings Ltd.). The deal is valued at approximately $5 million, including $3 billion in cash, or $18.75 per ordinary share, and the assumption of around $2 million in Intelsat debt.

3i Group has agreed to acquire a 75% stake in Denmark-based Danfoss Marine Systems from Danfoss AS, according to Dow Jones.

Hg Capital has agreed to acquire a 46% position in Dutch mail order pharmacy DocMorris. The deal is expected to close next month, and no financial details have been disclosed.

Daewoo Group is taking bids for a defense and engineering unit named Daewoo Heavy, but Reuters is reporting that Daewoo is unlikely to reward non-Korea-based investors like The Carlyle Group. The deal could be valued at upwards of $1.3 billion.

ComVentures has acquired 19.8% of outstanding common shares of Axesstel Inc. (AMEX: AFT), a San Diego-based provider of CDMA-based fixed wireless voice and data products. The firm – via three separate funds – purchased an aggregate of 833,334 outstanding common shares for $3 million, plus an additional 1.2 million common shares from existing shareholders for an undisclosed amount.

Arpida AG, a Switzerland-based life sciences company focused on anti-infectives, has acquired CombioAS, a Denmark-based developer of chemistry technologies. No specific deal terms were disclosed, except that Arpida raised an additional $27 million in additional Series C funding to help finance the deal. Combio had raised over $7 million in VC funding from Novo AS, Scandinavian Life Science Ventures and Dansk Kapitalanlaeg AS.

MessageOne, an Austin, Texas-based provider of disaster recovery solutions, has agreed to acquire Evergreen Assurance Inc., an Austin, Texas-based provider of fail-over solutions for Microsoft Windows applications. No financial terms were disclosed. MessageOne has raised over $20 million in VC funding from firms like Impact Venture Partners, QuestMark Partners, RRE Ventures and StarVest Partners. Evergreen has raised over $13 million in VC funding from firms like Venrock Associates, Blue Chip Venture Co. and VIMAC Ventures.

Martin Kahn, a venture partner with Rho Ventures, has joined the board of InfoUSA Inc. (Nasdaq: IUSA).

Genstar Capital, a San Francisco-based private equity firm focused on the middle-markets, has closed its fourth fund with $475 million in limited partner commitments. Investors included: Caisse de depot et placement du Quebec, The Regents of the University of California, Stichting Shell Pensioenfonds, Bregal Investments, Commonfund, Goldman Sachs Private Equity Partners Funds, The California Endowment, Grove Street Advisors for the Oregon Public Employees Retirement Fund, TD Capital, CSFB Customized Fund Investment Group, Association de Bienfaisance et de Retraite des Policiers de la Communaute Urbaine de Montreal, LGT Capital Invest Limited, The Meadows Foundation, Inc., Swiss Re Private Equity Partners, Winterthur US Fund II, J.P. Morgan U.S. Pooled Corporate Finance Funds, Colgate University, Adams Street Partners, Pantheon Ventures, Inc., Wilshire Associates, and AlpInvest Partners.

Allianz, a Germany-based insurance giant, plans to further reduce its public equity exposure, and increase it private equity focus, according to The Financial Times. Allianz currently has a one percent private equity allocation.

Berkeley Capital Management has agreed to acquire the Delta Asset Management division of ING Investment Management Co. No financial terms were disclosed. The management group of the combined Berkeley and Delta business will expand their ownership to approximately 30% of the company, with financing for the transaction to be provided by current investor Lovell Minnick Partners and new investor EdgeStone Capital Partners. In 2003, Lovell Minnick Partners and Berkeley’s management team acquired substantially all of the assets of Berkeley from London Pacific Group Ltd.

EdgeStone Capital Partners of Toronto has held a Cdn $102 million first closing for its second venture capital fund. The vehicle has a Cdn $200 million target, and will focus on early-stage enterprise software and related service companies.

SJF Ventures, an early-stage firm with offices in Philadelphia and Durham, N.C., has held a $10 million first close on its second fund, with hopes of raising an additional $10 million. Limited partners include MBNA America, Wachovia, Deutsche Bank, Merrill Lynch Community Capital Association, the Community Development VC Alliance and Key Community Development Corp. In related news, SJF Advisory Services, a nonprofit affiliate that provides entrepreneurial, workforce and sustainability services, has received a $500,000 award from the U.S. Economic Development Administration.

Yellowstone Capital has formed a venture capital fund to invest in early-stage companies in the energy technology sector. Specifically, Yellowstone Energy Ventures will focus on renewable energy and alternative energy opportunities, and is currently trying to solicit between $5 million and $10 million in limited partner commitments.

    Wednesday, October 20


l apologies for today’s lack of sustantive column – particularly considering some FASB decisions of interest yesterday – but the last night’s combination of baseball, booze and Buyouts Symposium West caused me to get to sleep much later than anticipated. This, in turn, caused me to wake up far later than anticipated (and with the time difference and all.). Anyway, this space will be filled tomorrow with talk of accounting regulations and a prospective city-run venture capital program in  Boston that confuses me by its very prospect. Until then, visit our advertisers, read some news and grab a cab&#16