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Reducing The Appearance of Impropriety
Ever since President Bush nominated Harriet Miers to be a Supreme Court justice, pundits and politicians have been debating her qualifications for the job (others are questioning if she’s conservative enough, but we’ll leave that reverse litmus test alone for today). Specifically, the issue has been crystallized into whether she is a brilliant legal mind who happens to be close to the President, or if she’s an average legal mind who was nominated because she is close to the President (i.e., cronyism). None of us can currently know the answer, but most can agree that, at the very least, it looks bad.
This issue of appearances is extremely important, which is why there has been a lot of private equity industry buzz over
Which brings us to today, with Johnson joining
Johnson is not the first public pension employee to go work for his system’s private equity consultant. Barry Gonder left CalPERS for Grove Street Advisors in 2001, while Frank Fernandez left the Florida State Board of Administration in 2004 to take a job with Alignment Capital. Those situations are a bit different in that both Gonder and Fernandez began employment conversations in the midst of RFP discussions, and immediately recused themselves (Grove St. got CalPERS, Alignment did not get Florida). In general, however, both men said at the time that the most important issue was disclosure, and leaving a long paper trail. This is in line with what
All of this brings me to the question of how public pension systems should handle situations like Johnson’s. There is the public trust to think about here, and anything that looks bad can insult that trust, whether or not it actually is bad.
My solution would be to substantially extend the one-year prohibition to five years. This would further reduce potential conflicts-of-interest, and possible quid pro quo arrangements. I recognize that this could make public pension jobs even less appealing than they already are (given the relatively low pay), but feel it would be a worthwhile trade-off. At the very least, it would look better.
Top Three |
Check Point Software Technologies Ltd. (Nasdaq: CHKP) has agreed to acquire Sourcefire Inc., a Columbia, Md.-based provider of intrusion prevention and real-time network awareness solutions. The deal is valued at $225 million, including cash and the assumption of Sourcefire’s stock option plan. It is expected to close by Q1 2006. Sourcefire has raised around $33 million in VC funding since its 2001 inception, from firms like Core Capital Partners, Inflection Point Ventures, Sierra Ventures, New Enterprise Associates, Maryland DBED and Sequoia Capital. www.checkpoint.com www.sourcefire.com
Ntelos Holding Corp., a Waynesboro, Va.-based provider of wireless and wireline communication services in
Texas Pacific Group and Warburg Pincus have completed their $5.1 billion public-to-private buyout of retailer The Neiman Marcus Group Inc. Neiman Marcus shareholders each received $100 per outstanding share. www.neimanmarcusgroup.com
VC Deals |
Optiscan Biomedical Corp., an Alameda, Calif.-based developer of a continuous glucose monitoring device for hospital use, has raised $36 million in new VC funding, according to a regulatory filing. Participants included Morgenthaler Ventures, Ascension Health Ventures, Mitsui & Co. and Oakwood Medical Investors, Prism Venture Partners, JPMorgan Partners, EGS Healthcare, MedVenture Associates and The Wellcome Trust. It now has raised nearly $70 million in total VC funding since its 1994 inception. www.farir.com
Topigen Pharmaceuticals Inc., a Montreal-based drug company focused on respiratory disease research, has raised Cdn$6 million in additional Series B funding from Caisse de dépôt et placement du Québec. This brings the round total to Cdn$28.5 million, with first tranche backers Desjardins Venture Capital (Cdn$6 million), Fonds de Solidarite FTQ (Cdn$5 million), Societe en Commandite T2C2/Bio 2000 (Cdn$5 million), Business Development Bank of
Heartscape Technologies Inc., a New York-based cardiac medical device maker, has raised around $1.4 million in startup funding from Radius Venture Partners, according to a regulatory filing. www.radiusventures.com
Buyout Deals |
The Carlyle Group has completed its sale of Panolam Industries International Inc. to Genstar Capital, The Sterling Group and company management. The deal was valued at approximately $345 million. Panolam is a Shelton, Conn.-based maker of laminate panels for commercial and residential uses, and was bought by Carlyle in November 1999. www.carlyle.com www.panolam.com
Hannover Compressor Co. (NYSE: HC) has sold its gas processing assets and associated gathering system to JPMorgan Partners and the principals of Bear Cub Energy LLC, Thomas Edelman and Robert Clark. The deal is valued at $50 million, with the buyers expected to inject additional growth capital to expand the gas processing capacity. This is JPMP’s third investment with the principals of Bear Cub, following Bear Paw and Patina Oil & Gas. www.hanover-co.com www.jpmorganchase.com
Invitrogen Corp. (Nasdaq: IVGN) has completed its $12.50 per share acquisition of BioSource International Inc. (Nasdaq:BIOI). The deal represents an exit for Genstar Capital, which still held a 31% beneficial stake in BioSource, www.gencap.com
Sears Holding Corp. (Nasdaq: SHLD) has sold a 19.9% ownership interest in Orchard Supply Hardware Stores Corp. to Ares Management for $58.7 million. The deal also includes a three-year option for Ares to purchase an additional 30.2% stake for $126.8 million. In conjunction with the deal, Orchard Supply will issue approximately $405 million in debt. Orchard Supply is a San Jose, Calif.-based operator of 84 hardware and garden retail stores. www.osh.com
CDP Capital-Financing Inc., a subsidiary of Caisse de depot et placement du Quebec, has agreed to acquire commercial mortgage company CRIIMI MAE Inc. (NYSE: CMM) for approximately Cdn$328 million, or Cdn$20 per share. www.criimimae.com
NTL and fellow
PE-Backed IPOs |
Somaxon Pharmaceuticals Inc., a San Diego-based drug company focused on insomnia and other neuro-psychiatric disorders, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol SOMX, with Morgan Stanley and JPMorgan serving as lead underwriters. The company has raised around $90 million in total VC funding, including a $65 million Series C funding this past summer. Significant shareholders include MPM Capital (27% pre-IPO stake), Domain Associates (22.4%), BA Venture Partners (15.1%), Montreaux Equity Partners (9.6%) and Prospect Venture Partners (9%). www.somaxon.com
PE-Backed M&A |
Broadcom Corp. (Nasdaq: BRCM) has agreed to acquire Athena Semiconductors Inc., a Freemont, Calif.–based fabless semiconductor company focused on mobile digital television tuner and low-power WiFi technology. The deal is valued at $21.6 million in cash, and is expected to close by year-end. Athena has raised $20 million in private funding since its 2001 inception, from Samsung Electronics Co., Alliance Venture Management and
Invitrogen Corp. (Nasdaq:IVGN) has acquired both Quantum Dot Corp., a Hayward, Calif.-based biotech company that has raised around $39 million in VC funding from Abingworth Management, CMEA Ventures, Frazier Healthcare Ventures, Institutional Venture Partners, SV Life Sciences and MPM Capital. www.invitrogen.com www.qdots.com
Firm & Fund News |
HLM Venture Partners is raising up to $200 million for its next fund, according to a regulatory filing. The filing indicates that the Boston-based firm already has over $83 million in LP commitments. www.hlmventurepartners.com
Halyard Capital, a wholly-owned affiliate of BMO Financial Group (TSX/NYSE: BMO), is raising its second private equity fund focused on middle-market companies in the media, communications and business services industries. The fund already has received a $150 million anchor LP commitment from BMO, and has retained Park Hill Group for outside fundraising. www.halyardcapital.com
Human Resources |
Oliver Goldstein has left his managing director post with Warburg Pincus, in order to join New York-based hedge fund management company Eton Park.
Carol Meyrowitz has been named president of The TJX Companies Inc. (NYSE: TJX), effective October 17. She is the former senior executive vice president of TJX and since January 2005 has served in an advisory role to both TJX and private equity firm Berkshire Partners. www.tjx.com
Amin Ladak has joined Waltham, Mass.-based Seaflower Ventures as a principal, after previously having been worked for FoldRx Pharmaceuticals Inc. According to VentureWire, Seaflower is about to begin raising its fourth fund with a target capitalization of “more than $100 million.” www.seaflower.com
THURSDAY, OCTOBER 6
Random Ramblings
As predicted in this space last week, VSP Capital has been hit with a countersuit by one of its former general partners. Also as predicted, the countersuit contains some allegations that will do nothing to help Joanna Rees-Gallanter or John Hamm regain their once-lofty reputations.
Ever since this saga began in May, readers have asked the following question: “You keep telling us that people have left and that LPs have disbanded funds, but you never tell us why it happened.” This is a valid criticism of both me and my colleague Constance Loizos (who originally broke the story, and who has written about the countersuit here) – particularly given that we’ve known the reason.
Our only excuse is that neither we – nor our editors – have felt comfortable reporting “the reason” without first having someone state it on the record (i.e., for attribution). It’s one thing to use background sources to discuss management fee disputes or fund-raising efforts, but this is quite another animal. Now that the countersuit has been filed in San Francisco Superior Court, however, it’s time to provide you, dear readers, with the explanation to which you’re entitled.
According to the countersuit filed yesterday by former VSP general partner Vince Vannelli, Joanna Rees-Gallanter and John Hamm were engaged in an intimate, extramarital affair. Vannelli alleges that the affair began before Hamm was brought into VSP last year, but that Rees-Gallanter did not disclose it (to either VSP GPs or LPs) when asking other VSP partners to admit Hamm into the partnership. Had Vannelli known, he says, he would not have voted to admit
Moreover, several sources have said that the denials continued after
Again, read Constance’s story for additional countersuit details, including Vannelli’s take on the portfolio auction process. In short, however, the downfall of VSP began not with an alleged affair, but with an alleged failure to disclose it.
*** Yesterday I promised you some additional details on TA Associates and Madison Dearborn (and their LPs) investing $738 million for a minority stake in MetroPCS Communications Inc. So here goes: First, the company is based in
*** Franklin Park/Tony Johnson column pushed off one more day, but is still definitely coming. For what it’s worth,
Serenex Inc., a Durham, N.C.-based drug discovery and development company focused on oncology, has raised $30 million in Series C funding. Ritchie Capital led the deal, and was joined by return backers Intersouth Partners, Lilly Ventures, Mediphase Venture Partners, Takeda Research Investment and Seaflower Ventures. In other Serenex news, the company announced that it has in-licensed worldwide rights from Mucosal Therapeutics to commercialize SNX-1012, a drug for chemotherapy and radiation-induced oral mucositis. www.serenex.com
US Renewables Group, a Los Angeles-based acquirer, developer and operator of renewable energy and clean fuel assets, has raised $80 million in first-round funding led by Rustic Canyon Partners. The deal represents a first close on a round designed to raise $250 million. USRG currently owns and operates two landfill methane facilities in
PrimaCom AG of
VC Deals |
SugarCRM Inc., a Cupertino, Calif.-based commercial open-source customer relationship management application provider, has raised $18.77 million in Series C funding, according to a regulatory filing. New Enterprise Associates was joined on the deal by return backers Walden International and Draper Fisher Jurvetson. www.sugarcrm.com
eASIC Corp., a San Jose, Calif.-based provider of programmable ASIC products, has raised $17 million in third-round funding. Crescendo Ventures led the deal, and was joined by Evergreen Venture Partners and return backers Kleiner Perkins Caufield & Byers (KPCB) and Vinod Khosla. It now has raised $29.5 million in total VC funding since its 1999 inception. www.easic.com
CenterStone Software Inc., a Hopkinton, Mass.-based provider of integrated workplace management solutions, has raised $5.5 million in Series D funding. Egan-Managed Capital led the deal, and was joined by fellow return backers Trans-National Group, Velocity Equity Partners and the Massachusetts Technology Development Corp. CenterStone has raised a total of $15.4 million in total VC funding. www.centerstonesoft.com
Redline Communications, a Markham, Ontario-based provider of broadband wireless equipment, has raised US$15 million in fourth-round funding. GF Private Equity Group led the deal, and was joined by return backers Matrix Partners and US Venture Partners. The company has raised $57 million in total VC funding since its 1999 inception. www.redlinecommunications.com
NewCross Technologies .Inc., a San Mateo, Calif.-based provider of hosted IP telephony services for service providers, has raised $5.2 million in Series B funding. Columbia Ventures led the deal, and was joined by fellow return backers Consor Capital and Sterling Payot Capital. www.newxt.com
Evolve Corp. PLC, a UK-based provider of cash management products and services to retailers, has raised Gbp250,000 in venture funding from the South East Growth Fund. Evolve is majority-held by company management, while Global Payment Technologies Inc. (Nasdaq: GPTX) holds a 12.5% stake.
The Corporate Marketplace Inc., a North Kingston, R.I.-based procurement hub, has raised an undisclosed amount of private funding from Ascent Venture Partners. www.tcmpi.com
Buyout Deals |
Golden Gate Capital has acquired Symon Communications Inc., a Plano, Texas–based provider of software and hardware for real-time data display and enterprise communications. No financial terms were disclosed. Symon raised $7.5 million in VC funding from Summit Partners in 1997. www.goldengatecap.com www.symon.com
Siemens Power Generation has acquired Wheelabrator Air Pollution Control Inc. from Acquilex Corp., a Norcross, Ga.-based company majority-owned by First Reserve Corp. No financial terms were disclosed. Wheelabrator is a Pittsburgh, Pa.-based supplier of air pollution reduction products and solutions for the coal-fired power and industrial markets. It has year-to-date sales of $116.4 million. www.wapc.com www.siemens.com/powergeneration
RoundTable Healthcare Partners has agreed to acquire a 65% stake in Bioniche Pharma Group Ltd. from Bioniche Life Sciences Inc. (TSX: BNC) and Bioniche Life Sciences shareholder ICC Private Equity. No financial terms were disclosed for the deal, which is expected to close in November. Pharma Group, has agreed terms for the sale of its stake to RoundTable Healthcare Partners. Bioniche Pharma Group is a
PE-Backed IPOs |
Acorda Therapeutics Inc., a Hawthorne, N.Y.-based biotech company focused on spinal cord injuries, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol ACOR, with Banc of America Securities serving as lead underwriter. This is the second IPO attempt for Acorda, which filed for a $75 million offering in September 2003, but withdrew it in early 2004. The company has raised around $140 million in total VC funding since its 1995 inception, from firms like MPM Capital, Elan Corp., Forward Ventures, Easton Hunt Ventures, Crosds Atlantic Partners, TVM and MDS Health Ventures. www.acorda.com
PE-Backed M&A |
Metastorm Inc., a Columbia, Md.-based provider of business process management software, has merged with CommerceQuest Inc., a Tampa, Fla.–based provider of scalable integration and business process management solutions. The combined company will operate under the Metastorm name. No financial terms of the merger were disclosed. Metastorm has raised around $65 million in VC funding since its 1996 inception, from firms like 3i Group, Ironside Ventures, Sandler Capital Management, UBS Capital, Axiom Venture Partners and Allianz Private Equity. CommerceQuest raised $27.4 million of funding in 1999 from Internet Capital Group and SCP Private Equity Partners, at a post-money valuation of approximately $90 million. www.metastorm.com www.commercequest.com
Oxford Semiconductor Ltd. of
Firm & Fund News |
Calvert Street Capital Partners has closed its third fund with $225 million in capital commitments. The Baltimore-based firm will use the fund to make control-oriented deals for lower middle-market manufacturing and services companies located inside the
Human Resources |
David Ramsey has joined Kleinwort Capital Ltd. as an investment manager. He previously was an associate director with KPMG Private Equity Group. Kleinwort Capital is a UK-based private equity firm focused on the lower middle-markets. www.kleinwortcapital.com
WEDNESDAY, OCTOBER 5
$350m for a Communications Company in 2000 = Success?
Busiest news day in months, which unfortunately coincided with a power outage at the home office. So we’ll have to postpone today’s planned column, which was going to discuss Tony Johnson leaving his Chief Investment Officer post with the City of
I would be derelict, however, if I didn’t spend a bit of time on MetroPCS Corp., the Denver-based wireless communications services provider that today announced $739 million in private equity funding. What follows are a bunch of notes on this deal – including some you haven’t yet seen:
Basics The $739 million includes $300 million from TA Associates, $300 million from Madison Dearborn Partners and $139 million from common limited partners of the two firms. It buys approximately 30% of MetroPCS, and technically is the company’s third round of institutional funding. MetroPCS was founded in 1994 with a handful of founder rounds, raised “Series C” funding in 1994 from Accel Partners, Battery Ventures and One Liberty Partners (now Flagship Ventures) about one year later, and then secured a $350 million Series D round in late 2000, from firms like M/C Venture Partners, Columbia Capital, Whitney & Co. and JPMorgan Partners. The Series D round was tranched-out, with the final call-down coming in 2004.
Is It VC? Only $50 million of the $739 million is considered “new equity”, with the remainder being a formalized tender offer to buy stakes from existing shareholders (most did not sell out entirely). Therefore, only a small part of this deal should be considered venture capital, thus thwarting any attempts to call this the year’s biggest VC funding round. Instead, it’s more like the largest venture buyout ever transacted.
The deal technically should be considered in Q4 numbers instead of in Q3. TA Associates called down its commitments in September, but put it in escrow. Madison Dearborn called down its capital yesterday, with the tender agent (Mellon) expected to transfer everything within the next week or so.
ROI Try out this hypothetical: A bunch of private equity firms invest $350 million into a communications services company in late 2000. Now tell me, in general, how they made out.
The obvious answer is they got horribly, disfiguringly burned. We all know that overpriced communications deals were the bane of private equity and VC firms in 1999-2001, with potential customers disappearing after the bubble burst. MetroPCS, however, is an exception, despite having well-publicized legal wrangling and an unsuccessful IPO attempt. Not only did the original VC backers — Accel,
I have the Series C and Series D ROI multiples in front of me, but not everyone agrees on the exact price paid per share – Series C was common stock, Series D was preferred – so you’ll have to wait a bit until I get it nailed down. Suffice to say, however, that all involved cashed in.
MetroPCS Communications Inc., a Dallas, Texas-based wireless communications services provider, has raised $739 million in Series E funding from Madison Dearborn Partners and TA Associates. Each firm provided $300 million, while some of their common limited partners will provide the remainder. Approximately $689 million of the capital will be used to buy shares from existing shareholders, while $50 million will be new equity. MetroPCS has raised VC funding from such firms as Accel Partners, Battery Ventures, One Liberty Partners, Flagship Ventures and Columbia Capital. www.metropcs.com
Mforma Group Inc., a San Francisco-based publisher and distributor of mobile entertainment, has raised $30 million in third-round funding. Institutional Venture Partners led the deal, and was joined by return backers Bessemer Venture Partners, Draper Fisher Jurvetson and General Catalyst Partners. The company now has raised $94 million in VC funding since its 2001 inception. www.mforma.com
TA Associates has agreed to acquire the Information Technology Solutions unit of Intuit Inc. (Nasdaq: INTU) for $200 million. The deal is expected to close within the next 90 days. www.ta.com
VC Deals |
Newron Pharmaceuticals SpA, a Bresso, Italy-based drug discovery and development company focused on CNS therapies, has raised 7 million euros in additional Series B funding from TVM. The round is now closed with a total of 30 million euros. Backers on the initial tranche included deal lead HBM, and Series A backers 3i Group, Apax Partners and Atlas Venture. www.newron.com
Kilopass Technology Inc., a Sunnyvale, Calif.-based provider of embedded non-volatile memory IP, has raised $8.8 million in second-round funding. U.S. Venture Partners was joined on the deal by return backers BlueRun Ventures and iGlobe Partners. www.kilopass.com
Rejuvenon Corp., a Texas-based drug developer, has called down the second tranche of its $37.8 million Series B funding round. It also has changed its name to Sapphire Therapeutics Inc. The company originally raised the money in July 2004, but it was tranched out with half being called down immediately, and half to be called down when it reached certain performance milestones. SV Life Sciences led the deal, and was joined by Boston Millennia Partners, Cogene BioTech Ventures, OrbiMed Advisors, Prospect Venture Partners, Burrill & Co., BCM Technologies and Novo Nordisk. www.sapphirethera.com
Buyout Deals |
Autodesk Inc. (Nasdaq: ADSK) has agreed to buy Toronto-based 3D graphics technology company Alias Inc. from Accel-KKR and Teachers’ Private Capital. The deal is valued at $182 million in cash, and is expected to close within the next four to six months. Accel-KKR and Teachers’ Private Capital acquired Alias in June 2004 for $57.5 million, with Accel-KKR serving as majority shareholder. www.autodesk.com www.alias.com
Bridgepoint has sold its 55% stake in UK-based health and fitness company Virgin Active to Virgin Group for Gbp134.5 million. Bridgepoint originally acquired the position in February 2002, when it agreed to invest Gbp110 million to help Virgin Group expand the Virgin Active chain, including expansion into the Italian and Spanish markets. www.bridgepoint-capital.com www.virginactive.co.uk
Arsenal Capital Partners has acquired a controlling interest in Reilly Industries Inc., an Indianapolis-based specialty chemicals manufacturer. The deal is valued at approximately $250 million, with leverage provided by Silver Point Capital, D.B. Zwirn & co. and Wells Fargo Foothill. www.arsenalcapital.com www.reillyind.com
The Compass Group International has sponsored a management buyout of Advanced Circuits Inc., an Aurora, Colo.-based manufacturer of rigid printed circuit boards (PCBs). The seller was company founder Ron Huston, while Madison Capital Funding and Allied Capital Corp. also participated on the equity tranche. Leverage was provided by a lending syndicate led by Madison Capital Funding. No pricing terms were disclosed. www.compassequity.com www.4pcb.com
Permira has completed its acquisition of Jet Aviation Group, a
Brookstone Inc. (Nasdaq: BKST) has completed its $20 per share going-private acquisition by a consortium led by Singapore-based retailer OSIM International. Also participating are private equity firms J.W. Childs Associates and Temasek Holding Ltd. Leverage was provided by Goldman Sachs, UBS Loan Finance and UBS Securities. www.brookstone.com
Starwood Capital Group has agreed to acquire a majority interest in Mammoth Mountain Ski Area. The deal values
Reservoir Capital Group has sold 80% of its 100% interest in Sithe Global Power LLC to The Blackstone Group and company management (led by CEO Bruce Wrobel). No financial terms were disclosed. Sithe Global Power is an international independent power development company which focuses on certain target markets in