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PE Week Wire: Mon., July 2, 2007

As you probably know Dan’s away for the next fortnight so the Thomson private equity team is taking it in turns to fill his shoes while he is on holiday. First up is me, Tom Allchorne, the associate editor of EVCJ, and, I think, the first ever none American to do the Wire. As such, you can expect a bit of a British flavour to today’s post.

The UK’s new Prime Minister Gordon Brown hasn’t been in the job a week and he’s already got plenty on his plate, even without the failed terrorist attacks at the weekend, which will surely overshadow all news stories in the short- term, including the final hearing of the Treasury Select Committee which has already heard from the British Venture Capital Association, trade union representatives and four European buyout chiefs (more can be found here http://www.evcj.com/story.asp?sectioncode=845&storycode=239024).

A last minute addition to tomorrow’s line-up has been CVC and Charterhouse, representatives of which will be there in as a result of the recent merger of the AA, the UK’s automobile repair and insurance group – owned, of course, by Permira – and Saga, the insurance group owned by the two aforementioned firms. The merger seems to have upset the trade unions and as such the committee has asked CVC and Charterhouse to turn up tomorrow for a bit of a chat.

Maybe this sort of thing shouldn’t matter, but it was a bit of a strange time to announce such a big merger – £6.15bn – of two well known names in the midst of the current storm surrounding the industry in the UK. It was always going to be seized on by the anti-private equity brigade who, whenever they see the word “merger” assume it also means “job losses”, which of course it might well do. Well, expect CVC and Charthouse to give a presumably robust defence of the deal, armed to the teeth as they surely will be with all the salient facts.

After them (or before them, the new schedule not’s been made clear yet), it’s the turn of Sir David Walker, the former chairman of Morgan Stanley and current chairman of a private equity working group on transparency and disclosure set-up by the BVCA in March. It’s even got its own website if you’re interested (http://www.walkerworkinggroup.com), although it doesn’t reveal very much. The group was established to tackle some of the criticisms the industry was and continues to face, namely in regards to its perceived secrecy, but also to ensure that any solutions to such problems didn’t overwhelm smaller businesses with new reporting requirements. The working group will produce a voluntary code addressing the levels of disclosure and how PE-backed com! panies communicate with its wide-range of stakeholders. It is due to report in the Autumn, and presumably the Treasury Committee tomorrow will want a progress report.

The challenge for private equity is to get in there first. There is no point in sitting back in the middle of the transparency storm and waiting for governments and regulators – which have hitherto shown a rather limited understanding of just how the industry works – to slap new rules down. Private equity needs to take the front foot and demonstrate its ability to regulate itself; as such, Sir David’s comments tomorrow should prove important.

Sir David will be followed by the Financial Services Authority (FSA), the body responsible for regulating the UK financial services industry. A lot of GPs were pleasantly surprised – and relieved – when the FSA published its report into private equity last year. No-one really knew what to expect but many were beginning to feel the heat that increased regulation was only a step away. They needn’t have worried because the FSA was in actual fact pretty dull – broadly supportive of the role private equity plays in the economy with a few caveats about excessive leverage, market abuse and conflicts of interest

There were a few other risks highlighted but they were quite minor and vague that they could be applied to almost any industry. Of course, this wouldn’t have been the impression had you read any of the newspaper reports at the time, which made the FSA report sound apocalyptical – but then I suppose ‘Financial watchdog slams debt levels’ is more exciting than ‘Regulator supports private equity’.

In the last month the FSA has made some further announcements following feedback to its report, and now looks like it will be asking banks to hand in bi-annual reports on their LBO exposure, calling form private equity firms to report on committed capital as well as drawn down capital. Expect the FSA to essentially reiterate the above. You can even see for yourself at a webcast on http://www.parliamentlive.tv/

*** On a highly related note, at the EVCA Symposium a few weeks ago in Rome I must have had at least half a dozen conversations with GPs and LPs based in Continental Europe whose first or second question was always “So, do you think that Gordon Brown will come down hard on private equity?” They usually said this with a smirk on their face – read into that what you will – but I was a bit taken aback but the frequency of the question, but then again this was the day after the BVCA Chairman Peter Linthwaite resigned following his mauling by the Treasury Select Committee. My answer then is the same now: not really. I think increased regulation is a certainty and there may very well be some changes to the way carried interest is treated but, as always, the model will just be tweaked so I doubt anything major is on the cards (famous last words).

*** I also see that Carlyle is apparently in talks with Sir Richard Branson over buying his cable TV company Virgin Media for around US$20bn (GBP10bn). Sir Richard is the company’s largest stakeholder with a 10.5% – it’s a listed company, on NASDAQ though rather than London – and apparently he wants to stay on board.

Top Three

Carlyle is reported to be in negotiations to buy UK cable group Virgin Media for around £10bn (US$20bn). Discussions at said to be at a very early stage and there are no indications as to whether any other buyout firms are bidding alongside Carlyle. The firm reportedly offered around US$30 per share in a bid last year in a consortium with Providence Equity Partners, Kohlberg Kravis Roberts, Cinven and Blackstone. For more information go to http://www.thomsonmergernews.com

Carlyle is again involved in another big deal, this time the US$6.3bn take private of Manor Care, a healthcare specialist listed on the New York Stock Exchange. Carlyle will pay US$67 per share. www.hcr-manorcare.com

Imperium Renewables, a Seattle, Washington-based renewable fuels technology business, has filed with the SEC for an IPO which could see the company raise up to US$345m. It is supported by a host of VCs: Attractor Investment, BlackRock Private Equity Partners, Capricorn Management, Nth Power, Robeco Private Equity, Silver Point Capital, and Technology Partners. www.imperiumrenewables.com

VC Deals

Mirifice, a UK company specializing in digital TV technology, has secured GBP250,000 of funding from the YFM Group managed, South West Ventures Fund. www.southwestventuresfund.co.uk

Paracor Medical Inc., a Sunnyvale, Calif.-based developer of implantable medical devices to treat heart failure, has raised US$44.35m in Series D funding. Aberdare Ventures led the deal, and was joined by Montagu Newhall Associates and return backers Delphi Ventures, Pequot Ventures, InterWest Partners, Alta Partners, DeNovo Ventures, Saratoga Ventures and Palo Alto Investors. Paracor previously had raised US$47.5m in VC funding since 2001. www.paracormedical.com

Cadforce Inc., a Marina del Rey, California-based outsourcer of CAD drafting services for architects, has raised US$2m as a part of a US$10m Series C funding round. The business is backed by Rincon Venture Partners, Tech Coast Angels and VCE Capital. www.cadforce.net

Edison Pharmaceuticals, a San Jose, California-based drug developer to treat diseases that impair energy metabolism, has raised US$4.25m in a Series B round. http://edisonpharma.com

Loyalty Lab Inc., a San Francisco-based developer of customer relationship software, has secured US$7m in venture capital funding from OpenView Venture Partners. The company has previously received backing from Cannan Partners, Mobius Venture Capital and Outlook Ventures in 2005 and 2006. http://www.openviewpartners.com

Buyout Deals

Advent International has taken a majority stake in German fashion discount chain, Takko, for EUR770m from Permira. The deal was led by Takko’s managing director Arnold Mattschull. Permira backed an MBO back in March 2000 in a EUR603.5m deal. The transaction is subject to regulatory approval of the European cartel authorities and is anticipated to close in Q3 2007. http://www.adventinternational.com

Bank of Scotland’s Integrated Finance (BoSIF) Unit has backed the GBP46.5m management buyout of Lambert Smith Hampton Limited, a UK commercial property business, from project management group WS Atkins. http://www.hbosplc.com

Ferd Private Equity Fund II has signed an agreement to acquire Norwegian oil service company Aibel Limited for US$900m in the largest ever buy-out by a Norwegian-based private equity fund. The sellers are the Candover, 3i and J P Morgan Partners LLC. http://www.aibel.com

Dubai International Capital and Mubadala Development, the investment arm of the Abu Dhabi government, have ruled themselves out of bidding for Ford-owned UK luxury car groups, Jaguar and Land Rover. Weekend speculation in the UK press suggested that both groups were interested in bidding. Private equity firms Cerberus Capital Management, Ripplewood Holdings and One Equity Partners, have also been linked to possibly buying Ford and Jaguar. http://www.thomsonmergernews.com

PE-Backed IPOs

Quark Pharmaceuticals, a California-based biotech company backed by Tako Ventures, has shelved plans to float, citing concerns over “market conditions”. The IPO was looking to raise around US$80m. www.quarkbiotech.com

Hhgregg Inc., an Indianapolis-based retailer of audio/video products, branded appliances and accessories, has announced further details of its US$172.5m IPO. The company is offering 9.4 million shares with a price range of US$15 to US$17. Freeman Spogli & Co. is the company’s largest shareholder with a 64% pre-IPO stake, followed by CalSTRS (10.5%). www.hhgregg.com

Compellent Technologies Inc., a Minnesota-based provider of data warehousing services, is to raise up to US$60m in an IPO according to its filing. The company is backed by Nomura, Cargill Ventures, El Dorado Venture, Centennial Ventures, Affinity Ventures, and Crescendo. http://www.compellent.com

Airvana, a Massachusetts-based wireless network equipment maker, is to sell 8.3 million shares between US$8 and US$10 per share as part of an IPO which is expected to raise around US$95.5m for the company. It is backed by Matrix Partners. http://www.airvananet.com

PE Exits

Blackstone has sold US wireless tower operator Global Tower Partners to Macquarie Infrastructure Partners and Macquarie Communications Infrastructure for US$1.425bn.

PE-Backed M&A

National Britannia Group Limited (NBG), a UK risk management group and portfolio company of mid-market firm Lyceum Capital, has acquired Corporate Health & Safety Solutions Limited (CHSS), a staff training company. NBG was acquired by Lyceum Capital in March 2005. http://www.westpe.com

Firms & Funds

Accel Partners has teamed up again with China’s IDG Technology Venture Investment for a new US$510m fund aimed at the Chinese market. The two raised a fund back in 2005 called the IDG-Accel China Growth Fund, which closed on US$310m. www.accel.com and www.idgvc.com

Hermes Private Equity (HPE), the private equity arm of Hermes Pensions Management, has received GBP300m from the BT Pension Scheme for its third direct private equity fund, Hermes Private Equity Partners III (HPEP III). Like the first two funds, HPEP III will invest primarily in middle-market buyouts in the UK and Europe, typically valued in the range of GBP20m to GBP150m. http://www.hermes.co.uk

Human Resources

Campbell Lutyens, the UK private equity advisory firms, has promoted Christoffer Davidsson to partner at the firm. Davidsson joined in 2001 after working in New York in the private equity finance groups of ING Barings and WR Hambrecht + Co.