Goldman Sachs was feeling its pop lit oats on Friday, when it sent out client research titled “Hung Bridges and The Deathly Hallows.” It included such gems as:
But like J.K. Rowling’s protagonists, the battle between investor sentiment and company fundamental will continue until the demise of one of the participants.
And…
It is impossible even for a wizard like Harry Potter to reconcile two facts: Stocks cannot BOTH melt down because the market fears financial institutions will have to fund and hold levered loan commitments while at the same time shares of target companies sell off on the belief the same transactions will not close.
That last line led to Goldman’s primary recommendation: That folks should buy stock in the 22 listed companies that already have agreed to go public — many of which are currently trading below their buyout price. For example, Alliance Data closed Friday at $75.33 per share, even though Blackstone has agreed to buy it for $81.75 per share. And I tend to agree, but for a different reason than Goldman.
My reason is simple: I don’t believe the banks will bail, due to the pending breakup fees, legal fees and reputational fees. A few deals might fall apart, so consider the 22 as a bucket best kept whole.
Goldman, however, sets up a false choice: Investors cannot simultaneously believe that:
(1) Banks will make bad loans to fund LBO deals, which is why the overall market is tanking.
(2) Banks won’t make bad loans, which is why target company prices are sliding.
But that’s assuming that it’s the same investors making both bets. What if average investors have lost faith that future take-privates will get done, thus lowering the artificial markups based on the dream of future LBO premiums – while investors in the 22 stocks are simply hedging their bets after having gotten substantial gains? In fact, I think that’s exactly what’s happening.
*** Even if the Golden Age of Buyouts is over — or at least on vacation until Labor Day — it’s not as if the market will disappear. Remember, deals got done back when lenders were stingier — and there is exponentially more dry fund powder today. Returns may go down, but the market will survive just fine. (that’s right, I’m not bearish, just a contrarian)
*** I’m hoping a reader can help me out here: Has anyone seen a thoughtful analysis of how much the U.S. economy has benefited from the Iraq War? Not how much the war has cost, per se, but what the markets would look like absent the initial invasion and its aftermath. I would assume the bulls would have run significantly slower, but am curious to know for sure.
*** I don’t get Twitter, which should be enough endorsement for Union Square Ventures and Charles River Ventures to feel great about their latest investment. Plus, it looks like a sure-thing acquisition for either a blogging or social networking company (or so I’m told by corp dev people at such companies).
*** I was unable to scour regulatory filings while in San Francisco last week, because my laptop didn’t play nice with Thomson’s servers. But I did some looking last night, and came up with more than a dozen unannounced fundings. Happy perusing in the VC Deals section below…
Top Three
SoloPower, a Milpitas, Calif.-based developer of thin-film photovoltaics, has raised $30 million in Series B funding. Convexa Capital of Norway led the deal, and was joined by return backers Crosslink Capital and Firsthand Capital Management. www.solarpowerinc.net
Lee Equity Partners has agreed to acquire retailer Deb Shops Inc. (Nasdaq: DEBS), a Philadelphia-based retailer of apparel, shoes and accessories for juniors in both regular and plus sizes. The deal’s total equity value is approximately $395 million, with Debs stockholders to receive $27.25 per share. It is expected to close later this quarter. www.debshops.com
Alibaba.com Inc., operator of China’s largest B2B website, has begun preparations for a $1 billion IPO, according to the official China Securities Journal. The offering would occur later this quarter in Hong Kong, with Morgan Stanley serving as lead underwriter. Alibaba.com has raised around $107 million in total VC funding, including an $82 million Series D round in early 2004 at a $182 million post-money valuation. Shareholders include Fidelity Investments, Goldman Sachs, Granite Global Ventures, Softbank China VC, Investor AB, Transpac Capital and Venture TDF. www.alibaba.com
VC Deals
Santur Corp., a Fremont, Calif.-based provider of optical networking components, has raised around $26.5 million in Series D funding, according to a regulatory filing. Return backers include Lighthouse Capital Partners, Menlo Ventures, Sequoia Capital, Thomas Weisel Venture Partners and VantagePoint Venture Partners. Santur has raised over $86 million in total VC funding since its 2000 inception. www.santurcorp.com
Action Engine Corp., a Bellevue, Wash.-based developer of a software platform for use with Web-enabled mobile devices, has raised $20 million in Series E funding. Return backers included Baker Capital, Northwest Venture Associates and Spangler Group. Existing shareholders OVP Venture Partners and Intel Capital opted not to re-up. Action Engine has now raised around $65 million in total VC funding since 2000. www.action-engine.com
Aerohive Networks Inc., a Santa Clara, Calif.-based developer of “cooperative control” wireless LAN access points, has raised $20 million in Series B funding. Kleiner Perkins Caufield & Byers led the deal, and was joined by return backers Northern Light Venture Capital and Lightspeed Venture Partners. Aerohive had raised a $4 million Series A round in July 2006. www.aerohive.com
Desktone Inc., a Chelmsford, Mass.-based developer of a unified virtual desktop platform, has raised $17 million in Series A funding. Highland Capital Partners and SoftBank Capital co-led the deal, and were joined by Citrix Systems. www.desktone.com
Cast Iron Systems Inc., a Mountain View, Calif.-based maker of application integration hardware devices, has raised $16.5 million in Series F funding, according to a regulatory filing. Lehman Brothers Venture Capital was joined by return backers Sequoia Capital, Norwest Venture Partners and Invesco Private Capital. Cast Iron has now raised over $61 million in total VC funding since 2001. www.castironsys.com
Convey Computer Corp., a Richardson, Texas-based maker of application to improve performance of microprocessor servers, has raised nearly $16 million in Series A funding. Participants included CenterPoint Venture Partners, Intel Capital, InterWest Partners and Rho Ventures. www.conveycomputer.com
Cnano Technology Ltd., a Menlo Park, Calif.-based maker of carbon nanotubes, has raised $6 million in Series A funding at an $11.5 million post-money valuation. CMEA Ventures and Pangaea Ventures co-led the deal, and were joined by WI Harper. www.cnanotechnology.com
NowPublic Technologies Inc., a Vancouver-based “crowd-sourced” online news network, has raised $10.6 million in second-round funding. Rho Ventures and Rho Canada co-led the deal, and were joined by seed backers Brightspark Ventures and GrowthWorks Capital. It previously had raised $1.4 million. www.nowpublic.com
Qlusters Inc., a Palo Alto, Calif.-based provider of open-source systems management solutions for software provisioning and managing virtual environments, has raised around $10.36 million in Series C funding, according to a regulatory filing. Network Appliance Inc. was joined by return backers Benchmark Capital, Charles River Ventures, DAG Ventures and Israel Seed Partners. Qlusters has raised around $23 million in total VC funding since 2001. www.qlusters.com
ACCO SA, a French analog and RF semiconductor design company, has raised $10 million in second-round funding. Pond Venture Partners and Partech International joined seed backer Siparex Ventures. www.acco-ic.com
SignalDemand Inc., a San Francisco-based provider of pricing and profitability management solutions for commodity and food manufacturers, has raised around $10 million in Series C funding, according to a regulatory filing. Return backers include Catamount Ventures, Hummer Winblad Venture Partners and General Catalyst Partners. SignalDemand has now raised over $20 million in total VC funding since its 2003 inception. www.signaldemand.com
BridgeWave Communications, a Santa Clara, Calif.-based provider of gigabit wireless solutions, has raised $7.8 million in Series 3 funding. SDL Ventures and Intel Capital were joined by undisclosed return backers. The company previously had raised around $53 million from firms like JVP, MKS Partners, Oak Investment Partners and Seaflower Ventures. www.bridgewave.com
DecisionView Inc., a San Francisco-based provider of business performance optimization applications for the life sciences market, has raised $7 million in Series C funding. FirstVentury led the deal, and was joined by return backers Partech International and Granite Ventures. DecisionView has raised around $20.3 million in total VC funding since 2003. www.decisionviewsoftware.com
Sierra Solar Inc., a Sunnyvale, Calif.-based developer of “affordable” thin-film photovoltaics, has raised $6.86 million in Series A funding led by GSR Ventures, according to a regulatory filing. www.sierrasolarpower.com
myShape, a Pasadena, Calif.-based online apparel retailer, has called down $6.4 million of a $9 million Series B round led by Draper Fisher Jurvetson, according to a regulatory filing. MyShape announced the round last month, but without any dollar amounts. www.myshape.com
Illumita Inc., a Seattle-based, has raised around $6 million in Series A funding, according to a regulatory filing. Backers include Madrona Venture Group and Ignition Venture Partners. www.illumita.com
Insight Direct Inc., a Boston-based provider of software for the field service industry, has raised $6 million in Series A funding from Key Venture Partners, according to a regulatory filing. www.insightdirect.com
3Jam Inc., a Menlo Park, Calif.-based developer of a “reply-all” text messaging service, has raised $4 million in Series B funding, according to a regulatory filing. Norwest Venture Partners was joined by return backers New Enterprise Associates and NetService Ventures. www.3jam.com
Advanced Media Research Group Inc. (a.k.a. BuddyTV), a Seattle-based online provider of television-related content, has raised around $2.8 million in Series A funding, according to a regulatory filing. Gemstar-TV Guide International led the deal. www.buddytv.com
BillShrink Inc., a Menlo Park, Calif.-based provider of online data to consumers for the selection of certain consumer services, has raised $1 million in Series A funding from Bessemer Venture Partners. The company was founded by Yodlee founder Schwark Satyavolu, while Bessemer general partner David Cowan is serving on the board.
Cooliris Inc. of Menlo Park, Calif. has secured around $1 million of a $3.05 million Series A round from Kleiner Perkins Caufield & Byers, with KPCB partner Randy Komisar taking a board seat. Cooliris has developed an online viewing technology that lets users see preview web links and rich media before clicking. www.cooliris.com
Buyout Deals
Sun Capital Partners paid $17 million to acquire food retailer Hickory Farms Inc. from Juniper Partners, according to a regulatory filing. The deal had initially been disclosed without a dollar amount, and included $1.7 million in equity and $15.3 million in debt. Harris Williams advised Hickory Farms on the sale. www.suncappart.com www.hickoryfarms.com
Saugatuck Capital of Greenwich, Conn. has acquired Femco Machine Co., a Punxsutawney, Penn.-based provider of repair services and aftermarket and OEM replacement parts heavy equipment and vehicles.No financial terms were disclosed. RSM EquiCo Capital Markets advised Femco on the sale. www.femcomachine.com
Orthovita Inc. (Nasdaq: VITA), a Malvern, Penn.–based spine and orthopedic biosurgery company, has raised $32.5 million in PIPE funding led by Essex Woodlands Health Ventures. The deal includes 12.3 million shares of Orthovita common stock at a 15% discount to the 30-day volume-weighted average price. In a separate transaction, Orthovita announced that it is repurchasing a revenue interest on future sales of certain Orthovita products, from a securitization vehicle arranged by Paul Capital Healthcare. Orthovita entered into deal with Paul in October 2001 to fund clinical development and marketing programs for its products. The repurchase price for the revenue interest obligation consists of a payment of $20 million in cash and approximately 1.14 million unregistered shares of the Company’s common stock. www.orthovita.com
PE-Backed IPOs
Talecris Biotherapeutics Holding Corp., a Research Triangle Park, N.C.-based developer of plasma-derived protein therapies, has filed for a $1 billion IPO. It plans to trade on the Nasdaq under ticker symbol TLCR, with Morgan Stanley, Goldman Sachs and J.P. Morgan serving as co-lead underwriters. The company is controlled by Cerberus Management and Ampersand Ventures. www.talecris.com
Eyeonics Inc., an Aliso Viejo, Calif.-based developer of intraocular lens implants, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol EYON, with Piper Jaffray and Banc of America Securities serving as co-lead underwriters. Eyonics has raised around $43.5 million in VC funding since 1998, from firms like Brentwood Venture Capital (27.1% pre-IPO stake), ABS Ventures (15%), Pequot Capital (11.6%) and Versant Ventures (6.2%). www.eyeonics.com
Intcomex Inc., a Miami, Fla.-based distributor of IT parts in Latin America and the Caribbean, has filed for a $125 million IPO. It plans to trade on the Nasdaq under ticker symbol ICMX, with Citi and UBS serving as co-lead underwriters. Intcomex was acquired in 2004 by Citicorp Venture Capital. www.intcomex.com
PE-Backed M&A
AmeriMark Direct LLC, a direct marketing company owned by JH Partners, has agreed to buy Dr. Leonard’s Healthcare Corp. from Cortec Group, Baird Capital Partners and Golub Capital. The deal was first disclosed by Moody’s Investors Services, which said that it includes $315 million in debt. Dr. Leonard’s is an Edison, N.J.-based provider of direct marketing of home healthcare products for seniors. www.amerimark.com www.drleonards.com
Firms & Funds
CMEA Ventures of San Francisco is raising up to $400 million for its seventh fund, according to a regulatory filing. Park Hill Group is serving as placement agent. CMEA raised $300 million for its sixth fund in 2003. www.cmeaventures.com
Goldman Sachs has formed a new program to invest in mid-market companies, according to LBO Wire. The effort is called GS Direct, and will focus on companies with enterprise values of between $500 million and $2 billion. www.gs.com
Long River Ventures is raising up to $40 million for its second fund, according to a regulatory filing. It already has secured over $16 million in commitments from LPs like Mass Mutual. The Hadley, Mass.-based firm focuses on early-stage companies in central and western Massachusetts. www.longriverventures.com
Human Resources
David Malm has joined Webster Capital as a managing director. He previously served as a co-founding partner with Halpern, Denny & Co. He remains listed on the Halpern Denny website, but was cited as a Webster managing director in a press release announcing Webster’s buyout of Comfort Keepers. www.webstercapital.com
Stuart Bressman has joined Proskauer Rose as a New York-based partner focused on capital markets transactions. He previously was co-chair of the corporate and securities group of Thelen Reid Brown Raysman & Steiner. www.proskauer.com
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