PE Week Wire: Thurs., April 19, 2007

Bain Capital and Thomas H. Lee Partners blinked yesterday, when they agreed to up their per share bid for Clear Channel Communications from $37.60 to $39. Early indications are that the increase still might not sway opposition shareholders like Fidelity Investments, but the move lends credence to an argument far larger than any one deal: When push comes to shove, buyout firms will usually put more money on the table.

Whether it be Clear Channel, Harrah’s or Equity Office, LBO firms have demonstrated that their first bid is not necessarily their best bid. More specifically, their first bid accepted by a company’s board is not necessarily their best bid. They might bluff for weeks or months – and Bain/TH Lee displayed a pretty good poker face – but there is almost always some upward wiggle room. After all, you don’t spend all those resources on a multi-billion dollar transaction, just to callously walk away over a few hundred million dollars.

The trouble, however, is that it is nearly impossible to salvage such situations without encouraging the next one. If you owned shares in a company targeted by Bain or TH Lee, would you automatically jump at the first accepted bid? Unlikely.

Kevin Conway of CD&R yesterday noted that LBO critics keep floating a contradictory argument: On the one hand, buyout firms are “stealing” public companies. On the other, they are overpaying for them. And he’s right, so long as the criticism remains binary. But let me suggest a third road: LBO firms try to steal public companies but, if forced, will be willing to overpay for them.

*** Spotted in the crowd at Buyouts Symposium East yesterday was Doug Lowenstein, head of the new Private Equity Council. I asked him why all of the inaugural PEC members are part of the “mega-fund” community. The answer is that PEC felt it would be easier to launch with fewer members – operational difficulties of too many cooks in the kitchen – but that it may open up to a broader membership sometime down the road (hasn’t really been discussed yet). He added that PEC first needs to determine what specific services it can offer to members, beyond just lobbying on their behalf. If lobbying is the only service, then most mid-market firms might not join. After all, why pay a membership fee when Carlyle/Blackstone/etc. are already footing the bill?

*** My most common question for LBO pros over the past few days: How would a successful Mitt Romney candidacy affect the buyout market? My general thesis has been “with great visibility comes great scrutiny” – and nothing is more visible than a presidential contender. If Romney were to win the GOP nomination, for example, wouldn’t reporters begin delving into the minutiae of how he made his millions? After all, he really didn’t do too much – positively or negatively – as governor of Massachusetts.

The general answer was twofold: (1) He would need to get the nomination if order for political journalists to commit the time. There are simply too many primary candidates out there. (2) If he were to get the nomination, then it’s viewed as a net positive. There will obviously be tales of layoffs and plant closures but, in general, the public might gain a better understanding of how private equity really works (more operational growth than slash/burn).

*** One additional Romney note: I’d expect his Q1 fundraising totals to be an aberration. If you look through the numbers, most of his private equity pals already have committed the maximum personal donation. He’s even did some fundraising at private equity firm offices. That’s where his huge Q1 total came from, and I don’t see any way for him to replicate it, particularly given his low national poll numbers.

*** Every VC and buyout firm brags in public about how it’s funds are top-quartile, but they often sing a different tune behind closed doors with prospective LPs. Some firms can legitimately maintain their public face, but the vast majority plead for why things will be different the next time around.

Unfortunately, it appears that past performance is a fairly strong indicator of future performance, according to a new study from Private Equity Intelligence. More details here.

Top Three

MetroPCS Communications Inc., a Dallas-based wireless communications services provider, priced 50 million shares at $23 per share ($19-$21 range), for an IPO take of approximately $1.15 billion. The deal gives MetroPCS a market cap of almost $8 billion, compared to a $2.2 billion post-money valuation when TA Associates and Madison Dearborn Partners invested $688 million in late 2005. Shareholders include TA (13.24% pre-IPO stake), Madison Dearborn (13.20%), Accel Partners (11.26%), M/C Venture Partners (8.45%) and Battery Ventures. MetroPCS had priced an IPO at $17 per share back in 2003 but, before the company could begin trading on the Nasdaq exchange, certain accounting inconsistencies were discovered and the IPO was withdrawn.

Ganymed Pharmaceuticals AG, a Mainz, Germany-based developer of cancer antibodies, has raised €33.7 million in Series C funding. VI Partners led the deal, and was joined by Future Capital, Ingro Finanz, Landesbank Baden-Württemberg (LBBW), MIG, Nextech Venture ONC Partners and Varuma.

Coller Capital has closed its fifth secondaries fund with $4.5 billion in capital commitments. It is the largest secondaries fund ever raised.

VC Deals

Superprotonic Inc., a Pasadena, Calif.-based developer of solid-acid fuel cells, has held a first close on its $16.2 million second-round of funding. US Venture Partners led the deal, and was joined by Dow Chemical Ventures and return backers CMEA Ventures, Nth Power Technologies, Hydro Technology Ventures, Battelle Ventures, Innovation Valley Partners and OnPoint Technologies.

Reliant Technologies Inc., a Mountain View, Calif.-based developer of aesthetic laser medicine and surgery products, has raised $15 million in Series E funding. Delphi Ventures led the deal, and was joined by return backers Three Arch Partners and Meritech Capital Partners.

Avvo Inc., a Seattle-based online provider of legal information for consumers, has raised $10 million in Series B funding. Ignition Partners led the deal, and was joined by return backer Benchmark Capital.

Coherex Medical Inc., a Salt Lake City-based developer of medical devices that can help close certain heart defects, has raised $8.525 million in Series A funding. Oxford Bioscience Partners and vSpring Capital co-led the deal.

Spirus Medical Inc., a Stoughton, Mass.-based developer of diagnostic and therapeutic advancement systems for gastroenterology, urology and gynecology, has raised $8.5 million in Series B funding. Backers include BioVentures Investors, Point Judith Capital and Village Ventures.

Kalido Ltd., a Burlington, Mass.-based provider of data warehousing and management software, has raised $5 million in additional Series C funding, according to a regulatory filing. This brings the round total to $19 million. Return backers include Atlas Venture, Benchmark Capital and Matrix Partners.

Buyout Deals

Allied Capital has agreed to sell its majority equity interest in Mercury Air Centers Inc. to Macquarie Infrastructure Co. The deal provides Mercury with an enterprise value of approximately $427 million, with Allied expecting to realize a $240 million gain on the equity. Mercury is a Richmond Heights, Ohio-based owner and operator of fixed-base aviation operations, and was advised on the sale by Harris Williams & Co.

Bain Capital and Thomas H. Lee Partners have raised their offer for Clear Channel Communications from $37.60 per share to $39 per share. The firms had been holding firm for months, but became concerned that they could fall short in the shareholder vote, which has now been rescheduled forMay 8.

United Surgical Partners International Inc. (Nasdaq:USPI) shareholders have approved a $31.05 per share buyout offer from Welsh, Carson, Anderson & Stowe. The total transaction is valued at approximately $1.8 billion.

Gresham Private Equity has raised its offer for ICM Computer Group by 22% to 490 pence per share, in an attempt to beat off a rival bid from Phoenix IT Group. The cash offer values ICM at Gbp120 million.

Blue Point Capital Partners has led a recapitalization of Packers Sanitation Services Inc., a Mt Pleasant, Iowa–based outsourced contract cleaner serving the food preparation industry. Blue Point and PSSI management provided equity, while debt financing came from Madison Capital, Orix Finance and Contrarian Capital Finance. No specific financial terms were disclosed.

Bear Stearns Capital Partners has acquired a minority ownership position in Francesca’s Collections, a Houston, Texas-based retailer of women’s apparel, jewelry, accessories and gifts. No financial terms were disclosed.

National Veterinary Associates, owner of free-standing companion animal veterinary hospitals in the U.S., has received $128 million in private equity funding from Summit Partners.

PE-Backed IPOs

Airvana Inc., a Chelmsford, Mass.-based provider of network infrastructure products used by wireless carriers to provide mobile broadband services, has filed for a $75 million IPO. It plans to trade on the Nasdaq under ticker symbol AIRV, with Morgan Stanley and Lehman Brothers serving as co-lead underwriters. Airvana raised around $81 million in total VC funding since 2000, from firms like Matrix Partners and Qualcomm.

AMC Entertainment Inc., a Kansas City-based movie theater chain, has set its proposed IPO terms to around 39.47 million shares to be offered at between $18 and $20 per share. It plans to trade on the NYSE under ticker symbol AC, with Goldman Sachs serving as lead underwriter. Shareholders include JPMorgan Partners (20.78%), Apollo Management (20.78%), Bain Capital (15.09%), The Carlyle Group (15.09%) and Spectrum Equity Investors (9.76%).

Sirtris Pharmaceuticals Inc., a Cambridge, Mass.-based developer of therapeutics that modulate an enzyme family called sirtuins, has set its proposed IPO terms to 5 million common shares being offered at between $9 and $11 per share. It plans to trade on the Nasdaq under ticker symbol SIRT, with JPMorgan serving as lead underwriter. Sirtris has raised $67 million in VC funding since its 2002 inception (plus $15m in venture debt), from firms like Polaris Venture Partners (14.91% pre-IPO stake), TVM (11.83%), Cardinal Health Partners (9.52%), Skyline Ventures (7.68%) Wellcome Trust (5.13%), Three Arch Partners, Novartis, Cargill Ventures, Cyad Group, Hunt Ventures, Red Abbey, Bessemer Venture Partners, Genzyme Ventures, QVT Fund and Alexandria Real Estate Equity.

PE-Backed M&A, a Redwood City, Calif.-based operator of an online customized products marketplace, has acquired Confego Inc., a Berkeley, Calif.-based online provider of retail brand customization services. Zazzle has raised $16 million in VC funding from Kleiner Perkins Caufield & Byers and Sherpalo Ventures.

PE Exits

Natural Gas Partners has agreed to sell Gulf Coast oil and gas exploration company Goldking Energy Corp. to Dune Energy Inc. (Amex: DNE). The total deal is valued at $320.5 million, including $302.5 million in cash and $18 million newly-issued Dune shares.

JPMorgan Chase has agreed to acquire Xign Corp., a Pleasanton, Calif.–based provider of B2B on-demand financial settlement solutions. No financial terms were disclosed for the deal, which will result in Xign becoming part of the commercial card and procurement businesses of JPMorgan Chase’s Treasury Services unit. Xign has raised around $58 million in 2000 from Charles River Ventures, Matrix Partners, FT Ventures, MasterCard, RDM and Charles R. Schwab.

MCF Corp. (AMEX: MEM) has acquired MedPanel Inc., a Cambridge, Mass.–based online medical market intelligence firm, for $6.5 million worth of common stock. The deal also includes up to $11.5 million in possible earn-outs. MedPanel raised a small amount of strategic venture funding from X-Rite Inc.

Firms & Funds

Qatar Capital Partners has launched as a venture capital firm focused opportunities in Qatar. It currently has two funds: Technology Venture Fund, a $100 million early-stage vehicle; and New Enterprise Fund, a $30 million seed-stage vehicle. The firm was formed via a partnership between Qatar National Bank, Oxford Capital Partners and Ansbacher.

Camcor Partners of Calgary has raised Cdn$200 million for a private equity fund that will back private companies involved in oil sands-related businesses – including exploration and production, upgrading, service and supply, infrastructure, technology and environmental services.

Energy Investors Funds has completed a $300 million recapitalization of its U.S. Power Fund. The transaction involved leveraging the equity cash flows interests of USPF Holdings in seven generation projects and one transmission project.Lehman Brothers was retained by EIF as the sole arranger and book-runner, and underwrote the

The Carlyle Group has closed its tenth high-yield loan fund, with $400 million in capital commitments. The vehicle utilizes a traditional CLO structure, including AAA through BB rated liabilities.

Jefferies Group (NYSE: JEF) stock and call options rose yesterday on buyout rumors. One speculated suitor is MassMutual.

Human Resources

Andrew Silver has joined Houlihan Lokey as a New York-based managing director in the firm’s basic industrials group, where he will focus on the building products industry. He previously was a managing director with Morgan Joseph & Co.

Dean Barr has resigned as head of hedge funds at Citigroup, just days after the bank agreed to buy hedge fund manager Old Lane Partners. As part of the acquisition, Citigroup said that Old Lane co-founder Vikram Pandit would be put in charge of alternative investments – including private equity.

Carlos Kawall, Brazil’s treasury secretary from 2005 to 2006, has joined the board of directors of Rio Bravo Investimentos of Rio de Janeiro. Kawall resigned from his government post at the end of 2006, citing personal reasons.