PE Week Wire: Thurs., June 14, 2007

The British private equity industry is under attack from a variety of quarters, including trade unions, politicians, the media and men 18-34. So does it plan to change its tactics? Hell no. It’s far easier to just dump the guy who’s been charged with explaining them.

That guy would be Peter Linthwaite, chief executive of the British Venture Capital Association. He “stepped down” earlier today, after The Times yesterday reported that he would be forced out at the end of a strategic review ordered by BVCA chairman Wol Kolade.

I don’t know Linthwaite personally, but my colleague Amanda Palmer does. She reports that he has been a great proponent of the UK venture capital industry and very proactive with the press…

Sorry, but a quick interruption: “Venture Capital” is typically used in the UK to describe most every form of private equity, including buyouts. Kind of like how “Private Equity” used to be used in the States to describe both buyouts and venture capital (which I still stubbornly do for branding purposes). Ok, back to our regularly-scheduled ramblings…

Linthwaite apparently got his rhetorical butt kicked by a bunch of Labour MPs on Tuesday, who are steamed that British PE fund managers pay a 10% capital gains tax rather than a 40% income tax (sound familiar?). He apparently argued that a tax treatment change could prompt UK private equity firms to relocate their headquarters (Switzerland is nice this time of year), but he wasn’t terribly persuasive. Amanda doesn’t think anyone else could have done better, but apparently BVCA felt differently.

So, is the “resignation” justified? I’m going to go out on a hedge and say maybe. His job was largely one of PR, and not the type where any news is good news. Instead, he got so much backlash that private equity became to British politics what illegal immigration is to U.S. politics.

But I can’t help but think that that the BVCA membership also has to take a long look in the mirror. They’ve done a better job than their U.S. counterparts in extolling their own virtues (faint praise), but still seem incapable of understanding the underlying animosity. So let me try to clear it up: YOU’RE RICH. And many non-richies are automatically suspicious of you – particularly when they don’t see what they consider to be enough corresponding humility or philanthropy (no, Bono doesn’t count).

Before breaking out your pitchforks, please understand: I’m not suggesting that such animosity is fair. Simply that it exists, and its very existence matters. And I’m not sure if “fair” even matters in such cases. Imagine you’re a factory worker who gets laid off after years or working hard and competently – at a company whose products simply fell out of favor. It’s not fair, but the only positive thing you can do is suck it up and find a way to fix the problem yourself.

Again, Linthwaite may have deserved to lose his job. But he also might be getting treated like an abused dog by its owner… An owner on the verge of losing his factory job, and in desperate search of someone to blame.

*** Lots more European news being made at the EVCA Symposium in Rome. Tom Allchorne, a reporter with European Venture Capital Journal, is blogging the event for peHUB (see here and here, and more to come).

*** Back stateside, the big news will be made in about an hour, when Alinda Capital Partners announces that it has closed its debut fund with $3 billion in capital commitments. Alinda is part of the new wave of infrastructure-focused private equity funds, and was launched last year by Chris Beale, former global head of project finance at Citigroup (and at Morgan Stanley and CSFB, before that), and other members of his Citigroup team.

Alinda originally went to market with a $1 billion target, but agreed to set a $3 billion hard cap earlier this year. Dane Vene, a principal with fund placement agent C.P. Eaton, says that the original thinking was to raise the first billion on Beale’s track record, and then return to market in a year or two. But he says that oversubscription came quickly, to the point where many LPs were cut back 20% or more. He adds that few institutional investors have dedicated infrastructure buckets, but rather that Alinda would sometimes meet with PE specialists, sometimes with real estate specialists and sometimes with fixed income specialists. And sometimes with all of them.

I also spoke briefly with Beale this morning, and asked him why infrastructure has become such a hit private equity sub-sector. He said the following: “The macro-economic change going on is that U.S. governments at all levels — federal, state and local – are short of money and their infrastructure needs are great. Not only do they need to fix existing infrastructure, but also build new infrastructure. Many state governments used to tap the bond markets, but quite a few have lowered their debt ceilings. So now they’re turning toward asset sale, and public/private partnerships, which is where firms like Alinda come in. This is just a recent trend on a large scale in the U.S., but is something that occurred ten to twelve years ago in places like Australia and England. We’re playing catch-up.

*** Jim Cramer on private equity.

*** David Tom discusses the recent trend of hedge funds investing in illiquid private companies.

Top Three

Alinda Capital Partners has closed its debut infrastructure fund with $3 billion in capital commitments. C.P. Eaton served as placement agent. Alinda was formed last year by a team led by Chris Beale, former global head of project finance at Citigroup. Other senior managers include: Phil Dyk, former president of Ahlstrom Capital; Sanjay Khettry, former head of US and LatAm project finance at Citigroup; John Laxmi, former head of project bond origination with Citigroup; and Simon Riggall, fotmer head of European project finance at Citigroup.

Colin Maltby has decided to retire as head of investments for BP Pension Fund, after a seven-year run. He will be succeeded by Tony Pike. In other BP news, Vicky Wilson has been hired as head of private equity, a new position. She previously spent time with both the British Airways and Shell Pension Funds.

Enuclia Semiconductor Inc., a Beaverton, Ore.-based fabless chipmaker for flat-panel televisions, has shut its doors. The company had raised $18 million in VC funding, including a 2006 Series B round at a $33 million post-money valuations from Menlo Ventures, Sevin Rosen Funds and Scale Venture Partners. The Portland Business Journal reports that the company had agreed on terms for a $20 million Series C deal with existing shareholders, but that the deal fell apart once one of the firms pulled out at the “11t! h hour.” It is unclear which firm bailed first.

VC Deals

Franklin & Seidelmann Subspecialty Radiology, a Cleveland-based provider of teleradiology services to imaging centers, physician practices, radiology groups and hospitals, has raised $25 million from Oak Investment Partners. Ann Lamont, an Oak managing partner, will join the F&S board of directors.

M-Factor Inc., a San Mateo, Calif.-based provider of marketing analysis software, has raised $10.1 million in Series C funding, according to a regulatory filing. Return backers include Bay Partners and U.S. Venture Partners. It has now raised over $16 million in total VC funding since its 2003 inception.

Luminescent Technologies Inc., a Palo Alto, Calif.-based provider of lithography-enhancement products to the semiconductor industry, has raised $9 million in fourth-round funding. Adams Capital Management led the deal, and was joined by return backer Sevin Rosen Funds.

Tatara Systems, an Acton, Mass.-based provider of mobile convergence products for network operators, has raised $8 million in fifth-round funding from return backers Highland Capital Partners and North Bridge Venture Partners. Tatara has raised around $36 million in total VC funding, since its 2001 inception as Broadwave.

Intelect Medical Inc., a Cleveland-based developer of implantable neuromodulation systems for brain injury recovery, has raised $7 million in Series B funding from Boston Scientific Corp. and Greatbatch Inc. It was founded two years ago as a Cleveland Clinic spinout, and raised $3 million in Series A funding from BIomec Inc.

deviantART Inc., a Hollywood, Calif.-based online art community, has raised $3.5 millionin Series A funding, according to a regulatory filing. Listed shareholders include DivX Inc.

SmartSheet Inc., a Bellevue, Wash.-based provider of Web-based software for managing events, processes or projects, has raised $2.69 million in Series A-4 funding led by Madrona Venture Group, according to a regulatory filing.

Centric CRM, a Norfolk, Va.-based provider of open-source customer relationship management solutions, has raised an undisclosed amount of funding from Intel Capital.

Buyout Deals

Apax Partners and Morgan Stanley Principal Investments have completed their take-private buyout of Chicago-based insurance brokerage Hub International Ltd. for $41.50 per share. The total deal was valued at approximately $1.8 billion, including around $145 million of assumed debt. Hub was being advised on the sale by Merrill Lynch.

Cadbury Schweppes has set a firm deadline of tomorrow for final bids for its U.S. beverages arm. One consortium is comprised of Blackstone Group, KKR and Lion Capital, while another consists of Bain Capital, TPG and Thomas H Lee Partners. A third includes Canada’s Cott Corp. and other private equity groups.

GTCR Golder Rauner has bought Service Net Solutions Inc. from H.I.G. Capital for an undisclosed amount. Service Net is a Jeffersonville, Ind.-based administrator of extended warranty programs for OEMs and specialty retailers covering a wide range of consumer durable products. H.I.G. originally invested in 2004.

Hicks Holdings has acquired a 40% stake in SafeMed, a San Diego-based provider of clinical decision support systems. No financial terms were disclosed.

Hunt Private Equity Group and BB&T Capital Partners has closed its acquisition of Ginsey Industries Inc., a Bellmawr, N.J.-based maker of bath products like juvenile toilet training seats. No financial terms were disclosed.

Nestor Healthcare, a UK healthcare services group, said that it received a private equity approach last week. No private equity firm was named, and Nestor said that no discussions have as yet taken place with the potential suitor. Nestor has a market cap of approximately £205 million.

The Riverside Company has acquired AutomationSolutions, a Beverley, Mass.–based provider of engineered automation solutions for original equipment manufacturers in the Northeastern United States. No financial terms were disclosed, except that riverside used its Micro-Cap Fund, which focuses on companies with EBITDA of $3 million or less.

Virgo Capital has led an acquisition of Accord Human Resources, an Oklahoma City and Tampa, Fla.-based provider of outsourced human resource solutions. No financial terms were disclosed for the deal, which included additional equity from McClendon Venture Co. and Records Private Equity. Fifth Third Bank provided leveraged financing. AHR serves approximately 11,000 client employees located in 44 states.

PE-Backed IPOs

Biofuel Energy Corp., a Denver-based ethanol producer, raised $55 million in its IPO, by pricing 5.25 million common shares at $10.50 per share. It originally filed to raise $300 million, by pricing 9.5 million shares at between $16 and $18 per share (later revised downward to $13-$14). The IPO gives BioFuel a market cap of around $340 million. It will trade on the Nasdaq under ticker symbol BIOF, while JPMorgan, Citigroup and A.G. Edwards served as co-lead underwriters. Shareholders include Greenlight Capital, Third Point Partners and Cargill Inc.

BWAY Holding Co., an Atlanta-based manufacturer of rigid metal and plastic containers, raised $150.6 million via its IPO, by pricing 10.04 million common shares at $15 per share ($16-$18 range). The IPO values BWAY at approximately $324 million. It will trade on the NYSE under ticker symbol BWY, while Goldman Sachs and Banc of America served as co-lead underwriters. Kelso & Co. acquired BWAY in 2003, and sold around 40% of its shares as part of the IPO.

Geovera Insurance Holdings Ltd., a Bermuda-based residential property insurer, said that its $115 million IPO has been postponed indefinitely due to “market conditions.” JPMorgan and Merrill Lynch are serving as co-lead underwriters. Shareholders include Hellman & Friedman (65.1% pre-IPO stake) and Friedman Fleischer & Lowe (32.5%).

SS&C Technologies Inc., a Windsor, Conn.-based financial management software provider owned by The Carlyle Group, has filed for a $200 million IPO. It plans to trade on the Nasdaq under ticker symbol SSNC, with Morgan Stanley, Credit Suisse and Morgan Stanley serving as co-led underwriters. SS&C reported 2006 revenue of approximately $205.5 million.

PE Exits

The Carlyle Group, Clayton, Dubilier & Rice and Merrill Lynch have priced their secondary sale of 45 million shares of Hertz Global Holdings Inc. (NYSE: HTZ), at $22.25 per share. The $1 billion deal is expected to close Monday, and reduces the firms’ combined stake in Hertz from 71.59% to 55.45 percent.

SonicWall Inc. (Nasdaq: SNWL) has agreed to acquire Aventail Corp., a Seattle–based provider of SSL VPN remote access solutions, for approximately $25 million in cash. Aventail had raised around $120 million in total VC funding since its 1996 inception, including a 2001 Series E infusion at a $122 million post-money valuation. VC backers include Focus Ventures, Fidelity Ventures, Trinity Ventures, Oak Investment Partners, GRP Partners, Hewlett-Packard, Madrona Venture Group, Morgan Stanley Private Equity and the XML Fund.

PE-Backed M&A

Versatile Processing Inc., a portfolio company of Dorman Industries LLC and Merit Capital Partners, has acquired Dulin Metals Co., a provider of mill processing, toll management and precious metal representation. No financial terms were disclosed. Dulin Metals was advised on the deal by RSM EquiCo Capital Markets.

Firms & Funds

CDC, a fund-of-funds owned by the UK government, has retained Morgan Stanley to advise it on a possible sale or IPO, according to The Times of London. The report says that an IPO could value CDC as high as £2 billion.

Industrial Opportunity Partners has closed its debut fund with $185 million in capital commitments. The Evanston, Ill.-based firm focuses on middle-market manufacturing and distribution businesses, typically with revenues between $30 million and $300 million. Park Hill Group served as fund placement agent.

Human Resources

Richard Clemmer has joined Kohlberg Kravis Roberts & Co. (KKR) as a senior advisor. Clemmer most recently was CEO of semiconductor company Agere Systems.

William Price, co-founder of TPG, has joined the advisory board of Presidio Financial Partners, a San Francisco-based wealth management firm.