PE Week Wire: Thurs., May 17, 2007

A few very quick notes, as I’m heading down to New York to conduct a keynote interview during today’s MasterClass on PE/VC Fundraising.

My week of media whoredom continued last night, as I appeared on CNBC’s Fast Money program to discuss what public investors should look for in buyout-backed IPOs. The umbrella answer is that there is no perfect formula for such things, from judging past buyout-backed IPO performance. Moreover, there is some serious discrepancy between aftermarket performance of such offerings over the past two decades and a more recent sampling. Specifically, the historical data since 1980 shows that buyout-backed IPOs have outperformed the non-LBO-backed IPO market. But if you only look at buyout-backed IPOs since the beginning of 2006, they’ve underperformed the non-LBO-backed IPO market by a margin of 23.2% to 27.4 percent (through market close Tuesday). I’ve posted the relevant data here for your downloading pleasure.

If you look a bit deeper at the recent aftermarket performance, a few things jump out. First, companies seem to perform better if they’ve been held longer by their private equity sponsor. This isn’t to say that quick-flips can’t work (think Hertz), but four of the five best-performing offerings received their initial PE funding in 2000 or before. Each of the five worst-performing offerings got funded in 2003 or later.

Other key issues:

• Debt doesn’t seem to matter very much. Folks like me pay a lot of attention to dividend recaps, etc. — but public shareholders apparently view it more as future upside than risk. Moreover, Josh Lerner is currently working on a paper that reviews reverse LBOs (take-privates taken back public) up until 2002, which shows that highly-leveraged companies actually perform slightly better in the IPO aftermarket.

• Be careful if the LBO firm is selling lots of stock in the IPO (shows a lack of faith). Conversely, be careful if the firm continues to hold a significant majority position (could be hard to bleed out without shocking the company).

• Don’t worry too much about the specific LBO firm backing the company. Rock stars are great, but some of the best LBO-backed IPOs come from small firms.

*** Ok, that was anything but a quick note. Let’s try this: A big news item yesterday was that AOL had agreed to acquire Third Screen Media, a Boston-based provider of mobile advertising and marketing software. No financial terms were disclosed, although an earlier WSJ story had pegged the deal at $80 million. Turns out the WSJ was low – as I’ve learned that the actual sales price is around $110 million. Good news for other VC-backed companies in the space, like Ad Infuse, Amobee, Enpocket, Rhythm NewMedia and Millennial Media.

*** Mark Cecil of Buyouts Magazine writes that KKR is ramping up marketing for its next European fund.

*** I mistakenly wrote yesterday that Steven Lerner would be among those testifying at the House hearing on private equity, and that he was SEIU president. He’s not – Andy Stern is – and it was Stern who testified. I listened to most of the hearing – and came away bored.

*** Just learned I’m tentatively back on CNBC tomorrow morning at 8am… Roundtable on private equity and M&A.

*** We’ll do a feedback column tomorrow. Suffice to say, there is a bit of hostility toward Bob Reich on the tax issue. And, of course, a bit toward me as well… Prediction: This will become the issue that pits Wire readers against one another. Almost none of you want the change, but VCs are going to try limiting the damage by attacking buyout pros. In fact, it’s already happening.

Top Three

The Blackstone Group has agreed to acquire Alliance Data Systems Corp. (NYSE: ADS) for $7.8 billion, including assumed debt. ADS shareholders would receive $81.75 per share, which represents a 29.84% premium over yesterday’s closing price of $62.96. Banc of America Securities and Lehman Brothers are advising ADS, which provides customer loyalty and marketing solutions.

TechTarget Inc., a Needham, Mass.-based provider of online IT content, priced 7.7 million common shares at $13 per share ($12-$14 range), for an IPO take of approximately $100.1 million. It will trade on the Nasdaq under ticker symbol TTGT, while Morgan Stanley and Lehman Brothers served as co-lead underwriters. Shareholders include Technology Crossover Ventures (32.34% pre-IPO stake) and Polaris Venture Partners (28.41%).

Excellere Partners has closed its inaugural fund with $265 million in capital commitments. The Denver-based firm will focus on middle-market majority recaps and management buyouts, and is run by former KRG Capital Partners pros David Kessenich and Robert Martin.

VC Deals

Amedica Corp., a Salt Lake City–based orthopedic device maker, has raised $13.2 million in Series D funding from individual investors. Creation Capital served as placement agent. Amedica has raised over $44 million in total funding since November 2003.

Therative, a San Francisco-based maker of a handheld consumer medical device for the treatment of acne, has raised around $9 million in Series C funding. Bessemer Venture Partners led the deal, and was joined by return backers Foundation Capital, RWI Ventures and Band of Angels.Therative has raised over $14 million in total VC funding since its 2004 inception.

FortiusOne Inc., a Washington, D.C.–based provider of online mapping services, has raised $5.45 million in Series B funding. Participants included In-Q-Tel, Chart Venture Partners and seed backers New Markets Growth Fund and Walker Ventures.

Managed Systems Inc., a New York-based provider of outsourced IT services for small and mid-sized companies, has raised $3 million in first-round funding. Greenhill SAVP led the deal with a $2.5 million infusion.

Buyout Deals

Silver Lake Partners and ValueAct Capital have agreed to acquire Acxiom Corp. (Nasdaq: ACXM) for $3 billion. The transaction price includes approximately $756 million of assumed debt, with Acxiom to receive $27.10 per share (14% premium to yesterday’s closing price). Acxiom was advised on the deal by Stephens Inc. and Merrill Lynch. It is a Little Rock, Ark.-based provider of customer and information management solutions to large companies.

M/C Venture Partners and Wachovia Capital Partners have agreed to acquire wireless and fiber optic infrastructure company National Grid Wireless US from National Grid PLC for approximately $290 million. National Grid Wireless US operates a communications infrastructure portfolio consisting of approximately 350 communications towers and over 1,100 route miles of dark fiber. It also develops outdoor distributed antenna systems.

The Carlyle Group reportedly will offer to acquire all of Italian fashion house Valentino Fashion Group SpA, one day after Permira had agreed to acquire a 29.6% stake for €782.6 million. The Carlyle offer would be at €36 per share, compared to Permira’s €35.65 per share bid for the smaller position.

Tailwind Capital Partners has sponsored a recapitalization of Trover Solutions Inc., a Louisville, Ky.–based provider of outsourced claims recovery services and recovery software to the healthcare and property & casualty insurance industries. No financial terms were disclosed, except that Allied Capital supported the deal with $90 million in debt financing.

Inter-Tel Inc. (Nasdaq: INTL) has received a $26.50 per share buyout offer from Vector Capital, which tops an agreed-upon $25.60 per share offer from Mitel Networks Corp. This is the third raised bid from Vector, which is working with Inter-Tel’s founder and former CEO Steven Mihaylo.

PAI Partners has offered to acquire KB Home’s 49% stake in French subsidiary Kaufman & Broad for more than $800 million. PAI’s offer is binding but remains subject to customary terms and conditions including regulatory approval. The transaction could close during the third quarter of 2007.

3i Group has sold its 49.5% stake in Corpro, an Aberdeen, UK-based oilfield services company, to SCF Partners. No financial terms were disclosed. Corpro deploys exclusive coring and core handling services for oil & gas wells during exploration and appraisal. It received its initial investment from 3i Group nine years ago.

Brantley Partners has acquired Flash Global Logistics, a Pinebrook, N.J.–based provider of same-day delivery of critical spare parts to large tech, security and telecom companies. Brantley was joined on the deal by AIG and HSBC, both of which also are limited partners in Brantley’s current fund. News of the acquisition was first reported by The Plain Dealer.

Dollar General Corp. (NYSE: DG) said that it will hold a special shareholders meeting on June 21, in order to vote on a proposed $22 per share buyout by Kohlberg Kravis Roberts & Co. The total deal is valued at approximately $7.3 billion (including around $380 million in net debt), with Goldman Sachs and Lehman Brothers to provide leveraged financing. Lehman and Lazard are serving as financial advisors to Dollar General.

Smart Business Advisory and Consulting LLC, a Devon, Pa.-based business consultancy, has raised $60 million in private equity funding from Great Hill Partners. No additional deal terms were disclosed.

PE-Backed IPOs

Jazz Pharmaceuticals Inc., a Palo Alto, Calif.-based drug development and commercialization company focused on neurology and psychiatry, has set its proposed IPO terms to six million common shares being offered at between $24 and $26 per share. It plans to trade on the Nasdaq under ticker symbol JAZZ, with Morgan Stanley and Lehman Brothers serving as co-lead underwriters. The company has raised around $265 million in VC funding since its 2003 inception, from firms like KKR (46.24% pre-IPO stake), Thoma Cressey Equity Partners (10.72%), Beecken Petty O’Keefe & Co. (7.15%), Prospect Venture Partners (6.65%), Versant Ventures (6.65%), Golden Gate Capital (5.36%), Lehman Brothers (5.13%), Adams Street Partners, EGS Healthcare Capital Partners and Oak Hill Capital.

PE-Backed M&A

Visant Corp. has completed its sale of book printer Von Hoffman to RR Donnelley & Sons Co. (NYSE: RRD) for $412.5 million in cash. Visant (a.k.a. Jostens) is owned by KKR and DLJ Merchant Banking Partners.

Deltek Systems Inc., a Herndon, Va.–based provider of enterprise management software, has acquired Applied Integration Management, an Irvine, Calif.-based provider of consulting services based on earned value management solutions. No financial terms were disclosed. Deltek is controlled by New Mountain Capital, while AIM was advised on the sale by Software Equity Group.

Pearlman Industries Inc., a Commerce, Calif.–based provider of diamond cutting products and abrasives, has acquired Dimensional Tools Inc., a Dallas-based distributor of products for the stone fabrication market. No financial terms were disclosed. Pearlman was recently acquired by Harbour Group.

PE Exits

Virgin USA has acquired a majority stake in CircleLending Inc., a Waltham, Mass.-based manager of loans between relatives, friends and other private parties. No financial terms were disclosed. CircleLending had raised $16 million in total VC funding from backers like Venrock, Monitor Company, Intel Capital and the Omidyar Network.

Firms & Funds

Gobi Partners has received a $10 million commitment for its second China-focused venture fund, from NTT DoCoMo. The fund is targeting $120 million.

Human Resources

Salvatore Tirabassi has joined M/C Venture Partners as a partner. He previously spent the past seven years with Dolphin Equity Partners, where his board seats included: Airband, Epic Cycle, Gomez, MaxPreps (acquired by CBS in 2007), SilverCarrot, The Guild, Vercuity and VitalStream (acquired by Internap in 2006).

WestLB has named Neil Colverd as president and CEO of its Brightwater Capital Management business, which manages over $35 billion structured finance assets like collateralized debt obligations and structured investment vehicles. Colverd previously was WestLB’s CEO for its APAC region, and acting CIO for the bank’s investment management unit. WestLB also has named George Suspanic as CIO of Brightwater, and Gerri Alfino Egler as COO. Suspanic previously was a managing director in WestLB’s portfolio management unit, while Egler joined the bank in 2004 as a managing director overseeing “certain special projects.”

Timothy Olson has joined Barker Capital as a managing director and general counsel. He previously was an attorney with Davenport, Evans, Hurwitz, and Smith LLP (Sioux Falls) and Skadden, Arps, Slate, Meagher & Flom (Chicago). Barker Capital is a Sioux Falls, S.D.–based provider of private debt capital to the media industry.