PE Week Wire: Tues., April 10, 2007

I’ve taken a lot of flack for yesterday’s column, even including a strong critique at peHUB (et tu, Kelly). Most of the email has been from folks who suggest that I don’t understand basic supply and demand dynamics, plus one banker who call me a “socialist who wants regulations on how much profit general partners are allowed to receive.” So while I hate to revisit the same subject on two consecutive days…

Let me restate my basic argument as clearly as possible: Any firm raising a new fund must make decisions on carried interest and fund size. But each determination should be made independently. I do not disapprove of any firm that raises its carry from 20% to 25%, if it believes that limited partners will consent to such a premium. Likewise, I support a firm raising or lowering its fund size, if it believes that such a move will maximize returns.

My objection comes when firms combine the separate calculations into a single wedge. It’s as if the firm is telling prospective LPs: “We’re either going to: (1) Raise carry, lower fund size and maximize returns; or (2) Keep carry stable, raise fund size (which consequently means increased fees) and generate slightly lower returns… Either way, we get ours.”

I also wanted to write about LP complicity in all this. Specifically, why don’t LPs just say no to such self-serving schemes? But let’s save that until tomorrow, as I’m running quite short on time…

*** Some scoopy VC hires of note: First, Tony Conrad has joined True Ventures as a venture partner. Tony is a former VSP Capital pro who currently serves as founder and CEO of search company Sphere (which is backed by True Ventures). Next, Sequoia Capital has hired former Summit Partners associate Patrick Grady, where he’ll focus on the software and services space. Finally, Kleiner Perkins has added David Wells as a New York-based pro focused on the cleantech market. No, KP doesn’t have a New York office – David works out of his home. He previously had worked for KP partner and former Sun Microsystems co-founder Bill Joy.

*** Kaj-Erik Relander of Accel Partners last week lost his appeal to overturn a 2005 ruling that he violated Finnish telecom privacy laws while CEO of Sonera. More info here.

*** Dow Chemical Co. is downplaying buyout rumors, after a UK tabloid reported that KKR and several Middle Eastern investors are prepping a $50 billion bid. A company spokesman says that Dow has “no interest” in a leveraged buyout, because it believes it can provide the most shareholder value by remaining a public entity.

Now there are plenty of reasons to dismiss the story –for example,the same tabloid published a very similar reporttwo months ago – but “shareholder value” isn’t one of them. After all, this supposed bid would be at between $52 and $58 per share, whereas Dow hasn’t traded above $50 in years…

But my main interest this morning is in positing a political query – rather than a financial one. Let’s assume, for the sake of argument, that such an offer is indeed in the offing, and that the Dow board of directors accepts. The next issue to arise is not so much whether or not shareholders would accept (they would, after holding out for a few more bucks), but whether the United States would accept. You know, the special committee made up of talk radio and cable news denizens.

This is where I see the real problem. Not only would an American icon be taken over by Middle Eastern sheiks, but Dow does have some national security-related responsibilities (particularly in the broad, dependency sense). Plus, who knows when we’ll want to use napalm again…

For the record, I find such concerns to be ignorant at best, and xenophobic at worst. Ditto for the manufactured Dubai Ports World controversy last year. But I’m already seeing it expressed in various political blog posts… Certainly worth keeping an eye on. Discuss amongst yourselves…

*** Finally, we had some technical difficulties over the past few days with the peHUB Premium Membership service. Specifically, people were unable to sign up. It seems to be all better now. Apologies for the inconvenience.

Top Three

Ontario Teachers’ Pension Plan is considering a $45 billion buyout bid of Bell Canada parent BCE, according to The New York Times. The report says that OTPP has reached out to such firms as Providence Equity Partners, Caisse de Depot et Placement du Quebec and the Canada Pension Plan Investment Board. KKR has considered leading a similar offer earlier this year.

Telsima Corp., a Santa Clara, Calif.-based provider of WiMAX-based broadband wireless access and mobility solutions, has raised $50 million in fourth-round funding. Return backers included NewPath Ventures, New Enterprise Associates, CMEA Ventures and JAFCO Asia. The company has raised around $80 million in total VC funding since its 1999 inception.

NextWave Wireless Inc. (Nasdaq: WAVE) has agreed to acquire IPWireless Inc., a San Bruno, Calif.-based provider of mobile broadband and multimedia equipment. The deal includes an initial payment valued at $100 million – 25/75 in cash/stock – plus up to $135 million in additional stock and cash milestone payments through 2010. IPWireless has raised around $155 million in total VC funding since its 1999 inception, from firms like Bay Partners, DCM, Gabriel Venture Partners, GIC Special Investments, J.F. Shea Venture Capital, Northwood Ventures, Oak Hill Capital Management and Sprint Nextel.

VC Deals

Ascenta Therapeutics Inc., a San Diego-based cancer drug company, has raised $50 million in Series C funding commitments. The initial $30 million has already been called down, while the remainder will come once the company satisfies certain milestones. Perseus led the deal, and was joined by return backers Domain Associates, Sofinnova Ventures, Enterprise Partners Venture Capital, Scale Venture Partners and U.S. Venture Partners. Ascenta previously raised $35.5 million in VC funding.

SchemaLogic Inc., a Kirkland, Wash.-based provider of data management software for the enterprise, has raised $12.8 million in Series C funding, according to VentureWire. Goldman Sachs led the deal, and was joined by return backers like Madrona Venture Group and Phoenix Partners.

Tepha Inc., a Cambridge, Mass.-based maker of absorbable medical devices for use in surgical repair and regenerative medicine, announced that it has closed its Series B round. No details were disclosed, but a February regulatory filing indicated a round total of $11.7 million, from firms like Integra Ventures, The Vertical Fund and State Farm Insurance.

Control4 Corp., a Salt Lake City-based provider of IP-based home control and entertainment systems, has raised $11 million in Series E funding. Foundation Capital led the deal, and was joined by fellow return backer Thomas Weisel Venture Partners. Other past investors include Frazier Technology Ventures, and vSpring Capital.

Buyout Deals

Blackstone Group and TPG have dropped out of the auction for British supermarket chain J Sainsbury PLC, according to Bloomberg. KKR had left last week, citing a conflict with its interest in Alliance Boots. The only remaining consortium member is CVC. J Sainsbury last week rejected the group’s initial 562 pence per share bid, saying it was too low.

United Rentals Inc. (NYSE: URI has retained UBS and Credit Suisse to help it explore strategic options that could include a sale of the company. United Rentals has a market cap of approximately $2.2 billion. In related news, the company announced that CEO Wayland Hicks will retire this June, with COO Michael Kneeland succeeding him on an interim basis.

KKR may make a third bid for Australian retailer Coles Group Ltd. Coles chairman Rick Allert said in a statement that KKR was confident it could equal or beat an existing Au$19.7 billion bid from Pacific Equity Partners, Westfarmers Ltd., Permira and Macquarie Bank.

Advent International has acquired a majority stake in French discount retailer Stokomani from Alpha Group. No financial terms were disclosed for the deal, which was done in partnership with Stokomani management.

The Carlyle Group is nearing a deal to acquire a 42% stake in Indian business process outsourcing company Cambridge Solutions for around $170 million, according to The Economic Times. The deal would be done in partnership with Cambridge Solutions co-founder Ramesh Vangal, and would represent a win over rival bidders Apollo Management, EDS and HCL.

Institutional Shareholder Services has recommended that Genesis HealthCare Corp. (Nasdaq: GHCI) stockholders reject a proposed $63 per share buyout offer from Formation Capital and JER Partners. Genesis responded with a letter to shareholders, in which it reiterated its recommendation that the offer be accepted.

Shamrock Holdings has agreed to acquire AVP Inc. (OTC BB: AVPI), a Los Angeles-based lifestyle sports entertainment company focused on professional beach volleyball. The total deal is valued at approximately $36.9 million, with Shamrock stockholders to receive $1.23 per share. Jefferies & Co. advised AVP on the deal.

Wear Me Apparel, a New York–based wholesale designer and marketer of children’s apparel and related accessories, has completed a minority recapitalization. Allied Capital provided $136.5 million in new senior subordinated notes and equity, while both Ares Capital and Stephens Capital Partners also participated. Wear Me founding chairman and CEO Artie Rabin and president Jason Rabin have retained a majority share of the equity of the company and will continue to manage the business.

NES Rentals Holdings Inc., a portfolio company of Diamond Castle Holdings, has sold its Tank business to Odyssey Investment Partners for just under $200 million. Diamond Castle took NES private last year for approximately $850 million, and last month sold its Boston-based crane rental subsidiary Shaughnessy Crane Services to AmQuip Corp.

PE-Backed IPOs

Cinemark Holdings Inc., a Plano, Texas-based movie theater chain, has set its proposed IPO terms to 28 million common shares being offered at between $17 and $19 per share. It plans to trade on the NYSE under ticker symbol CNK, with Lehman Brothers serving as lead underwriter. Madison Dearborn Partners holds a 66.3% pre-IPO take, while Quadrangle Group holds 7.1 percent.

Orexigen Therapeutics Inc., a San Diego-based neuroscience company focused on the treatment of obesity, has set its proposed IPO terms to six million common shares being offered at between $11 and $13 per share. It plans to trade on the Nasdaq under ticker symbol OREX, with Merrill Lynch and JPMorgan serving as co-lead underwriters. The company has raised around $76 million in total VC funding from firms like Domain Associates (21.3% pre-IPO stake), Kleiner Perkins (20%), Sofinnova Ventures (15%), Scale Venture Partners (14.8%), Montreaux Equity Partners (7.4%), Morgenthaler Partners (5.9%), MPM BioEquities and Wasatch Advisors.

Edenor, the largest electricity distribution company in Argentina, has set its proposed IPO terms to around 15.16 American depository shares being offered at between $16 and $18 per share. It plans to trade on the NYSE under ticker symbol EDN, with Citigroup and JPMorgan serving as co-lead underwriters. Shareholders include New Energy Ventures, which is affiliated with a private equity fund controlled by Grupo Dolphin.

Ocean Power Technologies Inc., a Pennington, N.J.-based developer of renewable energy from ocean waves, has set its proposed IPO terms to five million common shares being offered at between $20 and $22 per share. It plans to trade on the Nasdaq under ticker symbol OPTT, with UBS serving as lead underwriter. Shareholders include Henderson Group PLC.

PE-Backed M&A

AmeriCast Technologies Inc., an Atchison, Kansas-based maker of complex steel castings, has acquired Atlas Castings and Technology, a Tacoma, Wash.–based manufacturer of specialty steel castings for the energy and defense industries. No financial terms were disclosed, except that the combined company will have annual revenue in excess of $300 million. Castle Harlan acquired AmeriCast late last year from KPS Capital Partners for $110 million.

PE Exits

DW Healthcare Partners has sold The Radlinx Group to NightHawk Radiology Holdings Inc. (Nasdaq: NHWK) for $53 million. Radlinx Group is an Irving, Texas-based provider of radiology solutions to medical groups and hospitals throughout the United States.

Newgistics Inc., an Austin, Texas-based provider of returns management solutions, has acquired Logistics Management Inc., a Fairhaven, Mass.-based provider of transportation brokerage services for less-than-truckload shipping. No financial terms were disclosed. Newgistics has raised around $45 million in VC funding since its 1999 inception, from firms like Austin Ventures, R.R. Donnelley & Sons and StarVest Partners.

Citigroup Venture Capital sold 61.3 million shares of Chinese developer Shui On Land Ltd. (HK:0272) at HK$6.12 per share, according to Dow Jones.

Firms & Funds

FirstLight Financial Corp. has launched as an Old Greenwich, Conn.-based provider of “one-stop” commercial financing. The firm is run by Ron Carapezzi, former president and CEO of GE Commercial & Industrial Finance.

CalPERS has approved the following fund commitments: $150 million to Affinity Asia Pacific Fund III ($2.8 billion final close last month); $80 million to Gleacher Mezzanine Fund II (closed on $450 million); $400 million to Green Equity Investors V (closed on $5.3 billion); $400 million to Providence Equity Partners VI (closed on $12 billion); and $75 million to TPG Credit Strategies Fund ($443 million closed through March).

SVB Analytics, a subsidiary of SVB Financial Group, has acquired the IRC 409A valuation practice of Gloucester, Mass.-based Rosebud Consulting Inc. No financial terms were disclosed.

Human Resources

Georges van Hoegaerden has joined Light Crafts, a Palo Alto, Calif.-based provider of photo-editing software, as CEO. He is a founder of The Venture Co. and a venture partner with Big Bang Ventures. In related news, Light Crafts closed a Series B round that VentureWire pegs at $1.3 million.

Marc Oiknine has joined 3i Group as a director with the firm’s Paris-based venture capital team. He previously was a principal with Atlas Venture.


Remington Arms shareholders include CD&R, not GTCR.