PE Week Wire: Tues., March 27, 2007

Two weeks ago, secondary firms began introducing themselves to Jason Rottenberg, managing director of U.S. Army-affiliated venture fund OnPoint Technologies. “We’ve heard that you’re losing your funding in the 2008 budget,” the firms said. “And we might be interested in purchasing your investment portfolio.” Rottenberg politely responded that OnPoint still has plenty of dry powder, a strong ongoing relationship with the Army and – most importantly – no intention to sell its portfolio. Then he just shook his head, and awaited further calls.

“Please tell people that we’re very much still in business,” Rottenberg asked me during a phone conversation last Friday. “This rumor has gotten way out of control.”

Ok Jason, done. And I’ll do you one better, by telling folks where the rumor came from: The White House.

No, not from W himself, but from OMB director Rob Portman. During a February 5 press briefing, Portman was discussing how the proposed FY 2008 budget proposal would terminate or reduce 141 discretionary spending programs. He then had the following exchange with a reporter (bolding is mine):

Q: 141 programs, are these the same programs this year at the same level of reduction or elimination?

Portman: They’re very similar –

Q: And if not, do you have a list of what the 141 programs are for this year versus last year?

Portman: They are different. Last year it was a little higher number. But they are some of the same programs. Some are relatively small programs. There’s a new venture capital fund that was put in legislation for — I think it’s called the Red Venture Capital Fund for NASA. We don’t think the government ought to be investing in venture capital. So we propose eliminating that program, as an example.

NASA administrators were fairly stunned to hear their little program (less than $12m requested in FY2007 budget) singled out during a White House press briefing. An agency spokesman says that NASA considered the comment to be a directive, and opted not to fight for its survival. In its FY2008 budget, therefore, NASA writes: “Red Planet Capital eliminated by Administration policy and funds redirected toward higher Agency priorities.” It’s worth noting that Red Planet managing director Graham Burnette is still holding out hope for some sort of reversal, but seems a bit resigned to the notion that Red Planet will need to find a new capital source.

Over at OnPoint, however, there was less consternation. The Army had not made OnPoint dependent on annual budget allocations as NASA had done with Red Planet. Instead, it had basically received a $60 million “endowment” that was expected to run five years before needing reauthorization. Moreover, OnPoint management was permitted to reinvest any profits generated by portfolio company liquidity.

“I don’t think it’s the case that the Army would terminate future funding for us,” Rottenberg says. “Even if that were the case, it wouldn’t technically affect us for a few more years.”

Ok, but what about Portman’s statement about how the federal government should not be investing in venture capital? Rottenberg doesn’t know. Nor do I. Nor does In-Q-Tel, whose FY2008 budget was not altered. Is it possible that Portman just opted to pick on the youngest – and therefore weakest – program? Does he even know about Onpoint and In-Q-Tel? Had he cited one of them instead, would it be terminated and Red Planet would survive?

I tried repeatedly to get comment from OMB yesterday, but hearing back from federal spokespeople is like waiting for Doc Rivers to be fired. You know it will happen eventually – and feel strongly that it should have happened already – but have no influence over its actual execution. Once it does, you’ll be the first to know (well, after me).

In the meantime, secondary firms should stop calling OnPoint. Place your calls instead to Red Planet.

Top Three

Aruba Networks Inc., a Sunnyvale, Calif.-based provider of wireless LAN technology, priced 8 million common shares at $11 per share (above $8-$10 range), for an IPO take of approximately $88 million. It will trade on the Nasdaq under ticker symbol ARUN, while Goldman Sachs and Lehman Brothers served as co-lead underwriters. Aruba had raised around $86 million in total VC funding from firms like Matrix Partners (20% post-IPO position), Sequoia Capital (18.2%), Trinity Ventures (13.6%), WK Technology Funds (6.8%) and Artis Capital Management.

Raytheon Co. (NYSE: RTN) has completed the sale of its Raytheon Aircraft Co. unit to Onex Corp. and Goldman Sachs for $3.3 billion. The company had retained Credit Suisse last July to explore strategic alternatives for the unit, and reportedly had received rival bids from The Carlyle Group and Cerberus Capital Management.

The Pennsylvania State Employees’ Retirement System has issued an RFP for alternative investment consulting services. Proposals will be accepted through May 4. The system’s current contract with Cambridge Associates expires on April 30, 2008.

VC Deals, a King of Prussia, Pa.-based provider of online technology and career services, has raised $13.5 million in Series A funding from Safeguard Scientifics. It is the nine-year-old company’s first round of institutional funding.

GoTV Networks Inc., a Sherman Oaks, Calif.–based made-for-mobile television provider, has raised $12 million in Series B funding from Motorola Ventures and Qualcomm Ventures, according to VentureWire. The company previously had raised over $17 million from Bessemer Venture Partners and Charles River Ventures.

Orqis Medical Corp., a Lake Forrest, Calif.-based developer of minimally-invasive cardiac recovery devices, has raised $12 million in additional Series D funding. This brings the round total to $34.7 million, including a first close from late 2005. New backers include Wasatch Advisors, Wasatch affiliate Cross Creek Capital and the Omega Fund. Existing shareholders include HealthCare Ventures, Care Capital, Rho Ventures, Domain Associates, Boston Scientific, Johnson & Johnson Development Corp. and Temasek Holdings.

ZenZui, a Microsoft spinout that will provide marketer-funded software on mobile devices, has raised around $12 million in Series A funding from Oak Investment Partners and Hunt Ventures.

ProFibrix BV, a Dutch biotech company focused on products to stop bleeding and initiate tissue repair, has raised $11 million in Series A funding led by Index Ventures.

Wellpartner, a Portland, Ore.-based provider of pharmacy fulfillment solutions for the uninsured, has raised $7.5 million in Series C funding. 3i Group and Buerk Dale Victor co-led the deal, and were joined by return backers Integra Ventures, Mediphase Venture Partners and Greenwoods Capital.

Compliance 360 Inc., an Alpharetta, Ga.-based provider of enterprise compliance software, has secured $1.1 million of a $2.2 million Series B round led by Fulcrum Ventures, according to a regulatory filing. VentureWire reports that the complete round will close later this week.

Experteer, a Munich, Germany-based online job search site, has raised an undisclosed amount of new VC funding co-led by BV Capital and Wellington Partners. Return backer Holtzbrinck Ventures also participated.

Verticals onDemand, a Pleasanton, Calif.-based provider of industry-specific CRM solutions delivered on the Salesforce platform, has raised an undisclosed amount of Series A funding from individual angels.

Buyout Deals

Blue Point Capital Partners has acquired Addressing Services Co. (ASCO), a Berlin, Conn.-based direct mail company. No financial terms were disclosed for the deal, which also included equity participation by company management and debt from ORIX Finance Corp. This represents the first deal for Blue Point’s MarketPoint Direct acquisition platform, which is run by former R.R. Donnelley executive Jim Kersten.

Monomoy Capital Partners has received U.S. Bankruptcy Court approval for its acquisition of The Anchor Hocking Co., a Lancaster, Ohio–based maker and distributor of glassware to the retail, foodservice and specialty markets. The deal is valued at $95 million, including $75 million in cash and the assumption of $20 million worth of ordinary course liabilities.

Lancaster Colony Corp. (Nasdaq: LANC) has sold substantially all of the operating assets of its automotive accessory operations located in Wapakoneta, Ohio to KN Rubber LLC, a portfolio company of private equity firm Kinderhook Industries LLC. No financial terms were disclosed. Products manufactured at this location include pickup truck bed mats as well as truck and trailer splashguards.

Fairmont Capital has completed its $127.1 million acquisition of Stampede Meat Inc., a Bridgeview, Ill.-based provider of portion-controlled beef products to the foodservice, retail, and home delivery channels. Sankaty Advisors, PNC Mezzanine Capital and Stempede Meat management also participated.

Silver Lake Partners and Texas Pacific Group have agreed to reduce the breakup fee on their proposed $5 billion acquisition of travel reservations company Sabre Holdings (NYSE: TSG), from $135 million to $80 million. The move comes following Sabre’s settlement with shareholders who had filed suit over the proposed merger.

Shares in UK clothing retailer Next PLC hit an all-time high earlier today, on rumors of a possible buyout offer. The share price increase put the company’s market cap at around $10.3 billion.

PE-Backed IPOs

Geovera Insurance Holdings Ltd., a Bermuda-based residential property insurer, has filed for a $115 million. It plans to trade on the NYSE under ticker symbol GEOV, with JPMorgan and Merrill Lynch serving as co-lead underwriters. Shareholders include Hellman & Friedman (65.1% pre-IPO stake) and Friedman Fleischer & Lowe (32.5%).

TeraGo Networks Inc., a Toronto, Canada-based provider of fixed wireless broadband solutions, is considering an IPO that would raise between Cdn$30 million and Cdn$40 million, according to Dow Jones. VC backers include Dolphin Equity Partners, Dynamic Ventures Opportunities Fund, Growth Works and the Ontario Municipal Employees Retirement System.

This week’s IPO calendar includes expected pricings from PhotoWatt Technologies Inc., a SenoRX Inc. and Flagstone Reinsurance Holdings.

PE Exits

Finisar Corp. (Nasdaq: FNSR) has agreed to acquire Kodeos Communications Inc., a South Plainfield, N.J.-based provider of optical transponders and subsystems. The deal is valued at $7 million in cash, plus the possibility of up to $3.5 million in earnouts for Kodeos shareholders and employees. Kodeos had raised around $24 million in VC funding from firms like Highland Capital Partners and JVP through 2005, and last year added new shareholders based on its acquisition of Intersymbol Communications. Those firms include Champaign-Urbana Fund, CID Equity Partners, Intel Capital, Intersymbol Investment Fund, Open Prairie Ventures, Telecommunications Development Fund and Venture Investors LLC.

Francisco Partners and Citicorp Venture Capital are selling a combined 17 million shares in mixed-signal semiconductor company AMIS Holdings Inc. (Nasdaq: AMIS). The secondary sale will decrease Francisco’s ownership position from 23.2% to 13.6%, and Citicorp’s position from 23.1% to 13.4 percent.

Coca-Cola Co. (NYSE: CCE) has completed its acquisition of Fuze Beverage LLC, a San Ramon, Calif.–based maker of branded juices and teas. No financial terms were disclosed. Fuze had raised VC funding from Castanea Partners.

Firms & Funds

Unilever PLC plans to transition from a general partner to limited partner role with Unilever Technology Ventures, according to VentureWire. The move would enable the spinout of an independent VC group called Physic Ventures, which would manage the current UTV portfolio, plus raise third-party capital for new deals.

Human Resources

Paul Bartlett has joined Rho Ventures as a Palo Alto-based partner focused on late-stage and growth equity financings for IT companies. He previously has been a general partner with Sprout Group, an entrepreneur-in-residence with New Enterprise Associates and a managing director with One Equity Partners.

Patrick Shattenkirk has joined Vestar Capital Partners as a managing director and head of investor relations (new position). He previously was a managing director with Cogent Partners.

Ivan Wanat has joined placement firm Atlantic-Pacific Capital as a director focused on hedge fund deal management and capital raising. He previously was a vice president in the private funds group of Credit Suisse. In other ApCap news, the firm has promoted John Chase to principal. Chase joined in 2005 as a vice president focused on sales distribution.

John McCarthy has joined North Castle Partners as an operating advisor focused on the firm’s fitness and recreation vertical. He is the founding executive director of the International Health, Racquet and Sportsclub Association.

Paul Sabo has joined the Woodbridge Group Inc., a New Haven, Conn.-based M&A consultancy. He will head up the firm’s new St. Louis office, and previously worked with such St. Louis-based advisory firms as CheckMark Capital and Crown Capital Corp.

Scott Williams and Neil Weiss have joined Siesko Partners, a corporate insurance and risk management consultancy, as associates in the firm’s private equity due diligence practice. Williams previously focused on acquisition due diligence with VIP Wireless LLC, while Weiss worked for law firm Sonnenschein, Sherman & Deutsch LLP and music label The Sanctuary Group.