PE Week Wire: Tues., May 1, 2007

The last time Paul Ferri and Todd Dagres backed Jim Dolce, they hit a homerun with Redstone Communications. So it’s no surprise that the pair is back on board for Dolce’s latest startup – a stealthy endeavor known as VeriVue Inc.

Ferri is still a general partner with Matrix Partners, while Dagres has moved on from Battery Ventures (which invested in Redstone) to Spark Capital. PE Week Wire has learned that the two firmshave quietly participated ina $25 million Series A for VeriVue, although neither Ferri nor Dagres returned messages requesting comment on the deal. I reached Dolce at his Westford, Mass. office, but he also declined to talk – saying that he’s “keeping the company under wraps for now.”

And he’s done a pretty good job of it – save for the funding round – given that there is very little available public information (including no active website). Aregulatory filing says only that VeriVue will “develop and market telecommunications and related products and services,” while Light Reading reported earlier this month that it might be involved in something “video-related.” Such speculation probably makes sense given Dagres’ demonstrated video predilection, but it also was based on a single, unidentified source.

We do know a bit about the VeriVue management team, however. In addition to Dolce, there is former Unisphere CFO Mark Nasiff and Sonus Networks co-founder Robin Gruber. For context, Unisphere (a Siemens subsidiary) bought Redstone Communications just two years after its initial funding for $500 million. Four years later, Siemens would sell Unisphere to Juniper Networks for $740 million. Dolce served as CEO of Unisphere, and later held a senior executive position with Jupiter before leaving in 2005. In addition, Matrix was an original investor in Sonus Networks.

The VeriVue tech team includes Bruno DiPlacido (formerly with Intel), David Ready (Enterasys Networks) and Brett Granger (Motorola). More info as it becomes available…

*** The proposed Harman buyout has prompted lots of nattering about “stub equity” and other such incentives designed to prompt shareholder approval of public-to-private buyouts. One possible ramification I haven’t seen mentioned yet, however, is that such deals could help spur further growth of the direct secondaries market. After all, I don’t quite see mutual funds sticking with a private investment for three-to-seven years. It might happen in specific situations, but certainly not in all (and likely not even in the majority). Those wanting to unload will likely have just two main options for liquidity: Existing private equity sponsors or direct secondary buyers (let’s leave the hedgies out of this for a moment, because it complicates my theory). And since the existing sponsors probably have plenty of portfolio company exposure already…

*** SEIU has gone blog crazy. In addition to its Blackstone IPO and Buyouts Industry Report blogs, it now has dedicated sites for both the proposed Sallie Mae and ServiceMaster deals.

*** Two items worth reading: First is the latest BusinessWeek cover story from Emily Thornton, about the trend of private investment firms buying up public infrastructure projects. Could become a real political grenade for the private equity industry. Also, Nathan Vardi of Forbes writes about “Patent Pirates,” who many argue are patent trolls in private equity clothing.

Top Three

DLJ Merchant Banking Partners has agreed to acquire RathGibson from Castle Harlan for $440 million. RathGibson is a Janesville, Wis.-based manufacturer of highly-engineered stainless steel and alloy welded tubing products. It was acquired by Castle Harlan in February 2006 for approximately $260 million, and last August acquired tubing manufacturer Greenville Tube Co. for $37 million.

CenturyTel Inc. (NYSE: CTL) has acquired Madison River Communications Corp., a Mebane, N.C.-based provider of rural telephone services. Sellers include Madison Dearborn Partners, Goldman Sachs and Providence Equity Partners. The deal was valued at $830 million, and resulted in Madison River withdrawing registration for a $287.5 million IPO.

ChannelAdvisor Corp., a Morrisville, N.C.-based provider of ecommerce marketplace management solutions, has raised $30 million in Series C funding. New Enterprise Associates led the deal with a $23.5 million commitment, and was joined by return backers Kodiak Venture Partners, Advanced Technology Ventures, Southern Capitol Ventures and eBay. ChannelAdvisor has now raised over $66 million in total VC funding since its 2001 inception.

VC Deals

Pure Digital Technologies Inc., a San Francisco-based maker of low-cost digital camcorders, has raised $40 million in Series F funding. AllianceBernstein and Morgan Stanley Principal Investments co-led the deal, and were joined by Heights Capital Management and return backers Benchmark Capital, Focus Ventures, Crescendo Ventures, Samsung, Sequoia Capital, Steamboat Ventures and VantagePoint Venture Partners. Pure Digital has raised over $95 million in total VC funding since its 2000 inception.

Expand Networks Inc., a Roseland, N.J.-based provider of application acceleration solutions over the WAN, has raised $21 million. Vertex Technology Fund led the deal, and was joined by return backers Discount Investments Corp, Tamir Fishman Ventures and the Challenge Fund. Return backers not participating in this round include Time Warner, Comcast Interactive Capital, Federated Kaufman Fund, RBC Capital Markets and Robeco Investment Management. Expand has now raised around $70 million in total VC funding since its 1998 inception.

SeaMobile Inc., a Seattle-based provider of communications services to cruise lines, yachts, ferries, container ships and offshore platforms, has raised $20 million in new VC funding. Ignition Partners led the deal, and was joined by fellow return backers Cambon Capital Partners and the Chart Group.

Velocity Technology Enterprises Inc., a New York-based provider of IT consulting, hosting and applications management, has raised $15 million in Series A funding, according to a regulatory filing. Backers include Tudor Ventures and MCG Capital Corp., while Sanders Morris Harris served as placement agent.

Solace Pharmaceuticals, a Boston–based drug company focused on therapeutics for chronic pain, has raised $15 million in Series A funding. Polaris Venture Partners and Interwest Partners co-led the deal, and were joined by seed back PureTech Ventures. In other company news, Solace has hired Eliot Forster as its new CEO. Forster previously was Pfizer’s head of development for Europe and Asia.

Sonopia Corp., a Redwood City, Calif.-based mobile network carrier, has raised $12.7 million in Series B funding. Cardinal Venture Capital led the deal, and was joined by return backers ComVentures and Sevin Rosen Funds.

Cyan Optics Inc., a Petaluma, Calif.-based developer of solutions for data communication problems, has raised $8.75 million in Series A funding, according to a regulatory filing. Backers include Azure Capital Partners and Norwest Venture Partners.

Nautilus Biotech, a Paris, France-based biotech company focused on therapeutic proteins, has raised €8.4 million in fourth-round funding. Participants included Creabilis Biotech, Ed. de Rothschild Investment Partners, Auriga Partners, Matignon Technologies, Pre-IPO Invest, FCJE, 123 Ventures and Genopole 1er Jour.

Virident Systems Inc., a Los Altos, Calif.-based computer hardware startup, has called down $5.06 million of a $13.3 million Series A round, according to a regulatory filing. Shareholders include Artiman Ventures and Spansion LLC.

TargetSpot Inc., a New York-based provider of ad serving within streaming media, has raised approximately $3.59 million in Series A funding from Union Square Ventures, CBS Radio and Oddcast Inc. The deal was announced last week, but without the dollar amount. TargetSpot is run by co-founder and CEO Doug Perlson, former COO of Seavast (f.k.a. Kanoodle).

Buyout Deals

ECI Partners has acquired CliniSys, a Surrey, UK-based supplier of laboratory information management systems to the European healthcare market. The deal is valued at £61 million, plus an earn-out of up to £2 million from its founding shareholders, some of whom are re-investing in the business.Current CliniSys CEO Fiona Pearson will remain in place, while ECI is bringing former Ken Briddon, former CEO of JBA PLC, as chairman.

Bertram Capital has acquired Power Distribution Inc., a Richmond, Va.-based designer, manufacturer and servicer of power distribution, power monitoring and static switching equipment. The deal was valued at around $60 million, while PDI was advised by Edgeview Partners.

Climate Change Capital has acquired Quality Tonnes, a Washington, D.C.–based carbon consultancy, methodology developer and project originator. No financial terms were disclosed.

Eagle Hospitality Properties Trust Inc. (NYSE: EHP) has agreed to be acquired for $13.35 per share by a consortium that includes affiliates of Apollo Management, Aimbridge Hospitality LP and JF Capital Advisors. Eagle was advised by Morgan Stanley on the deal, which is expected to close in the third quarter.

EdgeStone Capital Partners has agreed to acquire the assets of Custom Direct Income Fund (TSX: CDI.UN) for Cdn$199 million. CDIF owns Custom Direct LLC, which sells checks, check-related accessories and related products in the United States.

Fillmore Capital Partners has raised its bid for Genesis HealthCare Corp. (Nasdaq: GHCI) from $64.75 per share to $65.25 per share. Genesis previously had agreed to a $64.25 per share bid from Formation Capital and JER Partners – and would be required to pay a $15 million breakup fee were it to accept the Fillmore offer. Genesis is a Kennett Square, Pa.-based long-term care provider with over 200 skilled nursing centers and assisted living residences in 13 eastern states.

Gresham Private Equity has sold UK drug delivery company Penn to LDC for £67 million.

Merck KGaA has narrowed the field for its generic drugs business to four, according to Dow Jones. The only private equity finalist is a joint bid from Apax Partners and Bain Capital. Strategic offers are coming from Teva Pharmaceutical Industries Ltd., Mylan Laboratories Inc. and Actavis Group.

Kronos Inc. (Nasdaq: KRON) said that it will hold a special shareholder meeting on June 8, in order to vote on a proposed $55 per share buyout offer led by Hellman & Friedman. The total deal values Kronos at approximately $1.8 billion.

Montagu Private Equity has acquired Survival-One from CHC Helicopter Corp. (NYSE: FLI), for £16.8 million. Survival-One is an Aberdeen, UK-based company focused on the manufacture, repair and distribution of cold-water survival suits and other safety equipment.

Sun Capital Partners has acquired the assets of K.K. Tarami, a Japan-based maker of fruit and fruit-flavored gelatin cups. No financial terms were disclosed for the deal, which is Sun’s first in Japan.

Aearo Corp., a portfolio company of Permira, has signed a commitment letter with a syndicate of lenders led by Bank of America, Bear, Stearns & Co. and Deutsche Bank to recapitalize the company. The new financing is comprised of a senior secured first-lien facility and a senior secured second-lien facility which total $735 million. Proceeds will be used to refinance amounts outstanding under the company’s existing credit facilities and fund a preferred stock redemption and closing. Aearo is an Indianapolis-based manufacturer of personal protective equipment and energy-absorbing products.

PE-Backed IPOs

Lululemon Corp., a Vancouver-based athletic apparel designer and retailer, has filed for a US$230 million IPO. It plans to trade on both the Nasdaq and TSX, with Goldman Sachs and Merrill Lynch serving as co-lead underwriters. Shareholders include Advent International, Highland Capital Partners and Brooke Private Equity Advisors.

Perlegen Sciences Inc., a Mountain View, Calif.-based developer of genetically-targeted medicines, has withdrawn registration of a proposed $115 million IPO. It had originally filed last April, with Lehman Brothers and Deutsche Bank Securities serving as co-lead underwriters. The company said that its withdrawal was “consistent with the public interest and the protection of investors.” Perlegen has raised around $256 million in total VC funding since its 2000 inception, from firms like Affymetrix, Pfizer, Maverick Capital, MPM Capital and CMEA Ventures.

Solera Holdings LLC, a San Ramon, Calif.-based claims processing company, has set its proposed IPO terms to around 21.88 million common shares being offered at between $15 and $17 per share. It plans to trade on the NYSE under ticker symbol SLH, with Goldman Sachs and JPMorgan serving as co-lead underwriters. GTCR Golder-Rauner holds a 90.6% pre-IPO ownership position, and plans to sell around 2.63 million shares during the IPO. GTCR’s post-IPO ownership is expected to be around 59.8 percent.

Cavium Networks, a Santa Clara, Calif.-based provider of security, network services and content processing semiconductor solutions, has raised its IPO price range from $10-$12 per share, to $12-$13 per share. It still plans to sell 6.25 million common shares, and trade on the Nasdaq under ticker symbol CAVM. Morgan Stanley and Lehman Brothers are serving as co-lead underwriters. Cavium has raised over $60 million in total venture funding since its 2000 inception, from firms like Menlo Ventures (29.98% pre-IPO stake), Diamondhead Ventures (9.19%), Alliance Ventures (13.89%), NeoCarta Ventures (5.46%). Menlo Ventures.

PE-Backed M&A

Appleseed’s Topco Inc., a portfolio company of Golden Gate Capital, has completed its acquisition of Blair Corp. (AMEX: BL) for $42.50 per share in cash. The total transaction is valued at approximately $173.6 million. Blair Corp. is a Warren, Pa.-based catalog and multi-channel direct marketer of women’s and men’s apparel and home products.

Entrix Inc., a Houston, Texas-based environmental consulting company, has acquired Biological Research Associates LLC, a Tampa, Fla.-based consulting firm focused on natural resource projects, including wetlands, endangered species and water-related work. No financial terms were disclosed. Entrix was acquired by The Riverside Company in 2003.

IMG, a sports and entertainment management company controlled by Forstmann Little & Co., has acquired Collegiate Licensing Co., an Atlanta-based collegiate trademark licensing agency. No financial terms were disclosed.

Pegasus Solutions Inc., a Dallas-based provider of technology and services to hotels and travel distributors, has acquired Wizcom Inc., a provider of travel reservations processing technology. The seller is Travelport Holdings Ltd., which is owned by The Blackstone Group. Pagasus was acquired in a $275 million public-to-private buyout last year by Prides Capital, Tudor Investment Corp. and Belfer Management.

Thule, a Swedish portfolio company of Candover, has acquired Case Logic Inc., a Longmont, Colo.–based provider of storage solutions and lifestyle accessories. No financial terms were disclosed. Sellers include Catterton Partners, Albion Alliance, Stratford Equity Partners and KRG Capital Partners.

PE Exits

Alleghany Corp. (NYSE: Y) has agreed to acquire Employers Direct Corp. from Golden Gate Capital and Swiss Re for $195 million. The deal is expected to close in the third quarter. EDC is a direct writer of workers’ compensation insurance in California.

Reuters (Nasdaq: RTRSY) has agreed to acquire ClearForest Ltd., a Waltham, Mass.-based provider of text analytics solutions. No financial terms were disclosed for the deal, which is expected to close in around 30 days. ClearForest has raised around $30 million in VC funding since 1998, from firms like Greylock, DB Capital Partners, Pitango Venture Capital, Walden Israel, Booz Allen & Hamilton, HarbourVest Partners and JPMorgan Partners.

Radware (Nasdaq: RDWR) has acquired Covelight Systems Inc., a Cary, N.C.-based provider of Web-channel data to backend analytic engines for a variety of enterprise uses. The deal was valued at $16 million in cash. Covelight had raised over $6 million in VC funding since 2002, from firms like aurora Funds, Intersouth Partners and NextPoint Partners.

Imaging Technologies Services LLC, an Atlanta-based portfolio company of Nautic Partners, has sold its reprographics division to American Reprographics Co. (NYSE: ARP). No financial terms were disclosed.

Firms & Funds

Grotech Capital Group is raising its seventh fund with a $400 million target capitalization, according to Buyouts Magazine. The Timonium, Md.-based private equity firm raised $400 million for its current fund back in 2000.

Riordan, Lewis & Haden has closed its latest fund with $265 million in capital commitments. The Los Angeles-based private equity firm was founded 25 years ago, and focuses on high-growth mid-market companies.

Stonehenge Growth Capital has raised $200 million for a junior debt fund that will support privately-held lower-middle-market businesses.

Redpoint Ventures hasclosed its Redpoint Omega fund with $250 million in capital commitments, as first reported here in early March.The vehicle will aim to be the first institutional investor in more established companies than the early-stage plays that Redpoint’s general fund focuses on.

Human Resources

Anne Gordon, managing editor of The Philadelphia Inquirer, has agreed to join Dubilier & Co. as a partner. She joined the paper in 1999, and also serves as vice president of its parent company Philadelphia Newspapers.

Adam Fisher has joined Bessemer Venture Partners as a partner. He is based in the firm’s Larchmont, N.Y. office, with a focus on BVP’s Israel-related investments in both Israel and the U.S. He previously was a general partner with Jerusalem Venture Partners.

Jean Aboumrad reportedly has joined Paris-based private equity placement and secondary firm Triago as head of a new Middle East office in Dubai. He previously was director of investor relations with DTZ’s asset management unit.

Furqan Nazeeri has joined SoftBank Capital as an entrepreneur-in-residence, with a focus on enterprise software and Internet applications. He most recently served as founder and CEO of Pivot Solutions, a SoftBank Capital portfolio company.

James Junewicz has joined Winston & Strawn LLP as a corporate partner focused on M&A transactions. He also works with startups on VC financings. Prior to entering private practice, Junewicz was assistant general counsel for the Securities and Exchange Commission.

Chris Donoho has joined Lovells’ international business restructuring and insolvency (BRI) practice, as a partner in the firm’s New York office. He previously was a partner in the financial restructuring group of Stroock & Stroock & Lavan LLP.