PE Week Wire — Tuesday, May 16

Random Ramblings

I do not pretend to understand the wisdom of Highland Capital Partners’ deal size-agnostic investment strategy. To me, it seems instinctively improper to conduct the same amount of due diligence time and money on a $35 million investment (like FastClick) and a $500,000 million investment (like Virtual Iron Software), even if Highland is the first institutional backer in both cases. But the firm’s recent returns have proven my gut to be a liar.

Highland has gained a bad ROI rap in some quarters, in large part because its $500 million Fund V is a crater-like performer (based on performance data from CalPERS and benchmarks from Thomson Financial). But its subsequent $800 million fund – closed in 2001 – is top-quartile thanks to major IPO exits for companies like VistaPrint and the IPO-to-acquisition exit of FastClick. It could be argued that the jury’s still out on a firm whose past two funds have split returns, but Fund VI features more than just a superior portfolio. It also is the first Highland fund to include folks like former Lycos chief Bob Davis and Staples founder Tom Stemberg. I regularly carp about VC shops that rest on the laurels of departed partners, so credit should be afforded to one whose current team is producing tangible results.

Venture Capital Journal subscribers can read more about Highland in this month’s issue, via a profile I wrote after spending some time at its Lexington, Mass. headquarters (which features a semi-incubator on its ground floor, and VistaPrint HQ across the parking lot).

For the rest of you, a mini-scoop: Highland tomorrow will announce that Peter Bell has signed on as a full-time venture partner. Bell most recently founded Stowe Capital and, before that, served as co-founder and CEO of StorageNetworks Inc. He and Highland’s Dan Nova co-founded the Boston College Technology Council six years ago, and also both went to HBS. Also, expect Highland to announce some additional hires in early June.

*** A pair of interesting stories in the latest edition of PE Week. First, Constance Loizos reports that former Stanford Management Co. CEO Mike McCaffrey will run a $6 billion hedge fund. Next, Alexander Haislip with a piece on how Invesco is offering major bonuses as part of a last-minute effort to retain private equity talent.

*** There has been a lot of Web 2.0 hand-wringing of late, accelerated by Josh Kopelman’s blog post on how the average TechCrunch reader will not necessarily translate into a future non-geek consumer. What this means, of course, is investor beware. Most of us don’t live within Silicon Valley, and only adopt new technologies once they become pervasive (which is exactly when we drop the old ones). Om Malek has an insightful write-up.

*** This Thursday I’ll be interviewing Steve Brotman of Silicon Alley Venture Partners, as part of the Fundraising for PE & VC Firms Master Class hosted by Capital Roundtable in New York. The official topic of our conversation is “Darwinism in the PE Industry – Why GPs and LPs Need to Adapt.” Hope to see some of you there…

Top Three

Infor Global Solutions, an Alpharetta, Ga.-based provider of ERP and supply chain solutions, has agreed to acquire SSA Global Technologies (Nasdaq: SSAG) for $19.50 per share, or around $1.36 billion. Infor is controlled by Golden Gate Capital and Summit Partners, while Cerberus Capital Management is SSA shareholders include Cerberus Capital Management and General Atlantic Partners. www.infor.com www.ssaglobal.com

Nanosphere Inc., a Northbrook, Ill.-based molecular diagnostics company with a nanotech-based platform to enable earlier disease detection and treatment, has raised $57 million in Series D funding. Bain Capital led the deal via its Bain Capital Ventures and Brookside Capital affiliates, and was joined by Allen & Co. and return backer Lurie Investments. www.nanosphere.us

Marathon Acquisition Corp., a New York-based blank check acquisition company, has filed for a $300 million IPO. Citigroup is serving as lead underwriter. Marathon is being run by former Apollo Investment Corp. chief Michael Gross, while directors include former Vail Resorts CEO Adam Aron and Jarden Corp. CEO Martin Franklin.

VC Deals

Intercept Pharmaceuticals Inc., a New York-based drug company focused on the treatment of chronic liver and metabolic diseases, has raised $41 million in new VC funding. Genextra SpA of Italy led the deal, and was joined by Balyasny Asset Management and JAFCO Life Science Investment. www.interceptpharma.com

Viron Therapeutics Inc., a London, Ontario-based drug company focused on anti-inflammatory therapeutics, has raised US$20 million in Series A funding. The Canadian Medical Discoveries Fund led the deal, and was joined by Amgen Ventures, BDC Venture Capital, GrowthWorks Capital and existing backers Novartis Pharma AG and Trudell Medical Ltd. Viron also secured an additional $4.5 million from the Canadian government’s TDC program. www.vironinc.com

3jam Inc., a Menlo Park, Calif.-based text messaging startup, has secured $500,000 of a $1 million Series A commitment from New Enterprise Associates, according to a regulatory filing. www.3jam.com

Pando Networks Inc., a New York–based provider of P2P distribution solutions for consumers’ digital media, has raised $7 million in second-round funding. Intel Capital led the deal, and was joined by return backers BRM Capital and Wheatley Partners. www.pando.com

Photobucket Inc., a Palo Alto, Calif.-based provider of visual content hosting and publishing services, has raised $10.5 million in Series B funding from Trinity Ventures. www.photobucket.com

Sierra Design Automation Inc., a Santa Clara, Calif.-based provider of IC implementation solutions, has raised $14 million in Series B funding. Backers include Artiman Ventures, Telesoft Partners, and Evercore Venture. www.sierra-da.com

FundingUniverse.com Inc., an Orem, Utah-based online service provider for entrepreneurs and angel investors, has raised an undisclosed amount of Series A funding co-led by Grow Utah Ventures and Provo Labs. www.fundinguniverse.com

Blue Ridge Numerics Inc., a Charlottesville, Va.-based developer of engineering simulation software, has raised around $3.1 million in Series A funding led by Global Environmental Fund Management (GEF). www.cfdesign.com

JWire Inc., a South San Francisco-based provider of WiFi hotspot discovery services, has secured $1.25 million of a $2.5 million Series C round, according to a regulatory filing. Company backers include DFJ Frontier, Draper Associates, Nob Hill Capital Partners and Mosaic Technology Fund. www.jwire.com

Buyout Deals

 

Texas Pacific Group and Thomas H. Lee Partners reportedly have joined a private equity consortium looking to buy Spanish-language broadcaster Univision. The group already included Providence Equity Partners and Madison Dearborn Partners, and is expected to compete with Mexican media giant Grupo Televisa.

Reliant Equity Investors has acquired Rhinotek Computer Products Inc., a Carson, Calif.-based marketer and distributor of compatible imaging supplies. No financial terms were disclosed for the deal, which included a second-lien term loan from Fifth Street Capital and senior note financing from Comerica. www.rhinotek.com

DBI Capital LLC and EFM Capital Partners have completed a majority recapitalization of Pro-Motion Distributing Inc., a City of Industry, Calif.-based distributor of automotive aftermarket performance products. No financial terms were disclosed. RSM EquiCo Capital Markets initiated the transaction and acted as the exclusive financial advisor to Pro-Motion. www.pmdistributing.com

Investor AB and EQT Partners have upped their offer for the remaining 81.1% of Swedish dialysis company Gambro AB. The revised bid comes it at approximately $5.4 billion.

CVC Capital Partners reportedly has offered to buy Danish cosmetics store chain Matas AS for approximately $876.2 million. CVC is one of five short-listed buyers.

Industri Kapital has agreed to acquire German fire protection system company Minimax from Investcorp. No financial terms were disclosed. Minimax was acquired by Investcorp from Barclays Private Equity in 2003, and currently features 3,200 empoyees and 2005 revenue of approximately €443 million. www.industrikapital.com

Investcorp has agreed to sell Dutch leather-treating chemicals company Stahl Holdings BV to Oranje-Nassau Groep, a portfolio company of The Carlyle Group and Wendel Investissement. The deal is valued at approximately €520 million, including around €160 million in equity from ONG and Carlyle.

Electra Partners is considering a bid for UK-based Regent Inns, according to The Daily Telegraph of London.

Kohlberg Kravis Roberts & Co. is in exclusive talks to acquire around a 50% stake in Turkish retailer Boyner, according to The Financial Times. The deal would be worth approximately $200 million. www.kkr.com

The Carlyle Group has agreed to buy the travel agency group of Spanish tourism company Iberostar, according to Cinco Dias. The deal is reportedly valued at around €900 million. www.carlyle.com

PE-Backed IPOs

Allegiant Travel Co., a Las Vegas–based operator of a low-cost passenger airline with leisure destinations like Las Vegas and Orlando, has filed to raise $100 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol ALGT, with Merrill Lynch serving as lead underwriter. Allegiant raised $39.5 million last year from ComVest Investment Partners, Irelandia II and company CEO Maurice Gallagher. www.allegiantair.com www.comvest.com

Town Sports International Holdings Corp., a New York-based health-club chain operator, has set its proposed IPO terms to 10 million common shares being offered at between $16 and $18 per share. It plans to trade on the Nasdaq under ticker symbol CLUB, with Credit Suisse and Deutsche Bank Securities serving as lead underwriters. Significant Town Sports shareholders include Bruckmann, Rosser, Sherrill & Co., Farallon Capital Partners and Canterbury Mezzanine Capital. www.nysc.com

Activant Solutions Holdings Inc., an Austin, Texas-based provider of business management solutions in the hardware, home center, lumber/building materials and automotive parts aftermarket sectors, has withdrawn its proposed $200 million IPO filing. The company was sold on May 2 to Hellman & Friedman, Thoma Cressey Equity Partners and JMI Equity. Its previously controlling shareholder was HM Capital Partners. www.activant.com

This week’s IPO calendar included expected offerings from both Burger King Holdings and Penson Worldwide.

PE Exits

Dutchess Capital Management plans to sell its remaining two million shares in Eagle Broadband Inc. (AMEX: EAG), via a secondary public offering. Eagle Broadband is a League City, Texas-based provider of broadband, IP and other communications technology and services. www.eaglebroadband.com

Expand Networks Inc., a Roseland, N.J.-based provider of WAN compression and acceleration appliances, has agreed to acquire DiskSites Inc., a Potomac, Md.-based provider of wide-area file services software for delivering applications to distributed organizations. Expand has raised around $45 million in VC funding from firms like America Online, Comcast Interactive Capital, DIC, Federated Kaufman Fund, Omninet Capital, RBC Capital Markets, Tamir Fishman Ventures and Robeco Investment Management. DiskSites has raised around $9 million from backers like ProSeed Venture Capital and Tamir Fishman Ventures. www.disksites.com

AirBand Communications Inc., a Dallas, Texas–based fixed wireless company for business customers, has acquired the fixed wireless business and all monitoring contracts associated with enterprise-deployed Wi-Fi networks from WindChannel Communications Inc. No financial terms were disclosed. AirBand has raised around $72 million in VC funding since its 2000 inception, from firms like Crescendo Venture Management, Sevin Rosen Funds, Dolphin Equity Partners, PacRim Venture Management and Key Venture Partners. www.airband.com

Onset Technology Inc., a Santa Cruz, Calif.–based developer of enterprise access software for wireless handhelds, has agreed to acquire MessageVine Inc., a Natick, Mass.–based provider mobile instant messaging and presence solutions. Onset has raised around $17 million in VC funding from firms like FLV Management, Catalyst Venture Partners, Intel Capital and Jerusalem Global Ventures, while MessageVine shareholders include CSK Venture Capital, Cedar Fund and T-Venture. www.onsettechnology.com www.messagevine.com

Planning Force Inc. (OTCBB: PLFC) has acquired substantially all outstanding shares of Quintessence Photonics Corp. in a reverse merger transaction. No financial terms were disclosed for the deal, which results in planning force changing its name to QPC Lasers Inc. Quintessence is a Sylmar, Calif.-based optoelectronics company that has raised VC funding from firms like DynaFund Ventures. www.qpc.cc

PE-Backed M&A

Gray Wireline Service Inc., a subsidiary of Gray Energy Services LLC, has completed its acquisition of Oilfield Pro-Log Services Inc., a provider of cased-hole wireline services in the Permian Basin region of West Texas. No financial terms were disclosed. Gray Energy was formed earlier this year by company management and Centre Partners. www.centrepartners.com

Implus Footcare LLC, a Research Triangle Park–based provider of insoles, performance socks and other “below the ankle” products, has acquire YakTrax, a Port Orchard, Wash.–based brand of snow and ice traction devices. No financial terms were disclosed. Implus Footcare is a portfolio company of FdG Associates. www.implus.com http://yaktrax.com

Ice.com, a Champlain, N.Y.-based jewelry e-tailer, has acquired Diamond.com business of Odimo Inc. (Nasdaq: ODMO). No financial terms were disclosed. Ice.com recently raised VC funding from Ignition Partners. www.ice.com

SecurePipe Inc., a Lincolnshire, Ill.-based provider of network security services, has acquired Farm9 of Emeryville, California. No financial terms were disclosed. SucurePipe has raised over $12 million in VC funding from firms like Prism Capital, First Analysis Corp. and The Argentum Group. www.securepipe.com www.farm9.com

Gryphon Colleges Corp., a post-secondary education platform of Gryphon Investors, has acquired Delta Educational Systems, an operator of 16 accredited career colleges located in Georgia, Louisiana, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee and Virginia.No financial terms were disclosed.

Firm & Fund News

The Blackstone Group has closed its second mezzanine fund with $1.06 billion in capital commitments. The firm’s inaugural mezzanine fund closed at $1.1 billion in 1999. www.blackstone.com

Siguler Guff & Co. has secured around $800 million for its second distressed fund-of-funds, according to LBOWire. The vehicle is targeting $1 billion. In related news, the New York-based firm also is marketing the $300 million-targeted Siguler Guff Small Buyout Opportunities Fund, which will make commitments to small-market buyout funds. www.sigulerguff.com

Capital Z Investment Partners announced its sponsorship of Aviator Fund Management LP, a Greenwich, Conn.-based hedge fund focused on select Asian markets.

Human Resources

Roland Beaulieu has joined GrandBanks Capital as an entrepreneur-in-residence. He is the former CEO of NewRiver Inc. and, before that, was chief operating officer of CCBN (sold to Thomson Corp. in 2004). www.grandbankscapital.com

Brian Warrington has joined Phoenix IP Ventures as a venture partner. He recently retired from his position as vice president of UK technology development for GlaxoSmithKline Discovery Research.

Gustavo Eiben has joined SV Investment Partners as director if investor relations and business development. He previously was associate director of the private equity funds group at UBS.

Nancy Wu has joined the intellectual property practice group of Cooley Godward LLP as a San Francisco-based partner. She previously was a partner with Morgan Lewis & Brockius LLP. www.cooley.com

Patricia Schneider has been promoted to program director of The Florida Venture Forum. She joined the group in October 2005 as the executive assistant to the program director, and previously was executive assistant to the president and CEO of The Florida Aquarium in Tampa. www.floridaventureforum.org

Eric Burner has joined Hunton & Williams LLP as a partner in its global capital markets and securitization practice group. He previously worked in the capital markets group of Cadwalader, Wickersham & Taft LLP. www.hunton.com

David Duke has joined Headwaters MB as a principal. He previously was a vice president with Synovous Investment Banking. www.headwatersmb.com

 

 

Monday, May 15

 

Random Ramblings

Back in the saddle after my short Toronto sojourn, during which I had some Tim Hortons coffee and addressed attendees at the Canadian Venture Forum. The former I did out of tourist obligation, while the latter I did out of professional obligation. Both went well.

I’m not going to provide a speech transcript (nor could I, since it was based on just a few lines of written notes), but here’s the gist:

There are three major private equity trends that will likely reshape the market for decades to come. The first is also the most obvious: Globalization. Most talk of private equity globalization revolves around investment opportunities, but the more salient focus should be on helping existing (read: more localized) portfolio companies leverage the global market. This isn’t to say that certain firms won’t make millions on Chinese software companies and Indian drugmakers, but rather that most firms can not reasonably expand their investment bandwidth to global limits. In other words, Sequoia and DFJ are the exceptions rather than the rules.

For these firms – the majority of firms – globalization will require overseas partnerships (exclusive or non-exclusive) and, if possible, the hiring of some in-house operational talent from foreign target markets. This is something that Canadian firms should be particularly well-equipped to handle, given that few of their portfolio companies view Canada as their primary market.

Trend #2 is the pending sea change of traditional limited partners being bypassed for publicly-listed funds. This isn’t particularly applicable to Canada, but was nonetheless worth mentioning.

Third, I discussed my growing concern with public/government institutions getting involved in direct private equity investing. This trend is particularly strong in Canada, but also has seen resurgence within U.S. states. My past statements on this phenomenon aren’t terribly consistent, but generally believe that public institutions needn’t make direct investments outside of particularly needy geographic regions (certain rural Empire Zones in New York, for example). My concerns are twofold. First, public institutions generally pay less than do private institutions, which often leads to both inferior personnel and a tendency for talented public pros to eventually take private jobs (portfolio cos. almost always want investor continuity). Second, public institutions are typically overseen at some level by politicians, which means that the purse-string holders can change on electoral whim. In general, public institutions are poorly-served by doing direct investing in-house.

*** Laurels to conference attendee Mike, who drive me back to Toronto’s airport in his nifty Porsche. Darts to gate attendants at US Air, who took their own incompetence out on several frustrated passengers.

*** A quick clarification to last Friday’s news item about Thomas H. Lee Partners’ latest fund-raising drive. It is targeting $8 billion, with a $9 billion cap. Also, the Boston-based buyout firm does not have a website.

*** Some bloggers have written that I believe Pat Purcell made a bad deal in selling his community newspaper assets without including the flagship Boston Herald. This is inaccurate. The deal was the best Purcell could get and apparently wipes out the Herald’s current debt. My criticism was specific to the front-page letter he subsequently published, which suggested that reports of a possible/eventual Herald shutdown were prompted by the paper’s political enemies and business competitors. Some might have been, but more were based on an understanding that: (A) The Herald was, indeed, for sale as part of a package deal; and (B) Potential acquirers were mostly interested in the community papers, and might later choose to shut down the less-profitable Herald. Just business, not animosity.

*** Finally, I am sorry to report that Peter Claudy, a general partner with M/C Venture Partners, has passed away after a long bout with cancer. He focused on CLEC, managed services, PCS and wireless tower deals, and received a BA in History from Yale in 1983 and an MBA from Harvard Business School in 1991. He is survived by his wife and children, and will be missed…

Top Three

Castle Harlan has acquired Baker & Taylor from Willis Stein & Partners for approximately $455 million. Baker & Taylor is a Charlotte, N.C.-based distributor of books, videos, music and electronic games to the global library and retail markets. Goldman Sachs advised Baker & Taylor on the sale. www.btol.com

Toodou.com, a Shanghai, China-based operator of a multimedia podcasting website, has raised $8.5 million in Series B funding. Granite Global Ventures and JAFCO Asia co-led the deal, and were joined by return backer IDG Technology Ventures. www.Toodou.com

Qwest Communications (NYSE: Q) has agreed to acquire OnFiber Communications Inc., an Austin Texas-based optical networking company. The deal is valued at $107 million, with Qwest having the option until closing to substitute up to $35 million of Qwest chares for cash. A final close is expected in Q3 2006. OnFiber has raised around $151 million in total VC funding, including a $127 million Series B round in 2000 at a post-money valuation of approximately $440 million. Backers include Kleiner Perkins Caufield & Byers, Bear Stearns Merchant Banking, Incepta and TeleSoft Partners (only participated in Series C). www.qwest.com www.onfiber.com

VC Deals

D-Pharm Ltd., an Israeli developer of lipid-based drugs, has raised $10 million in new VC funding Israel Healthcare Ventures and Pitango Venture Capital were joined by return backers like Clal Biotechnology Industries, Care Capital, Gemini Capital and Polar Communications. www.dpharm.com

Networks In Motion Inc., an Irvine, Calif.-based provider of wireless navigation solutions for GPS-enabled mobile phones, has raised around $10 million in Series C funding. Sutter Hill Ventures was joined by return backers Redpoint Ventures and Mission Ventures. www.networksinmotion.com

Identity Engines Inc., a Mountain View, Calif.-based provider of identity management solutions, has raised $13 million in Series B funding. Trinity Ventures led the deal, and was joined by return backers Horizon Ventures and Lightspeed Venture Partners. www.trinityventures.com

Mercator MedSystems Inc., a San Leandro, Calif.-based developer of catheter-guided microfluid infusion systems, has raised $2.25 million in second-round funding. Palo Alto Investors led the deal, and was joined by return backer Crocker Capital. www.mercatormed.com

Encover Inc., a Mountain View, Calif.-based provider of service contract solutions for manufacturers, has raised $8 million in Series D funding, according to a regulatory filing. Baird Venture Partners was joined by return backers like Sigma Partners and DCM-Doll Capital Management. www.encover.com

Galveston Bay Biodiesel LP, a 20+ million gallon per year biodiesel facility on Galveston Island, Texas, has raised an undisclosed amount of Series B funding from Contango Capital Management and Chevron Technology Ventures.

Buyout Deals

The Carlyle/Riverstone Global Power and Energy Fund has completed its acquisition of Niska Gas Storage (f.k.a. EnCana Gas Storage) from EnCana Corp. (NYSE: ECA). No financial terms were disclosed. www.niskags.com

Chrysalis Capital Partners has acquired substantially all of the assets of Republic Storage Systems Co., a Canton, Ohio-based manufacturer of school and general purpose steel lockers. No financial terms were disclosed. Republic filed for Chapter 11 protection on March 14, 2006, citing the negative impacts of a major flood resulting in a factory shutdown in 2003, the doubling of steel prices in 2004, and unsustainable legacy costs for retiree health care and pension benefits. www.ccpfund.com www.republicstorage.com

Chemtura Corp. (NYSE: CEM) has completed the sale of its Industrial Water Additives business to Close Brothers Private Equity for $85 million in cash. www.chemtura.com

ISIS Equity Partners has sponsored a management buyout of the Panacea Group, a UK-based provider of systems integration and outsourced IT services to the UK mid-market. ISIS provided £6.187 million, alongside senior notes and working capital facilities from Lloyds TBS Acquisition Finance. www.panacea.co.uk

TransMontaigne Inc. (NYSE: TMG), a Denver-based oil and gas supply-chain company, has accepted a $10.75 per share buyout offer from Tulsa-based SemGroup LP. Morgan Stanley Capital Group – which already owns a 10% stake in TransMontaigne – had made an initial bid of $8.50, and later upped its offer to $10.50 per share. www.transmontaigne.com

Bayou Steel Corp. shareholders approved a pending $75 million acquisition by Black Diamond Capital Management.

PE-Backed IPOs

Basin Water Inc., a Rancho Cucamonga, Calif.-based provider of treatment systems for contaminated groundwater, priced six million common shares at $12 per share, for an IPO take of approximately $72 million. It originally planned to sell five million shares at between $8 and $10 per share. Janey Montgomery Scott served as lead underwriter, while Cross Atlantic Capital Partners held a 6.6% pre-IPO position. Basin Water shares jumped 38.75% on its first day of Nasdaq trading, closing Friday at $16.65 per share. www.basinwater.com

BioMimetic Therapeutics Inc., a Franklin, Tenn.-based drug-device company focused on injuries and diseases to the skeleton and associated tissues, priced 4.6 million common shares at $8 per share, for an IPO take of approximately $36.8 million. It originally planned to sell 4.5 million shares at between $11 and $13 per share. Deutsche Banc Securities and Pacific Growth Equities served as lead underwriters. The company raised $51 million in VC funding from firms like Holden Capital, Novo AS, Burrill & Co., Axiom Venture Partners, Alice Ventures, InterWest Partners, MB Venture Partners, Noro-Moseley Partners and PTV Sciences. www.biomimetics.com

NoemaLife SpA (f.k.a. Dianoema), an Italian provider of healthcare sector software, has gone public on the Milan Stock Exchange. It closed its first day of trading at €12.30 per share, for a market cap of over €52 million. Shareholders include Wellington Partners. www.dianoema.com

Susser Holdings Inc., a Corpus Christie, Texas-based convenience store chain operator and wholesale fuel distributor in Texas and Okalahoma, has filed to raise $115 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol SUSS, with Merrill Lynch serving as lead underwriter. Wellspring Capital Management last year acquired a majority equity stake.

OrbComm Inc., a Ft. Lee