PE Week Wire: Wed., Aug. 8, 2007

I suggested a few weeks back that the carried interest tax bill looked dead on arrival, due to near-unified GOP opposition and rapid back-peddling by some key Democrats. This also held true for various hybrid schemes, including one that mimicked the 60/40 rule and another that would consider the length of time a security was held. It just looked like any change would be viewed by Congress as an assault on capital gains and/or campaign contributions.

But lo and behold, there is now a different type of hybrid scheme that has nothing to do with the actual mechanics of carried interest taxation. And it will be much trickier for opponents to shunt aside. That’s right, dear reader, the dead is rising…

The new plan would link private equity tax changes to AMT relief for the 23 million taxpayers who are currently slated to get socked come next April. Senator Chuck Grassley (R-IA) told Bloomberg that he plans to link his “Blackstone Bill” to AMT relief, while Rep. Charles Rangel (D-NY) has said the same thing for the more sweeping carried interest bill introduced in June by Rep. Sandy Levin (D-MI).

I haven’t yet talked to the right people (sorry, busy putting together the news), but this certainly sounds like a masterstroke. Members of both parties believe that the AMT needs to be bandaged this year – albeit not repealed – as 23 million people is a fairly large voting block.

Perhaps more importantly, there is recent precedent. Just last year, Republicans wanted to extend the capital gains tax cut, while Democrats promised a fight. The GOP responded by tying AMT relief to the capital gains extension, and was able to secure passage for the hybrid bill. Looks like Grassley and Rangel are returning to the well.

*** Buyout Firms Kill Bat Boy. Need I say more?

*** Interesting piece in The Deal today, about how The Jordan Co. is nearing an agreement to buy theater AV company Production Resource Group LLC from Boston Ventures for $630 million. The novelty is that Jordan apparently won’t have final decision-making authority, despite becoming majority shareholder.

Jordan principal Adam Max explains: “This is not a typical buyout, where management gets a small piece of the deal and the sponsor has control. In this case, we cannot do anything operationally or financially without management’s support, and vice versa. In that sense, it’s a true partnership.”

Has anyone heard of a similar arrangement on other buyouts? And doesn’t it largely negate the value of being a majority shareholder?

*** VCJ senior editor Joanna Glasner will be moderating a VC panel tonight at an event run by Girls in Tech, a new Bay Area organization designed to foster support for women in the tech community. Panelists include Kleiner Perkins’ Trae Vassallo, DFJ’s Jennifer Fonstad, Canaan’s Maha Ibrahim and Greylock’s Eve Phillips. It begins at 6:30pm at 550 Third Street in San Francisco. Register here.

*** In a totally unrelated piece of SF promotion: Former VCJ editor Carolina Braunschweig – known as “Jam Girl” to those at the peHUB Shindig — will be on Channel 7 (ABC) at 3pm, teaching people how to make strawberry jam. Worth a watch…

*** Finally, I have received more than a dozen emails from angry Cleveland Browns fans, following my suggestion that the team will be bad enough to enhance Viagogo’s secondary ticket sale arrangement. I hold no grudge toward Cleveland — particularly given all its ties to the beloved Pats — and understand that Browns fans are diehard. So let’s wait until January when the weather is frigid and the team is (most likely) under .500. At that point, we’ll check the Viagogo inventory and circle back.

Top Three

Sparta Insurance Holdings Inc., a Hartford, Conn.-based property and casualty insurance startup, has raised $279.1 million in private equity funding. Corsair Capital led the deal, and was joined by Goldman Sachs, York Capital Management, Primus Capital Funds and KBW Capital Partners.

DarwinSuzsoft, a Wakefield, Mass.-based IT outsourcing company, has raised $48 million in Series A funding. Francisco Partners led the deal with a $38 million equity commitment, while Silicon Valley Bank provided $10 million in debt. The company was formed last year when Darwin Partners acquired Suzsoft Ltd., and provides U.S. companies with IT outsourcing services in China.

Insight Partners has acquired a majority stake in Coade Inc., a Houston, Texas–based provider of plant design and engineering software for the process industries. The deal was valued at $42 million, including $39 million in equity from Insight and $13 million in senior debt from Churchill Financial. It is Coade’s first round of external funding since being formed 23 years ago.

VC Deals Inc., a San Mateo, Calif.-based provider of online video advertising solutions, has raised around $10 million in Series A funding, according to a regulatory filing. Backers include Redpoint Ventures and Gemini Israel Funds.

Red Condor Inc., a Rohnert Park, Calif.-based provider of email security solutions, has raised $7.7 million in Series A funding. ATA Ventures and RWI Ventures co-led the deal, while Square 1 Bank provided a credit facility.

Wired Benefits Inc., a San Mateo, Calif.-based marketplace platform for employee benefits administration and distribution, has raised $2.5 million in Series A-1 funding led by Labrador Ventures, according to a regulatory filing.

IntelliPath Corp., a Lumberton, N.J.-based provider of automated connectivity solutions, has raised $2 million in Series A funding from GKM Ventures. This closes out the round at $8.5 million, including past commitments from L Capital Partners and Blueprint Ventures.

Ionscope Ltd., a UK-based developer of systems for scanning ion conductance microscopy, has raised £680,000 in seed funding from Cambridge Angels Group.

Mold-Masters, a Canadian manufacturer of hot-runner systems for the plastic injection moulding industry, has received an undisclosed amount of growth equity funding from 3i Group. LBO Wire reports that the deal is valued at around $150 million, with 3i receiving a 40% ownership stake.

Scrybe Corp., a Boston-based provider of an online organizer, has raised an undisclosed amount of Series A funding from Adobe Systems and LMKR.

Solatube International Inc., a Vista Calif.-based maker of day-lighting systems, has received an undisclosed amount of mezzanine funding from Praesidian Capital Investors., a Berlin–based online community for German travel enthusiasts, has received an undisclosed amount of VC funding from Burda Digital Ventures.

Buyout Deals

Apax Partners and Guardian Media Group are in early talks to launch a £2 billion bid for UK media company Emap, the Telegraph reported without citing sources. Emap confirmed last month that it was considering a sale of some of its constituent businesses, and the two prospective buyers are thought to be planning to draw up a list of potential buyers for Emap’s consumer publishing business which neither Apax nor GMG would likely want to retain. Guardian sold a 49% stake in Trader Media group to Apax earlier this year for £650 million.

The Carlyle Group and Onex Partners have completed their acquisition of Allison Transmission from General Motors Corp., for $5.575 billion. The $1.5 billion equity tranchewas split evenly between Carlyle and Onex, while current Allison president Lawrence Dewey has become CEO of the newly-independent company.

Gores Group has agreed to acquire CompuDyne Corp. (Nasdaq: CDCY), an Annapolis, Md.-based maker of security products like blast-resistant windows and doors for federal buildings. The deal is valued at approximately $59 million, with Compudyne stockholders to receive $7 per share. Clearlake Capital Group is providing both equity and debt to help finance the deal.

The Jordan Co. is nearing an agreement to acquire Production Resource Group LLC from Boston Ventures for $630 million, according to The Deal. PRG is a New Windsor, N.Y.-based provider of lighting and audio systems for use in theater productions.

Morris Capital Management has acquired Aerosol Specialties, a Canton, Ga.-based contract manufacturer and filler of aerosol and liquid products. Simultaneously, Columbus Nova Real Estate Acquisition Group has acquired a 106,000 square foot manufacturing facility and entered into a long-term lease with Aerosol Specialties. No financial terms were disclosed.

Penta Investments is interested in acquiring Polish retail kiosk chain Ruch, which has long been rumored to be on the Polish government’s asset deposal list. The Polish Treasury sold a minority stake in Ruch last year, and company management is apparently pressuring the Treasury to allow a strategic investor to take a majority stake. Ruch sells around half the newspapers in Poland.

Allied Capital has acquired Worldwide Express Inc., a U.S. reseller of DHL express and ground shipping services to the small and medium-sized business market. Allied provided $15.7 million in equity and subordinated notes, while “third-party lenders” provided the senior financing and majority of subordinated notes. Fidus Partners advised Worldwide Express on the deal.

Allied Capital has sponsored a management-led recapitalization of Higginbotham & Associates, a Fort Worth, Texas-based mid-market insurance brokerage and risk management firm. Allied committed $93.4 million in non-voting common equity, senior notes and subordinated notes. Higginbotham management and employees provided both equity and debt.

PE-Backed IPOs

HireRight Inc., an Irvine, Calif.-based provider of on-demand employment screening solutions, raised $65.7 million via its IPO. The company priced 4.38 million common shares at $15 per share ($15-$17 range), for an initial market cap of approximately $168.33 million. It will trade on the Nasdaq under ticker symbol HIRE, while Credit Suisse served as lead underwriter. HireRight had raised around $35 million in VC funding from firms like DCM-Doll Capital Management (23.1% pre-IPO stake), Baird Venture Partners (7.1%), Mellon Ventures (29.2%) and St. Paul Venture Capital (20.9%).

American Public Education Inc., a Charles Town, West Va.-based provider of online postsecondary education for the military and public service communities, has filed for a $92 million IPO. It plans to trade on the Nasdaq under ticker symbol APEI, with William Blair & Co. and Piper Jaffray serving as co-lead underwriters. Shareholders include ABS Capital Partners (59.11% pre-IPO stake) and Camden Partners (14.63%).

PE Exits

Blackbaud Inc. (Nasdaq: BLKB) has acquired eTapestry, an Indianapolis-based provider of SaaS fundraising solutions for nonprofits. The deal is valued at approximately $24.8 million, plus up to $1.5 million in stock earn-outs. Etapestry raised a $6.5 million Series A round in 2000 at an $18 million post-money valuation, from firms like Gazelle TechVentures and HarbourVest Partners.

Hearst Corp. has agreed to acquire Kaboodle Inc., a Santa Clara, Calif.-based online social shopping community. No financial terms were disclosed. Kaboodle had raised around $8.7 million in VC funding since its 2005 inception, from firms like Shea Ventures, Garage Technology Ventures and Alpha Group. Angel backers included Ron Conway and Rajeev Motwani.

James Finlay Ltd. has acquired Flamingo Holdings, a Kenya-based horticultural company that exports cut flowers and fresh vegetables to the UK market. Sellers included Actis and Helios Investment Partners. No financial terms were disclosed.

PE-Backed M&A

Advion BioSciences Inc., an Ithaca, N.Y.-based developer of microfluidics technology, has acquired NanoTek LLC, a Walland, Tenn.–based provider of microfluidic chemistry systems for the rapid production of PET-labeled biomarkers. No financial terms were disclosed. Advion has raised $25.25 million in VC funding from Aisling Capital, Cayuga Venture Fund, Polaris Venture Partners and Skyline Ventures.

Lenovo Group Ltd. is in talks to acquire Dutch PC maker Packard Bell, which is valued at approximately $800 million. Lenovo is the world’s third-largest PC maker, following its 2005 acquisition of IBM’s ThinkPad unit. That deal was partially financed by a $350 million private equity infusion from TPG and General Atlantic.

Pegasus Capital Advisors has sold packaging company Salerno Plastics Corp. to a five-partner management group, which is backed by the Solidarity Fund QFL and Capital régional et coopératif Desjardins. No financial terms were disclosed. Salerno has plants in both Plattsburgh, N.Y. and Châteauguay, Québec.

Firms & Funds

Mid Europa Partners is raising up to €1.25 billion for its third fund, according to a regulatory filing. The firm focuses on middle-market companies in Central and Eastern Europe, and closed its second fund with €655 million in August 2005.

EnCap Investments is raising up to $2.5 billion for its seventh fund, according to LBO Wire. The Texas–based firm focuses on opportunities in the energy sector, and already has secured $2 billion in commitments for Fund VII. Its current fund closed just last year on $1.5 billion.

Human Resources

Elizabeth Weymouth has joined Riverstone Holdings as a managing director. She will have responsibility for Riverstone’s fundraising, investor relations and communications activities. She previously was a senior executive with JPMorgan Private Bank. Riverstone is a $9 billion private equity firm focused on the energy and power sectors.

J Niranjan has joined CLSA Asia-Pacific Markets as a managing director and co-head of investment banking. He will be based in Mumbai, and previously held a similar role with ICICI Securities and Finance.

Michael Nugent has joined SVG Capital’s fund advisory business in Boston, with a focus on U.S. primary and secondary private equity opportunities. He previously was a director with LP Capital Advisors and, before that, was a vice president with State Street Bank’s PrivateEdge group.

Todd Peterson has joined Edwards Angell Palmer & Dodge as a New York-based partner in the law firm’s private equity and venture capital practice group. He previously was with Nixon Peabody.