PE Week Wire: Wed., May 30, 2007

The Wall Street Journal led yesterday’s C-section by asking if the private equity deal frenzy is nearing its end, and then quoted private equiteers who responded affirmatively. But it neglected to add a colossal qualifier: The private equiteers don’t mean it.

In most cases, it’s just lip service. Like when Red Sox players say that they’re still worried about the Yankees catching up. Or a gambler on a hot streak who notes that the odds favor the house. Don’t want to appear too confident. Maybe a few actually believe they believe it, but it’s self-delusion. After all, wouldn’t they have pulled over by now if they actually thought the wheels were about to come off?

Even worse, the article goes far beyond accepting bearish sentiment that the deal frenzy will soon slow. It actually argues that such a slowdown has already occurred. For example, it claims that TPG is “showing signs of caution about the markets” – and uses its abandonment of the Dollar General auction as proof. What a crock. This year alone, TPG has bought – or tried to buy – such companies as: Alltel, Alitalia, Coles Meyer, HealthSouth’s Surgery Division, Iberia, J Sainsbury, Qantas, Transfusion Therapies, TXU, Univision and Victor Co. of Japan. Oh, and TPG is also raising a middle-market fund and just acquired 20% of an Indonesian bank. Yeah, some real bears over there…

As a side note: An LBO firm is not expressing market caution when it sells positions in companies it has owned for seven or eight years. It’s just following standard LBO practices. As Carlyle’s David Rubenstein has said, “buy and sell” is what differentiates private equity firms from “buy and hold” conglomerates.

None of this is to suggest that the private equity bubble will grow infinitely, although I’d expect more of an overall deflation than a burst. Instead, it is to argue that private equity firms will not be leading the charge (or perhaps whatever is the opposite of a charge). They just don’t have the courage to be cautious – and most of their investors would disapprove of such a contrarian stand (albeit privately).

No, it will have to be the banks who dim the lights, and that will only occur once they’ve had a few loan defaults that they consider systemic rather than anecdotal. Or perhaps if the Fed surprises everyone with a major interest rate hike. But – until that unspecific date certain – private equity firms will maintain their frenzy.

Top Three

Madison Dearborn Partners has agreed to acquire software and hardware distributor CDW Corp. (Nasdaq: CDWC), in a transaction valued at $7.3 billion. CDW shareholders would receive $87.75 per share in cash, which is a 16.1% premium over CDW’s closing stock price last Friday. Morgan Stanley is advising CDW on the deal, while Madison Dearborn is being advised by JP Morgan Securities and Lehman Brothers.

CBS Corp. has acquired Ltd., a London-based operator of an online social music network, for $280 million in cash. was founded in 2002, and has raised over $5 million in VC funding from Index Ventures and angels Joi Ito, Reid Hoffman and Stegan Glaenzer.

Ares Management has sold a minority ownership position to an undisclosed overseas investor for $375 million. No additional terms were disclosed, but we hear the deal values Ares at between $1.8 billion and $2.5 billion (15%-20% stake). Ares said that it will not use any of its proceeds to pay back existing owners (i.e., founder liquidity). Instead, it is all being put toward growth initiatives, which will be used as principal capital for Ares funds in existing business lines, to create additional business lines and to help hire additional staff.

VC Deals

SiGe Semiconductor Inc., an Ottawa-based supplier of RF front-end solutions for wireless systems, has raised $20 million in Series E funding. Samsung Ventures was joined by return backers 3i Group, Prism VentureWorks, TD Capital Ventures, VenGrowth Private Equity Partners, RWI Ventures and GrowthWorks. SiGe has now raised around $132 million in total VC funding since 1999. It recently named Sohail Khan, an entrepreneur-in-residence with Bessemer Venture Partners, as CEO.

AOptix Technologies Inc., a Campbell, Calif.-based developer of iris recognition systems and ultra-high bandwidth laser communication solutions, has raised $15 million in Series C funding. DAG Ventures led the deal, and was joined by return backers Kleiner Perkins Caufield & Byers, Clearstone, 3i and Lehman Brothers. The company has raised just under $50 million in total VC funding since its 2000 inception as Zyoptics.

Aperio Technologies Inc., a Vista, Calif.-based provider of digital pathology systems and services, has raised $10.6 million in third-round funding. Galen Partners led the deal, and was joined by fellow return backer Advanced Technology Ventures. Aperio has raised $33 million in VC funding since its 1999 inception.

ChosenSecurity Inc., a Needham, Mass.-based provider of identity verification and security services, has raised $8.5 million in Series A funding from Castile Ventures and Prism VentureWorks. The company was founded last year as a spinout from GeoTrust, just prior to that company’s Q3 acquisition by Verisign. Both Castile and Prism had been investors in GeoTrust.

Electro Power Systems, a Torino, Italy-based developer of clean energy solutions based on fuel cell technology, has raised up to €5 million in VC funding from 360° Capital Partners.

Radian6 Technologies Inc., a New Brunswick, Canada-based developer of social media monitoring solutions, has raised Cdn$4 million in VC funding co-led by Brightspark Ventures and BCE Capital.

BT Pharma SA, a France-based vaccine developer, has raised €1.3 million in bridge financing. No investor info was disclosed. The company was founded in late 2001 as a spinout from Institut Pasteur.

Endocare Inc. (OTC BB), an Irvine, Calif.–based developer of minimally-invasive technologies for tissue and tumor ablation, has sold $7 million of new shares to Frazier Healthcare Ventures, at $2.15 per share.

Buyout Deals

Bridgepoint has acquired aerospace components supplier Global Design Technologies from Stirling Square Capital Partners for $343 million. GDT was formed in January 2005, when Sterling Square sponsored simultaneous management buyouts of Deutsch Metal Component (U.S.) and Permaswage (France).

Institutional Shareholder Services is recommending that Biomet Inc. (Nasdaq: BMET) shareholders vote against a $44 per share takeover bid from private equity firms Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and Texas Pacific Group. The shareholder vote is scheduled for June 8. If approved, the total deal would be worth around $10.9 billion.

Coles Group Ltd. may soon be down to just one suitor, as one of its two interested consortia seems to be disintegrating. KKR and CVC Asia Pacific pulled out of the group over the weekend, and a Coles spokesman told Reuters that he could not confirm that the consortium’s four other firms – Bain Capital, Blackstone Group, Carlyle Group and TPG – were all still on board. Coles does currently have an Au$19 billion buyout offer on the table from Westfarmers Ltd. and Pacific Equity Partners.

Apollo Management has completed its $3.1 billion take-private acquisition of Claire’s Stores Inc., a costume jewelry and accessories retailer that had been trading on the NYSE. The deal provides Claire’s shareholders with $33 per share in cash.

Bradley Pharmaceuticals Inc. (NYSE: BDY) said that it has received a $21.50 per share buyout offer led by company founder, president and CEO Daniel Glassman. The proposal letter also says that One Equity Partners has committed to provide an undisclosed amount of equity, while Credit Suisse Securities would underwrite the leveraged financing. Bradley said that it has formed a special committee of independent directors to consider the proposal, and other strategic alternatives.

Blue Equity has acquired the NFL player representation practice of Joel Segal, Worldwide Football Inc. No financial terms were disclosed. Segal’s clientele includes Reggie Bush, Jason Campbell. Tarvaris Jackson, Marques Colston, DeAngelo Hall, Muhsin Muhammad, Darren Sharper, Will Smith and Michael Vick. Blue Equity’s existing sports holdings are comprised of SFX Worldwide and Blackwave Sports.

Halyard Education Partners, a platform portfolio company of Halyard Capital, has acquired WorldClass Strategy, a Seattle-based provider of performance-based interactive marketing services to the higher education industry. No financial terms were disclosed. This is HEP’s second acquisition in less than a month, as it recently added GoalQuest.

Sun Capital Partners has acquired the automotive OEM fuel and fluid handling operations of Mark IV Industries Inc. No financial terms were disclosed. The new company will operate under the name Fluid Routing Solutions Inc.

Seismic Micro-Technology Inc., a Houston, Texas-based developer of geophysical and geological interpretation software, has closed a recapilization sponsored by Technology Crossover Ventures and JMI Equity. No financial terms were disclosed.

The European Commission has approved 3i Group’s proposed acquisition of Euro-Druckservice AG, a Germany-based provider of industrial offset printing services to publishing houses and retail groups in Germany, Austria, and central and Eastern Europe. The case was examined under the EU’s ‘simplified’ merger review procedure, for cases which the commission believes do not pose competition concerns.

PE-Backed M&A

LaNetro Zed, a Madrid, Spain-based provider of mobile content and services, is preparing an €800 million bid for Bellevue, Wash-based online and mobile search company InfoSpace Inc. (Nasdaq: INSP), according to Spanish newspaper Negocio. LaNetro received an undisclosed amount of private equity funding from Veronis Suhler Stevenson earlier this year.

MonoSol LLC, a Merrillville, Ind.-based developer of water-soluble films, has acquired certain equipment and intellectual property assets of UK-listed Stanelco PLC. No additional details were disclosed. Catterton Partners acquired MonoSol earlier this year from The Bass Group.

PE Exits

The Federal Trade Commission has opened an antitrust investigation into Google’s proposed $3.1 billion purchase of ad-management technology company DoubleClick Inc., from buyout firms Hellman & Friedman and JMI Equity. Google turned over basic information about the planned purchase to regulators after announcing the deal. Spokesman Adam Kovacevich said the company would soon turn over additional information sought by the FTC as part of its review. News of the FTC investigation was first reported by The New York Times.

Energy Investors Funds has sold the wind development assets of Tierra Energy LLC to Duke Energy for an undisclosed amount. Tierra is an Austin, Texas-based developer of natural gas-fired generation facilities and wind farms. EIF acquired a majority interest in November 2005.

The Riverside Company has agreed to sell PPC Insulators to Seves SpA for an undisclosed amount. PPC is a Vienna, Austria-based manufacturer of high voltage porcelain insulators used in the power generation, transmission and distribution industries. Seves shareholders include Ergon Capital Partners, Vestar Capital Partners, Athena Private Equity and company management.

Google Inc. (Nasdaq: GOOG) has acquired GreenBorder Technology Inc., a Mountain View, Calif.-based provider of software to ensure data integrity for enterprise computing environments. No financial terms were disclosed. GreenBorder has raised nearly $25 million in VC funding since its 2001 inception, from firms like Labrador Ventures, Sevin Rosen Funds and TPG Ventures.

Firms & Funds

Lehman Brothers has begun marketing its fifth direct VC fund with a $300 million target, according to VentureWire.

Human Resources

Anil Shrivastava has joined Vestar Capital Partners as a managing director focused on the healthcare market. He previously was with Bain & Co., as a partner focused on private equity and healthcare engagements.

Alex Whittemore has joined Summit Partners as director of capital markets. He will be responsible for all of the firm’s capital markets activities for both new and existing portfolio companies, plus for helping to manage the firm’s relationships with commercial and investment banks. He previously was an executive director in Morgan Stanley’s financial sponsors group.

Eric Smith has joined Albsbridge as managing partner of the outsourcing advisory’s private equity practice. He served as CEO of Liberata PLC’s public sector business through 2005.

Phil Yates has joined Bear Stearns Merchant Banking as a senior advisor. He most recently served as chairman and CEO of Graham Packaging.

Francois Maisonrouge and Mark Vander Ploeg have joined the advisory business of Evercore Partners as managing directors. Maisonrouge will be based in New York, and previously was managing director and chairman of life sciences with Credit Suisse. Vander Ploeg will be based in San Francisco, and previously was with Merrill Lynch as vice chairman of I-banking, and co-head of consumer industries and head of West Coast origination.