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PE Week Wire — Wednesday, July 19

Now Hiring: New York City

During an industry event a few weeks back, I was pulled aside by a public pension fund manager who objected to my blanket characterization of his peers as “dumb money.” He argued that every large group has both good and bad apples, and that it’s unfair to deride the entire bushel.

I had two possible ways to respond. The first was to say something like: “You’re right that there are many exceptions. Look at CalPERS, for example. It is implementing several strategic review recommendations that make a lot of sense, like reducing the number of relationships for each individual staffer, and forming several more outsourced capital pools.”

But I had a few drinks in me, so instead responded: “Forgetting OBWC for a moment, what do you think about New York City?” He smiled wryly with eyes that said touché, even though all I had really done was pointed out yet another bad apple. Then we moved on to a more important debate over whether or not the Boston Celtics should trade for Allen Iverson (as an aside, this prospective deal may be the only way for the team owners to overcome fan disgust at the Celtics Dancers decision).

Back to point: The “dumb money” term is not meant to insult individual pension managers, as many of them are extremely well-connected and knowledgeable. After all, that’s why so many of them eventually join private firms. Instead, it’s related to upstream organizational decisions that often leave the private equity departments understaffed or in untenable positions (see Illinois/Sudan or OBWC/disclosure). For NYC, understaffing is the main issue.

New York City has five public pension systems, of which four invest in private equity. At the end of fiscal 2005 (i.e., last June), these commitments totaled approximately $3.09 billion. Each pension system has a board of trustees that makes its own decisions, but they do not have dedicated private equity staffers. Instead, recommendations come from the New York City Comptroller’s Office, which serves in a custodial and chief financial advisor role for each pension system (it also gets one vote on each board). The Comptroller’s Office, in turn, employs Pacific Corporate Group as the pension systems’ primary private equity consultant. PCG reports directly to the pension trustees, but works closely with private equity-dedicated staffers in the Comptroller’s Office.

That dedicated staff, however, is thinner than Keira Knightly. It once employed five full-timers (or maybe six), but is now down to just two, including senior staffer Tim Kelly. In other words, Kelly is supposed to oversee $3.09 billion in commitments, even though NYC has not gone the Oregon route of committing $500 million-plus to individual funds. CIO Rita Sallis also has some involvement, but her background is in public finance. It is madness.

When I first began looking into this several weeks ago, the Comptroller’s Office website did not have a single private equity job listing. It now has two, but no explanation for what took them so long (it’s been over a year). It also will not allow me to speak with Tim Kelly, even though its new press secretary clearly knows little about the issues at hand (more plugged-in press secretary Jeff Simmons is on an indefinite “leave of absence”).

This means that I can’t ask about the system’s future strategy, even though it is supposed to be a public system. For example, does it plan to make greater use of the outsourced pool model (it currently has three), or perhaps give PCG some discretionary authority? Why did it decide to rehire PCG following the most recent RFP process (news not yet official, as both sides are haggling over terms), when the firm was in NYC’s doghouse just last year? Why is Tim Kelly not allowed to speak to the press?

Actually, I think I can answer the last one: He’s just too damn busy.

    Top Three

EnteroMedics Inc.
, a St. Paul, Minn.–based developer of medical devices for the treatment of obesity and gastrointestinal disorders, has raised $45.2 million in Series C funding. InterWest Partners led the deal, and was joined by Onset Ventures, Pacific Asset Partners and the Mayo Foundation for Medical Education and Research. Return backers included MPM Capital, Bay City Capital, Aberdare Ventures and Charter Life Sciences.

U.S. Surgical, a subsidiary of Tyco International Ltd. (NYSE: TYC), has agreed to acquire Confluent Surgical Inc., a Waltham, Mass.–based provider of polymer-based technology used in sprayable surgical sealants and anti-adhesion products.The deal is valued at $245 million, and is expected to close by the end of August. Confluent has raised around $60 million in VC funding since its 1998 inception, including a $20 million Series C round in 2000 at a post-money valuation of approximately $53.7 million.

HCA Inc. (NYSE: HCA) was in talks to sell itself to a private equity consortium, but the deal has fallen apart, according to The Wall Street Journal. The hospital operator’s $11 billion debt load was the primary trouble spot for the buyers, who are reported to have included Bain Capital, KKR, Merrill Lynch Private Equity and the family of U.S. Senator Bill Frist (whose father and brother founded the company).

    VC Deals

AmberWave Systems Corp., a Salem, N.H.-based semiconductor company, has raised $25 million in Series E funding. Return backers include 3i Group, Adams Capital Management, Arch Venture Partners, Telesoft Partners and The Hillman Cos. The company has raised over $92 million in total VC funding since its 1998 inception.

Jobster Inc., a Seattle-based provider of online job advertising services, has raised $18 million in Series C funding. Reed Elsevier Ventures led the deal, and was joined by return backers Ignition Partners, Mayfield Fund and Trinity Ventures.

Newnham, a developer of display-networking technology with offices in both Palo Alto, Calif. and Cambridge, UK, has raised $13.25 million in Series B funding. Esprit Capital Partners led the deal, and was joined by return backers Atlas Venture and Benchmark Capital. The company has now raised $21.75 million in total venture funding.

Glacier Bay Inc., an Oakland, Calif.-based provider of thermal control, sound reduction and DC power management technologies, has raised $8 million from New Enterprise Associates. It is the 16-year-old company’s first institution round of funding.

MaxPreps Inc., a Cameron Park, Calif.–based provider of high school sports information and media services, has raised $7 million in Series B funding. Dolphin Equity Partners led the deal, and was joined by BEV Capital and return backer DFJ Frontier.

Brilliant Telecommunications Inc., a Campbell, Calif.-based developer of GSM base-station timing and synchronization hardware, has raised $6.9 million in Series A funding. Backers include Onset Ventures and Draper Richards.

Peakstream Inc. (f.k.a. Shakti Computer Systems), a Redwood City, Calif.-based developer of software platforms for next-generation computing, has raised $5 million in Series A funding from Sequoia Capital and Kleiner Perkins Caufield & Byers.

Actimagine, a Paris, France-based provider of video compression technologies, has raised €3 million in first-round funding from GRP Partners.

InvisibleCRM, a Boston-based provider of desktop appliances to increase user adoption of and other CRM systems, has raised $1.5 million in VC funding from MartinsonTrigon and ABRT Ventures.

    Buyout Deals

AIG Highstar Capital has agreed to buy Jacksonville, Fla.-based solid waste disposal company Advanced Disposal Inc., according to LBOWire. The deal values Advanced Disposal at $470 million, and is subject to regulatory approval. Advanced Disposal has raised VC funding from firms like ABS Capital Partners, BB&T Capital Partners, New York Life Capital Partners, PNC Equity and Rock Creek Partners.

L Capital has acquired a majority stake in Italian fashion company Piazza Sempione. No financial terms were disclosed.

The Riverside Company has acquired ActivStyle, a Minneapolis–based distributor of consumable medical supplies with an emphasis on incontinence products. No financial terms were disclosed, except that it is part of Riverside’s micro-cap strategy that focuses on companies with less than $3 million in EBITDA.

Clarey Technology Group, an Irvine, Calif.-based lower-middle-market buyout firm, has acquired Phoenix Computer Associates Inc., a Fairfield, Conn.-based provider of computer mainframes and peripherals. No financial terms were disclosed.

    PE-Backed IPOs

Next week’s IPO calendar includes expected pricings from Chart Industries Inc., CHG Healthcare Services Inc., WNS Global Services and GeoMet Inc.

    PE Exits

Amdocs (NYSE: DOX) has agreed to acquire Cramer Systems Group Ltd., a London-based provider of operations support system (OSS) solutions, for $375 million in cash. Cramer has raised around $36 million in VC funding from firms like Kennet Venture Partners, Broadview Capital Partners and HarbourVest Partners.

Clearbrook Capital Partners and RIT Capital Partners have sold Eclipse Scientific Group to Inspicio PLC for £47 million. Eclipse is a UK-based provider of laboratory analysis and testing services.

    PE-Backed M&A

Jacobson Companies Inc., a Des Moines, Iowa–based provider of third-party logistics, has acquired Arthur Wells Group, a St. Louis–based partnership of trucking, warehousing and distribution companies primarily focused on the food industry. No financial terms were disclosed for the deal, which included leveraged financing from a syndicate led by Madison Capital Funding. Jacobson is a platform acquisition company of Norwest Equity Partners.

Varig Logistica SA (VarigLog) is offering to buy bankrupt Brazilian airline carrier Viação Aérea Rio-Grandense SA (Varig) for $127 million. VarigLog is the former logistics arm of Varig, which was recently acquired by MatlinPatterson Global Advisors and Volo de Brasil,

Avia AS, a Czech truck and engineering company controlled by Odien Capital Partners, has agreed to sell its truck unit to Ashok Leyland Ltd. of India. No financial terms were disclosed. Avia’s truck unit accounts for approximately 60% of its operations.


3i Group has acquired a 24.01% stake in The Character Group PLC, an AIM-listed UK toy company.

    Firm & Fund News

Softbank China Venture Capital has secured $141.6 million in capital commitments for its $150 million-targeted second fund, according to a regulatory filing. Limited partners include AlpInvest, International Finance Corp, Partners Group, Siguler Guff and Softbank.

Virgo Capital has closed its inaugural fund with nearly $50 million in capital commitments from limited partners like McClendon Venture Co. and Sammons Capital. The firm has offices in Oklahoma City and Austin, Texas, and will focus on control deals for financial services companies with between $10 million and $25 million in annual revenue.

HarbourVest Partners has purchased the Small Business Administration LP interest – via the SBIC — in Open Prairie Ventures Fund. No financial terms were disclosed.

The Pennsylvania State Employees’ Retirement System (PSERS) today is expected to vote on follow-on fund commitments for Berkshire Partners, First Reserve, HarbourVest Partners and Lime Rock Partners. It also is expected to accept recommendations to interview Artiman Ventures and Devon Park BioVentures.

Advanced Equities Financial Corp. has agreed to acquire Investors Resources Group Inc. of Vacaville, California.

    Human Resources

Rob Hayes has joined First Round Capital as the West Conshohocken, Pa.-based firm’s first West Coast partner. He previously was with Omidyar Network.

Foundation Capital has promoted Rich Redelfs to general partner. He joined the firm as a venture partner three years ago, before which he was president and CEO of Atheros Communications.

Trinity Ventures has promoted Patricia Nakache to general partner and Jim Tybur to principal. Nakache joined the firm in 1999 and focuses on Internet services, while Tybur joined as an associate in late 2004, and focuses on the Internet and software sectors.

Jason Mozingo has left Avista Capital Partners to join Centerbridge Partners, according to The Deal.

Robert L. Evans has been named president and CEO of Churchill Downs Inc. (Nasdaq: CHDN). He most recently served as a co-founding managing director of Symphony Technology Group, and is president and founding of a commercial horse breeding operation in Kentucky called Tenlane Farms.

Robert C. Davis has joined Kaye Scholer as a Chicago-based partner focused on private equity. He previously was with Kirkland & Ellis.

Cliff Friedman, senior managing director of Constellation Ventures, has resigned from the board of Savvis Inc. (Nasdaq: SVVS). He originally joined the Savvis board in July 2002, as part of a Constellation Ventures investment.


Tuesday, July 18

Growing Pains: Changes at ACS

I was the first of my friends to get married, which prompted lots of questions about how I was handling my “new” life. “It’s just the same as it was before,” I said, “except I now have more plates.” After all, I had been living with my girlfriend/wife for several years (yes, slap me for sinfulness), and we each had become accustomed to the other’s quirks, annoying habits, and so on. Had we simply dated before getting married, my answer to my friends’ question probably would have been far more complex and, possibly, negative. Yes, I know there are studies suggesting just the opposite, but I’m trying to make a (long-winded and tedious) point: Long engagements don’t always produce a solid marriage.

Such is the case with Andy Fillat and American Capital Strategies. Fillat is the former VC chief of Advent International, who was hired by ACS earlier this year to launch and run a new venture capital program focused on the IT market. The move came after nearly three months of negotiations — I held the story until papers were signed, although did offer a blind item – and resulted in what seemed like a well-planned and amicable partnership. Fillat already had experience as a venture capitalist within a buyout-focused firm, and genuinely dug the idea of an evergreen capital pool that didn’t have strict deal size/stage or industry cycle limitations. He also hired Tony Abate, a former Battery Ventures and Ironside Ventures pro with whom he earlier had been contemplating a private partnership.

But the long engagement was for naught. Boston-based Fillat was quietly sacked by ACS last month, after a series of contentious disagreements over investment philosophy and other “business culture” issues. Neither side is publicly commenting on the move, but multiple sources say that the fit was a bad one from day one. “You had two sides that knew how they wanted things done, and they just kept butting heads,” says someone familiar with the situation. “Everyone knew that ACS held the cards and that it wasn’t working out, although the firing was sudden and, I think, surprised everyone.”

Tony Abate almost immediately followed Fillat out the door, due to a combination of loyalty and the fact that he was one of “Andy’s guys.” Neither has yet signed on elsewhere.

It’s a bit hard to understand how this all happened, considering how long Fillat had been in discussions with ACS. Maybe it really is true that certain problems don’t appear until you’ve actually gotten married, or perhaps both sides mistakenly thought they could just agree to disagree on certain issues.

Before the final showdown, however, Fillat managed to recruit two managing directors to launch a new office in Palo Alto: Virginia Turezyn (formerly with Constellation Ventures) and Greg Smitherman (formerly with Advent International). This pair will continue running the show going forward, with help from new vice president David Hartwig (formerly with Battery Ventures) and remaining Boston principal Miles Arone. Turezyn says that the group has plans to continue staffing up on the West Coast, but that the Boston effort is at least temporarily on hold. She also says that deal-flow is strong, with one term sheet out and other transaction expected to close within a week.

Unlike in so many of these cases, there are no evil culprits here. Most folks pin a bit more of the blame on Fillat’s irascibility, but the realty is that the two sides realized it wasn’t working before the endeavor became entrenched. What ACS will have to do, however, is be more forthcoming with entrepreneurs than it was with me. It’s ok for ACS president and CEO Malon Wilkus to tell a reporter that the firm doesn’t comment on staffing matters. Not so with entrepreneurs.

Prospective portfolio companis have every right and need to know why two managing directors left just five months after joining. They often make VC decisions based more on individual investors (i.e. board members/advisors) than on term sheets or brand, and the smart ones already have instinctive concerns about taking cash from hierarchical corporate/financial venture arms. ACS is not AIG, but it still will need to reemphasize the point.

    Top Three

Terra Firma has agreed to sell the waste disposal division of UK-based Waste Recycling Group to
Spain’s Fomento de Construcciones y Contratas (FCC) for £1.4 billion.

Trinity BioSystems Inc., a Menlo Park, Calif.-based developer of a platform to produce vaccines and oral delivery of proteins and other peptide products, has raised $21 million in Series B funding. Amgen and S.R. One Ltd. were joined by return backers Sanderling Ventures and Tenex Greenhouse Ventures.

Viisage Technology Inc. (Nasdaq: VISG) has agreed to acquire Iridian Technologies Inc., a Moorestown, N.J.-based developer of iris recognition technology. The deal includes a $35 million cash payment to Iridian shareholders, and will be funded primarily by proceeds from an initial $100 million investment into Viisage by L-1 Investment Partners last December. Iridian raised $65 million between 1998 and 2000, from firms like GE Equity, J.P. Morgan Capital, Lehman Brothers, Merrill Lynch Capital Partners, NPM Capital, Penny Lane Partners, Perseus and Walden International.

    VC Deals

Omeros Corp., a Seattle-based drug company focused on receptor and enzyme therapeutics, has secured $44 million of a $75 million Series E round, according to a regulatory filing. The filing does not identify specific investors, although the company previously had raised a total of $45 million from firms like CSK Ventures, Encompass Ventures, Grosnovor Funds, Southern Cross Capital, Suez Ventures, TransCosmos USA, WRF Capital and 3V SourceOne Capital.

Virgo Engineers, a Pune, India-based maker of ball valve and valve automation systems, is close to raising $20 million from Tano Capital, according to The Economic Times of India.

Emphasys Medical Inc., a Redwood City, Calif.-based medical device company focused on emphysema, has secured $18.14 million in Series E funding. Return backers include Advanced Technology Ventures, Morgan Stanley Venture Partners, New Enterprise Associates and St. Paul Venture Capital. Emphasys Medical has raised around $63 million in total VC funding since its 2000 inception.

Availigent, a San Jose, Calif.-based provider of transparent and automatic application virtualization software for Linux platforms, has raised $12.2 million in Series B funding. Intel Capital led the deal, and was joined by return backers Diamondhead Ventures and Smart Technology Ventures.

VoiceObjects Inc., a San Mateo, Calif.-based, has raised $10.8 million in recap funding. Return backers include Telesoft Partners, Wellington Partners, SAP Ventures, Deutsche Telekom’s T-Venture and Enjoyventure.

Calisolar Inc., a Sunnyvale, Calif.-based solar technology startup, has raised $9 million in first-round funding from Advanced Technology Ventures and Globespan Capital Partners.

WiChorus Inc., a San Jose, Calif.-based developer of mobile services and applications, has raised $8.5 million in Series B funding, according to a regulatory filing. Backers include Accel Partners and Redpoint Ventures.

ShopWiki, a New York-based online shopping search engine and buying guide, has raised $6.2 million from Generation Partners.

HotGigs, a Minneapolis-based provider of an on-demand staffing exchange for both contract and fulltime employees, has raised $5.3 million in Series A funding from Updata Partners.

Azteq Mobile Corp., a Walnut Creek, Calif.-based mobile technology company, has raised around $4.05 million in Series A1 funding. Backers include The Ignite Group, Japan-Asia Investment Co. and iSherpa Capital.

Zeugma Systems Inc., a Vancouver-based provider of broadband networking solutions, has raised US$2.25 million in additional second-round funding from BDC Venture Capital and company employees. This brings the round total to $15.75 million, including earlier participation from Granite Ventures, GrowthWorks, Ventures West and Yaletown Venture Partners.

Don’t Blink Media Inc., a Seattle-based provider of interactive advertising services, has raised an undisclosed amount of private equity funding from Highmark Investments LLC. Mercanti Securities served as financial advisor to Don’t Blink.

    Buyout Deals

Istithmar PJSC has completed its $300 million acquisition of New York-based fashion retailer Loehmann’s Holdings from Arcapita.

Bridgepoint has agreed to acquire CVC Capital Partners’ stake in Spanish sports management and marketing company Dorna Sports SA. No financial terms were disclosed for the deal, which will make Bridgepoint the largest single Dornia shareholder.

The Riverside Co. has acquired the American Safety & Health Institute, a Holiday, Fla.–based professional safety and health certification company. No financial terms were disclosed, except that it was part of Riverside’s micro-cap strategy that focuses on companies with less than $3 million in EBITDA.

Greenbriar Equity Group has acquired a majority stake in Stag-Parkway Inc., an Atlanta–based distributor of recreational vehicle (RV) parts and accessories. No financial terms were disclosed. Allied Capital and Bank of America arranged financing for the transaction, while Stag-Parkway was advised by Brookwood Associates.

    PE-Backed IPOs

Cadence Pharmaceuticals Inc., a hospital-focused drug company based in San Diego, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol CADX, with Merrill Lynch serving as lead underwriter. IT has raised around $79 million in total VC funding, including a $53.8 million second-round deal earlier this year. Backers include Frazier Healthcare Ventures, Versant Ventures, Technology Partners, Domain Associates, ProQuest Investments, BB Biotech Ventures, CDIB BioScience Venture and Management.

GlobalStar Inc., a Milpitas, Calif.-based provider of voice and data communications services via satellite, has filed to raise $100 million via an IPO of common stock. Wachovia Securities is serving as lead underwriter. Shareholders include Thermo Funding Co., Columbia Ventures Corp., Banc of America Securities and Qualcomm.

Osiris Therapeutics Inc., a Baltimore-based stem cell therapeutics company focused on the inflammatory, orthopedic and cardiovascular areas, has set its proposed IPO terms to 3.5 million common shares being offered at between $11 and $13 per share. It plans to trade on the Nasdaq under ticker symbol OSIR, with Deutsche Bank Securities serving as lead underwriter. Osiris has raised around $50.3 million in VC funding from firms like Venturetec and Friedli Corporate Finance.

    PE Exits

Eurazeo, Credit Agricole and Pragma Capital are looking to sell French truck rental company Fraikin, according to The Financial Times. The deal could be valued at more than $2.5 billion.

3M (NYSE: MMM) has agreed to acquire UK-based Security Printing and Systems Ltd. from Authentos GmbH, for an undisclosed amount. Authentos is a German holding company controlled by Apax Partners.

    PE-Backed M&A

Motricity Inc., a Durham, N.C.-based provider of mobile marketplace management solutions, has acquired GoldPocket Wireless Inc., a Los Angeles–based provider of mobile interactivity and marketing solutions for media and entertainment companies, from Tandberg Television. No financial terms were disclosed. Motricity has raised more than $120 million in private funding since October 2004, from firms like Technology Crossover Ventures, New Enterprise Associates, Noro-Moseley Partners, Intel Capital and Advanced Equities. GoldPocket was acquired last year by UK-based Tandberg, after having raised around $65 million in VC funding.

Stonehouse Capital Partners has sponsored a management buyout of JHT Holdings Inc., a Kenosha, Wisc.–based specialty transportation and logistics company that focuses on the delivery of medium and heavy-duty trucks throughout North America. No financial terms were disclosed.

    Firm & Fund News

American Beacon Advisors of Ft. Worth, Texas has closed its second private equity fund-of-funds with $145.7 million in capital commitments. The new vehicle’s portfolio already includes Carlyle Partners IV, Oak Hill Capital Partners II, Yucaipa American Alliance Fund I, Bear Stearns Merchant Banking Partners III and Halifax Capital Partners II.

    Human Resources

Jake Nunn has joined New Enterprise Associates as a Menlo Park, Calif.-based partner focused on specialty pharmaceutical, biotech and medical device opportunities. He previously was a partner with MPM Capital.

Durant “Randy” Schwimmer has joined Churchill Financial as senior managing director and head of capital markets. He most recently served as a managing director and head of leveraged finance syndication for BNP Paribas.

Doug Cameron has joined Khosla Ventures as chief scientific officer. He previously was with Cargill, where he was recruited in 1998 to launch and lead the company’s corporate biotech R&D group — now called the Biotechnology Development Center (BioTDC) – in Minneapolis.

Charlesbank Capital Partners has promoted Tami Nason to general counsel, and also promoted Ryan Carroll to vice president.

George Holder