PE Week Wire — Wednesday, November 25

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 No Fund-Raising Slowdown in 2005

Coller Capital this week released its first Global Private Equity Barometer, which surveyed institutional investors in North America, Europe and Asia. It found that 43% of respondents plan to increase their exposure to private equity next year, while another 48% expect to maintain current exposure levels. It is welcome news that 9% apparently plan to reduce current exposure, but the balance is obviously tipped toward a continuing rise in the LP overhang phenomenon. Despite this seller’s advantage, a vast majority of LPs expect fund terms to either stay the same, or to change in their favor. Other interesting findings include: 25% of LPs plan to increase their investment staffs in 2005; European and Asian LPs are far closer to their target allocations than are North American LPs (75%, 80% and 35%, respectively); and that 65% of LPs expect increased distributions next year.

Finally, there is the issue of sub-asset allocation. Respondents were asked to rank the attractiveness of various sub-assets over the next 12 months. The order (from best to worst) went:

1.      European buyouts

2.      Asian buyouts

3.      North American buyouts

4.      North American venture capital

5.      Asian venture capital

6.      European venture capital

Venture Capital Journal recently discovered a similar apathy among limited partners when asked about VC opportunities (check out our second-annual LP Report Card in the November issue), but such complaints have done nothing to slow down VC fund-raising activity.

Publishing note: The PE Week Wire is taking the rest of the week off, due to the Thanksgiving holiday. In the spirit of the season, I’d like to extend a sincere thank you to every one of my readers, for your continued support and correspondence. What other reporter is able to solicit fundraising scoops one day, and suggestions for Boston-area pinball repairmen the next? Have a great break, and we’ll chat again on Monday.

Email Dan Primack

Citrix Systems Inc. (Nasdaq: CTXS) has agreed to acquire Net6 Inc., a San Jose, Calif.-based provider of secure access gateways. The deal is valued at approximately $50 million in cash, and should close this quarter. Net6 has raised over $17 million in VC funding since its 2000 inception, including an $8.5 million infusion in 2003 at a post-money valuation of approximately $22.8 million. Investors included OVP Venture Partners, Sierra Ventures and BA Venture Partners.

FTD Group Inc., a Downers Grove, Ill.-based provider of floral products, has filed to raise $180 million via an IPO of common stock on the Nasdaq. No proposed ticker symbol has been disclosed. FTD was acquired this past February by Leonard Green & Partners, at which point it was taken private. That deal was worth approximately $420 million, with FTD shareholders receiving $24.85 per common share.

Agfa-Gevaert NV has agreed to acquire all outstanding shares of GWI AG, a Bonn, Germany-based provider of healthcare information and electronic patient record systems. Among the sellers is General Atlantic Partners. The cash deal is valued at 265.5 million Euros, plus a possible earn-out of up to 95 million Euros.

PharMetrics Inc., a Watertown, Mass.-based provider healthcare information and analytic solutions, has raised $8 million in Series E funding. Return backers include 3i Group, North Bridge Venture Partners and MediPhase Venture Partners.

Olympus Partners has sponsored a management buyout of Meridian Rail LLC from Cerberus Capital Management and Three Cities Research Inc. No financial terms were disclosed. Meridian Rail is a Birmingham, Ala.-based provider of outsourced services to the freight rail industry. Harris Williams & Co. advised Meridian Rail on the deal, which closed yesterday.

Bain Capital has agreed to acquire Montreal-based discount retailer Dollarama from company founder Larry Rossy. The news was first reported in the Montreal Gazette, and The Deal reports a sale price of Cdn$1.05 billion (approx. US$889 million).

Little Chef, a UK-based restaurant chain, will be put on the block early next year for GBP 50 million, according to The Times of London. The company is owned by private equity firm Permira, following Permira’s acquisition of Travelodge.

Columbia Manufacturing Corp., a Gardena, Calif.-based portfolio company of CIT Group/Equity Investments, has completed a $20 million refinancing. The deal included subordinated debt provided by Golub Associates.

The European Union Commission has delayed its decision of One Equity Partners‘ proposed 240 million Euros sale of non-nuclear sub maker Howaldtswerke Deutsche Werft AG to ThussenKrupp AG. A decision had been expected Thursday, but no revised date has been determined.

The Carlyle Group has emerged as the lead bidder for Xuzhou Construction Machinery Group Inc. (a.k.a. Xugong Group), a state-owned construction equipment manufacturer based in Shanghai, according to Dow Jones. The deal could be valued anywhere between $300 million and $400 million, with JPMorgan Partners also reported to have expressed interest.

Celanese Corp., a chemical company controlled by The Blackstone Group, has agreed to acquire Vinamul Polymers from the National Starch and Chemical Co. for $208 million. National Starch is a subsidiary of Imperial Chemical Industries PLC (NYSE: ICI).

Penn Virginia Resource Partners LP (NYSE: PVR) has agreed to acquire a natural gas and processing business with assets in Oklahoma and Texas from Cantera Resources Holdings LLC, a portfolio company of Morgan Stanley Capital Partners. The deal is valued at $191 million in cash, and is expected to close in the first quarter of 2005.

ICG Communications Inc., a portfolio company of M/C Venture Partners and Columbia Capital, has agreed to sell its Signaling System 7 (SS7) network to Transaction Network Services Inc. (NYSE: TNS). No financial terms were disclosed.

Arbinet-Thexchange Inc., a New Brunswick, N.J.-based operator of an electronic market for trading communications capacity, has set its IPO terms to over 6.53 million common shares being offered at between $14 and $16 per share. The company has raised over $125 million in total VC funding since its 1996 inception, with significant shareholders including ComVentures, JPMorgan Partners, EnerTech Capital Partners and BancBoston Ventures.

Cambridge Display Technologies Inc., a UK-based developer of light-emitting polymers for consumer electronics, has set its IPO terms to 2.5 million common shares being offered at between $13 and $15 per share. The company was acquired in July 1999 by private equity firms Kelso & Co. and Hillman Capital. At the time, the two firms provided equity consideration of $55.8 million and $38 million, respectively.

Vincera Inc., an Austin, Texas-based provider of user activity management software, has filed for an IPO of common stock on the OTCBB under ticker symbol VNCR. The company was founded in 1999 as Inc., and later changed its name to Smarte Solutions. In August 2004, it acquired Vincera Software Inc., and changed its name to Vincera. It lists Vincera Software backer Draper Fisher Jurvetson as a significant shareholder.

Baring Private Equity Partners Espana, has closed its second fund with ?97 million in capital commitments. Named Baring Iberia II Inversion en Capital, the new vehicle will invest in Spanish and Portuguese companies seeking expansion capital.

Mobius Venture Capital has promoted Rajeev Batra, Dewey Kim and Seth Levine to the position of principal. Batra joined the firm in October 2002, and previously served as a senior associate with Austin Ventures. Kim came aboard in November 2001, after spending time with McKinsey & Co. Levine joined in September 2001, and previously served as vice president of corporate planning and general manager of Internet, telephony and Web integration divisions of Verado Holdings.

Funk Ventures has made the following additions: John Waller has joined as a managing partner, after having founded and run such companies as Interactive Imaginations, which later became 24/7 Media (Nasdaq: TFSM); Craig Allen has joined the firm as a venture partner, and will continue to serve as CEO of Spark Unlimited; Jan Walker, former president of Disney Interactive, has joined as a venture partner, according to Dow Jones.

William Marraccini has joined Merchants Capital Partners as co-managing partner. He previously served as founder, principal owner and CEO of AAT Communications Inc.

Thomas Turmell has joined Golub Associates as a principal, and will lead the New York-based firm’s Chicago office. He previously served as a vice president with middle-market private equity firm Pfingsten Partners. Before that, he was a vice president with LaSalle Bank.

   Tuesday, November 24

For The Record…

A few updates before everyone packs up and heads to the airport:

(1) I got a note yesterday morning from Greg Uebele, assistant investment officer for private equity with the Ohio Public Employees Retirement System (OPERS). He confirms that the system’s VC allocation will drop to 15%, which means that it hopes to invest between $125 million and $200 million into VC funds during 2005. So far in 2004, it has gotten into new vehicles from Essex Woodlands Health Ventures, CMEA Ventures and Granite Global Ventures (see list of pre-2004 investments and returns here, beginning on page 82). As for the issue of mega-LBO funds, Uebele expects that such investments will return at least 15%, and notes that OPERS already has participated in mega-funds from firms like Blackstone Group and Texas Pacific Group. He, and some consultants I spoke with, believes that the economic dynamics of big-market buyouts are changing, and that 10 or 20-year performance benchmarks for mega-LBO funds may no longer be good predictors of future performance.

On quick note on that last point: Uebele probably is right about benchmark fallibility here, particularly since such data uses an antiquated $1 billion line to separate large LBO funds and mega-LBO funds. Moreover, mega-buyouts of today are most often club deals between multiple private equity firms, which were virtually unheard of years ago. That said, changing economics don’t necessarily mean a change for the better. It might, but some LPs are getting pretty nervous about the recent trend of mega-LBO shops selling assets to one another via secondary transactions. If an LP invests with both the buyer and seller, they end up holding the same asset for longer (plus, might have to pay transaction fees). Sure, the new buyer might provide some added value, but enough to offset everything else? It’s worth keeping an eye on.

(2) Remember that VentureBlog post, which discovered some Sequoia Capital LPs tucked away in a regulatory filing? Well, I tried using that same method yesterday to uncover some LPs in another – non-Sequoia – fund. Two big problems with this as a universal research tool: (A) The filing cited by VentureBlog pertained to Corvigo, which only had one institutional investor (Sequoia). For companies with multiple VC backers, it is impossible to determine which LP is related to which VC. (B) Even in the Corvigo filing, there are a bunch of folks listed who likely are not actually in the Sequoia fund. Angel investors in Corvigo, perhaps a small strategic partnership, etc. There simply is no way to know.

(3) The Small Business Administration – and its much-maligned SBIC program – seems to have survived another year of federal budget negotiations. A two-year SBA reauthorization measure was tacked on to the Omnibus Appropriations bill for Fiscal 2005, which The Senate approved on Saturday evening. This is a fairly big accomplishment for sponsors like Sen. Olympia Snowe (R-ME) and Sen. John Kerry (D-MA), although the past few days have seen how little attention most congressmen and congresswomen paid to the contents of the Omnibus bill (beyond their own pork and/or tax-peaking amendments). On a related note, a person very familiar with the SBA/SBIC told a colleague of mine that he doesn’t believe a recent story in The Deal, which claimed that President Bush hopes to kill off the SBIC program in its entirety. The article did not cite any sources – even unnamed ones – to support that assertion.

Email Dan Primack


Lime Rock Partners, a Westport, Conn.-based private equity firm focused on the energy sector, has closed its third fund with $425 million in capital commitments. The firm began fund-raising in September with the help of placement agent Monument Group, and received over 80% of the fund’s commitments from limited partners in previous Lime Rock funds.

The Cobalt Group, a Seattle-based provider of retailing solutions for the automotive market, has acquired Dealix Corp., a Redwood City, Calif.-based provider of sale leads and technology to automotive dealerships. No financial terms were disclosed, although Cobalt did say that it had raised $38 million in conjunction with the Dealix acquisition. Investors were the same four firms that provided Cobalt with $54 million in Series B funding this past June: Warburg Pincus, ABS Capital Partners, Oak Investment Partners and Silicon Valley Bank.

UAP Holding Corp., a Greeley, Colo.-based distributor of agricultural and non-crop products in the U.S. and Canada, priced 27.44 million common shares at $16 per share, for a total IPO take of approximately $439 million. The company originally planned to raise $625 million via an offering of income deposit securities (IDS), but scrapped that plan late last week. The amended IPO terms included 23.43 million common shares being sold at between $15 and $17 per share. Over 19 million of the shares were offered by private equity firm Apollo Management, which acquired UAP from ConAgra Foods Inc. (NYSE: CAG) last November for around $550 million in cash, and another $60 million in preferred securities. UAP Holding will trade on the Nasdaq under ticker symbol UAPH.

Transport Pharmaceuticals Inc., a West Conshohocken, Pa.-based drug company focused on dermatology, has closed its Series D funding round with $27 million. The PE Week Wire reported last week that the company had raised $17 million, but that figure only represented an initial close. Carlyle Venture Partners and Quaker BioVentures co-led the round, and were joined by The Hillman Co. and EGS HealthCare Capital Partners.

Grace Semiconductor Manufacturing Co., a Shanghai, China-based semiconductor company, has received $90 million in private equity funding from Cheung Kong Ltd. and Hutchison Whampoa Ltd. The company now has raised approximately $228 million in private funding, including a $50 million investment from Sanyo Semiconductor Co. Other company investors include Silicon Storage Technology Inc., GEMS Oriental & General Fund II and UCL Asia.

IXI Corp., a McLean, Va.-based provider of customer segmentation systems focused on the “U.S. affluent market,” has raised around $8 million in venture capital funding. Blue Chip Venture Co. led the deal, and was joined by Core Capital Partners  and eCentury Capital.

Median Technologies, a Sophia Antipolis, France-based provider of radiological image interpretation software, has raised ?4 million from AGF Private Equity, Auriga Partners and DFJ ePlanet Ventures.

JLL Partners reportedly has acquired a 67% interest in Medical Card Systems Inc., a Puerto Rico-based Medicaid and commercial health maintenance organization (HMO), for $64 million. The company’s other major shareholder remains Advent-Morro Equity Partners. No financial terms were disclosed.

Hellman & Friedman and JMI Equity have teamed up to acquire Vertafore Inc., a Windsor, Conn.-based provider of software and services for the casualty insurance industry. The primary selling party is MMC Capital, with minority sellers including Insight Venture Partners. No financial terms were disclosed for the deal, which is expected to close by year-end.

Carrols Holding Corp., a Burger King franschiser controlled by Madison Dearborn Partners, is prepping a $450 million recapitalization, according to The Deal.

Hershey Foods Corp. (NYSE: HSY) has agreed to acquire Irvine, Calif.-based Mauna Loa Macadamia Nut Corp. from The Shansby Group. The deal is reported to be valued at a total of $130 million, including $17.6 million of assumed debt.

Seven Networks Inc., a Redwood City, Calif.-based provider of wireless data services software, has withdrawn registration papers for its proposed $115 million IPO. The company has raised $55.3 million in total VC funding since its December 2000 inception (as Leap Corp.), from investors like Greylock, Ignition Partners, Saints Capital and Softbank Asia Infrastructure Fund.

Kohlberg Kravis Roberts & Co. (KKR) plans to sell 25 million common shares of Owens-Illinois Inc. (NYSE: OI), which it has owned since 1987. The offering is expected to close in early December, and is being managed by Banc of America Securities, Citigroup Global Markets and Lehman Brothers.

Baring Private Equity Partners Espana, has closed its second fund with ?97 million in capital commitments. Named Baring Iberia II Inversion en Capital, the new vehicle will invest in Spanish and Portuguese companies seeking expansion capital.

Gideon Argov has been named CEO of Billerica, Mass.-based Mykrolis Corp. (NYSE: MYK), effective immediately. He previously served as managing director of operations with private equity firm Parthenon Capital.

Jay Wilson has joined Mercantile Bancshares Corp. (Nasdaq: MRBK) as vice chairman, effective January 1. His primary responsibilities will involve the firm’s investment and wealth management division. He previously had served on the Mercantile board of directors from 1989 to 1994, and as executive vice president on charge of the investment and wealth management division from 1994 to 1997. He currently works as a founder and general partner of Spring Capital Partners.

Paul Capital Partners has appointed Ann Watson as head of the firm’s deal origination team for the secondary private equity transactions. She has been a consultant with Paul Capital since 2001, representing the firm in Canada and sourcing secondary acquisitions throughout North America.

    Monday, November 22

LP Overhang Reduction… Sort Of

The combined horror of a busy news day and accelerated print deadlines (thank you pilgrims) leaves us with time for just a few notes:

(1) A memo posted to the Ohio Public Employees Retirement System (OPERS) website indicates that the group is thinking about reducing its exposure to venture capital. The group currently has a 4% overall alternative asset allocation, of which 25% is earmarked for VC investments. According to the memo, however, OPERS could soon “reduce the target by 10 percent.” Technically, that means that the new target would be 22.5%, but I’m thinking that this was just bad grammar, and that the real revised target would be 15 percent. Take a look and make your own interpretations.

I am extremely pleased that at least one public pension system is doing something about LP overhang, rather than just acknowledging its existence and continuing to raise VC allocation targets. It is important to note, however, that the OPERS solution is far from perfect. While the group is proposing reductions to its VC allocation, it is not doing the same for its overall alternative allocation. The result would seem to be a greater percentage of OPERS money in LBO funds and, most likely, in mega-LBO funds (i.e. $1 billion-plus). If accurate, this is a poor solution, because mega-LBO funds have produced the worst long-term returns of any private equity or VC sub-class. Lower than early-stage VC, mid-market LBO, etc. It’s not that the returns are terrible, but just that they aren’t all that good. Brian Conway of TA Associates last week called them mediocre (even though his firm is currently working from three funds totaling $3.3 billion). Anyway, a welcome development from! OPERS, but not one that should be applauded blindly.

(2) VC backers of Google are cashing in post-lockup. I’ll go into greater detail tomorrow, but it will be very interesting to see what statistical impact this one home run has on overall VC industry return data. If it skews the numbers upward to any great extent, it could put even more pressure on the aforementioned LP overhang.

(3) The State of Connecticut has sold some of its LP positions to Coller Capital. Read about it here.

(4) Condolences to the family and friends of Brent Wheeler. The longtime director with European private equity firm Cinven passed away last week at the age of 53. The family has requested that funeral and donation information not be published, and we certainly will honor that request.

Email Dan Primack

Synta Pharmaceuticals Corp., a Lexington, Mass.-based biopharmaceutical company focused on oncology and immunology, has raised $80 million in Series D funding. Return backers include Caxton Group, Galleon Group, AIG SunAmerica and Aperture Partners. The company has raised over $260 million since its 1997 inception, including a $50 million Series C round this past January.

UAP Holding Corp., a Greeley, Colo.-based distributor of agricultural and non-crop products in the U.S. and Canada, has changed its IPO plans. The company originally filed to raise $625 million via an IPO of income deposit securities (IDS), but now has scrapped that plan in favor of a much smaller IPO of common stock. According to a filing from late last week, UAP will look to price approximately 23.43 million common shares at between $15 and $17 per share. Over 19 million of those shares will be offered by private equity firm Apollo Management, which acquired UAP from ConAgra Foods Inc. (NYSE: CAG) last November for around $550 million in cash, and another $60 million in preferred securities.

Brent Wheeler, a director with European private equity firm Cinven for the past 13 years, passed away last Thursday at the age of 53. He had been suffering from cancer.

Xoomsys Inc., a Santa Clara, Calif.-based provider of electronic design automation (EDA) solutions for the chip industry, has raised $7.1 million in Series A funding. Benchmark Capital and Morgenthaler Ventures co-led the deal, and were joined by Bill Davidow, founding partner of Mohr, Davidow Ventures, and Naren Gupta, former CEO of Integrated Systems Inc. (Nasdaq: INTS) and current vice chairman of Wind River Systems Inc. (Nasdaq: WIND).

Tepha Inc., a Cambridge, Mass.-based maker of absorbable medical devices, has raised $4.3 million in Series A funding. The Vertical Group led the deal, and was joined by Integra Ventures and Novartis Venture Fund.

Bluespec Inc., a Waltham, Mass.-based provider of EDA toolsets, has raised $4.5 million in second-round funding. Return backers include Atlas Venture and North Bridge Venture Partners. The company has raised a total of $8.5 million in VC funding since its 2003 inception.

Melodeo Inc., a Seattle-based provider of mobile music systems, has raised $9.5 million in second-round funding, as first reported by The Seattle Times. Investors included GF Capital, Ignition Partners, Intel Capital and Voyager Capital. The company has raised $11.7 million in total VC funding.

Outsource Partners International Inc., a Los Angeles-based provider of business process outsourcing solutions for the finance and accounting industries, has received a $4 million investment from Cargill Ventures. In related news, Deepak Malik, a managing director with Cargill Ventures, will join the Outsource Partners board of directors.

Promethean Technologies Group Ltd., a UK-based provider interactive education technologies, has received a minority investment from Apax Partners. Financial terms were not disclosed.

Kelso & Co. has agreed to sell portfolio company Key Components Inc. to Actuant Corp. (NYSE: ATU). The cash deal is valued at approximately $315 million, including the assumption of $80 million in Key Components’ debt. Key Components is a Tarrytown, N.Y.-based manufacturer of custom engineered products for a variety of end-user markets.

The European Union Commission has approved 3i Group‘s proposed SEK 1.2 billion (approx. US$17.4 million) acquisition of Skanska Facilities Management.

Pulitzer Inc. (NYSE: PULITZER) has retained Goldman Sachs to help it consider strategic options to enhance shareholder value, including a possible sale of the company. Such a deal could be valued at upwards of $1.5 billion, and is certain to receive attention from private equity firms.

Select Medical Corp. (NYSE: SEM) has agreed to acquire SemperCare Inc., a Plano, Texas-based operator of 17 long-term acute care hospitals. The deal is valued at approximately $100 million in cash. SemperCare has raised over $14 million in VC funding since its 1999 inception, including a $2.56 million Series C infusion in 2001 at a post-money valuation of approximately $30.82 million. Investors include CHL Medical Partners, Three Arch Partners, Capital Resource Partners, CIBC Capital Markets and Salix Ventures.

Alcatel (NYSE: ALA) has agreed to acquire Right Vision, a French provider of software-based Internet appliances. No financial terms were disclosed for the deal, which is expected to close sometime next month. Right Vision has raised around $30 million in total VC funding since its 1999 inception, from investors like CICLAD, Edmond de Rothschild Venture Capital Management, Turenne Capital Partners, Partech International, FP Gestion, Innovacom and Pictet et Cie.

Birdstep Technology ASA (OSLO: BIRD) has agreed to acquire Alice Systems AB, a Sweden-based provider of communications software to mobile professionals in Europe. The transaction includes SEK 49 million (approx. US$7 million), plus 3.1 million Birdstep common shares. Up to SEK 28 million (approx. US$4 million) in earn-out considerations also may be paid based on 2005 sales targets. Alice Systems has raised VC funding from ACR Capital and Argnor Wireless Ventures.

Stentor Inc., a Brisbane, Calif.-based provider of medical imaging software, has filed to raise $69 million via an IPO of common stock on the Nasdaq under proposed ticker symbol SNTR. The company has raised over $25 million in VC funding since its 1998 inception, from significant shareholders like Lancet Capital, Sanderling Venture Partners, Gilo Ventures and The University of Pittsburgh Medical Center.

Emageon Inc., a Birmingham, Ala.-based provider of, has filed to raise $75 million via an IPO of common stock on the Nasdaq under proposed ticker symbol EMAG. The company has raised venture capital funding from such firms as Southeastern Management Co., Aurora Funds, Paradigm Venture Partners and Greystone Capital Partners.

Unica Corp., a Waltham, Mass.-based provider of enterprise marketing management software, has filed to raise $57.5 million via an IPO of common stock on the Nasdaq under proposed ticker symbol UNCA. The company has raised over $10 million in total VC funding since its 1992 inception, with investors including Summit Partners and JMI Equity.

Coinmach Service Corp. (AMEX: DRY), a Plainview, N.Y.-based provider of outsourced laundry equipment services, plans to raise over $352 million by selling approximately 18.33 million income deposit securities (IDS) at between $14.25 and $15.75 per IDS. Approximately $30 million worth of the IDS offering will be purchased by buyout firm GTCR Golder-Rauner, which is Coinmach’s majority shareholder.

The Ohio Public Employees Retirement System is considering a 10% reduction to its venture capital allocation target, according to a November 3 memo available on the OPERS website. It also is considering a 5% reduction to its special situations allocation target. The VC change is being prompted by VC industry contraction (at least in terms of fund sizes), while the special situation change is being caused by a decision to re-categorize corporate finance partnerships.

ING Group NV (Nasdaq: ING) has agreed to sell the financial services group of Barings Asset Management to Northern Trust Corp. (Nasdaq: NTRS) for approximately $480 million.

MCH Private Equity, a Spanish private equity firm focused on the middle-markets, is in the midst of raising its second fund with a ?200 million target capitalization. It held a ?97 million first close last week, and expects to secure an additional ?40 million within the next several weeks (via a parallel vehicle). Limited partners include Netaxis Private Equity International and Quilvest.

Fred Festa will become CEO of W.R. Grace & Co. (NYSE: GRA) on May 31, 2005, succeeding Paul Norris. Festa has served as the company’s president and chief operating officer since late 2003, before which he was a partner with Morgenthaler Private Equity.

Manny Fernandez, a managing director of SI Ventures, has joined the board of Flowers Foods (NYSE: FLO).


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