PE Week Wire: 8.31.06

Want To Buy A Ford?

Now that the silly Microsoft buyout talk is behind us, let’s move on to another target: Ford Motor Co., which began trading today at just $8.25 per share. For context, Toyota opened exactly $100 per share higher. The most basic problem is that Ford poured too much R&D into its gas-hungry truck and SUV division, while under-investing in cars (its only current hybrid vehicle is an SUV).

Anyway, the struggling U.S. automaker now is listening to any and all offers, as part of a nebulous turnaround strategy. One widely-reported possibility is that it could sell off all or part of its luxury car division, which includes brands like Aston Martin, Land Rover and Jaguar (it says that Aston Martin is the most likely, but for the right price…). Interested parties include UK construction group JCB and J.P. Morgan-affiliated private equity firm One Equity Partners. The latter has a definite in, as OEP partner Jacques Nasser created Ford’s luxury unit before being booted as company CEO. Moreover, fellow OEP partner James Rubin is the son of Citigroup executive Robert Rubin, who last week resigned as a Ford board member. The resignation was formally due to potential conflicts inherent in his role with ! Citigroup — which is advising Ford on the turnaround – but it’s likely that his family tree also played a role.

The more tantalizing scenario, however, is that LBO firms could make a play for the entire ball of chrome. Some Detroit Free Press reporters have been asking if such a deal is plausible in terms of size, and the simple answer is yes. Ford’s market cap is just $15.3 billion, which is well below my hypothetical buyout ceiling of $80 billion. Moreover, this isn’t a rising company that would require a 25% or 35% premium. Instead, it would be viewed as a turnaround play with something closer to 15 percent.

OEP is not large enough to lead such a deal, nor would the Ford board necessarily allow Nasser to retake the reigns. A more likely suitor would be Clayton, Dubilier & Rice, whose relationship with Ford was forged during its multi-year courting of Hertz. And you obviously can’t count out any of the big players, particularly firms like Carlyle Group that have dedicated transportation practices.

The most logical buyer, however, has no interest. That would be Wilbur Ross. In fact, I told a Detroit Free Press reporter yesterday that Ross would be the perfect buyer for four reasons: (1) He now has his hands in Amvescap’s deep pockets, after selling a majority of his firm earlier this month; (2) He is a turnaround legend who bought into U.S. steelmakers when everyone said it was a dying industry; (3) He has an interest in automotives, having formed a platform that includes Collins & Aikman Europe; (4) His steel endeavor was particularly notable for the relative lack of rancor from organized labor. As United Steelworkers International president Leo Garrard told U.S. News & World Report: “The union and Wilbur Ross were the catalyst that not only saved steel jobs, but saved the industry.”

Shortly after hanging up with Detroit, however, I called Ross and learned that he will not be making a play for Ford. He says that his firm has made a “policy decision to bring suppliers to the OEMs, but not to become an OEM ourselves.” More importantly, he provided several reasons why a Ford buyout is unlikely. And each one of those reasons made sense. So here goes yet another list:

There are legitimate questions as to whether or not Ford can handle extra debt, and any LBO would certainly involve some.

The Delphi situation remains unresolved.

The United Auto Workers contract comes up for renewal next year, which would make it difficult for an LBO firm to reach an agreement this year. This is particularly true since the UAW typically does something called “pattern negotiating,” whereby it reaches one OEM deal and then strikes a near-identical deal with everyone else.

The Ford family has indicated no interest in selling its stake in Ford, which is around 40 percent. In fact, it has done the opposite. This is fine in a situation like HCA, where the senior First was viewed as an asset. In the turnaround case of Ford, however, CEO Bill Ford may be viewed as more of a burden.

To sum up, Ford is a more reasonable target than Microsoft. It is actively looking at strategic alternatives, and is relatively affordable. But Microsoft should not be the standard by which we judge prospective LBOs. Wilbur Ross’ disinterest, however, is an indicator that LBO firms should pay attention to.

*** I would be remiss in not letting you know that czar Matt Marshall has gone indi, and has launched a successor site called Matt has worked tirelessly to get this thing up and running, and the results are fantastic. I’m sure I’ll be linking there a lot.

In related news, my colleague Connie Loizos is taking Matt’s job at the Mercury News. She has broken some great stories while here at Thomson, and I’m sure she’ll do the same in San Jose. Good luck to both.

*** I’m heading to LA tomorrow, so the next PE Week Wire will be published on Tuesday, Sept. 5. Let’s talk then…

Top Three

SinglePoint (f.k.a. Wireless Service Corp.), a Bellevue, Wash.-based provider of mobile communication services, has raised $30.75 million in Series C funding. Ignition Partners led the deal, and was joined by Rally Capital Services and return backers Northwest Venture Associates, Madrona Venture Group, Intel Capital and SeaPoint Ventures.Part of the proceeds were used to acquire Mobile Media North America.

Veronis Suhler Stevenson has agreed to buy financial information companies Hemscott PLC and i-Deal LLC, and then merge them into a single company. VSS already holds a 73% stake in UK-based Hemscott, which is listed on the AIM and is being valued at approximately £53 million. It is not a current shareholder in New York-based i-Deal, but will buy a controlling stake from shareholders like Microsoft and Thomson Financial (publisher of the PE Week Wire). Existing i-Deal shareholders Merrill Lynch and Citigroup will retain minority stakes in the combined company.

Telstra Corporation Ltd. (ASX: TLS) reportedly has agreed to acquire a 51% stake in Chinese real estate and home furnishing website operator SouFun Holdings Ltd. The deal is valued at US$254 million, with the remaining 49% retained by company management and IDG VC.

VC Deals

Broncus Technologies Inc., a Mountain View, Calif.-based developer of an investigational bronchoscopic procedure for the treatment of emphysema, has raised $29.5 million in Series F funding. Abingworth Management, Japan Asia Investment Co., and Saratoga Ventures were joined by return backers Biomedical Sciences Inv*stment Fund, Bio-Star, HBM BioCapital, HBM BioVentures, Menlo Ventures, Pac-Link, Rockport Ventures and Sightline Ventures. The company has now raised around $73 million in total VC funding since its 1997 inception, including a $20 million Series D round in 2002 at a post-money valuation of approximately $78 million.

OmniGuide Inc., a Cambridge, Mass.-based developer of disposable cutting tools for minimally invasive surgery, has raised $20 million in Series D funding. Electro Scientific Industries Inc. (Nasdaq: ESIO) led the deal, and was joined by firms like Stata Venture Partners, Argonaut Ventures, 3i Technology Partners and Alliance Technology Ventures. The company has raised around $50 million in total VC funding since its 2000 inception.

PortAuthority Technologies Inc. (f.k.a. Vidius), a Palo Alto, Calif.-based provider of information leak prevention solutions, has raised $18 million in Series D funding, according to a regulatory filing. New Enterprise Associates led the deal, while existing shareholders include Sequoia Capital, Greylock, Lexington Ventures, ALP Enterprises and CAP

Tetraphase Pharmaceuticals Inc. of Newton, Mass., has secured $10.04 million of a $25.1 million Series A convertible participating preferred stock financing, according to a regulatory filing. Backers include Skyline Ventures, Fidelity BioSciences, Flagship Ventures, MediPhase Venture Partners and CMEA Ventures.

Real Girls Media Network Inc., a San Rafael, Calif.-based Internet content startup, has secured $3 million of a $6 million Series A round, according to a regulatory filing. Backers include 3i Group and WaldenVC. The only executive listed is Kate Everett-Thorp, a WaldenVC venture partner and former president of marketing agency AKQA.

Voluntis, a Paris, France-based provider of patient relationship management software, has raised €700,000 in VC funding led by CapDecisif.

Buyout Deals

Affinity Equity Partners of Hong Kong has increased its offer for Australian shoe and clothing retailer Colorado Group Ltd. to Au$450 million, or Au$4.70 per share. The Colorado board has approved the new offer, after having rejected a previous Au$4.50 per share bid as too low.

WestLB has agreed to sell its stake in German bank HSH Norbank for €1.25 billion to five institutional investors advised by J.C. Flowers & Co. The institutions acted independently of one another. WestLB holds a 24.1% stake of HSH’s share capital and 26.6% of the voting rights.

PE-Backed IPOs

CommVault Systems Inc., an Oceanport, N.J.-based provider of data management software applications, has set its proposed IPO terms to around 11.11 million common shares at between $12.50 and $14.50 per share. It plans to trade on the Nasdaq under ticker symbol CVLT, with Credit Suisse and Goldman Sachs serving as co-lead underwriters. Shareholders include TH Lee Putnam, Sprout Group and DLJ Merchant Banking Partners.

Capella Education Co., a Minneapolis-based provider of online post-secondary education services via the Internet, filed an S-1a statement with the SEC yesterday. The move indicates that Capella plans to pursue an IPO, even though its last filing came over a year ago. Shareholders include structure includes Forstmann Little, Technology Crossover Ventures, Maveron and Cherry Tree Ventures.

PE-Backed M&A

WL Ross & Co. is merging portfolio companies International Textile Group and Safety Components International (OTC BB: SAFY), into a single company focused on automotive safety components like air-bag cushions. The combined company would have recorded nearly $1 billion in 2005 sales, and $444 million for the six months ending on June 30, 2006.

MultiPlan Inc. of New York has agreed to acquire Waltham Mass.-based Private Healthcare Systems Inc., in order to create a comprehensive medical cost management provider. No financial terms were disclosed for the deal, which is expected to close next quarter. MultiPlan is controlled by The Carlyle Group.

GenBand Inc. (f.k.a. General Bandwidth) Plano, Texas has acquired BayPackets Inc., a Fremont, Calif.-based provider of IP multimedia platforms and applications for wireline, cable and wireless services providers. No financial terms were disclosed, although VentureWire puts the price at between $10 million and $50 million in stock. GenBand has raised over $190 million in VC funding since its 1999 inception, from firms like Sevin Rosen Funds, Venrock Associates, Oak Inv*stment Partners, Invesco, Tellis Partners, Thomas Weisel Partners, Wheatley Partners, Granite Global Ventures, Star Ventures, Alcatel, Siemens VC and Texas Instruments. BayPackets had raised around $65 million in VC funding from firms like Lucent Venture Partners, Blueprint Ventures, Inc3 Ventures, TL Ventures and Telesoft Partners.

PE Exits

Norwest Equity Partners has sold Paladin Brands LLC to Dover Resources, a subsidiary of Dover Corp. (NYSE: DOV). No financial terms were disclosed. Paladin is a Cedar Rapids, Iowa-based provider of construction equipment attachments, and has been controlled by Norwest since October 2003. Greenhill & Co. advised Paladin on the sale. This is Norwest’s second portfolio exit to Dover, having sold WARN Industries Inc. in October 2003.

Weyerhaeuser Co. (NYSE: WY) has acquired OrganicID Inc., a Colorado Springs, Colo.-based developer of printed RF identification devices. No financial terms were disclosed. OrganicID had raised startup funding from ITU Ventures in 2004.

Smedvig Capital has sold its stake in UK-based invoice discounting company City Invoice Finance to Venture Finance PLC. No financial terms were disclosed.

Firm & Fund News

HealthPoint Capital is raising up to $500 million for its second private equity fund, according to a regulatory filing. The New York-based firm focuses on the global orthopedic device industry.

Mangrove Capital Partners, a Luxembourg-based venture firm, has closed its second fund with 100 million in capital commitments, according to VentureWire.

Maverick Angels, a Southern California-based angel venture group, is launching a Silicon Valley chapter next month. www.maverickangel!

Human Resources

CIT Group has added five members to its sponsor finance group. They are: Elise Chowdhry, director (former VP at Comerica Bank); Rick Cohen (BNP Paribas’ leveraged finance group), director; Mark Hindson, director (senior VP of GE Commercial Finance’s sponsor group); Jay Baldinelli, vice president (GE Commercial Finance); and Susan Chan, vice president (PNC’s business credit group).

Hercules Technology Growth Capital has added three associates: Bill Allen in Boston, and Steve Kuo and Willy Wiyatno in Palo Alto. Allen previously was a vice president with Silicon Valley Bank. Kuo was a co-founding of real estate solutions company Lending Rock Inc., and Wiyatno was a research scientist at Applied Biosystems.

James E. Fitzgerald has joined Principal Real Estate Investors as a managing director charged with launching a hotel investment capability. He previously was with REH Capital Partners.