PE Week Wire: 9.7.06

The sun is shining, the entire HP board should have followed Tom Perkins’ lead and the hand-me-down Volkswagen has decided to mimic the once-trusty Pontiac. In other words, it’s time for Thursday Throw-Back.

First up was yesterday’s discussion of the lawsuit filed by two co-founders of Rapt Inc., against venture capital firms Accel Partners and Levensohn Venture Partners. The plaintiffs argued that their Rapt shareholdings were unfairly diluted, and I suggested that they’ll do better in conference than in a courtroom. Many of you strongly disagreed with my assessment.

Ian: “I would disagree that a strong case can be made for incentivising current employees at the expense of minority shareholders, whether those minority shareholders are former employees or not. If the majority shareholders of a public company decided to issue a massive number options to management along with a rights offering to themselves at a steep discount, while leaving the minority shareholders out in the cold, they would (justifiably) get sued and probably lose. The only issue is whether the valuation on the Series D was appropriate or not.”

VC L: “All common stock holders aren’t just former employees.Some are former board members, vendors, customers, and angel investors.The board has a fiduciary duty to all stockholders and therefore is barred from screwing some just to reward others. I know that this kind of a recap is common, but I would not be so sure that it is legal.VCs are riding a slippery slope to jail if they keep acting as if they are not subject to the law.”

George: “Motive does not much matter, but it does if a transaction will have a disproportionate adverse impact on one group of stockholders as compared to another. I believe a court would not apply the business judgment rule (i.e. deferential standard of review) to a board decision having such a disproportionate adverse impact if it found the decision was motivated by revenge (i.e. lacked a proper business purpose). It doesn’t take much to satisfy the proper business purpose test these days, but proof that the primary motive was revenge would, I believe, clearly be a problem… If what the investors got was purely pro rata based on their investment in the new D round — or pursuant to anti-dilution protection in the terms of the existing preferred — then that is probably OK. But if the board selectively chose to protect one group of stockholders from the effects of a transaction (other than just a grant of more equity to current management) and not another, that is clearly! a problem.

John: “I agree with your conclusions on Rapt, but if the plaintiffs have actual evidence that the Rapt principals did the transaction for the purpose of hurting them, all bets are off.The Alantec case was essentially lost based upon a paralegal’s notes of discussions in a board meeting.”

*** Jennifer was one of five readers to suggest that I had ulterior motives in writing that some private equity firm should buy embryonic stem cell company ACTC: “Are you by chance being paid by ACTC to make such statements? Are you an investor in this company?” No and no. Moreover, it’s an offensive suggestion. I didn’t realize this was needed, but: I pledge to always disclose any personal holdings in a company on which I’m opining. This should be fairly easy since I own relatively little stock (in large part to avoid such potential conflicts).

*** Quiz Answer Six of you correctly answered the following question: Can you name the commercial finance firm (focused on PE-backed lower-middle-market companies) that is about to sell new equity to a private equity firm? Hint: It’s in the middle of the race. The answer was Churchill Financial. Today it announced that it has sold a stake to Centre Partners, as part of a deal whereby Churchill is acquiring CDO manager Centre Pacific LLC.

*** Finally, just a reminder that you can sign up for our Personalized News service here. Over 600 of you have done so thus far. Please let me know if it’s useful, and how it can be made better.

Top Three

Thoma Cressey Equity Partners has agreed to acquire Embarcadero Technologies Inc. (Nasdaq: EMBT), a San Francisco-based provider of strategic data management solutions. The deal is valued at approximately $234 million, or $8.38 per share (29% premium to yesterday’s closing price), and is expected to close by year-end. Morgan Stanley advised Embarcadero on the deal.

Applied Predictive Technologies, an Arlington, Va.-based provider of test & learn software and solutions for the retail, consumer goods and financial services markets, has raised approximately $54 million in private equity funding from Accel-KKR.

Bob Boldt has stepped down as president, CEO and CIO of the University of Texas Investment Management Co. (UTIMCO). No word yet on his future plans, beyond a “return to the private sector.” UTIMCO is planning to form a search committee for Boldt’s successor, with Cathy Iberg named as interim president.

VC Deals

Paras Pharmaceuticals Ltd., a Gujarat, India-based developer of OTC healthcare and personal care products, has raised $42 million in private equity funding from Actis.

Virobay Inc., a San Francisco-based virtual biopharma company, has secured $5.47 million of a $31.5 million Series A round, according to a regulatory filing. Backers include TPG Biotechnology Partners, Sutter Hill Ventures and Alta Partners. Executives include Stephanie Marrus (formerly with Vertex Pharma) and Kyle Elrod (formerly with Roche Palo Alto). TPG principal Heather Preston also is listed as an executive officer.

Swoozie’s Inc., an Atlanta-based specialty gift and paper retailer, has raised around $14 million in Series A funding. Northwood Ventures and TWJ Capital co-led the deal, and were joined by BEV Capital. Thomas Weisel Partners served as placement agent.

TNR Entertainment Corp., a Houston, Texas–based owner and operator of self-service DVD rental kiosks in supermarkets and grocery stores, has raised $10 million in new private equity funding and $35 million in private debt. MCG Capital Corp. led the overall transaction, with Celerity Partners, Chapton Partners and Laminar Direct Capital also participating on the equity tranche. Brookwood Associates served as advisor to TNR.

Placemark Investments Inc., an overlay manager for the investment industry, has raised $10 million in new venture capital. IDG Ventures Boston led the deal, and was joined by return backers Ascent Venture Partners, North Hill Ventures and RBC Technology Ventures. Placemark has offices in both Dallas and Wellesley, Massachusetts.

Sennari Inc., a Cupertino, Calif.-based provider of provider of customer loyalty solutions for mobile entertainment providers, has raised $10 million in Series C funding. Mayfield led the deal, and was joined by return backers UV Partners, Blacksmith Capital and Novak Biddle Venture Partners.

Mobixell Networks, a Wellesley, Mass.–based provider of multimedia technologies and business solutions for mobile operators, service and content providers, has raised $8 million in new VC funding. Intel Capital led the deal, and was joined by return backers Apax Partners, TempoPark fund and CTI Capital. Mobixell has raised $23 million in total VC funding since its 2000 inception.

Caden Biosciences Inc. (f.k.a. Cue Biotech Inc.), an Evanston Ill.-based drug developer targeting G protein-coupled receptors (GPCRs), has raised $5.85 million in Series A funding. Baird Venture Partners led the deal, and was joined by Venture Inv*stors LLC, the Illinois Emerging Technologies Fund and existing shareholder Villanova University.

Liquid Engines, a Sunnyvale, Calif.-based provider of corporate tax management software, has raised $5.5 million in new Series C funding. Return backers include The Carlyle Group, Advanced Technology Ventures, Charles River Ventures and Catamount Ventures.

Medium Inc., a Boulder, Colo.-based communications software startup, has raised $5.275 million in Series A funding from Spark Capital and Appian Ventures.

Handmark Inc., a Kansas City-based provider of mobile content solutions, has raised $5 million in Series B funding. Motorola Ventures led the deal, and was joined by return backers Apax Partners, Borealis Ventures, Village Ventures and Hanna Capital Management.

Motionbox, a New York-based provider of online video sharing services, has raised $4.2 million in Series A funding. Backers include Canaan Partners, SAS Inv*stors and Itochu Corp. of Japan.

Metastatix Inc., an Atlanta-based drug company focused on cancer and HIV, has raised $3.6 million in Series A funding. H.I.G. Ventures led the deal, and was joined by The Aurora Funds, CM Capital, SR One and MedImmune Ventures. Existing shareholders Georgia Venture Partners and Centrosome Ventures also participated.

Deeya Energy Inc., a Fremont, Calif.-based developer of energy storage devices for the load-shifting, uninterruptible power supply and renewable energy markets, has secured $2.5 million of a $7.5 million Series A round, according to a regulatory filing. Backers include BlueRun Ventures, Draper Fisher Jurvetson and DFJ Element.

Instajob Inc., an Austin, Texas-based developer of job recruitment software, has raised $2 million in Series A funding, according to a regulatory filing. Sevin Rosen Funds and Rho Ventures participated.

Buyout Deals

Niagara Corp. (OTC BB: NGCN) shareholders have approved a $16 per share buyout by Kohlberg & Co. Niagara is a New York-based maker of specialty and commodity steel bars.

Wynnchurch Capital Partners has acquired SafeWorks LLC, a Seattle-based manufacturer and distributor of powered suspended access and safety solutions. No pricing terms were disclosed. GE Antares and Merrill Lynch provided senior leverage, while Audax Mezzanine provided subordinated note financing.

RoundTable Healthcare Partners has acquired a majority interest in Aspen Surgical Products Inc., a Caledonia, Mich.-based maker of disposable medical products for surgical and general healthcare applications. No financial terms were disclosed for the deal, which included senior credit facilities led by GE Commercial Finance Healthcare Financial Services.

Borealis Infrastructure Management, part of the OMERS private equity group, reportedly has agreed to buy the diagnostics division of Midas Group Inc. (NYSE: MDS) for Cnd$900 million. Other bidders had included Macquarie Bank and CML Healthcare Income Fund.

Access MediQuip LLC, a Houston, Texas-based provider of outsourced medical implantable device management solutions, has raised an undisclosed amount of private equity funding from Water Street Healthcare Partners.

The Richardson Group, a Philadelphia–based sales training and consulting firm, has raised an undisclosed amount of private equity funding from ClearLight Partners. It also received debt financing from CapitalSource.

PE-Backed IPOs

Mindray International Medical Ltd., a China-based medical device maker, has filed to raise $276 million via an IPO. It plans to trade on the NYSE under ticker symbol MD. No underwriters were named. GS Capital Partners holds a 9.64% pre-IPO stake.

New Oriental Education & Technology Group Inc., a Beijing-based provider of private educational services in China, priced 7.5 million American depository shares at $15 per ADS ($11-$13 range), for an IPO take of approximately $112.5 million. It will trade on the NYSE under ticker symbol EDU, while Credit Suisse and Goldman Sachs (Asia) served as co-lead underwriters. Shareholders include Tiger Global Private Investment Partners.

Shutterfly Inc., a Redwood City, Calif.-based provider of online digital photo services, has set its proposed IPO terms to 5.8 million common shares being offered at between $13 and $15 per share. It plans to trade on the Nasdaq under ticker symbol SFLY, with JPMorgan serving as lead underwriter. Shutterfly has raised around $67 million in VC funding from firms like Mohr, Davidow Ventures, Sutter Hill Ventures and Jim Clark’s Monaco Ventures.

PE Exits

TA Associates is planning to sell 2.5 million shares of Eagle Test Systems Inc. (Nasdaq: EGLT), as part of the company’s $5.5 million secondary public offering. TA currently holds a 44.1% ownership stake, and would retain 29.2% following the sale.

Advanced Accessory Systems Inc., a Sterling Heights, Mich.–based maker of automotive roof racks and towing systems, has sold its towing systems business in the U.S. and Europe to Thule AB of Sweden for $203 million. AAS is a portfolio company of Castle Harlan.

Nokia has acquired Gate5 AG, a Germany–based provider of mapping, routing and navigation software and services. No financial terms were disclosed. Gate5 had raised VC funding from firms like Innoven Partneaires and Target Partners.

Advanced Analogic Technologies Inc. (Nasdaq: AATI) has agreed to acquire the power management analog business of Shanghai-based IPCore Technologies Corp., including IPCore’s subsidiary AP Semi. The deal is valued at approximately $22 million in cash, and is expected to close early next month. IPCore is backed by 3i Group, Pacific Venture Partners and Walden International.

Rainmaker Systems Inc. (Nasdaq: RMKR) has agreed to acquire the assets of ViewCentral Inc., a Mountain View, Calif.-based provider of enterprise training and marketing program management solutions. The all-stock deal is valued at approximately $4.3 million, and is expected to close later this month. ViewCentral has raised over $17 million in VC funding from firms like Novus Ventures, Aspen Ventures and Arrtemis Ventures.

PE-Backed M&A

Thompson Publishing Group, a Washington, D.C.–based provider of subscription-based information services, has acquired healthcare information products company American Health Consultants from Thomson Corp. (NYSE: TOC). No financial terms were disclosed. Thompson Publishing is a portfolio company of MidOcean Partners and Avista Capital Partners. (Thomson Corp. is the parent company of PE Week Wire publisher Thomson Financial.)

United BioSource Corp., a Bethesda, Md.-based provider of evidence-based life sciences services and information, has acquired Bioniche Global Learning, a McLean, Va.-based provider of training and education services to the pharmaceutical and biotech industries. No financial terms were disclosed. UBC is backed by over $200 million from Grotech Partners, J.H. Whitney & Co. and Oak Inv*stment Partners.

Riviera Broadcast Group, a portfolio company of Veronis Suhler Stevenson, has acquired the assets of Phoenix, Ariz.-based radio stations KKLD-FM and KKFE-FM. No financial terms were disclosed.

Truck Bodies & Equipment International, a portfolio company of Kirtland Capital Partners, has purchased Heil Environmental’s truck equipment business, including the Heil Truck Equipment Group and Heil South distributorship. No financial terms were disclosed.

Dutchess Private Equity Funds has committed a $25 million line of equity to Sunrise Broadband Group (Pink Sheets: SBBD), which will be used to facilitate Sunrise’s proposed merger with Y-Tel International Inc. (OTC BB: YTLI).

Firm & Fund News

Berkshire Partners of Boston has received over $2 billion in capital commitments for its seventh fund, according to a regulatory filing.

NGP Energy Capital Management has formed NGP Energy Infrastructure and Resources Partners, which will make direct equity commitments to infrastructure ventures in the midstream energy industry and the mining and minerals sector. The fund size is targeted at $1.5 billion, of which $75 million will be committed by fund management. John Raymond (formerly of Vulcan Energy Corp.) will serve as CEO and co-managing partner, while John Calvert (formerly with Deutsche Bank) will serve as co-managing partner.

Pomona Capital has closed a $150 million co-inv*stment fund for the ING US Insurance Companies. The vehicle will commit to LBO transactions alongside buyout firms, and already participated in the Hertz carve-out from Ford.

CHL Medical Partners is raising up to $200 million for its third early-stage life sciences fund, according to a regulatory filing. The Stamford, Conn.-based firm already has secured over $94 million in capital commitments.

Hamilton Lane has opened a San Francisco office. Managing director Paul Yett has transferred from Philadelphia to run the office, and is joined by senior associate Jeff Lumbard. Hamilton Lane also expects to hire additional San Francisco staffers. The firm used to have a one-man shop in San Francisco, but it hasn’t been active in more than a year.

Ladenburg Thalmann Financial Services Inc. (AMEX: LTS) has agreed to acquire Capitalink, a Coral Gables, Fla.-based middle-market I-banking firm.

Human Resources

Julian “Jay” Twombly has joined SPG Partners as an operating partner focused on opportunities in the industrial components industry. He is the former president of SPX Corp.’s Edwards Systems Technology division, which was sold to GE Security in 2005.

Horatio Sparkes, deputy comptroller for New York City pensions, has resigned, effective September 15.

Liquid Realty Partners has promoted Andrew Jenson from director of finance to the new position of chief financial officer. He joined the firm in 2005, before which he worked at both Gryphon Inv*stors and Sanderling Ventures.

Golub Capital has promoted Charles Riceman to managing director. He joined the firm as a principal in 2004, before which he was a vice president with Albion Alliance.