PE Week Wire, Dec. 11, 2006

The sky is gray, the six U.S. ports owned by Dubai’s DP World will be sold to AIG’s private equity group and the beloved Celtics may get Iverson after all. In other words, it’s time for Monday Mouth-Off.

First up is Rob, who responds to Friday’s column: “Thanks for the info on the new Tom Lee fund, but are you really suggesting that it is going to be competing for deals with Thomas H. Lee Partners? If they both hit their targets, THLP will be 3.6 times the size of Tom Lee’s fund. Not really a fair fight.”

Good question Rob, so here comes a convoluted answer. I do not believe the two firms will compete much for deals, although that will be caused more by fund strategy differentials than by fund size differentials. After all, Blackstone is raising 2.3 times more money than THLP, but the two will certainly compete for – and club up for – the same deals. The real competition will come in a few years, when the funds are closed and meaningful performance can be calculated. This may well be analyzed more from outsiders than from insiders (i.e., LPs and folks like me, than by the GPs themselves), but it will be hard to ignore. Current conventional wisdom is that the smarter money is with THLP, in large part because Tom Lee himself hasn’t led a major LBO in years. But conventional wisdom in this market eventually gets ratified or dismissed based on hard data, which we’ll eventually have…

*** Keeping with the THLP theme, some responses to the “bigger is better” speech Scott Schoen gave at the Yale SOM Private Equity Conference (as detailed here last Monday). Paul writes: “Something is seriously wrong if Schoen is correct and this is the case: ‘The fact that private equity has a lower cost of capital (and can act faster) than can strategic buyers.’ PE must have a higher cost of capital compared to a comparable public entity – and the debt should be just about the same. Just the elimination of carry should mean that public equity has a 20% advantage relative to returns on PE – never mind the fact that PE fee-adjusted returns are supposed to materially outperform public equity. Schoen’s statement suggests to me that public companies are (systematically) significantly underleveraged… Perhaps under-leverage is an underlying reason why the ongoing boom/bubble in PE is continuing well beyond what most observers predicted.”

James adds: “I agree with Schoen’s main ‘Bigger is Better’ point — and the returns have certainly backed it up – but I take issue with his assertion that a tightened lending market would actually be a boon for mega-LBO firms. First, part of the reason why bigger is better is that bigger deals have better access to leverage. Smaller deals would obviously have less access, thus lowering returns. But the real misconception is the idea that tightened lending would result in lower purchase prices. Why will shareholders sell out cheaper? If the acquisition target isn’t terribly overleveraged, the stock prices should remain stable (at worst, given the current market) and shareholders they won’t have any incentive to sell without getting the 20-25% premium typically associated with buyout offers.”

*** Finally, Ken is one of many readers to forward on a competitor’s marketing email, which claims that it has beaten your humble correspondent to the scoop eight times in the past four months. I don’t like to name names, so let’s just say that the braggart emailer rhymes with Cow Bones. More importantly, I’d like to congratulate their entire staff for working hard enough to get two deal or fund stories before the Wire’s one-man crew each month (sometimes by an entire day). After all, that’s around 0.3% of the time (based on an average of 30 news items per day). And to think they only charge $1,200 per year for such superior service…

New at

It’s too early to judge the Toys ‘R’ Us Buyout.

Alex Haislip on the Best VC Greeting Cards, and on how to buy a Lightening Gun.

We’ve got a total of 46 listings for the Internship Rodeo (at MBA Forum), with a few new ones added this morning. Also fixed a few of the problematic contact emails. Also, new fulltime positions in our Careers Section (feel encouraged to post openings at your firm, for just $99 each).

And, as always, news and analysis updated throughout the day…

Top Three

Setanta Sport Holdings Ltd., an Ireland-based international sports broadcaster, has raised Euro 315 million in private equity financing from Doughty Hanson, Goldman Sachs, Davy Stockbrokers and Adams Street Partners. The infusion will be used to launch new UK services, including Setanta Golf in January 2007 and coverage of the FA Premier League from August 2007. Overall control of Setanta will not change, with Doughty Hanson and Benchmark Capital Europe being the largest institutional shareholders following completion of the deal.

Artimi Ltd., a Santa Clara, Calif.-based fabless semiconductor company developing single-chip solutions for high bandwidth wireless connectivity based on UWB, has raised $26.5 million in Series B funding. Return backers include Accel Partners, Amadeus Capital Partners, Index Ventures and Oak Investment Partners, while new shareholder Bank of Scotland Growth Equity also participated. The company has raised over $41 million in total VC funding since its 2002 inception.

Silver Lake Partners and Texas Pacific Group are nearing a deal to acquire travel reservations company Sabre Holdings (NYSE: TSG) for around $4 billion, according to The New York Times. A rival group is led by Apollo, with a third group also considering an offer.

VC Deals

DigitalBridge Communications Corp., an Ashburn, Va.-based provider of broadband service to underserved communities, has raised over $11 million in Series A funding. RedShift Ventures, CNF Investments and Novak Biddle Venture Partner were joined by individuals like Frank Bonsal and Bill Melton. The company also secured $6.25 million in debt from Comerica Bank.

Industrial Origami Inc., a San Francisco-based developer of a new method for designing and manufacturing with sheet materials, has secured around $4.14 million of a $6.06 million Series B round, according to a regulatory filing. Backers include Wellington Partners and AdInvest AG.

Dapper Inc., a UK-based startup that allows users to build web applications and mashups using data from other websites, has raised over $1 million in bridge funding from Accel Partners, according to VentureWire. The capital will be rolled over into a larger Series A deal.

Whatsbuzzing, a San Jose, Calif.-based operator of a website for window shoppers, has raised around $1 million in seed funding from Norwest Venture Partners, according to VentureBeat.

Jott Networks Inc., a Seattle-based startup that converts voice into text and delivers it via email, has raised under $1 million in seed funding from Ackerley Partners, Draper Richards and the new investment vehicle of Skype founder Niklas Zennstrom, according to the Seattle Post-Intelligencer.

Accelergy Corp., a Palo Alto, Calif.-based R&D company focused on high-throughput solutions for accelerated discovery, development and commercialization of advanced catalytic materials, has raised an undisclosed amount of Series B funding. Goldman Sachs led the round, and was joined by Sequoia Capital China, Lux Capital and return backers Nth Power, Technology Partners, Mobius Venture Capital and Advent International.

Buyout Deals

J.W. Childs Associates has agreed to acquire CHG Healthcare Services Inc., a Salt Lake City- based provider of temporary physician staffing services. No financial terms were disclosed. CHG had raised $23.5 million in VC funding, including a $15 million infusion in 2003 at a $129 million post-money valuation. Shareholders include Acacia Venture Partners, Frazier Healthcare Ventures, Nassau Capital and New Enterprise Associates. CHG had withdrawn IPO registration papers earlier this year, and is being advised on the sale by Goldman Sachs.

Veritas Capital Partners has agreed to acquire Pearson Government Solutions (PGS) from Pearson PLC for $600 million. Pearson also will retain a minority interest in PGS, an Arlington, Va.-based provider of information and benefits solutions to national and local governments, education institutions and corporations. PGS will be renamed early next year.

WL Ross & Co. has completed its acquisition of BST Safety Textiles GmbH, a manufacturer of flat and one-piece woven fabrics for automotive air bags as well as narrow fabrics for seat belts and military and technical uses. BST operates facilities in southern Germany, Poland and Virginia, with approximately 1,250 people worldwide. No financial terms were disclosed.

Hicks Holdings LLC and The Watermill Group have jointly acquired Latrobe Specialty Steel Co. (f.k.a. Timken Latrobe Steel) from The Timken Co. (NYSE: TKR). The deal is valued at $215 million in cash, plus $35 million in assumed liabilities.

Industri Kapital has sold Brussels-based prefabricated concrete company Consolis to LBO France for an undisclosed amount. Consolis has 2005 sales of Euro 1.2 billion, EBITDA of Euro 123 million and over 8,000 employees.

CCMP Capital Asia reportedly has agreed to acquire Repco Corp., the largest retailer of car parts in Australia and New Zealand. The deal is worth Au$336 million, or Au$1.75 per share in cash.

Cerberus Capital Management reportedly is the lead bidder for Collins & Aikman’s automotive carpeting and soft trim business. No financial terms were reported, except that the division generates around $750 million in annual sales.

ProSiebenSat.1 Media AG has set tomorrow as the deadline for final buyout offers, according to The Wall Street Journal. Remaining bidders for the German broadcaster are believed to be KKR/Permira, Apax Partners/Goldman Sachs and Dogin Yayin Holding of Turkey.

Gannett Co. (NYSE: GCI) is considering a sale of its UK newspaper unit Newsquest, according to The Sunday Express. The unit could fetch up to Gbp1.5 billion.

Catalina Marketing Corp. (NYSE: POS) said yesterday that it has retained Goldman Sachs, in response to an “unsolicited expression of interest from a third-party private equity firm with respect to the acquisition of the company.”

The Sterling Group has completed its acquisition of Hudson Products Corp. from Madison Capital Partners. No financial terms were disclosed. Both Madison and the Hudson management team reinvested as part of the deal, while BNP Paribas provided leveraged financing. Hudson Products is a Sugar Land, Texas-based provider of air-cooled heat exchangers and axial-flow fans to processors in the petroleum, natural gas, power generation, petrochemical and chemical industries.

PE-Backed IPOs

Biofuel Energy Corp., a Denver-based ethanol producer, has filed for a $300 million IPO. It plans to trade on the Nasdaq under ticker symbol BIOF, with JPMorgan, Citigroup and A.G. Edwards serving as co-lead underwriters. Shareholders include Greenlight Capital, Third Point Partners and Cargill Inc. The company initially plans to construct five large dry-mill ethanol plants on corn-belt sites where Cargill has a strong local presence and, in most cases, adjacent to grain storage facilities owned by or affiliated with them.

Molecular Insight Pharmaceuticals Inc., a Cambridge, Mass.-based developer of molecular imaging pharmaceuticals and targeted radio-therapeutics, has increased the size of its proposed IPO from $57.5 million to $86.25 million. It also has changed its co-lead underwriters from Piper Jaffray and SG Cowen to RBC Capital Markets and Jefferies & Co. The original S-1 filing came in November 2005. The company has raised over $35 million in VC funding from firms like Cerberus Capital Management and Siemens Venture Capital.

This week’s IPO calendar includes expected pricings from: Transforma Acquisition Group Inc., Guidance Software Inc., IPG Photonics Corp., Cal Dive International Inc., Genesis Lease Ltd., NewStar Financial Inc., WSB Financial Group Inc., Carrols Restaurant Group Inc. and US BioEnergy Corp.

Firms & Funds

The Carlyle Group is raising up to $2.75 billion for its fifth real estate fund, according to a regulatory filing. It already has secured around $477 million in capital commitments, with UBS serving as placement agent.

Patronus Capital Advisors as a Chatham, N.J.-based boutique private equity advisory and fund placement firm. It is being run by Paul Delaney, founder of the Bear Stearns Private Funds Group who previously spent 20 years with MetLife.

Environmental Technologies Fund, a London-based cleantech venture capital firm, has held a first close on more than Euro 50 million for its inaugural fund. A second close is expected next quarter. Limited partners include Swiss Re and the European Investment Fund (EIF).

Broadway Partners of New York has closed its latest private equity real estate fund with $590 million in capital commitments. The fund will focus on the North American office sector.

Human Resources

Audrey Klein has agreed to join Park Hill Real Estate Group, an affiliate of The Blackstone Group, as a London-based partner and head of European operations. She previously was a director with Caskar Partners, and plans to continue services Caskar clients through 2007.