PE Week Wire, Dec. 19, 2006

The 2006 IPO market has already surpassed 2005 in terms of both volume and dollars raised, and the VC-backed IPO market is almost there as well. This isn’t to say that the public exit window is wide open, but you can certainly feel the draft of an upswing that is projected to last well into 2007.

So far in 2006, there have been 56 VC-backed companies that have priced IPOs on U.S. exchanges. This is identical to the 2005 tally, but two more VC-backed offerings – Oculus Innovative Sciences and Artes Medical – are on the pricing calendar for tomorrow. Even if just one gets through, it will be an improvement on 2005 volume. In terms of dollars raised, 2006 is easily surpassing 2005, with $5.21 billion raised compared to $4.46 billion. There also is a 36.8% increase in the aggregate post-offer value, which represents the value of all shares outstanding (primary share, management shares, etc.) at the offer date.

It’s important to note that 2006 still is well shy of the 2004 figures, in part because there hasn’t been a billion-dollar blockbuster like Google or SMIC. Instead, the largest offering has been the $531.25 million IPO from Vonage.

I compiled some data this morning using the Thomson VentureXpert database, and have posted the run online. Also, it’s worth noting that the year’s largest recipient of venture capital funding –ClearWire – just re-filed for a $400 million IPO.

*** Michael Russell has agreed to join Altius Advisors as a London-based partner and head of European operations, effective January 2. He was one of four partners to leave Pacific Corporate Group this past September, although his decision came independently of the other three.

Altius recently launched a fund-of-funds effort (is currently raising the first one), but mostly serves as a provider of discretionary private equity portfolio management services. Russell said yesterday: “What I like about the Altius partners is that they have a clear, rational and consistent focus and a strong regard for their relationship with both each other as professionals – and for trying to get everything done for the benefit of their client.” My obvious follow-up was whether Russell felt those qualities were lacking at PCG, but he smartly opted not to take the bait: “There also were significant elements of that at PCG, and those were always my objectives while there.”

*** Imperium Renewables is the first refinery project of Seattle BioFuels, a VC-backed biodiesel company founded by former venture capitalist Martin Tobias (and previously detailed in this space). The refinery is believed to be the largest U.S. effort of its kind, and would be capable of supplying 100 million gallons of biodiesel per year.

But such things do not come cheaply. Seattle Biofuels already has raised over $9 million in VC funding, and now is raising a $75 million “Series B” round specifically for Imperium. According to a regulatory filing dated last month, it already has secured over $43 million. Shareholders include existing Seattle BioFuels backers like Nth Power and Technology Partners.

*** Finally, a redundant administrative note. Longtime readers will remember that the Wire used to come from a slightly different email address: That account – and all accounts – is being officially retired tonight. If you continue to use it for white-listing purposes or to contact me, please change to the address. Thanks…

New at

Amanda Williams Palmer reports that the UK Financial Services Authority may be following the U.S. Department of Justice’s lead, in terms of an inquiry into club buyout deals.

Five Questions for John Lehman, whose firm J.F. Lehman & Co. just closed its second fund. We ask about the overall market for defense/infrastructure deals, and also if Lehman’s time on the 9/11 Commission has influenced his investment strategy.

Alex Haislip rounds up the U.S.-based VC firms raising money for overseas funds in 2006.

David Toll wants to know if LBO Firms are Good for Companies.

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

Top Three

Embarcadero Technologies Inc. (Nasdaq: EMBT), a San Francisco-based provider of strategic data management solutions, has canceled its proposed acquisition by Thoma Cressey Equity Partners. The deal had been valued at approximately $234 million, or $8.38 per share (29% premium to the closing price prior to the announcement). Neither side will pay termination fees. No formal reason was given for the deal cancellation, although Embarcadero did recently disclose evidence of backdating stock options, and the resulting need to restate its historical financial statements.

Home Decor Products Inc., an Edison, N.J.–based online retailer of kitchen and bath products, has raised $65 million in third-round funding. 3i Group led the deal, and was joined by Liberty Associated Partners and Comcast Interactive Capital. RBC Capital Markets served as exclusive placement agent for Home Decor.

Jonny Maxwell has resigned from Standard Life Investments (SLI), where he ran the firm’s Gbp2.5 billion private equity fund-of-funds business. He also resigned from the main SLI board, following “differences about the future direction and ownership” of the private equity business. More specifically, Maxwell reportedly had been looking to spin the unit out into an independent entity.

VC Deals

Codon Devices Inc., a Cambridge, Mass.-based synthetic biology company, has raised $20 million in Series B funding. Highland Capital Partners led the deal, and was joined by return backers Alloy Ventures, Flagship Ventures, Khosla Ventures and Kleiner Perkins Caufield & Byers.

Enclarity Inc., an Irvine, Calif.-based provider of data management products for the medical industry, has raised $10 million in Series B funding, according to a regulatory filing. Bain Capital Ventures led the deal, and was joined by return backer Ignition Partners.

Shanghai SmartPay Jieyin Ltd. (“SmartPay”), a China-based provider of electronic payment services, has raised $10 million in Series B funding. Return backers include RRE Ventures, Evolution Capital and Lunar Group Capital.

NorSun AS, an Oslo, Norway-based solar energy company, has raised around $8.45 million in VC funding from Itochu Corp.

CZen Inc., a Waltham, Mass.-based Internet startup, has raised $3.5 million in Series A funding led by Matrix Partners, according to a regulatory filing. The company is run by Sheila Marcelo, former vice president and general manager with Matrix portfolio company and, before that, vice president of marketing for uPromise.

Stat Nurses International Inc., a Greenwood Village, Colo.-based provider of nurse staffing services, has raised $2.5 million in Series B funding, according to VentureWire. Enhanced Capital Partners led the deal, and was joined by Marisco Enterprises and individuals.

Local Marketers Inc., a Seattle-based online advertising startup, has raised $600,000 in Series A funding led by Madrona Venture Group, according to a regulatory filing.

Buyout Deals

Harrah’s Entertainment reportedly has accepted a $90 per share buyout offer from Apollo Management and Texas Pacific Group. The two firms originally had offered $83.50 per share, and later sweetened the bid to $87 per share. The total deal would be worth around $16.7 billion.

The Carlyle Group has agreed to acquire Dallas-based roofing and building products company ElkCorp (NYSE: ELK) for approximately $1 billion (including the assumption of $173 million in net debt). Bank of America and Merrill Lynch have made leveraged financing commitments. ElkCorp shareholders would receive $38 per share, which is a 51% premium to the trading price on Nov. 3, which is when the company announced that it was conducting a review of strategic alternatives.

SPG Partners has acquired and capitalized Continental Environmental Redevelopment Financial LLC, which provides access to debt financing for the development of brownfield properties. The deal will enable CERF to originate in excess of $500 million in loans, with other equity backers including Citigroup Global Markets and Credit Suisse.

Fidelity Ventures has acquired eCredit Inc., a Dedham, Mass.-based provider of online solutions for commercial credit and collections professionals. No financial terms were disclosed, except that Fidelity also provided $11 million in growth capital and installed venture partner Jim Swift as CEO. eCredit shareholders included North Hill Ventures, Apex Venture Partners, Internet Capital Group and Sterling Venture Partners.

Hermes Private Equity has acquired Independent Living Group, a UK-based provider of residential care for adults with severe and profound learning disabilities. No financial terms were disclosed. HBOS provided leveraged financing.

RoundTable Healthcare Partners has recapitalized portfolio company ACI Medical Devices Inc., a medical device group with two units: Argon Medical Devices Inc. and Clinical Innovations Inc. Argon is an Athens, Texas-based maker of single-use vascular access and pressure monitoring devices utilized in the cardiology, radiology and critical care market segments.Clinical is a Murray, Utah-based designer and manufacturer of single-use medical devices used primarily in the women’s health, urology and gastroenterology markets. As part of the recap, ACI Medical amended and expanded its current senior credit facilities led by GE Healthcare Financial Services.Other senior lenders participating in the transaction included LaSalle Bank and National City

H.I.G. Capital has recapitalized Augusta Lumber Co., a Waynesboro, Va.-based supplier of hardwood logs, lumber and flooring. No financial terms were disclosed for the deal, which was done in partnership with company management.

Summit Partners has acquired a minority stake in Dedon GmbH, a Germany-based luxury outdoor furniture company. No financial terms were disclosed.

PE-Backed IPOs

Claymont Steel Holdings Inc. (f.k.a. CitiSteel), a Claymont, Del.-based non-union maker of custom discrete steel plate, priced 8.7 million common shares at $17 per share, for an IPO take of approximately $147.9 million. The number of offered shares was raised for the second time in as many days, as it originally had been upped from 6.25 million to 7.25 million. It will trade on the Nasdaq under ticker symbol PLTE, while Jefferies & Co. served as lead underwriter. H.I.G. Capital holds a 99.3% pre-IPO position. H.I.G. Capital held a 99.3% pre-IPO position.

ClearWire Corp., a Kirkland, Wash.-based WiMax company, has filed for a $400 million IPO. This is the company’s second IPO filing this year, having originally filed for a $400 million offering back in July. That offering was pulled in conjunction with a $900 million private equity infusion led by Intel Capital. ClearWire plans to trade on the Nasdaq under ticker symbol CLWR, with Merrill Lynch, Morgan Stanley and JPMorgan serving as co-lead underwriters. Shareholders include Craig McCaw, Intel Capital, Bell Canada and Motorola.

PE-Backed M&A

M2M Holdings Inc. (a.k.a. Made2Manage), an Indianapolis–based provider of enterprise customer management and process solutions, has agreed to acquire Knova Software Inc. (OTC BB: KNVC). The deal is valued at approximately $47 million in cash, or $5 per share. M2M is owned by Battery Ventures and Thoma Cressey Equity Partners.

PE Exits

ASML Holding NV (Nasdaq: ASML) has agreed to acquire Brion Technologies Inc., a Santa Clara, Calif.-based provider of semiconductor design and wafer manufacturing optimization solutions for advanced lithography. The deal is valued at approximately $270 million in cash. Brion has raised around $28 million in total VC funding, including an $8 million Series A round in 2002 at a post-money valuation of approximately $15 million. Backers include JPMorgan Partners, Jafco Ventures, Mohr Davidow Ventures, Morgenthaler Ventures, Stanford University, U.S. Venture Partners and WK Associates.

CenturyTel Inc. (NYSE: CTL) has agreed to acquire Madison River Communications Corp., a Mebane, N.C.-based provider of rural telephone services, for $830 million in a combination of cash and assumed debt. Madison River had been in registration for a $287.5 million IPO, Madison Dearborn Partners, Goldman Sachs and Providence Equity Partners.

North Castle Partners has agreed to sell Avalon Natural Products Inc. to The Hain Celestial Group Inc. (Nasdaq: HAIN) for $120 million in cash. Avalon is a Petaluma, Calif.–based provider of natural and organic personal care brands.

Firms & Funds

Paul Capital Partners of San Francisco is raising up to $650 million for its third healthcare fund, which will focus both on royalty and direct investment opportunities in the healthcare market.

AIF Capital Asia has closed its third pan-Asian private equity fund, with $435 million in capital commitments. The mid-market vehicle will focus on expansion capital, buyout and special situation opportunities in Asian companies with enterprise values of between $50 million and $500 million. Berchwood Partners served as placement agent.

Rincon Venture Capital, a Santa Barbara, Calif.-based early-stage VC firm, is raising up to $80 million for its inaugural fund, according to a regulatory filing. The firm’s co-founders are Jim Andelman, formerly a principal with Broadview Capital Partners, and Brian Kelly, co-founder of Eastern Development Corp.

MetLife is looking to sell a large piece of the former Travelers Life & Annuity private equity portfolio on the secondaries market, according to LBO Wire. The fund positions are expected to be sold for a total of between $300 million and $400 million.

Access Capital Partners of France has opened an office in Munich, Germany. It will be headed by new partners Bernhard Fink and Thomas Kohlmeyer. Fink previously was co-founder of Stratin Capital Advisors and, before that, was CEO of General Electric Germany and General Electric Frankona Reinsurance Group. Kohlmeyer also was a co-founder of Stratin Capital Advisors, and before that was a partner with fund-of-funds and family office Extorel.

Human Resources

Dominique Hansen has joined the Menlo Park, Calif. office of Kohlberg Kravis Roberts & Co. She previously was a vice president with OMERS Capital Partners.

David Hooper has joined Centerview Partners as a partner to oversee its private equity business. He previously was a managing director with Vestar Capital Partners, where he headed the firm’s consumer group and was chairman of its U.S. investment committee.

Michael Russell has agreed to join Altius Advisors as a London-based partner and head of European operations, effective January 2. He previously spent six years with Pacific Corporate Group as managing director for Europe.

Freid Thiel has joined Triton Pacific Capital Partners as a managing partner to lead its newly-formed IT and software group. He previously was CEO of GameSpy Industries (acquired by IGN).

Stan Speer has joined turnaround consultancy Alvarez & Marsal as a Los Angeles-based managing director. He previously was CFO of Cadiz Inc., a publicly-traded real estate and water resource management company.

Mike Sack has joined IDG Ventures Boston as an entrepreneur-in-residence. He previously was co-founder and CTO of Ineptor, a provider of search engine marketing technology (acquired by Verizon in 2006). He will focus on opportunities in the wireless, search and Web 2.0 sectors.