PE Week Wire, Dec. 21, 2006

Remember that giant raid on illegal immigrants last week? Well it has indirectly swept up HM Capital, the Dallas-based private equity firm formerly known as Hicks, Muse, Tate & Furst (only Muse remains).

For the uninitiated, federal immigration agents conducted a six-state, simultaneous raid on Swift & Co. meat and pork processing and packaging plants. It had been prompted by discovery of alleged identity theft, and resulted in 1,282 workers being arrested. Around 95% of the arrested workers were charged with some form of immigration violation – either in the U.S. illegally or unable to produce proper documentation — while the remainder were alleged to have taken part in the ID thefts. There are giant political implications worth discussing over the water-cooler, but the business impact was that Swift was forced to temporarily shut down and is scurrying to replace its labor force. For context, Swift is the nation’s third-largest meatpacker – behind Tyson and Cargill – and reported $9.35 billion in 2005 sales.

How does HM Capital fit in? Well, the firm Swift acquired Swift from ConAgra Foods in 2002 for approximately $1.4 billion. Not only is it likely to suffer at least a temporary portfolio company devaluation (or at least a reduced ability to exit at a high multiple), but it also now is facing a civil lawsuit from 18 former Swift employees, who say the company knowingly sought out, smuggled, and hired illegal immigrants in order to depress overall wages. If true, the complaint argues, it would mean that both HM Capital and Swift engaged in racketeering to manipulate commerce. The plaintiffs are seeking a total of $23 million in damages.

Swift & Co. is on record as denying having knowingly hired illegal immigrants, and an HM Capital spokesman said: “HM Capital is following the situation closely and fully supports Swift management’s handling of that situation.” It also has said that the “lawsuit is without merit.”

The suit can be read/downloaded here.

*** Questor Management Co. is winding down operations, according to Buyouts Magazine. The turnaround shop plans to liquidate its current portfolio of seven companies – including four in the automotive sector – and will not raise a third fund. Questor co-founder Jay Alix has tapped former AlixPartners colleague Larry Ramaekers to help in the shutdown.

*** Yesterday I told you that Kodiak Venture Partners plans to hire a new partner focused on the IT/healthcare convergence space. Multiple – and reliable — sources tell me that it will be Andrey Zarur, who next month will formally step down as president and CEO of VC-backed BioProcessors. Zarur’s successor at BioProcessors has been selected, but not yet formally announced. Zarur told me yesterday (from a vacation in Mexico) that he is considering Kodiak alongside a variety of other offers, but I’ve since learned that the remaining holdup is mainly BioProcessors-related paperwork – not decision-making on the part of either Zarur or Kodiak.

*** As expected, clients of Pacific Corporate Group are beginning to bail. The latest is the Illinois Teachers’ Retirement System, which only had retained PCG earlier this year. The group has posted an RFP to its website, and also issued an unusually-candid press release that included the following comment from CIO Stan Rupnick: “TRS is clearly disappointed in the recent events at PCG and the departure of our lead consultant at the firm. We want to ensure TRS employs the most capable advisors as it relates to our investment program.”

*** In unrelated public pension news, the State of Connecticut has issued an RFP for a new alternatives consultant.

*** Most interesting deal of the day involves BA Venture Partners and Richland Ventures selling their stakes in U.S. HealthWorks, an operator of outpatient occupational health and urgent care centers, to AIG Altaris Health Partners and Dynamic Healthcare Solutions. Why unusual? Because fellow VC backers Three Arch Partners and Salix Ventures are sticking around. Doesn’t the entire VC syndicate typically cash out at the same time in an M&A exit?

BAVP and Richland had been in the company the longest, but I also wonder if the firms were partially prompted by current fundraising efforts (i.e., boost recent performance). I put that question – and four others – to BAVP managing director Mark Brooks in the latest edition of 5 Questions. It will appear at in about an hour.

*** Finally, I’d like to extend my sincerest condolences to Monte Brem, the former PCG pro whose wife Elizabeth died from a tragic hiking accident in Kauai on Tuesday. Monte has always been a friend of this space – even when his former firm was not – and I cannot imagine how painful the past two days have been for him and his children. You’re in our thoughts…

Top Three

The Carlyle Group has competition for Dallas-based roofing and building products company ElkCorp (NYSE: ELK). Carlyle earlier this week had agreed to buy the company for approximately $1 billion (including the assumption of $173 million in net debt), or $38 per share. But ElkCorp confirmed yesterday that it now has a $40 per share offer from Building Materials Holding Corp. (NYSE: BLG). ElkCorp said that its board will review the BLG offer, and make a recommendation to shareholders.

Websense Inc. (Nasdaq: WBSN) has agreed to acquire PortAuthority Technologies Inc. for approximately $90 million in cash. PortAuthority is a Palo Alto, Calif.-based provider of provider of information leak prevention solutions. It has raised over $46 million in total VC funding, from firms like New Enterprise Associates, Sequoia Capital, Greylock, Lexington Ventures, ALP Enterprises and CAP Ventures.

Conatus Pharmaceuticals Inc., a San Diego-based drug developer focused on liver disease, has secured $6.62 million of a $27.37 million Series A round, according to a regulatory filing. Backers include Aberdare Ventures, Bay City Capital, Advent International and Hale BioPharma Ventures.

VC Deals

Chockstone Inc., a Portland, Ore.–based provider of customer loyalty and profitability programs for national retail brands, has raised $14 million in Series B funding. No additional information was disclosed.

SunTen Phytotech Co. Ltd., a Taiwan–based botanical drug development company, has raised $10 million in Series B funding. Participants include PacLink Capital, Taiwan Global Biofund Venture and 3VS1 Venture Capital.

RedPath Integrated Pathology Inc., a Pittsburgh-based cancer diagnostics company, has raised $6.5 million in Series A funding. Backers include Seneca Health Partners, Inflexion Partners, HMA Capital Partners New Spring Capital and CID Capital. HealthCare Capital Advisors served as placement agent.

Forte Design Systems, a San Jose, Calif.-based provider of software design products, has raised $5.4 million in Series D funding. Saints Capital was joined by return backers 3i Group and Infinity Capital.

MuriGen Therapeutics, a Melbourne, Australia-based drug development company, has raised Au$5 million from Starfish Ventures.

Buyout Deals

Raytheon Co. (NYSE: RTN) has agreed to sell its Raytheon Aircraft Co. unit to Onex Corp. and Goldman Sachs for $3.3 billion. The company had retained Credit Suisse in July to explore “strategic alternatives” for the unit, and reportedly had received alternate bids from The Carlyle Group and Cerberus Capital Management.

Cognetas has acquired the Lil-lets feminine hygiene division of Accantia, a health and beauty manufacturer owned by Duke Street Capital. The deal is valued at Gbp80 million. Duke Street originally backed a Gbp225 million management buyout of Accantia in November 2003.

Smith & Nephew PLC shares rose nearly 7% after The Business reported that the UK-based orthopedic device maker may receive a buyout offer from the same consortium that just agreed to buy Biomet Inc. for $10.9 billion. The consortium includes The Blackstone Group, GS Capital Partners, KKR and Texas Pacific Group.

Tenaska Power Fund and Warburg Pincus have agreed to acquire three electric generation stations from Dominion Resources Inc. (NYSE: D). No financial terms were disclosed. The three plants include the: 625-megawatt (MW) Armstrong plant in Armstrong County, Pa.; 313-MW Pleasants plant in Pleasants County, W.Va.; and the 600-MW Troy plant in Wood County, Ohio.

Vodafone reportedly is considering a bid for Indian mobile phone company Hutchison Essar, which is being offered up by Hong Kong-based parent company Hutchison Telecommunications. Previous reports suggested that The Blackstone Group and Reliance Communications may team up for a bid, which could be worth anywhere between $13 billion and $15 billion.

The Carlyle Group and Dah Sing Banking (Hong Kong) have agreed to acquire a 24.99% stake in mid-sized Chinese lender Chongqing Commercial Bank. No financial terms were disclosed, although Reuters valued the deal at around $100 million, with Dah Sing taking a 17% stake and Carlyle taking a 7.99% stake.

Aramark Corp. (NYSE: RMK) shareholders have approved an $8.3 billion buyout bid led by CEO Joseph Neubauer, and including private equity firms GS Capital Partners, CCMP Capital Advisors, JPMorgan Partners, Thomas H. Lee Partners and Warburg Pincus. The deal will provide Aramark shareholders with $33.80 per share in cash.

Metrologic Instruments Inc. (Nasdaq: MTLG) shareholders have approved an $18.50 per share buyout offer from Francisco Partners. Both hedge fund Elliott Associates and Metrologic chairman and interim CEO Harry Knowles will co-invest alongside Francisco.

Sterling Investment Partners is planning to acquire a position in New York-based supermarket company Fairway Operating Corp., according to a Federal Trade Commission report.

OpenGate Capital has agreed to acquire the medium-voltage power transformer facility of Areva’s Transmission and Distribution Division (to be renamed Pacific Crest Transformers) in Medford, Oregon. No financial terms were disclosed, except that First Capital provided senior leverage.

PE-Backed IPOs

Artes Medical Inc., a San Diego-based developer of injectable aesthetic products for the dermatology and plastic surgery markets, priced 4.6 million common shares at $6 per share ($12-$14 forecast), for an IPO take of approximately $27.6 million. It will trade on the Nasdaq under ticker symbol ARTE, while Cowan & Co. and Lazard Capital Markets served as co-lead underwriters. The company has raised around $61 million in total VC funding from backers like National Securities Corp., Empire Asset Management, Baltimore Business Leaders, NGN Capital, Peter and Georgia Angelos and Lon Otembra.

Dayton Superior Corp., a Dayton, Ohio-based concrete forming and shoring rental company, priced 7.85 million common shares at $12 per share ($13-$15 forecast), for an IPO take of approximately $94.2 million. It will trade on the Nasdaq under ticker symbol DSUP, while Robert W. Baird & Co. served as lead underwriter. Odyssey Investment Partners remains the company’s majority shareholder.

Solarfun Power Holdings Co Ltd., a China-based manufacturer of photovoltaic cells and modules, priced 12 million American depository shares at $12.50 per share ($11.50-$13.50 forecast), for an IPO take of approximately $150 million. It will trade on the Nasdaq under ticker symbol SOLF, while Goldman Sachs (Asia) served as lead underwriter. Shareholders include Citigroup Venture Capital, Hony Capital, LC Fund III and Good Energies Investments Ltd.

PE-Backed M&A

Sensata Technology BV, an Attleboro, Mass.-based portfolio company of Bain Capital, has completed its acquisition of Honeywell’s First Technology Automotive and Special Products (FTAS) business. Sensata secured a Euro 73 million credit facility extension to help finance the deal, although additional transaction terms were not disclosed.

Euromax Holdings Inc., a Norcross, Va.-based portfolio company of GS Capital Partners, has acquired GSW Building Products Inc. from A.O. Smith Corp. for $11.3 million.

PE Exits

Industri Kapital has sold Ulm, Germany-based gardening tools maker Gardena to Husqvarna for Euro 730 million (including Euro 416 million in assumed debt and liabilities).

Hewlett-Packard Co. (NYSE: HPQ) has agreed to acquire Bitfone Corp., a Laguna Niguel, Calif.-based provider of mobile device management software. No financial terms were disclosed. No financial terms were disclosed for the deal, which is expected to close in February. Bitfone has raised over $86 million in VC funding since its 2000 inception, from firms like 3i Group, BlueRun Ventures, Flextronics International, KTB Ventures, Khosla Ventures, Motorola Ventures, Nexit Ventures, Noventi, Prism VentureWorks, Qualcomm Ventures and Vesbridge Partners.

Seagate Technology (NYSE:STX) has agreed to acquire EVault Inc., an Emeryville, Calif.-based provider of online backup services, for $185 million in cash. EVault has raised over $15 million in VC funding since 2001, from firms like Council Ventures, BEST Fund, Jemison Investments, Massey Burch Capital and River Cities Capital Funds.

Citrix Systems Inc. (Nasdaq: CTXS) has agreed to acquire Ardence Inc., a Waltham, Mass.-based provider of on-demand software platforms, from Advent International and Capital Resource Partners. No financial terms were disclosed.

Other Deals

Mascoma Corp., a Cambridge, Mass.-based provider of cellulosic biomass-to-ethanol development and production, has received a $14.8 million award from the New York State Department of Agriculture and Markets and the New York State Energy Research and Development Authority to build and operate a biomass-to-ethanol demonstration plant in Rochester, New York. The company previously raised $39 million in total VC funding from firms like Khosla Ventures, Atlas Venture, Flagship Ventures, Kleiner Perkins, Pinnacle Ventures and VantagePoint Venture Partners.

Human Resources

Khaled Al Kamda has been named the first-ever vice chairman of Istithmar, the Dubai-based private equity and alternative investment firm. He previously spent 20 years with Emirates Airlines, most recently as senior vice president for corporate development.

Michael Capellas has joined Serena Software Inc. as acting president and CEO, following the resignation of Mark Woodward. Capellas is a senior advisor to Serena shareholder Silver Lake Partners, and is a past CEO of both MCI and Compaq.

Cedric Abitbol has joined European buyout firm 21 Partners to help the firm expand its activities beyond France and Italy. He previously focused on secondary transactions with Palomar Capital Advisors and, before that, was with Unigestion.