PE Week Wire, Dec. 8, 2006

It’s finally happened: Thomas H. Lee and Thomas H. Lee Partners are simultaneously vying for institutional LP attention. No, that’s not a misprint – like my “Leonard Greed & Associates” flub from earlier this week – and I pity any unknowledgeable LP associate who’s been assigned to conduct due diligence on both. Or maybe not (“My boss is so dumb. He assigned me to do the same thing twice… I’ll be out of here early tonight. Wanna get some pizza…”).

Anyway, for the uninitiated: Thomas H. Lee founded Boston-based buyout firm Thomas H. Lee Partners, and ran the place for quite some time. He then went into semi-retirement mode, and was expected to cede complete control to a trio of second-generation guys when the firm went out to raise its sixth fund well over a year ago. But each side turned out to have some different ideas of how to compensate a retiring founder, which led to an acrimonious split and, arguably, to Lee’s decision to form a brand-new private equity firm.

The new firm was originally envisioned as a small-cap sort of endeavor, which might even compliment Lee’s existing hedge fund operation (both of which are in New York, whereas TH Lee Partners is in Boston). But the effort has since been repositioned as a mid-to-large market LBO play, with a target capitalization of around $2.5 billion. Lee himself has been on the road this month pitching to prospective institutional LPs (alongside placement agent CSFB), after having first raised a sizable nugget from wealthy individuals. It’s also taken minority positions in a bunch of deals, albeit only one with which it’s been publicly identified.

Thomas H. Lee Partners, on the other hand, has been raising its new fund for well over a year. It originally began with a target of around $7 billion, which since has been raised to $9 billion. It held a first close earlier this year on around $6.5 billion, and claims to have nearly $8 billion in verbal and closed commitments. That said, it continues to solicit new limited partners – in part because some prospective LPs were turned off by a since-abandoned commitment deadline.

Some LPs have told me that they feel a need to choose sides – although insist that need is not being forced by either GP – but all expectations are that both efforts will close at or near target in the first half of next year. So the real competition won’t be in terms of fundraising, but rather in terms of performance.

It is admittedly difficult to compare a $2.5 billion fund with a $9 billion fund, but LPs already are gearing up to do so. LEP fans say that the Lee Equity Partners model is far closer to what his namesake firm’s model was back in the 1980s and early 1990s, whereas today’s THLP is concentrating almost exclusively on mega-market transactions. They prefer the former. Detractors, however, counter that Tom Lee hasn’t led any LBO deals in several years, while some of his new partners either worked at troubled firms (like Cap Z) or at stronger firms (like Bain) where they weren’t senior partners. Oh, and the THLP team has been together for quite some time, and has a knack for pulling out unexpected wins (like Clear Channel).

Only time will tell which fiund produces the better IRRs, but there’s one thing I can promise: There will be no collusion to be found…

New at

• Five Questions with Randal Stephenson, head of middle-market I-banking at CIT. He answers the year’s most important query: Are lenders drunk?

• Alex Haislip on Feeding Your Numeric Need. Alex also talks with Ron Conway about online video, and details a new way to get your biz plan in front of VCs like Sequoia and Kleiner Perkins.

• Even more listings have been added to the Internship Rodeo (at MBA Forum), with a few more to come later today. Also, new fulltime positions in our Careers Section.

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

Top Three

Realtime Worlds, a Dundee, Scotland-based video game developer, has raised $31 million in venture funding from New Enterprise Associates. Realtime Worlds was founded by CEO and creative director David Jones, who previously created the Grand Theft Auto and Lemmings games franchises.

GlaxoSmithKline PLC (NYSE: GSK) has agreed to acquire Domantis Ltd., a UK-based provider of antibody therapies, for Gbp230 million in cash. Domantis has raised around $83 million in total VC funding from firms like 3i Group, Novo Nordisk, MC Life Science Ventures, Gray Ghost, Albany Ventures, MVM, ISIS Equity Partners and Peptech Ltd.

Travelport Ltd., a New York-based owner of travel services company Galileo and, has agreed to buy travel-booking service Worldspan for approximately $1.4 billion. Simultaneous to the execution of the merger agreement, Worldspan completed a recapitalization plan, through which Travelport loaned $125 million to Worldspan in exchange for a payment in kind (PIK) note which Travelport funded through cash on hand. In addition, one of Travelport’s parent companies also loaned Worldspan $125 million in exchange for a PIK note.

Blackstone Group and Technology Crossover Ventures bought Travelport from Cendant earlier this year for $4.3 billion. Court Square Capital (f.k.a. Citigroup VC) and Teachers’ Private Capital bought Worldspan in 2004 for around $900 million from Delta Airlines, Northwest Airlines and American Airlines.

VC Deals

NeoVista Inc., a Fremont, Calif.-based ophthalmic device company focused on the treatment of age-related macular degeneration, has raised $41 million in Series C funding. Essex Woodlands Health Ventures led the deal, and was joined by MPM Capital and return backers Versant Ventures, SV Life Sciences, The Carlyle Group and Accuitive Medical Ventures.

HydroCision Inc., a Billerica, Mass.-based developer of fluid-based tools for spinal surgery, has raised $12.7 million in new VC funding. Triathlon Medical Ventures led the deal, and was joined by return backers Oxford Bioscience Partners and Zero Stage Capital.

Move Networks Inc., an American Fork, Utah-based provider of video-over-IP solutions, has secured $11.3 million of a $12.17 million Series B round, according to a regulatory filing. Backers include Hummer Winblad Venture Partners and Steamboat Ventures.

Crescendo Networks Ltd., an Or-Yehuda, Israel-based provider of application acceleration solutions, has raised $10 million. Evergreen Venture Partners led the deal, and was joined by return backers Apax Partners, StageOne Ventures, Magnum Communications Fund and Convergent Venture Capital.

Xenon Pharmaceuticals of Vancouver has received Cnd$7 million in strategic funding from Roche, as part of a larger research and licensing agreement for protein-based inhibitors of hemojuvelin.

Flying Fish Creative Services Inc., a Baton Rouge, La.-based provider of e-learning training programs focused on courseware management, has raised $2.4 million in venture funding from Enhanced Capital Partners, Advantage Capital Partners, the Louisiana Technology Fund and Louisiana Fund I.

Buyout Deals

Wellspring Capital Management has completed its $310 million reacquisition of JW Aluminum Holding Co. from Superior Plus Income Fund. JW Aluminum is a manufacturer of flat-rolled aluminum products, and had been first acquired by Wellspring from Walter Industries in December 2003 for $125 million. Wellspring then sold the company last year for approximately $350 million.

UBS and Socios Financieros have narrowed down the auction finalists for Spanish theme park operator Parques Reunidos, according to Expansion. They are Apax Partners, Candover, Cinven and UK-based theme park operator Tussauds. The deal is expected to be worth more than Euro 800 million.

EMI Group may be nearing an agreement to be acquired by Permira, according to The Wall Street Journal. This follows an earlier Times of London report claiming that the music publisher would not accept any buyout offers for less than 350 pence per share. That same report claimed that Permira was offering 310 pence per share.

Raytheon Co. (NYSE: RTN) is in advanced talks to sell its Raytheon Aircraft Co. unit to Onex Corp. and Goldman Sachs, according to Bloomberg. The company had retained Credit Suisse in July to explore “strategic alternatives” for the unit, and reportedly has received bids from Onex, The Carlyle Group and Cerberus Capital Management. The unit is expected to be valued at between $2.75 billion and $3.25 billion.

Apax Partners and Texas Pacific Group have abandoned plans to sell Greek mobile operator TIM Hellas, and will instead try selling Euro 1.4 billion of additional debt, according to Dow Jones. Leading bidder Eutelsat had withdrawn its interest earlier in the week.

Campbell Alliance Group Inc., a Raleigh, N.C.-based management consulting firm for the pharma and biotech markets, has raised an undisclosed amount of growth equity from Baird Capital Partners.

American Capital Strategies has sold Birmingham, Ala.-based specialty plumbing retailer Jones Stephens Corp. to Cortec Group, a New York-based private equity firm. No financial terms were disclosed, except that ACS re-invested in support of the acquisition. Jones Stephens was advised on the deal by Goldsmith Agio Helms.

PE-Backed IPOs

Heely’s Inc., a Carrollton, Texas-based maker of youth footwear with a removable wheel in the heel, priced around 6.43 million common shares at $21 per share ($16-$18 forecast), for an IPO take of nearly $135 million. It will trade on the Nasdaq under ticker symbol HLYS, while Bear Stearns and Wachovia served as co-lead underwriters. Shareholders include Capital Southwest Venture Corp.

Allegiant Travel Co., a Las Vegas–based operator of a low-cost passenger airline with leisure destinations like Las Vegas and Orlando, priced five million common shares at $18 per share ($15-$17 forecast), for an IPO take of $90 million. It will trade on the Nasdaq under ticker symbol ALGT, while Merrill Lynch served as lead underwriter. Allegiant raised $39.5 million last year from ComVest Investment Partners, Irelandia II and company CEO Maurice Gallagher.

PE-Backed M&A

Hexaware Technologies, a Mumbai, India-based IT and BPO service provider, has completed its acquisition of FocusFrame Inc., a Mountain View, Calif.–based provider of automated testing of ERP and custom applications. The deal was valued at $34.3 million in cash, including $9.3 million in possible earnouts. Hexaware shareholders include General Atlantic.

BitTorrent, a San Francisco P2P file-sharing company, has acquired the uTorrent application for an undisclosed amount. BitTorrent last week raised $20 million from Accel Partners and DCM, and is in talks to raise an additional $5 million.

Firms & Funds

Health Enterprise Partners of New York is raising up to $150 million for its inaugural fund, according to a regulatory filing. So far it has secured at least $33 million in capital commitments. The private equity firm was founded earlier this year by professionals associated with CB Health Ventures, including Daniel Cain, Robert Schulz, Richard Stowe and Rhett Thurman.

DW Healthcare Partners of Salt Lake City is raising up to $225 million for its second fund, according to a regulatory filing. It already has secured around $133 million in capital commitments. Berchwood Partners is serving as placement agent.

Human Resources

Karen Slatford has agreed to join Fidelity Ventures as a venture partner in the firm’s London office. She previously was with Hewlett-Packard, as a vice president and general manager in charge of B2B worldwide sales and marketing.

Bradley Eden has joined Z Capital Partners as a managing director and head of corporate development. He previously served as co-founder and chairman of investment consultancy Fund Evaluation Group. Z Capital also said to expect additional personnel announcements in the near future.

Tom Perkins, co-founder of Kleiner Perkins Caufield & Byers, has sold his memoir to an imprint of publisher Penguin, according to the New York Post.


Correction: Varun Kapur is joining TPG Ventures as a partner, effective February 2007. He will be based in Mumbai, and will lead the firm’s expansion stage, smaller buyouts and growth-oriented investments in India, with investments up to as much as US$75 million.He previously was a managing director with Intel Capital in Asia. Yesterday’s edition cited a VentureWire report, suggesting that he would lead all Indian efforts for Texas Pacific Group.