PE Week Wire, Feb. 12, 2007

Tomorrow night, Blackstone Group chief Steve Schwarzman will throw himself an ostentatious 60th birthday party, complete with some crooning from Rod Stewart. The New York society pages estimate that the bash will cost in excess of $4 million, and I’m told that Schwarzman is a bit uncomfortable that the details are being scrutinized as if it were a taxpayer-funded event. But this party presents Schwarzman with a much bigger problem than personal pique – it will be just another reason for public company shareholders to reject leveraged buyout offers (or at least to drive them up). In other words, this party is bad for business.

Let me explain: So far in 2007, three different take-private offers have been rejected by shareholders as being too low. The most recent came last week, when Eddie Bauer shareholders nixed a $614 million offer from Golden Gate Capital and Sun Capital Partners. In addition, a number of other deals have only received approval after the initial offer had been significantly raised. Think Equity Office, Harrah’s or – coming soon – Clear Channel.

The common denominator is that public shareholders thought the buyout firms were low-balling them. This is probably true in some cases, but the perception has been far worse than the reality. In general, mega-LBO firms are warning their limited partners to expect stable or lower returns than in recent years. Public shareholders, however, seem to believe that Blackstone, et all are telling investors that salad days are coming and the past was just a breadstick.

What’s driving this perception? Increased visibility. Every time a private equity firm buys a brand-name company – think Dunkin’ Donuts, Neiman Marcus, etc. – the mainstream press covers it ad nausea. Think it’s a coincidence I didn’t appear on CNBC for three years, but have been on more than a dozen times in the past few months? And, since most journalists have little insight into LP return expectations, each story is portrayed like this: “Firm X bought Company Y for $40 per share. It’s a 20% premium to the closing stock price, but it will probably be a huge bargain for Firm Y because they’re smart guys. Why else would they have offered $40 per share?”

All of this brings me back to Schwarzman’s party – and event that will add to this perception that LBO firms are making a killing at the public shareholders’ (consenting) expense. Even if that perception is true, why rub their face in it? All it will do is cause them to drive up the price of the next go-private acquisition. After all, if you can afford Rod Stewart, you can certainly afford another few dollars per share.

So cancel the party Steve, for the private equity market’s sake. Just invite over a few close friends, and maybe hire a clown (or perhaps just the other Faces members). It will save you money in the long run…

Top Three

The Blackstone Group has agreed to acquire Cherry Hill, N.J.-based frozen foods maker Pinnacle Foods Group Inc. from JPMorgan Partners, J.W. Childs Associates, CDM Group and former bondholders of Aurora Foods Inc. The total transaction is valued at approximately $2.16 billion, including around $900 million of assumed debt.

Targanta Therapeutics Inc., a Cambridge, Mass.-based developer of antibacterial agents, has raised $70 million in Series C funding. Brookside Capital, Skyline Ventures, Radius Ventures and OrbiMed Advisors were joined by return backers like Seaflower Ventures, VenGrowth Advanced Life Sciences Fund and the Canadian Medical Discoveries Fund.

CarVal Investors, the distressed investment arm of conglomerate Cargill Inc., is nearing a $5 billion close on its first fund to accept third-party capital, according to Buyouts Magazine.

VC Deals

Picsel Group Ltd., a UK-based provider of a mobile content platform, has raised $46.5 million in third-round funding. Capital International led the deal, and was joined by Doll Capital, NIF, SMBC Ventures Co., SBI Investment Co. and

Dash Navigation Inc., a Mountain View, Calif.-based provider of Internet-connected automotive GPS devices, has raised $25 million in Series B funding. Crescendo Ventures led the deal, and was joined by Artis Capital, ZenShin Capital Partners and Gold Hill Capital. Return backers included Kleiner Perkins Caufield & Byers, Sequoia Capital and Skymoon Ventures. The company raised a $10 million Series A round last year, and plans to begin selling its product in the fall.

Sirific Wireless Ltd., a Richardson, Texas-based fabless provider of single-chip, multi-band CMOS RF transceivers for the 3.5G market, has raised $18.8 million in Series C funding. Hunt Ventures was joined by return backers BDC Venture Capital, Celtic House, GrowthWorks, Intel Capital, TD Capital Ventures and Tech Capital Partners.

Vertica Systems Inc., an Andover, Mass.-based provider of database software, has raised $16.5 million in Series B funding, according to a regulatory filing. Kleiner Perkins Caufield & Byers was joined by return backers Bessemer Venture Partners and Highland Capital Partners.

Pontis Ltd., an Israel-based provider of software marketing systems for communications services providers, has raised $15 million in second-round funding. Sequoia Capital led the deal, and was joined by return backers Evergreen Ventures and Accel Partners.

Zlango, an Israel-based developer of an icon-based language for Web and mobile messaging, has raised $12 million in first-round funding from Benchmark Capital and Accel Partners.

Buyout Deals

Four Seasons Hotels Inc. (NYSE: FS) said that its board has approved an $82 per share buyout offer from Cascade Investment (backed by Bill Gates), Kingdom Hotels International (backed by Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud) and Four Seasons chairman and CEO Isadore Sharp. The total deal would values the company at approximately $3.8 billion, with a shareholder vote slated for April.

Star Capital Partners has made two purchases in the flight simulator space: A majority stake of General Electric Commercial Aviation Training (GECAT) from General Electric’s Commercial Aviation Services business (GECAS) and SAS Flight Academy from SAS AB. The deals value the combined businesses at more than $275 million, and are expected to close within the next month.

Fenway Partners has agreed to acquire a majority interest in Gemini Traffic Sales Inc., an Edison, N.J.-based regional truckload carrier specializing in the transportation of time- and temperature-sensitive products. No financial terms were disclosed for the deal, which is being done in partnership with Gemini management.

Timberland Co. (NYSE: TBL) has called off its auction, according to The Deal. The Stratham, N.H.-based boot and clothing company had hired Goldman Sachs last year to run the process, and had received interest from both strategic and private equity suitors. No word on why the company has opted to remain independent and public.

Soros Private Equity Partners is among several private equity firms circling fashion designer Nanette Lepore, according to the NY Post. The company had 2006 sales of approximately $85 million.

PE-Backed IPOs

Optimer Pharmaceuticals Inc., a San Diego-based developer of anti-infective products, priced seven million common shares at $7 per share, for an IPO take of approximately $49 million. It originally planned to sell 5.25 million shares at between $12-$14 per share, and later lowered the range for $8-$9 per share. It will trade on the Nasdaq under ticker symbol OPTR, while Piper Jaffray and Jefferies & Co. served as co-lead underwriters. It has raised $67.7 million in VC funding from firms like ProQuest Investments, Formose Healthcare Investments and BB Biotech.

TomoTherapy Inc., a Madison, Wis.-based developer of cancer treatment systems that use on-board CT imaging and conformal radiation therapy, has filed for a $201.25 million IPO. It plans to trade on the Nasdaq under ticker symbol TTPY, with Merrill Lynch serving as lead underwriter. The company has raised around $79 million in VC funding since 1999, from firms like The Endeavors Group, Open Prairie Ventures, State of Wisconsin Investment Board, Advantage Capital Wisconsin Partners and Ascension Health Ventures.

PE-Backed M&A

Cambridge Information Group has acquired ProQuest Information and Learning from ProQuest Co. (NYSE: PQE) for $222 million. ABRY Partners provided equity financing, while leverage was arranged by Morgan Stanley Senior Funding and Goldman Sachs Credit Partners. CIG will merge ProQuest I&L with existing subsidiary CSA.

Numericable, a French cable company owned by Cinven, is considering a bid for Iliad SA, according to La Lettre de L’Expansion. The deal would be valued at approximately Euro 5 billion, with Morgan Stanley arranging the leveraged financing.

EMC Corp., an educational publisher owned by The Wicks Group of Cos., has acquired JIST Publishing Inc., an Indianapolis-based publisher of educational materials covering such topics as job search, resumes and career reference. No financial terms were disclosed.

Fabrik Inc., a San Mateo, Calif.-based storage provider, is nearing a deal to acquire the consumer storage device business of SimpleTech (Nasdaq:STEC), according to GigaOm. Fabrik has raised $12.1 million in VC funding from firms like ComVentures and Intel Capital.

PE Exits

FdG Associates has sold its minority stake in DentaQuest Inc., a Boston-based dental benefits administrator, back to the company for $110 million. FdG Associates invested $12 million of growth capital into DentaQuest in May 2002. (OTC BB: GOFH) has agreed to acquire Bolt Media, a youth-oriented operator of a user-generated content website, for up to $30 million in GoFish stock. Bolt has raised over $62 million in total VC funding since its 1996 inception. This includes an early 2000 infusion at a post-money valuation of approximately $335 million, and a deal the following June that valued the company at less than $34 million. Backers have included Fremont Partners, Highland Capital Partners, Moore Capital, Oak Investment Partners, AOL, Ford Motor Co., Comcast Interactive Capital and Sandler Capital Management.

Zimmer Holdings Inc. (NYSE: ZMH) has agreed to acquire Endius Inc., a Plainville, Mass.-based maker of steerable endoscopic surgical instruments. No pricing details of the all-cash deal were disclosed. Endius had raised around $74 million in VC funding since 1996, from firms like Advanced Technology Ventures, Capstone Ventures, Carlyle Venture Partners, Dauphin Capital Partners, EGS Healthcare, Hickory Venture Capital Corp., Hillman Co., Morgan Stanley, Polaris Venture Partners, Rock Hill Ventures, Senmed Medical Ventures, Trellis Health Ventures and the Venture Capital Fund of New England.

Cisco Systems Inc. (Nasdaq: CSCO) has agreed to acquire Five Across Inc., a San Francisco-based social networking platform. No financial terms were disclosed. Five Across had raised $2 million in VC funding from Granite Ventures and an affiliated fund.

Firms & Funds

The Jordan Co. is targeting $3.5 billion for its second fund, according to Buyouts Mgazine. Credit Suisse is serving as placement agent.

SigmaBleyzer has closed its fourth private equity fund focused on Southeastern Europe with Euro 250 million in capital commitments.

The Carlyle Group has closed its first Mexico Capital Partners fund with $134 million in capital commitments. The fund already is 29% invested with deals for both Universidad Latinoamericana and Hispanic Teleservices Corp.

Nokia Growth Partners has formed a $100 million fund-of-funds that will invest in venture capital funds focused on emerging technology markets like India and China. It will be led by new managing partners John Gardner and Paul Asel. Gardner was previously a partner with BlueRun Ventures (f.k.a. Nokia Venture Partners), while Asel led the India tech investment practice for the International Finance Corporation.

Hatteras Venture Partners of Durham, N.C. has closed its third fund with $60 million in capital commitments. The Durham, N.C.-based firm focuses on seed and early-stage opportunities in the pharma, medical device and medical diagnostics spaces. In related news, Hatteras has added two general partners: Robert Ingram, former CEO of GlaxoWellcome, and Douglas Reed, a former partner with Vector Fund Management.

Alliance Semiconductor Corp. has agreed to sell its 79.31% stake in Solar Venture Partners for $5 million in cash to Willowridge and Thomas Weisel Partners. SVP portfolio companies include Crosslayer Networks, Epiance and Ontologent.

3i Group has sold its positions in four portfolio companies to Shackleton Ventures for an undisclosed amount. The secondary transaction included positions for Global Computer Holdings Ltd. and Data Encryption Systems Ltd.

Human Resources

Khai Tan has joined Bridgepoint as a partner in charge of the firm’s new office in Warsaw, Poland. He previously oversaw Polish activities for Advent International.

David Wickham has joined Invesco Private Capital as a London-based principal, where he will focus on commitments to European funds. He previously was with Insight Investment.

Fabian Mansson on Friday resigned as CEO of Eddie Bauer Holdings Inc. (Nasdaq: EBHI), just one day after shareholders nixed a $9.25 per share buyout offer from Sun Capital Partners and Golden Gate Capital. Board member Howard Gross will serve as interim CEO.

Patrick Hanraty and Henry Hissrich have joined the Philadelphia office of Harris Williams & Co. Hanraty will serve as a managing director with the Cobblestone Advisors lower-middle-market group, while Hissrich will serve as director of new business development.

Peter Bitter has joined Home Depot as a director in the company’s strategic business development group. He previously was an I-banker with P&M Corporate Finance, which was focused on middle-market companies.