PE Week Wire, Feb 13, 2007

I’ve been taking some reader heat for my latest thesis du jour: Private equity firm adulation/omnipresence is causing public shareholders and strategic buyers to feel that initial take-private offers are artificially low – thus resulting in a need to either raise or abandon bids. Recent examples include Equity Office, Harrah’s, Elkcorp, Countrywide, Cornell Cos. and Eddie Bauer (with Clear Channel and Four Seasons possibly to come).

The criticism has been twofold: (A) Where’s the evidence that this is happening with greater frequency today; and (B) If true, where’s the evidence that it is impacting LBO firm returns?

Let’s tackle B first, if only because it cannot be tackled. This phenomenon is too new to be reflected in performance data, although most LPs I speak with expect mega-market funds to under-perform large and middle-market funds on an IRR basis (obviously megas produce more cash-on-cash). So we’ll table B and return to A.

Ok, this is equally unsatisfying, since most of the argument thus far is based on anecdotal evidence (see above). But Thomson Financial is at least providing us with some historical data (download here) that can help us begin a more quantitative conversation. The information is not specific to PE-backed bids, but instead focuses on all M&A offers for public U.S. companies. What it finds is that the percentage of such deals with raised bids rose from 4.97% in 2005 to 5.27% in 2006, although it dropped from 11.11% to 10.45% for deals valued at $1 billion or more. In both cases, the percentage of bid increase fell between 2005 and 2006.

I know this signals trouble for my argument – both A and, consequently B – but there are two caveats that are convincing me to hang on for at least a little longer. First, as I said previously, this is a fairly new phenomenon. I’m going to get the quarterly breakdown of 2006, and also await Q1 2007 data. Second, the Thomson info is not PE-backed specific, nor does it include situations in which shareholders rejected bids. This latter category would include Countrywide, Cornell Cos. and Eddie Bauer. Again, good for context, but not the whole story…

Top Three

Diversa Corp. (Nasdaq: DVSA) has agreed to acquire Celunol Corp., a Dedham, Mass.-based producer of ethanol and specialty chemicals from cellulosic biomass. The deal is valued at approximately $175 million, including 15 million Diversa shares and $20 million in debt funding. On a pro-forma, fully diluted basis, Diversa stockholders will retain ownership of approximately 76% of the combined company, and Celunol stockholders and option holders will own approximately 24 percent. Celunol last year raised $13.8 million in Series C funding from Braemar Energy Ventures, Charles River Ventures and Rho Ventures.

Omeros Corp., a Seattle-based drug company focused on receptor and enzyme therapeutics, has raised in excess of $63 million in Series E funding. We reported last summer that it had secured $44 million of the round, according to a regulatory filing that indicated a $75 million cap. New backers included Aravis Ventures, ARCH Venture Partners, American Financial Group, Grosvenor Funds, Novartis Venture Fund, Southern Cross Capital, Stanley Medical Research Institute, Trevi Health Ventures and WRF Capital. The round also included return backers, although Omeros died not specify which ones. Omeros now has raised $108 million in total VC funding.

SandRidge Energy Inc. (f.k.a. Riata Energy), an Oklahoma City-based oil and gas exploration and production company, has agreed to sell $250 million in common stock to Ares Management ($200m) and company chairman and CEO Tom Ward ($50m). The Ares commitment is subject to reduction in the event certain existing shareholders exercise their right to acquire a portion of the shares.

VC Deals

LiveOps Inc., a Palo Alto, Calif.-based provider of call center solutions via use of at home-based operators, has raised $28 million in Series C funding. Benchmark Capital led the deal, and was joined by return backers CMEA Ventures and Menlo Ventures.

iCrossing Inc., a Scottsdale, Ariz.-based digital marketing agency, has raised $18 million in additional Series D funding from Oak Investment Partners, RRE Ventures and StarVest Partners. The total round now stands at $33 million, with the latest infusion being used to help finance the acquisition of UK-based search marketing agency Spannerworks.

IP.access Ltd., a UK-based provider of cellular picocell technologies, has raised $10 million in second-round funding. Amadeus Capital Partners led the deal, and was joined by return backers Intel Capital, Rothschild & Cie Gestion and Scottish Equity Partners.

Bomgar Corp. (f.k.a. NetworkStreaming), a Ridgeland, Miss.-based provider of appliance-based remote support software, has raised $5 million in Series B funding. Return backers include Southern Farm Bureau Life Insurance Company and GulfSouth Capital. The company has now raised $12 million in total VC funding.

Inspiry Ltd., a Beijing, China-based developer of 2D barcode technology, has raised an undisclosed amount of Series A funding from Gobi Partners.

Strix Systems Inc., a Calabasas, Calif.–based provider of wireless mesh networking, has raised an undisclosed amount of strategic funding from Samsung Ventures America. It previously had raised $61 million in total VC funding since 2000, from firms like Crosslink Capital, El Dorado Ventures, Palomar Ventures, UV Partners and Windward Ventures.

Buyout Deals

Sun Capital Partners has acquired Scott Brass Inc., a Cranston, R.I.-based miller of brass and copper stripping. No financial terms were disclosed.

Industrial Opportunity Partners of Chicago has acquired the assets of the Shelby, N.C.-based operating facility of Honeywell (NYSE: HON). IOP has renamed the business FAS Controls Inc., and says that it is a manufacturer of pressure switches, valves, circuit breakers, mechanical switches, coils and solenoids. No financial terms were disclosed for the deal, except that PNC Business Credit provided financing.

Baird Capital Partners has acquired two suppliers of outdoor wood play sets: Backyard Adventures Inc. of Amarillo, Texas, and Leisure Time Products Inc., of Pittsburg, Kansas. No financial terms were disclosed. Each company will heretofore operate as separate subsidiaries of Backyard Leisure Holdings.

Eateries Inc., an Oklahoma-based casual dining restaurant company, has been acquired by Cordova, Smart & Williams, Waterview Capital and company management. No financial terms were disclosed, except that Praesidian Capital provided around $6.5 million in subordinated notes and redeemable preferred equity.

Lamson & Sessions (NYSE: LMS) has retained Perella Weinberg Partners to help is explore strategic and financial alternatives that could include a sale of the company. News of the review sent the thermoplastic enclosure-maker’s stock up 6.5% to $28.50 per share.

WCI Communities Inc. (NYSE: WSI) has retained Goldman Sachs to explore strategic and financial alternatives that could include a sale of the company. The luxury condominium builder has a market cap of around $920 million.

Imperial Capital has acquired substantially all the assets of Kenra LLC, an Indianapolis-based hair care manufacturer and marketer. No financial terms were disclosed.

Trevi Health Ventures has formed Interventional & Surgical Innovations LLC, a development platform company for early-stage medical device technologies with an initial focus in the cardiovascular space. No terms of Trevi’s financial commitment were disclosed. The firm is launching ISI in partnership with Peter Hinchliffe, who has held senior management positions at the Interventional and Intervascular divisions of Datascope and, prior to that, at Tyco Healthcare’s US Surgical division.

PE-Backed IPOs

Solera Holdings LLC, a San Ramon, Calif.-based claims processing company owned by GTCR Golder-Rauner, has filed for a $460 million IPO. It plans to trade on the NYSE under ticker symbol SLH, with Goldman Sachs and JPMorgan serving as co-lead underwriters.

RSC Holdings Inc., a Scottsdale, Ariz.-based construction equipment rental company, has filed for a $300 million IPO. It plans to trade on the NYSE, with Morgan Stanley, Deutsche Bank and Lehman Brothers serving as co-lead underwriters. The company is owned by Oak Hill Capital Partners and Ripplewood Holdings.

EnerNOC Inc., a Boston-based provider of demand response and energy management solutions, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol ENOC, with Credit Suisse and Morgan Stanley serving as co-lead underwriters. The company has raised around $28 million in VC funding, from firms like Foundation Capital, Draper Fisher Jurvetson, Braemar Energy Ventures and DFJ New England.

HireRight Inc., an Irvine, Calif.-based provider of on-demand employment screening solutions, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol HIRE, with Credit Suisse serving as lead underwriter. HireRight has raised around $35 million in VC funding from firms like DCM-Doll Capital Management (23.1% pre-IPO stake), Baird Venture Partners (7.1%), Mellon Ventures (29.2%) and St. Paul Venture Capital (20.9%).

ShoreTel Inc., a Sunnyvale, Calif.-based provider of IP telecom systems for enterprises, has filed for an $85 million IPO. It plans to trade on the Nasdaq under ticker symbol SHOR, with Lehman Brothers and JPMorgan serving as co-lead underwriters. It has raised around $107 million in VC funding between 1997 and 2004, from firms like Crosspoint Venture Partners (28.4% pre-IPO stake), Foundation Capital (20.7%), Lehman Brothers Venture Partners (23%), JPMorgan Capital (5.4%), Focus Ventures, Globespan Capital Partners, Matrix Partners and Norwest Venture Partners.

PE-Backed M&A

Planview Inc., an Austin, Texas-based provider of portfolio management solutions, has acquired San Francisco-based IT portfolio management company Business Engine Inc. No financial terms were disclosed. Planview is a portfolio company of Apax Partners, while Business Engine has raised approximately $85 million in VC funding since 1998, from firms like Morgan Stanley Venture Partners, Oak Investment Partners, Broadview Capital Partners and Technology Crossover Ventures.

SGS International Inc., a provider of consumer product packaging services, said that its Canadian subsidiary has acquired Synnoflex Inc., a pre-press services company based in Québec. No financial terms were disclosed. SGS is a portfolio company of Court Square Capital Partners.

Baker & Taylor, a Charlotte, N.C.–based book distributor, has agreed to acquire a majority of the assets of San Diego-based Advanced Marketing Services Inc. (OTC BB: MKTSQ), a bankrupt provider of customized merchandising, wholesaling and contract distribution services. No financial terms were disclosed. Baker & Taylor is a portfolio company of Castle Harlan.

ImpreMedia LLC, a New York-based publisher of Spanish-language newspapers, has agreed to acquire the New York version of Hoy and its related weekend pub Fin de Semana from Tribune Co. (NYSE: TRB). No financial terms were disclosed for the deal, which does not include Tribune’s Hoy properties in Los Angeles or Chicago. ImpreMedia is backed by Halyard Partners and Clarity Partners.

PE Exits

Ericsson (NASDAQ: ERIC) has acquired Entrisphere Inc., a Santa Clara, Calif.-based provider of fiber access technology. No financial terms were disclosed. Entrisphere had raised around $145 million in VC funding since its 2000 inception, from firms like Accel Partners, Benchmark Capital, CDP Capital, Crosspoint Venture Partners, DAG Ventures, El Dorado Ventures, Lighthouse Capital Partners, Ontario Teachers Pension Plan, STAR Ventures and VantagePoint Venture Partners.

Gilvest LP has acquired Zinio Systems Inc., a San Francisco-based digital publishing and distribution platform for magazines and books. No financial terms were disclosed. Gilvest is owned by David Gilmour and managed by Doug Carlson. Zinio had raised around $34 million in total VC funding since 2001, from firms like New Enterprise Associates, Intel Capital, Palisades Ventures, Apax Partners, North Bridge Venture Partners and Commonwealth Capital Ventures. It had sold its magazine e-commerce site last month to M2 Media Group.

Sigma-Aldrich Corp. (Nasdaq: SIAL) has acquired Epichem Group Ltd., a Bromborough, UK-based supplier of chemicals to the semiconductor industry. No financial terms were disclosed, except that Epichem has $40 million in annual revenue. Epichem has raised VC funding from Intel Capital.

Cytec Corp. (Nasdaq: CYTC) has agreed to acquire women’s health product developer Adeza (Nasdaq: ADZA) for $24 per share. The total deal is valued at approximately $450 million, and is expected to close by the end of March. Adeza raised around $33.5 million in VC funding before going public in 2004, but still counts Enterprise Partners Venture Capital and Sprout Group among its larger shareholders.

Firms & Funds

Quintana Energy Partners, a Houston, Texas-based private equity fund formed to make control-oriented investments across the oil and gas, coal and power industries, has closed its inaugural fund with $650 million in capital commitments. Lehman Brothers served as placement agent.

Vietcom Fund Management of Vietnam has raised $120 million for its second private equity fund. Vietcom is a joined venture between Vietcombank and Viet Capital Holding Pte. of Singapore.

TRG, a New York-based turnaround and financial advisory firm, has formed an asset management practice dedicated to managing distressed and underperforming private equity investments. In related news, the new group has been appointed investment advisor and fund manager of Raiffeisen CEE Private Equity Fund.

Green Alliance, a Spanish private equity firm partially owned by SCS Venture Partners, reportedly has raised Euro 120 million for a fund focused on renewable energy projects in Spain.

Warburg Pincus is prepping its tenth fund with a $10 billion target, according to LBO Wire. Its ninth fund closed with $8 billion in 2005.

Redpoint Ventures is targeting between $250 million and $300 million for a late-stage venture fund, according to VentureWire. It closed on $400 million for its third early-stage fund last year.

Human Resources

Sergio Monsalve has joined Norwest Venture Partners as a principal. He previously was an entrepreneur-in-residence with Trinity Ventures and, before that, was a vice president of marketing with Photobucket and a director and general manager with eBay.

Dennis Costello has joined Braemar Energy Ventures as a managing director and head of a new Boston offie. He previously was CIO for Advent International’s North American activities.

Chris Grew, Richard Eaton and Straun Penwarden have joined Heller Ehrman LLP as London-based partners in the firm’s corporate/venture law group. They previously were partners in WilmerHale’s London office.

Karen Christofferson has been named a vice president with Helix Associates, the private equity fund placement unit of Jefferies & Co. She previously was a vice president with JPMorgan Chase & Co and its predecessor firms.

Houlihan Lokey has hired a team of bankers from Trammell Crow Co., in order to provide asset-level real estate solutions. Jonathan Geanakos joins existing Houlihan Lokey banker John Schoenfeld as co-head of the Real Estate, Lodging and Leisure Group. Along with Geanakos, senior vice president Stephen Pearlman, vice president Frank Muhlon and associate Nicholas Harris will focus on asset level real estate transactions.Equinox Partners managed the search on behalf of the firm.

Meritage Funds has promoted both Stephanie Smeltzer McCoy and Derek Pilling to managing director. Meritage is a Denver-based venture capital firm focused on the communications market.

Arsenal Capital Partners has promoted Aaron Davenport and Jack Norris to principal. Davenport joined the firm in 2001 after having focused on the pharma industry for Braun Consulting. Norris joined in 2003 from Berkshire Partners. The New York-based firm focuses on middle-market manufacturing and service companies, and last year closed its second fund with $500 million.

Watch Hill Partners LLC has made three promotions: Tim Whipple and Claude Shaw from associates to vice presidents, and Rob Kusick from analyst to associate.

James Rosen has joined Intersouth Partners as an associate. He originally came to Intersouth as a part-time intern in early 2005, while pursuing dual graduate degrees at the University of North Carolina at Chapel Hill. He received his MBA program in December and will graduate with a Master of Science degree from the School of Public Health this