PE Week Wire, Feb. 16. 2007

Yesterday I was interviewed by Boston radio station WBUR for a piece its doing on the finances of drug rehab centers, like Bain Capital’s $723 million acquisition last year of CRC Health Group. I broadened the conversation a bit to discuss specialty healthcare facilities in general, since most of them have similar value propositions: Guaranteed reimbursement (albeit a bit different for drug rehab than for a cardiac care center), underlying real estate and equipment assets, a never-slowing supply of customers and (in many cases) an opportunity for physicians to own an equity stake in their employer.

In short, these are great deals if you can find them. And, not surprisingly, the sector is (baby) booming. Private equity investments in healthcare facility companies have risen each year since 2002, according to data I just pulled from Thomson Venture Economics. The were 21 such deals in 2002, and have risen consistently until hitting 69 in 2006. There are only two listed so far for 2007, but that number is now three – following this morning’s announcement that TA Associates has sponsored a $130 million minority leveraged recap of American Access Care LLC, a Glen Rock, Pa.-based operator of freestanding outpatient vascular access centers dedicated to patients suffering kidney failure.

*** A lot of you have been writing in to ask my take on the FilmLoop situation, in which one of its VC backers – ComVentures — allegedly engineered a company liquidation by having it get acquired by another one of the VC firm’s portfolio companies. Questions about self-dealing, ethics, actual facts, etc. Oh, and TechCrunch’s Mike Arrington called the move “evil.”

I won’t go nearly as far as Arrington, but will say that what happened here simply was not right. A venture capital firm’s primary obligation is to its limited partners, and some sources have suggested that ComVentures was under LP pressure to “clean up” its portfolio. Fine. But VCs also have a secondary obligation to their entrepreneurs – when you give your money, you’re also pledging support (not just financial). The FilmLoop situation was not one in which the company’s only two choices were new VC funding or instant demise. Instead, company co-founder Prescott Lee says in an interview with peHUB that it had already made layoffs and had enough cash on hand to operate through year-end. In other words, it could have survived at least a bit longer.

So what should ComVentures have done, when its primary obligation to LPs came into conflict with its secondary obligation to entrepreneurs. The answer is that it should have worked harder to resolve the conflict. Here’s what I mean: FilmLoop met with around a dozen potential acquirors, but Lee claims that many could not meet the year-end deadline insisted on by ComVentures (which he feels controlled the board in spirit, albeit not in seat number). The result was just two offers – from ComVentures portfolio company Fabrik and a lower one from company management – at an artificially low valuation (due, again, to the time constraint).

If this account is accurate – and there is admittedly some he said/he said here – the reality is that ComVentures shirked its support for the FilmLoop founders. They deserved a bit more time to find a buyer, particularly considering how hard it is to get anything done near the end of December.

Anyway, read Alex’s take here at peHUB, including much more from the interview with both Prescott Lee and ComVentures’ Roland van der Meer.

*** We’ll be off on Monday, as I fly to Colorado for VC in the Rockies. Be back Tuesday, live from Beaver Creek…

Top Three

Reactrix Systems Inc., a Redwood City, Calif.-based provider of a “reactive media” network in malls and movie theaters, has raised $45 million in third-round funding. D.E. Shaw and Menlo Ventures co-led the deal, and were joined by return backers Thomas Weisel Venture Partners and Worldview Technology Partners.

TA Associates has sponsored a $130 million minority leveraged recap of American Access Care LLC, a Glen Rock, Pa.-based operator of freestanding outpatient vascular access centers dedicated to patients suffering kidney failure. AAC was advised on the deal by RSM EquiCo Capital Markets.

Goldman Sachs and British Airways are part of a group that is considering a buyout offer for American Airlines, according to BusinessWeek. The offer – if it comes – would be for between $46 and $52 per share, which would be an equity value of between $9.8 billion and $11.1 billion.

VC Deals

Tilera Corp., a Santa Clara, Calif.-based ASIC fabless semiconductor startup, has raised around $20 million in Series B funding. Columbia Capital led the deal, and was joined by return backers Bessemer Venture Partners and Walden International. The company is run by Bessemer operating partner Devesh Garg.

Clean Energy Systems, a Rancho Cordova, Calif.–based provider of zero-emissions power plant technology, has raised $13 million in Series A funding from Paxton Corp. and Quadrise Canada Corp.

DataLase Inc., a UK-based material sciences company that focuses on color change chemistry for digital printing, has raised $10 million in new VC funding. BASF Venture Capital and Hotbed were joined by return backer MTI Partners.

NanoPass Technologies Ltd., an Israel-based developer of an intradermal drug delivery platform, has raised $6.5 million in second-round funding. Participants included seed backer Ofer Hi Tech, plus new shareholders WFD Ventures and D-Partners.

Echovox, a Swiss mobile media content services provider, reportedly has raised $7.5 million in second-round funding led by Advent Venture Partners. It raised $5 million in 2005 from Newbury Ventures.

DynaTrace Software Inc., a Linz, Austria-based provider of enterprise application performance diagnostic solutions, has raised $5 million in first-round funding from Bain Capital Ventures.

Buyout Deals

Wynnchurch Capital Partners and Oak Hill Special Opportunities Fund have completed their acquisition of traffic control business Highway Technologies from United Rentals Inc. (NYSE: URI). No financial terms were disclosed. Highway Technologies generates approximately $270 million in revenue, with 44 branch locations and approximately 1,500 employees.

ING Clarion Partners has agreed to acquire Apple Hospitality Two Inc., a REIT focused on the upscale, extended-stay suite segment of the hotel industry, for approximately $11.20 per share. The total deal would be valued at around $890 million, including debt. The Apple portfolio consists of 64 hotels, containing a total of 7,690 suites, across 25 states. UBS is advising Apple on the sale.

CVC Capital Partners has completed its acquisition of a majority stake in French truck leasing company Fraiken Groupe SA from Eurazeo. As part of the deal, Erazeo has reinvested €58.1 million into Fraikin, in exchange for a 19% stake. Company management also will hold a minority position.

Veritas Capital Partners has completed its acquisition of Pearson Government Solutions (PGS) from Pearson PLC for $600 million. Pearson retained a minority interest in PGS (to be renamed Vangent), an Arlington, Va.-based provider of information and benefits solutions to national and local governments, education institutions and corporations. PGS will be renamed early next year.

Aurora Capital Group has agreed to lead a buyout of Mitchell International Inc. from Hellman & Friedman. No financial terms were disclosed, although LBOWire puts the sale price at approximately $500 million. GE Pension Trust also participated alongside Aurora. Mitchell is a San Diego–based provider of information, workflow and performance management solutions to the automotive insurance claims and collision repair industries. It was advised on the sale by Goldman Sachs and Wachovia Securities.

Weyerhaeuser Co. (NYSE: WY) said that it is in final negotiation to sell its Canadian wholesale building products distribution centers to Platinum Equity. The deal is expected to close next quarter.

PE-Backed IPOs Inc., a Waltham, Mass.-based provider of on-demand compensation management solutions, priced 5.7 million common shares at $10.50 per share ($8-$10 range), for an IPO take of approximately $ million. Its share price rose as much as 33% in its first day of trading, before settling back down to close at $12.56 per share. It is trading on the Nasdaq under ticker symbol SLRY, while Thomas Weisel Partners and William Blair & Co. served as co-lead underwriters. It raised around $4 million in VC funding from groups like Lyric Capital in 2000 and 2001.

Idea Cellular Ltd., a provider of wireless communications services in India, received offers for at least 50 times the $482 million it planned to raise via an IPO on the National Stock Exchange of India. The company received 16.19 billion bids for the 326.9 million offered shares, in part thanks to an earlier announcement that Vodafone Group PLC would acquire a 67% stake in Hutchison Essar Ltd. Idea Cellular recently sold minority positions to TA Associates and Providence Equity Partners.

There are no more PE-backed IPO pricings expected for the remainder of February.

PE Exits

Omniture Inc. (Nasdaq: OMTR), an Orem, Utah-based provider of web analytics, has agreed to acquire Touch Clarity, a London-based provider of on-demand provider of automated behavioral targeting. The deal is valued at upwards of $51.5 million, plus approximately $8.5 million in assumed vested stock options. It is expected to close later this quarter. Touch Clarity has raised around $11 million in VC funding since 2000, from firms like Alta Berkeley Venture Partners, The Capital Fund, JVP and NewMedia Spark.

Scotiabank has acquired Travelers Leasing Corp., a Vancouver–based specialty automobile finance company. No financial terms were disclosed. TLC had raised venture funding from such firms as VenGrowth Private Equity Partners.

Firms & Funds

OVP Venture Partners of Seattle and Portland, Ore. held a $250 million final close on its seventh fund. It had held a $207 million first close in May 2006, but extended the fundraising to accept commitments from the Meketa Investment Group and the College of the Holy Cross. Other new LPs include the New York State Common Fund, the Alfred I. DuPont Testamentary Trust and Olin College of Engineering, while returnees include the Oregon Public Employees Retirement Fund, the Washington State Investment Board and the endowments of Indiana University and Kenyon College. The fund portfolio already includes ! such companies as GainSpan Corp., Talyst Inc. and Tzero Technologies.

HitecVision Private Equity of Norway is opening an office in Houston, Texas. The firm manages two funds with $410 million in combined capital, with two of its 11 current portfolio companies based in Houston. It also maintains an office in Aberdeen, Scotland.


Correction: The correct website address for Inogen Inc. is The company yesterday announced that it had raised $22 million in new VC funding.