PE Week Wire, Feb. 7, 2007

There has been endless discussion over the past few years about how much capital is flowing into the private equity markets – whether it be for mega-LBO funds or VC vehicles focused on hot niches like cleantech or China. Too much money chasing too few deals… fund size tail wagging the due diligence dog… yada yada. But rarely mentioned in these pieces is one inescapable fact: For most firms, fundraising is extremely difficult work. So difficult, in fact, that quitting is sometimes the only reasonable option.

This brings us to the latest edition of our Dickensian riff, which involves Trimaran Capital Partners and TianDi Growth Capital. The former is a New York-based middle-market buyout shop, while the latter is a VC shop focused on tech-transfer opportunities for cleantech companies in China. Neither was able to raise its latest fund via traditional means, but only Trimaran is fading away. TianDi is just getting started…

Trimaran: As many of you guessed, Trimaran was the answer to yesterday’s Quiz Question about the middle-market buyout shop that last week suffered multiple senior defections. Those who guessed wrong were probably thrown off by my hint – “It’s been trying to raise its third fund for a (very) long time” – because it was factually incorrect (apologies).

Trimaran had begun raising its third fund in 2005 with a $1.25 billion target and Credit Suisse as its placement agent, but was unable to get traction for two basic reasons. First, generalist middle-market firms aren’t exactly in favor nowadays among LPs, unless they have spectacular returns or some other distinguishing characteristic. Second, and more importantly, it began fund-raising a bit too early because it had a bunch of realizations on tap for 2006. Had Trimaran begun fundraising 12 months later, it may still be alive and kicking (rather than operating in its current state as a legacy portfolio manager).

As for the four defections, they are managing director Steve Flyer (in-house counsel), director Dan Benyaminy, associate Dan Gaspar and associate Greg Prata. They left en masse last week to go work for Columbus Nova, a firm with offices in both the U.S. and Russia. No real surprise – save for the fact that four people left together – since Trimaran has made it clear that it will not raise another fund. It’s unclear what this means for other staffers, but it wouldn’t be surprising to see additional defections and/or new non-Trimaran investment efforts from senior pros.

TianDi: I first wrote about this firm 14 months ago when it was tentatively called Shanghai Ventures. Here’s a refresher or, for expediency, it was a China-focused private equity firm launched by Ollie Curme, a general partner with Battery Ventures for more than 20 years. At the time, Shanghai Ventures was designed to invest between $10 million and $50 million in revenue-generating companies within such sectors as industrial manufacturing, medical devices, logistics and energy. I other words, take advantage of a market opening not being filled by the early-stage VCs that were flooding the market.

But, as with Trimaran, TianDi was unable to grab limited partner traction. Blame the general difficulties of emerging managers, the lack of a branded sponsor (even though Battery was at least tangentially involved) or the fact that Curme was targeting a sector that was relatively new to him (even though he did have native Chinese partners). So formal fund-raising stopped.

Unlike Trimaran, however, Curme didn’t give up. Instead, he and his two other partners reached into their own pockets to raise TianDi’s inaugural fund. They also changed investment strategies. A press release is slated for later this week, but Curme told me yesterday that the inaugural TianDi fund is now capped at $40 million and is open for business. The new focus is on Chinese alt energy and enviro tech companies that need help with tech transfer from Europe or North America.

For example, it’s working with a Chinese wind farm developer that to make its own wind turbines with the latest technologies. So TianDi will make an equity investment, and also is talking with European vendors to license their technology for manufacturing purposes. Average deals will be $5 million, which means TianDi shouldn’t need to raise additional capital for the next 18 to 24 months.

Curme’s two other senior partners are Enqiang Wang, who previously was a partner with Shanghai Venture Partners, and Michael Yahng, who is a former interim CEO of Shenzen Development Bank. The firm’s website is here.

Top Three

Vornado Realty Trust this morning dropped its bid for Equity Office, just as shareholders were expected to vote on a rival offer from The Blackstone Group. This makes Blackstone the likely winner of what would be the largest-ever buyout at approximately $39 billion.

Beceem Communications, a Santa Clara, Calif.-based provider of mobile WiMAX chipsets, has raised $41.1 million in Series D funding. Teachers’ Private Capital led the deal, and was joined by NEC Corp., Global Catalyst Partners, Intel Capital, Khosla Ventures, KTB Ventures, Mitsui & Co., DoCoMo Capital, Samsung Ventures, Sequoia Capital and Walden International. Beceem has raised nearly $90 million in total VC funding since its 2003 inception.

Synta Pharmaceuticals Corp., a Lexington, Mass.–based small-molecule drug company focused on cancer and chronic inflammatory diseases, priced 5 million common shares at $10 per share, for an IPO take of $50 million. This was well below its plan to sell 6 million shares at between $14 and $16 per share. It began trading on the Nasdaq under ticker symbol SNTA, and closed the day down to just $9.09 per share. Bear Stearns and Lehman Brothers served as co-lead underwriters. Synta had raised over $196 million in venture capital funding from firms like Caxton Group, Galleon Group, AIG SunAmerica, Wyandanch Partners and Aperture Partners.

VC Deals

Proacta Inc., a San Diego-based developer of cancer drugs that target physiological attributes of solid tumors, has raised $35 million in Series B funding. Clarus Ventures led the deal, and was joined by Delphi Ventures and return backers Alta Partners, GBS Venture Partners, New Zealand Venture Investment Fund, No 8 Ventures, Endeavour iCap, Genentech and Roche.

Greenplum, a San Mateo, Calif.-based developer of open-source databases for business intelligence and data warehousing, has raised $19 million in combined equity and debt funding. VentureBeat reports that Sierra Ventures led the $15 million cash tranche, and was joined by return backers investors Mission Ventures, Dawntreader Ventures and EDF Ventures. Comerica Bank provided the debt tranche.

SideStep Inc., a Santa Clara, Calif.-based online travel search company, has raised $15 million in Series C funding. Norwest Venture Partners led the deal, and was joined by return backers Trident Capital, Leader Ventures and Saints Capital.

GroundWork Open Source Inc., a San Francisco-based provider of open-source systems and network management software, has raised $12.5 million in Series C funding. JAFCO Ventures and SAP Ventures were joined by return backers Canaan Partners and Mayfield Fund.

Zolo Technologies Inc., a Boulder, Colo.-based developer of optical gratings, has raised $12.5 million in Series D funding. Siemens Venture Capital and El Dorado Investment Co. (venture arm of PinnacleWest Capital Corp.) co-led the deal, and were joined by return backers like Canaan Partners, Crescendo Ventures, and Morgenthaler Ventures. The company now has raised around $68 million in total VC funding, including a $5 million Series C round in 2005 at a post-money valuation of around $49 million.

Move Networks Inc., an American Fork, Utah-based provider of video-over-IP solutions, announced that it has closed its Series B round with $11.3 million. Hummer Winblad Venture Partners led the deal, and was joined by Steamboat Ventures. PE Week Wire first reported the news back in December, based on a regulatory filing.

BayNote Inc., a Cupertino, Calif.-based provider of on-demand content guidance, has raised $10.75 million in Series B funding, according to a regulatory filing. Backers include Hummer Winblad Venture Partners, JK&B Ventures and Steamboat Ventures.

ActoGeniX NV, a Belgium-based developer of an oral drug delivery platform, has raised €8.5 million in additional Series A funding, thus closing out the round at €20 million. Aescap Venture, Baekeland Fund and Ventech were joined by first-tranche participant GIMV.

Fonality Inc., a Los Angeles-based provider of open-source IP telephony for the SMB market, has raised $7 million in Series C funding. Intel Capital led the round, and was joined by return backer Azure Capital Partners.

Otologics LLC, a Boulder, Colo.-based maker of implantable hearing aids, has raised $6 million in new VC funding, according to VentureWire. The capital came from individuals, with existing institutional shareholders Medtronic and Affinity Capital still in negotiations. The round is expected to close at $8 million next month. Otologics previously raised around $33 million in total VC funding.

Bright Source Energy Inc. of Oakland, Calif. has closed its Series A funding round, according to VentureWire, which says the round was worth “under $50 million.” Backers include VantagePoint Venture Partners, Draper Fisher Jurvetson and Bay Area Equity Fund. The company develops utility-scale solar power plants using high-temperature solar thermal technology that concentrates sunlight and converts the resulting heat into electricity.

Buyout Deals

General Atlantic has acquired Network Solutions, a Herndon, Va.-based provider of online solutions for small businesses, from Najafi Cos. (f.k.a. Pivotal Private Equity). No financial terms were disclosed for the deal, which will not result in a change of senior management.

Madison Dearborn Partners has completed its $34.75 per share buyout of The Yankee Candle Company Inc., which has subsequently delisted from the New York Stock Exchange. The total deal was valued at around $1.6 billion, including $300 million in assumed debt.

Texas Pacific Group reportedly has joined the CVC-led consortium that is circling British supermarket chain J. Sainsbury PLC. Blackstone and KKR already are part of the group, which is expected to bid upwards of £11 billion. Reports also suggest that GS Capital Partners may participate.

Golden Gate Capital and Integrity Brands have agreed to acquire military boot manufacturer Wellco Enterprises Inc. (AMEX: WLC) for $14 per share (33% premium to yesterday’s closing price).

National Grid PLC is expecting first bids for its UK wireless communications unit next week, according to Dow Jones. The asking price is Gbp2 billion, but is more likely to come in at between Gbp1.2 billion and Gbp1.7 billion.

Parallel Investment Partners has sponsored a buyout of Mealey’s Furniture and Mattress, a furniture retailer in the greater Philadelphia area. No financial terms were disclosed.

PE-Backed IPOs

Accuray Inc., a Sunnyvale, Calif.-based developer of a robotic radio-surgery system, has increased its proposed IPO price range from $14-$16 per share to $17-$18 per share. It will plans to offer 33.33 million common shares and trade on the Nasdaq under ticker symbol ARAY. JPMorgan and UBS are serving as co-lead underwriters. Shareholders include BVI International Investment and Maubeni Corp.

Mellanox Technologies Inc., a Santa Clara, Calif.-based provider of interconnect solutions for servers, storage and infrastructure equipment, has increased its proposed IPO price range from $12-$14 per share to $14-$16 per share. It still plans to offer 6 million common shares and trade on the Nasdaq under ticker symbol MLNX. Credit Suisse and JPMorgan are serving as co-lead underwriters. The company has raised $89.34 million in VC funding since its 1999 inception, from firms like Intel Capital, Sequoia Capital, U.S. Venture Partners, Jerusalem Global Ventures and Walden Israel.

PE-Backed M&A

Caritor Inc., a San Ramon, Calif.-based provider of IT services, has agreed to acquire business process and IT services firm Keane Inc. (NYSE: KEA) for $14.30 per share in cash (19% premium to yesterday’s closing price). The total deal is valued at approximately $854 million, with Caritor receiving equity financing from existing shareholder Citigroup Venture Capital International and leveraged financing from Citigroup Global Markets, UBS Securities and Bank of America Securities.

Huron Capital Partners has launched Valiant Systems, an acquisition platform focused on the homeland security market. Target acquisitions will have between $15 million and $250 million of annual revenue, and will address the requirements identified in the President’s National Strategy for Homeland Security, Critical Infrastructure Initiatives (both private and public sector) and Defense and Intelligence Community Appropriations. Valiant will be run by Michael Dougherty and Lucy Dougherty, who run advisory firm Acuity. No financial terms of Huron’s commitment to Valiant were disclosed.

PE Exits

Apax Partners and Texas Pacific Group have agreed to sell Greek mobile phone operator TIM Hellas to Weather Investments SpA, an investment vehicle of Egyptian entrepreneur Naquib Sawiris. The sale price includes €500 million in equity plus €2.9 million of net debt. Apax and TPG initially acquired TIM Hellas from Telecom Italia in June 2005 for €1.6 billion. In January 2006 the consortium completed the follow-on acquisition of Q-Telecom, the fourth largest Greek mobile operator, from Info-Quest SA for €360m. Morgan Stanley and Lehman Brothers were running the most recent auction.

Hitachi Data Systems has agreed to acquire Archivas Inc., a Waltham, Mass.-based provider of digital archiving solutions. No financial terms were disclosed. Archivas had raised $28 million over three VC rounds since 2003, from Polaris Venture Partners, North Bridge Venture Partners and Solstice Capital.

Smith Micro Software Inc. (Nasdaq: SMSI) has agreed to acquire Ecutel Systems Inc., a Herndon, Va.–based provider of secure enterprise mobility software solutions, for $8 million in cash. Ecutel has raised around $16 million in VC funding, including a $6 million Series A round in 2000 at a $20 million post-money valuation. Backers include Core Capital Partners, Intel Capital and Updata Partners. It was advised on the deal by Bowen Advisors.

Firms & Funds

Alto Partners of Milan, Italy has closed its second mid-market Italian buyout fund with €165 million in capital commitments. Limited partners include Assicurazioni Generali, Alleanza Assicurazioni, Bear Stearns, Cassa Forense, EIF, F&C Asset Management, Fondiaria-SAI, Granite Capital, Inarcassa, Parish Capital and Partners Group.

Creandum, a Sweden-based VC firm focused on early-stage Nordic companies, has closed its second fund with approximately $107 million in capital commitments. Limited partners include the Sixth Swedish National Pension Fund and Skandia Liv.

Teachers’ Private Capital and the Canada Pension Plan Investment Board have formed Actera Partners, a private equity fund focused on investment opportunities in the Republic of Turkey. As cornerstone investors, the two institutions each have committed Euro 75 million.

Webster Capital of Waltham, Mass. has held a $90 million first close on its second small-cap buyout fund, which has a total target of $150 million.

MassPRIM has hired Hamilton Lane as its new private equity consultant. Hamilton Lane will be paid $4.5 million over the next three years, and beat out Aldus Equity Partners, Ennis Knupp and Franklin Park. Prior MassPRIM advisor Pathway Capital Management did not submit a bid.

Hampshire Equity Partners is prepping its fourth mid-market buyout fund with a target capitalization of between $150 million and $200 million, according to LBOWire.

Siparex Group of France is targeting €100 million for its latest venture capital fund, according to Les Echos.

Ascential Equity has launched as a private equity fund focused on small banks, according to LBOWire. Its initial fund target is $200 million, and is being managed by former Virginia Treasurer Bill Wiley and former Virginia Treasury investment pro Greg Schnitzler.

Human Resources

Carl Weissman has joined OVP Venture Partners as a venture partner, with a focus on opportunities in digital biology and the convergence of IT, nanotech and biotech. He currently is president and CEO of Accelerator, a Seattle-based joint venture vehicle for a syndicate of VCs – including OVP.

FTVentures has promoted both Eric Byunn and Chris Winship to the position of partner. Byunn focuses on the software sector, and serves on the boards of Cloudmark, Coremetrics, GMI, Intrepid Learning Solutions, ProfitLine and SourceCode Technology Holdings. Winship focuses on the business services space, and sits on the boards of Capital H Group, CapitalStream, Freeborders and MedSynergies.

Trident Capital has promoted Evangelos Simoudis to managing director. He is a former Apax Partners pro who joined Trident in 2005 as a venture partner. Trident also promoted Arneek Multani to principal and Michael Biggee to vice president.

Canaan Partners has promoted Stephen Bloch to venture partner. He joined the firm in June 2002 as a Ewing Marion Kauffman Fellow, and serves on the boards of Canaan portfolio companies Advanced Biohealing, Amicus Therapeutics, Marinus Pharmaceuticals, OmniSonics Medical Technologies and Viacor. Prior to joining Canaan, Bloch was a medical entrepreneur and practicing physician.

John Koskinen has joined the board of American Capital Strategies. He is the former chairman of the Duke University Board, and also was president of restructuring firm The Palmieri Co.