PE Week Wire: Fri., Aug 31, 2007

Intersouth Partners yesterday announced that partner Don Rainey is leaving “to join another venture capital firm.” That mystery firm is Grotech Capital Partners – which is where the more interesting story seems to be.

Grotech employs a stage-agnostic investment strategy, with a focus on companies located in the Mid-Atlantic and Southeastern regions. For years, that’s included both technology and life sciences, plus a sprinkling of consumer and business services. But not anymore.

Grotech has decided tobecome tech-only – going so far as to remove any mention of life sciences and other non-IT portfolio companies from its website. Thanks to the wonder of Internet caching, however, you can still view Grotech’s entire portfolio, circa last December (find it here)

I would doubt that Grotech sold off its positions via secondary sales, as many of its non-IT portfolio companies (or perhaps former portfolio companies) still list Grotech as an investor on their websites. That said, never say never. I was unable to speak with anyone from Grotech yesterday, although am told that general partner Joe Zell will ring me later today (if/when he does, I’ll update at peHUB).

One certainty is that that the strategy shift has resulted in a change to the Grotech partnership itself. Not only is techie Don Rainey in, but the firm’s only healthcare-focused general partner – Harris “Terry” Hyman – is out. Hyman had been co-head of healthcare M&A for CSFB prior to joining Grotech, and is uncertain as to his next move. He told me during a phone conversation that he may join another VC firm, but also might launch his own shop with Joel Radke, who had been a healthcare-focused principal with Grotech.

Two other related notes: (1) Grotech is currently raising up to $250 million for its seventh fund, according to a regulatory filing. (2) Rainey had been Intersouth’s only partner in the Washington, D.C. area, and the firm has not yet decided whether it will try to replace him. Rainey will retain some of his Intersouth board seats, while the rest will be filled by remaining Intersouth professionals.

*** The carried interest tax debate will hit Washington again next week, as the House Ways & Means Committee will hold a hearing. I’m planning a daytrip to take in the festivities, so let me know if you plan to be in attendance also. Maybe we can seat ourselves as if it’s a wedding, with “pro” on one side, and “con” on the other…

My colleague Joanna Glasner has done some detailed reporting on how the debate also remains alive and well in the Senate, while Bloomberg reports that the Private Equity Council is now trying to get mid-market firms to lobby against the proposed changes…

*** We’ve had over 1,000 downloads of the rankings for VCs investing in New England-based life sciences companies. We’ve also had a bunch of requests for similar rankings of other VC niches. Compiling other such lists is time-consuming, but manageable if the parameters are well-defined. Keep the suggestions coming, and I’ll put the next one together in September.

*** 5 Questions for John Scarano of Zayo Bandwidth, which yesterday announced $225 million in private equity funding.

*** Happy one-year anniversary to VentureBeat – a friend and regular competitor to this space.

*** No PE Week Wire on Monday, in observance of Labor Day. Be back on Tuesday, with the revival of our NFL game-picking contest (details will be posted at peHUB later today). Have a great long weekend. Unless you live outside the U.S., in which case have a great regular weekend…

Top Three

Altice B2B France is nearing agreement to acquire French metro telecom network provider Completel for €723 million ($985m). Under terms of the agreement, Altice B2B France would first acquire a 21% stake in Completel at €35 to €35.50 per share, and then another 34% at €35.50. Altice B2B France is a joint venture between private equity firm Cinven (49% stake) and European cable company Altice (51%). Cinven’s stake is actually a bit higher than it may look, given that it is Altice’s majority shareholder with a 70% position.

KKR reportedly is in re-negotiations with the banks that have agreed to finance the $29 billion buyout of First Data Corp. (NYSE: FDC). KKR is not known for making major concessions to agreed-upon arrangements, but may be willing to remove certain covenant-light and PIC toggle terms in order to get the deal closed. The buyout includes $24 billion in leveraged finance, from Citigroup, Credit Suisse, Deutsche Bank, HSBC, Lehman Brothers, Goldman Sachs and Merrill Lynch. First Data is being advised by Morgan Stanley.

ARYx Therapeutics Inc., a Fremont, Calif.–based developer of retro-metabolic drugs, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol ARYX, with Morgan Stanley serving as lead underwriter. ARYx has raised over $110 million in total VC funding since its 1997, from firms like MPM Capital (26! .1% pre-IPO stake), Nomura Phase4 Ventures (19.5%), OrbiMed Advisors (14.6%), Ascent Biomedical Ventures, BioMed, JAFCO Life Science Investments, Scottish Widows Investment Partnership, Montreux Equity Partners and Novel Bioventures.

VC Deals

Dailymotion SA, a Paris-based video sharing website, has raised $34 million in second-round funding, according to The Wall Street Journal. Advent Venture Partners and AGF Private Equity were joined by return backers Atlas Venture and Partech International. The company raised around $9.5 million in Series A funding last fall.

FlowCardia Inc., a Sunnyvale, Calif.-based developer of endovascular devices for coronary and peripheral chronic total occlusion (CTO) recanalization, has raised $30 million in Series C funding. Gilde Healthcare Partners led the round, and was joined by Life Sciences Partners, H&Q Capital Management and New Science Ventures, Rockport Venture Partners and Gold Hill Capital. Return backers included Frazier Healthcare Ventures, JPMorgan Partners and Pappas Ventures.

Plextronics Inc., a Pittsburgh-based developer of active-layer technology for printed electronic devices, has raised $20.6 million in Series B funding. The Solvay Group led the deal with a $10 million infusion, and was joined by return backers Firelake Capital, Birchmere Ventures, Draper Triangle Ventures and Newlin Investment Company. Plextronics now has raised a total of $37 million in private funding since its inception five years ago.

VizionWare Inc., an Austin, Texas-based developer of audio/visual digital interconnect solutions, has secured around $8.2 million of a $14.2 million Series B round, according to a regulatory filing. VentureWire reports that the round remains open while VizionWare waits for an outside lead. Return backers include InterWest Partners, Novus Ventures Access Venture Partners, DFJ Mercury, MarkPoint Venture Partners, RPM Ventures and Timeline Ventures.

SayNow, a Palo Alto, Calif.-based voice messaging startup, has raised $7.5 million in total venture capital led by Shasta Ventures. The company is known for providing a free calling service for bands on MySpace to contact their fans.

Syntune AB, a Stockholm, Sweden-based developer of single-chip tunable lasers, has raised SEK 47.8 million ($7.1m) in second-round funding. InnovationsKapital led the deal, and was joined by Teknoinvest, Vision Capital and individual angels.

TeleSphere, a Phoenix-based provider of managed telecom and Internet services, has raised an undisclosed amount of venture capital funding from Hawkeye Capital. The deal was in exchange for a minority stake.

Buyout Deals

Home Depot Inc. has completed the sale of its HD Supply unit for $8.5 billion to a buyout consortium of Bain Capital, Carlyle Group and Clayton, Dubilier & Rice. The original sale price had been $10.3 billion, but turbulent credit conditions and a tightening housing market forced new terms. As part of the amended agreement, Home Depot will purchase a 12.5% equity interest in HD Supply for $325 million, and will guarantee a $1 billion senior secured loan. Leveraged finance was provided by JPMorgan, Lehman Brothers and Merrill Lynch.

GMT Communications Partners has agreed to acquire UK outdoor advertising business Primesight Ltd. from British media company SMG. The deal is valued at £62 million ($125m), with Hawkpoint Partners advising SMG. Primesight’s products include advertising display panels on major roads and display panels at locations such as cinemas, health clubs and retail outlets. SMG will use proceeds from the sale to pay down debt.

GSO Capital Partners has amended certain terms of its pending buyout of Reddy Ice Holdings (NYSE: FRZ), in order to help secure approval of dissenting shareholders. The $31.25 per share price stays intact, but GSO has halved what had been a $7 million breakup fee, and also agreed to extend its pre-closing marketing period to as late as February 28, 2008. The $1.1 billion deal had originally been expected to close by year-end. Reddy Ice also said that it had contacted 47 potential buyers during its “go-shop” period, but that it was not actively engaged in any alternative discussions. Reddy Ice is a Dallas, Texas-based manufacturer and distributor of packaged ice.

Lone Star Funds has reduced its buyout offer for residential mortgage company Accredited Home Lenders Holding Co. (Nasdaq: LEND), from $15.10 per share to $8.50 per share. The revised per-share bid still represents a 36% premium to yesterday’s closing price.

Sun Capital Partners has completed its $337 million take-private buyout of Friendly Ice Cream Corp. Friendly stockholders received $15.50 per share. The company was advised by Goldman Sachs.

Fiat of Italy is prepared to join India’s Tata Motors in a bid for Ford Motor Co.’s Jaguar and Land Rover brands, according to Italian newspaper Finanza e Mercati. Tata is believed to be readying a $1.5 billion bid, with competition to come from One Equity Partners and Ripplewood Holdings.

PE-Backed IPOs

Convio Inc., an Austin, Texas-based provider of online constituent relationship management solutions for nonprofit organizations, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol CNVO, with Goldman Sachs serving as lead underwriter. Convio has raised over $36 million in VC funding from firms like Granite Ventures (21% pre-IPO stake), Austin Ventures (15.6%), Adams Street Partners (8.9%), Silverton Partners (5.2%) and Windspeed Ventures. Also listed as a shareholder (9.1%) is El Dorado Ventures, which backed recent Convio acquisition GetActive Software.

PE Exits

Entelos Inc. (AIM: ENTL), a Foster City, Calif.-based developer of bio-simulation technologies for pharmaceutical R&D, has agreed to acquire Iconix Biosciences Inc., a Mountain View, Calif.-based developer of genomic technologies from drug developers. The deal is valued at up to $39.1 million in Entelos stock, including a $14.1 million initial consideration. Prior to going public on the AIM last year, Entelos had raised nearly $50 million in VC funding since its 1996 inception, from firms like Abingworth Management, Bear Stearns Health Innovations, Hewlett-Packard, Charles River Ventures, Brentwood Venture Capital and St. Paul Venture Capital. Iconix has raised around $45 million in total VC funding from Abingworth, Institutional Venture Partners, Kleiner Perkins Caufield & Byers, Motorola Ventures, Incypte Corp., Palladin Group and Lilly Ventures.

NICE Systems (Nasdaq: NICE) has acquired Actimize Inc., a New York-based provider transactional risk management software for the financial services industry. The deal was valued at approximately $280 million, including around $224 million in cash and the remainder in NICE ordinary shares. Actimize had raised over $28 million in venture capital and debt from firms like Carmel Ventures, Giza Venture Capital, Vertex Venture Capital and FT Ventures.

PE-Backed M&A

Focus Brands, a restaurant franchise acquisition platform backed by Roark Capital Partners, has acquired Moe’s Southwest Grill, a fast-casual restaurant chain with 360 locations. No financial terms were disclosed. Focus Brands now has five franchise brands generating over $1 billion in annual system-wide revenue. Moe’s joins sister companies Carvel Ice Cream (acquired in 2001), Cinnabon (2004), Seattle’s Best Coffee International (2004) and Schlotzsky’s (2006).

Horizon GmbH, a portfolio company of PPM Capital, has acquired fellow German staffing company Jobs in Time Holding GmbH for an undisclosed amount. The acquisition Baird advised PPM Capital on the deal.

Firms & Funds

Draper Fisher Jurvetson will open an office in Bangalore next month, according to The Economic Times. It will be run by partner Mohanjit Jolly, who will relocate. Venture partner Sateesh Andra will remain stationed in Hyderabad. DFJ has allocated approximately $75 million of its $600 million fund for Indian portfolio companies.

MSBi Capital is raising its third fund with a C$100 million target, according to VentureWire. The Quebec-based firm backers early-stage spinouts from Canadian universities. It held a C$65 million first close back in April.

Human Resources

Standard & Poor’s said that president Kathleen Corbet has stepped down. She had worked at S&P for three years, and will be replaced by Deven Sharma, who has served as S&P’s executive VP of investment services and global sales since November.

Rick Ziwot is leaving HSBC, where he had been global head of structured credit products. He will be succeeded byJeff Jakubiak, head of structured credit products for Europe, the Middle East, Africa and Asia.