PE Week Wire: Fri., June 22, 2007

In case you’ve been in solitary confinement for the past 18 hours, The Blackstone Group last night priced its landmark IPO at the high end of its range. It sold 133.3 million units at $31 per share, for a $4.13 billion IPO take that values Blackstone at nearly $33.5 billion. It also shot up nearly 30% at market open this morning, and opened at $36.45 per share (it rose past $40 per share, but is now back below $37 per share). It represents the largest U.S. IPO since CIT Group went public in July 2002, although is less than the $5 billion KKR raised for a co-investment fund last year on the Euronext.

Ok. Those are the facts. Now here is some Q&A, with me providing both the Qs and As:

Did Chris Cox make the right move in ignoring a request that the Blackstone IPO be delayed?

Yes squared. Democratic Reps. Henry Waxman and Dennis Kucinich yesterday sent Cox a letter asking for such an intervention until Congress could hold hearings, because the IPO could present “investors and the public with new and undisclosed risks.” As I wrote yesterday at peHUB, the risks associated with this IPO are legion, but they also are exhaustively disclosed. If anyone doesn’t read it carefully and still invests, then perhaps they should be called to testify on this nation’s crumbling educational system. Blackstone and its attorneys did their job.

Were the IPO buyers wise?

Yes. They all knew there would be a first-day jump, and Blackstone is not the type of stock that’s going to crater.

Are retail buyers wise?

No. Buying into this thing at $40+ per share is a mistake. I don’t prescribe to the “don’t buy when smart guys are selling” theory, because Schwarzman, et. all aren’t really selling in this case. Moreover, they sold a stake to AIG a few years back, and AIG certainly got the better end of that deal. But I would still be concerned about the possible tax changes – which could actually be a double-whammy if both the Blackstone Bill and some sort of carried interest bill pass. Plus, the only semi-comparable is Fortress Group, which has floated back down to earth and stalled since its first-day trading spike.

Hey Dan, didn’t you write last year that if you could invest in any private equity firm, you would choose Blackstone? How does that square with you recommending against retail purchase?

Because I was referring to a limited partner position, not a public stock position. Limited partners get regular distributions, whereas stockholders can only generate liquidity by selling the security. LPs have detailed insight into the portfolio holdings, whereas stockholders are handed blinders. Limited partners have key-man provisions and other oversight provisions, whereas stockholders have none.

Will KKR follow Blackstone’s lead?

Well, CNBC’s Charlie Gasparino yesterday reported that KKR has retained underwriters, and that the prospectus could be less than a month away. I still think this will be like the BDC phenomenon after Apollo priced. Everyone else filed, and then no one else went public. None of these firms need investment capital – a common misperception in some reporting on Blackstone – which means these deals are entirely about liquidity for firm founders and senior managers. As I’ve written before, I’m just not sure the promise of added wealth will be enough to convince Rubenstein, Kravis, etc. to risk the scrutiny, added tax bills, possible junior pro resentment, etc. that can come with an IPO. I think they’d prefer the legacy. (note: I’ll most likely be wrong about this).

*** Unrelated: I’m just thinking aloud here, but couldn’t a Michael Bloomberg presidential run mean that his namesake company might soon be headed to the auction block? It just seems that there would be too many perceived conflicts-of-interest for both the candidate and his company’s political reporters (let alone its columnists). Bloomberg would not be under any legal requirement to sell his 70% stake, but there already were rumors that he’d do so once out of City Hall. And that was when folks thought he wanted to become a fulltime philanthropist. I wonder if either Thomson or News Corp. will have enough cash left over after their respective purchases of Reuters and Dow Jones… Or perhaps a private equity firm?

*** Where in the World? I’ll be in the Bay Area for most of next week, to speak at a PE CFO conference in Redwood City. I go to sleep kinda early on these swings (gotta wake up at 4am to write the Wire) — but would be up for grabbing drinks in downtown SF on Tuesday night. If you’re interested, let me know and suggest a good place.

Top Three

The Blackstone Group priced its landmark IPO at the high end of its range. It sold 133.3 million units at $31 per share, fo! r a $4.13 billion IPO take that values Blackstone at nearly $33.5 billion. It also shot up nearly 30% at market open this morning, and opened at $36.45 per share (it rose past $40 per share, but is now back below $37 per share). It represents the largest U.S. IPO since CIT Group went public in July 2002, although is less than the $5 billion KKR raised for a co-investment fund last year on the Euronext.

Ceregene Inc., a San Diego-based developer of gene therapy treatments for neurodegenerative disorders, has raised $28.1 million in Series C funding. The deal closed back in January. Investor Growth Capital led the deal, and was joined by return backers Alta Partners, California Technology Ventures, Cell Genesys Inc., Hamilton BioVentures and MPM Capital. In other Ceregene news, the company has signed a partnership agreement with Genzyme Corp., for the development and commercialization of Ceregene’s lead program for the treatment of Parkinson’s disease. Under terms of the deal, Ceregene will receive a $25 million up-front cash payment, up to an additional $125 million in milestone payments and 50% reimbursement for Phase III development costs.

Ziff Davis Media Inc. has agreed to sell the assets of its Enterprise Group to Insight Venture Partners. The deal is valued at approximately $150 million in cash, plus a potential earnpout of up to $10 million. The Enterprise Group produces online content, lead generation services, events and publications serving the tech industry. Its assets include, but are not limited to,,,, eWEEK magazine, CIO magazine and a database of 3.5 million business and technology users.

VC Deals

PicoChip, a Bath, England-based provider of wireless silicon solutions, has raised $27 million in Series D funding. Highland Capital Partners led the deal, and was joined by return backers Atlas Venture, Pond Venture Partners, Scottish Equity, Rothschild, Intel and AT&T. It now has raised around $65 million in total VC funding since its 2000 inception.

Recurrent Energy Inc., a San Francisco-based solar panel owner and installer, has raised $10 million in Series A funding, according to VentureWire. Mohr, Davidow Ventures led the deal, and was joined by JEM Partners.

Daylife Inc., a New York-based news aggregation website, has raised around $8.3 million in Series B funding, according to a regulatory filing. Backers include the New York Times Co., Arts Alliance Digital Ventures and Balderton Capital (f.k.a. Benchmark Capital Europe).

Nanostring Technologies Inc., a Seattle-based developer of a bar coding system for single molecules, has secured $8 million of a $16.65 million Series B round, according to a regulatory filing. Return backers include OVP Venture Partners and Draper Fisher Jurvetson.

The FeedRoom Inc., a New York-based provider of broadband video solutions and services, has raised $5 million in venture debt financing from BlueCrest Capital Finance. The FeedRoom previously raised $49 million in venture capital funding since its 1999 inception, from firms like Constellation Ventures, Intel Capital, BEV Capital, New York City Investment Fund, Ridgewood Capital, TeleSoft Partners, Tribune Ventures, Velocity Equity Partners, i-Hatch Ventures and Warburg Pincus.

Buyout Deals

Sageview Capital and KKR Private Equity Investors, the publicly-traded fund of KKR, have agreed to acquire a 70% stake in ACTS LP, the Montreal-based maintenance, repair and overhaul subsidiary of ACE Aviation Holdings. The deal gives ACTS an enterprise value of approximately $975 million. It is expected to close next quarter.

The Blackstone Group has emerged as a surprise suitor for UK fashion retailer New Look, which is being sold by current owners Apax Partners and Permira. The Telegraph reports that Blackstone recently met with New Look management, and may participate in a new round of bidding that will occur next week.

Birch Hill Equity Partners has acquired a majority position in Creation Technologies LP, a Vancouver-based manufacturer of complex electronics. The deal is valued at Cdn$65 million, with part of the proceeds being used to buy out past backers CIBC Capital Partners and Callisto Capital – plus provide some liquidity for employee shareholders.

Dollar General Corp. (NYSE: DG) shareholders approved a $22 per share buyout by Kohlberg Kravis Roberts & Co. The total deal is valued at approximately $7.3 billion (including around $380 million in net debt), with Goldman Sachs and Lehman Brothers to provide leveraged financing. Lehman and Lazard are serving as financial advisors to Dollar General.

Eaton Corp. (NYSE: ETN) has agreed to sell its mirror controls unit to Englefield Capital for $111 million. The unit is part of Eaton’s automotive group, and makes mirror actuators and power-fols actuators for external automotive mirror systems. The deal is expected to close within the next 30 days.

Summit Partners has invested in Noël Group subsidiary Nomacorc, a manufacturer of synthetic wine closures with facilities in both the U.S. and Belgium. No financial terms were disclosed.

Synergy Enterprises LLC has acquired Domain Home, an Edison, N.J.–based retailer of upscale home furnishings, from UK-based Aga Foodserve Group. Aga will retain a 15% equity position in Domain Home. No financial terms were disclosed.

CAMP Systems International Inc., a Ronkonkoma, N.Y.–based provider of maintenance tracking information for the corporate aviation market, has completed a recapitalization. No financial terms were disclosed, except that American Capital Strategies provided a $38 million second-lien term loan. CAMP is a portfolio company of Warburg Pincus.

News Corp. (NYSE: NWSA) announced that it will “explore strategic options” for its News Outdoor Group, a Moscow-based out-of-home advertising unit with operations throughout Eastern Europe and Southeast Asia. It said its options could include an expansion of its existing shareholder group through new strategic and private equity partners.

PE-Backed IPOs

Next week’s IPO calendar includes expected pricings from ComScore Inc., Pros Holdings Inc., Shoretel Inc. and Polypore International Inc.

PE Exits

SiRF Technology Holdings Inc. (Nasdaq: SIRF) has agreed to acquire Centrality Communications Inc., a Redwood City, Calif.–based developer of navigation processor solutions for mobile navigation devices. The deal is valued at $283 million in cash and stock. Centrality has raised nearly $46 million in VC funding since 2001, from firms like Enspire, Focus Ventures, Harbinger Venture Management, iD SoftCapital, Menlo Ventures, VentureTech Alliance and Walden International.

Quest Software Inc. (Nasdaq: QSFT) has agreed to buy ScriptLogic Corp., a Boca Raton, Fla.–based provider of systems lifecycle management solutions for Windows-based networks. The deal is valued at $90 million in cash. ScriptLogic raised $8 million from Insight Venture Partners in 2003.

PE-Backed M&A

Charlie Brown’s Steakhouse, a portfolio company of Trimaran Capital Partners, has completed its $24 million acquisition of Atlanta-based restaurant chain Bugaboo Creek Steakhouse.

Firms & Funds

Apollo Management has formed a $400 million special account to invest in North American and European distressed debt investments, value-driven investments and other special opportunities. It is solely funded by CalPERS. In other CalPERS news, the pension giant has committed $400 million to Silver Lake Partners III, $150 million to W Capital Partners II and $40 million to Craton Equity Partners.

Jefferies & Co. has acquired the Putnam Lovell investment banking business from National Bank Financial Group of Canada. No financial terms were disclosed.

The Washington State Investment Board yesterday agreed to commit up to $125 million to Asia Opportunity Fund III (managed by CCMP Capital Asia), and up to $100 million to Endeavour Capital Fund V. It also extended its VC advisory contracts for both Pathway Capital Managment and Invesco Private Capital.

Human Resources

Joseph O’Byrne has joined New England Pension Consultants (NEPC) as a private equity consultant. He previously was with Meketa Investment Group, as an associate principal focused on the private markets. Before that, he was a senior investment analyst with the $2.5 billion Houston Police Officers Pension System.

Stephen Schaible has joined Evercore Partners as a senior managing director in the firm’s advisory practice. He previously was with Citigroup as a managing director and head of global energy I-banking.