PE Week Wire: Fri., March 28, 2008

Rain is falling, Jimmy Cayne is selling and I’m beginning to think that the banks may be using Clear Channel as a guinea pig for BCE. In other words, it’s time for Friday Feedback. Let’s start with Clear Channel:

John: “Why does everyone automatically assume these PE firms overpaid? Twelve months ago everyone thought they were stealing the company. Yes the credit markets have changed and we are in a recession, but you can’t tell me THL and Bain didn’t model a number of cyclical and secular scenarios when they agreed to the deal price. These guys are long-term investors who look at cash flow and assets, not stock prices. In fact, the changes in the debt markets are nothing but favorable to the buyers (not considering the second-order impact of a recession, of course), since LIBOR is much lower than it was 12 months ago. To say they overpaid just because public market multiples have contracted is insane.”

Irving: “I really hope the banks lose this case. Every M&A transaction relies on all sides sticking to their commitment. If one can just walk away without cause, then the whole system falls apart.”

Shelia: “Since this looks like it’s going to drag on, do the limited partners get their called capital returned?” Maybe someday Sheila, but not anytime soon.

Mike: “Does anyone think that suing your lenders (“financing partners”) is a good idea? If things don’t go well and all of a sudden portfolio companies aren’t in compliance with covenants, it makes me wonder how lenient and flexible the banks will be.” Two points Mike: (1) This deal barely has covenants; (2) No lawsuit means no deal, which means no portfolio company in the first place.

Peter: “The banks should take this all the way. Even if they lose, they’ll probably lose far less than they would in terms of the mark-to-market writedown.”

Matt: My favorite line from the commitment letter comes right after page 11… ‘We are pleased to have been given the opportunity to assist you in connection with this important financing.’ Maybe Bain and THL will at least let them amend that line.”

*** Anonymous on Willis Stein: “You might take note that Robert Froetscher and Jason Weller appear to have left Willis Stein, as they are no longer listed on the firm’s website.They were both managing directors at the firm (and are still listed as such on CapitalIQ). Not many guys left to put $1B to work.”

David adds: “Roundy’s might be a tough sell. With an onslaught of superior competitors opening several new supermarkets in Roundy’s territory, I estimate they will lose about 25% of their sales over the next 5 years. Perhaps Willis Stein waited too long to sell…”

*** Matthew: “We haven’t heard you call for the firing of Doc Rivers recently. Considering how much you blamed him for the Celtics woes over the past several seasons, are you prepared to give him any credit for the turn-around?”

Matthew, you are one of literally dozens of emails who have asked a similar question over the past several months. It even was brought up last Thursday in my Buyouts Madness conversation with Celtics co-owner Steve Pagliuca. So let me address it: I certainly would not want the man fired today, as it would disrupt a wonderful season. But I stubbornly stick by my past assertions that he is not the best man for the job.

My problem with Doc has always been that he seems incapable of forging a consistent rotation. I thought it retarded the development of young players in the past, and we even saw some glimmers of it earlier this year when Scals replaced an injured Garnett in the starting rotation (but would only play around 10 minutes per game). Ditto for the back-and-forth with Powe and Davis. He’s gotten better, but another coach would have done so also.

I hope that my explanation was sufficiently intransigent.

*** Allen: “Who’s leading our March Madness contest?” Following last night’s games, it’s still Dan Renda of Vitech Systems Group. He’s now got 68 points. We’ve never had anyone lead wire-to-wire, and I still hope we don’t. Not because I don’t like Dan, but because his final game (Kansas beating UCLA) is completely different from mine (UNC beating Memphis).

*** Caroline: “Are you ever going to do a Shindig in Boston? I mean, come on, it’s the physical and spiritual home of PE Week Wire.” Stay tuned Caroline…

Top Three

Sun Capital Partners has acquired Worsley Operating Cos., an operator of 124 convenience stores/gas stations in North and South Carolina. No financial terms were disclosed. In related news, Sun has agreed to acquire substantially all the assets of Li’l Cricket Food Stores Inc., which operates 88 convenience stores/gas stations in South Carolina. Morgan Keegan & Co. advised both Worsley and Li’l Cricket on the deals. Prior to these acquisitions, Sun already had a portfolio company called Village Pantries Holding Corp., which operates 190 convenience stores throughout Indiana, Michigan and Ohio.

Pacific Equity Partners of Australia has closed its fourth fund with Au$4 billion in capital commitments. Its prior fund had closed in early 2006 with Au$1.3 billion.

Harvard Management Co., which oversees Harvard University’s $34.9 billion endowment, has selected Jane Mendillo as its new chief investment officer. Mendillo previously was CIO for Wellesley College, which she joined in 2002 after having been with Harvard as head of external investments (she had also worked on PE investments). In a statement, Harvard said that the Wellesley endowment grew from $1 billion to $1.7 billion during Mendillo’s tenure. She succeeds Mohamed El-Erian, who left late last year. Harvard Management Co. is still in search of a senior private equity manager, after Kevin Tunick recently left to take the top PE job at University of North Carolina.

VC Deals

Tendril Networks Inc., a Boulder, Colo.-based maker of wireless sensors and networks that can help improve energy efficiency, has raised $12 million in Series B funding, according to a regulatory filing. RRE Ventures led the round, while return backers include Access Venture Partners, Appian Ventures and Vista Ventures.

Xtellus Inc., a Morris Plains, N.J.–based developer of optic components for multi-wavelength, reconfigurable optical networking systems, has raised $8.3 million in new funding led by NanoDimension LP.

LeadPoint Inc., a Los Angeles-based online leads exchange marketplace, has raised $6 million in Series E funding, according to a regulatory filing. Backers include Redpoint Ventures, Estalea LP and Breakwater Ventures. The company has now raised over $15 million.

EKOS Corp., a maker of drug delivery catheters based on ultrasound technology, has raised $5 million in new Series C funding, according to a regulatory filing. No investor information was disclosed, except that existing shareholders include ARCH Venture Partners, Bessemer Venture Partners, Merrill Lynch, Mitsui & Co., Spray Venture Partners, MedVenture Associates, Protostar, Technology Partners and Morgan Stanley Venture Partners. The Bothell, Wash.-based had previously raised over $86 million.

Solera Networks Inc., a Lindon, Utah-based developer of deep packet capture and stream-to-storage technology, has raised $5 million in Series B funding. Return backer Canopy Ventures led the round.

Blekko, a Redwood Shores, Calif.-based online search startup, has called down $925,000 of a $3.07 million Series B round. No institutional investors are listed, although angels include both Ron Conway and Marc Andreesen. The company is run by former Topix CEO Rich Skrenta.

Glassdoor Inc., a Sausalito, Calif.-based social networking company focused on employment conditions in the workplace, has raised $3 million in Series B funding led by Benchmark Capital. The company is run by former Hotwire president Robert Hohman, while fellow co-founder Rich Barton serves as chairman. Barton is the CEO of Zillow, andalso serves as a venture partner at Benchmark.

Morph Labs, a Cebu City, Philippine-based SaaS enabler, has raised $1.5 million from CSK Venture Capital Co. (Japan) and AO Capital Partners (Philippines).

Intelligent Bio-Systems, a Waltham, Mass.-based developer of next-generation DNA sequencing systems, has raised around $353,000 in Series A funding, according to a regulatory filing. Backers include Kegonsa Seed Fund and the Hub Angels.

Buyout Deals

Bison Capital has agreed to facilitate a plan to get shipping company Summit Global Logistics Inc. out of bankruptcy. The Los Angeles-based private equity firm will invest an undisclosed amount in the $56.5 million “merger” of Summit with an investment vehicle formed by senior members of Summit management.

Shelter Bay Energy Inc., an energy exploration and production company focused in the Bakken light oil play in southeast Saskatchewan, announced plans to raise Cnd$625 million. It already has raised an undisclosed part of that amount from Riverstone Holdings, Kelso & Co., Crescent Point Energy Trust, Goldman Sachs and Trafelet & Company.

Macquarie Group and MBK Partners have completed their acquisition of a 65% stake in C&M Co., a South Korean cable television company. The deal was valued at approximately $1.48 billion. Following the news, Standard & Poor’s said that it lowered its long-term corporate credit rating on C&M Co to ‘B’ from ‘BB+’ with a stable outlook and removed the rating from negative watch.

Sun Capital Partners has completed its acquisition of a 51% stake in German mail order company from Arcandor AG. No financial terms were disclosed.

PE Exits

Bear Stearns chairman Jimmy Cayne yesterday sold his entire stake in the troubled investment bank for $61 million. According to an SEC filing, he sold 5.66 million shares for $10.85 per share on March 25. That position had been worth upwards of $1 billion when the stock was trading at $171.50 per share.

Constant Contact Inc. (Nasdaq: CTCT), a Waltham, Mass.-based provider of direct marketing email software, has filed for a secondary offering of 4.39 million common shares. This would be worth over $75 million, based on Wednesday’s closing stock price of $17.19 per share. Selling shareholders include Morgan Stanley Dean Witter Venture Partners (870,000 share to be sold), Commonwealth Capital Ventures (104,944 shares), Greylock Partners (110,000 shares) and Longworth Venture Partners (700,000 shares). Each of those firms is only selling a portion of their current position.

PE-Backed M&A

Glam Media, a female-focused online advertising network, has acquired StyleMob, a San Francisco-based ocial media company focused on fashion. No financial terms were disclosed. Glam has raised over $87 million in VC funding from firms like Draper Fisher Jurvetson, Accel Partners, DAG Ventures and Walden Venture Capital.

Firms & Funds

The Mailroom Fund has been chosen as the name for a new VC effort from William Morris Agency, Accel Partners and Venrock, according to PaidContent. peHUB broke news of the fund last month.

iNovia Capital, a Canadian seed and early-stage venture capital firm, has raised Cdn$107 million for its second fund. Limited partners include Consensus Business Group, Caisse de depot et placement du Québec, FIER Partners, BDC Capital, AVAC Ltd., Solidarity Fund QFL, Export Development Canada , Fondaction, McGill University, University of Alberta, Universite de Sherbrooke, Bishop’s University Foundation CSN, Gestion Univalor and Telesystem Ltd.

Human Resources

Mohan Kumar has joined Norwest Venture Partners as an executive director with the firm’s Indian affiliate. He previously served as corporate VP of mobile device software at Motorola.

Bob Kagle, a general partner with Benchmark Capital, will leave the board of eBay in June, according to an eBay filing with the SEC. He was one of the company’s original investors. eBay said in its filing: “His decision to not stand for re-election to the Board is solely for personal reasons and time considerations and did not involve any disagreement with the Company, the Company’s management or the Board of Directors.”

Mark Bourgeois is joining Lehman Brothers as managing director and co-head of global institutional distribution, with a focus on alternative products. He will begin in May, and previously was part of the Private Funds Group at UBS.

LLR Partners has promoted Scott Perricelli and David Reuter to partner, and promoted Todd Morrissey and David Stienes to principal. It also announced that Christian Bullitt has joined as director of business development.