PE Week Wire: Fri., May 11, 2007

Last month, KKR and GS Capital Partners agreed to acquire audio equipment maker Harman International for approximately $8 billion. As a sweetener for skeptical Harman stockholders the buyers offered to let approximately 8.3 million shares be swapped for equity in the private edition of Harman. That works out to around $1 billion, or a 27% equity position post-transaction.

I wrote at the time that such giant deals should prove a boon for private equity secondaries firms, since mutual funds and other stub equity holders may balk at holding private Harman securities for three to seven years (typical PE holding period). And how else could they be traded, except as one-off transactions amongst themselves? After all, the Harman press release stated that “the shares will not be listed on any exchange, although the buyers expect that there will be market makers in the stock.” (read full release here: harman-kkr.pdf)

People close to the transaction, however, tell me that the term “exchange” was only intended to cover things like NYSE and Nasdaq — not over-the-counter services. In fact, Pink Sheets is the expected destination when Harman shareholders receive their proxy statements in the mail.

But I smell another OTC option: The GS Tradable Unregistered Equity OTC Market.

What is GSTrUE, an awkward acronym? It’s a new quasi-public exchange discussed in yesterday’s WSJ, in a story about how Oaktree Capital Management is planning to sell a piece of its management company (as has been widely reported). WSJ says: “Only institutions and highly sophisticated investors will have access to the market. At its launch, Oaktree will be the first and only issue on the market.”

But you’ve got to wonder if Harman will be the second. Not only does it have securities in need of OTC trading, but Goldman Sachs will be one of its private equity sponsors and bondholders. My understanding is that this issue has not yet been raised with Harman, but it just makes too much sense not to happen…

*** Yesterday I asked: Can you name the new partner at venture capital Foundation Capital? Hint: He rocks internationally. And, no, it’s not Bono.

A couple of you got it right. The answer is Mike Brown, who previously was a principal with Partech International, with a focus on software and Internet deals like online slideshow company RockYou. His first day was this past Monday, but he hasn’t yet been added to the Foundation website.

*** Quiz Time: Can you name the fund-of-funds chieftain who just tendered his resignation? Hint: The move comes in the midst of fundraising.

*** The Orbitz S-1 filing is barely 24 hours old, and Om Malik already has nominated it for worst IPO candidate of 2007.

*** I’ve already received several emails this morning about the brain-dead decision to extend Doc Rivers’ contract. At least it gives hope to inept managers of Bain and Highland portfolio companies…

*** Pete Tenereilllo writes on peHUB that private equity pros have a far more serious issue to face than tax changes: Cybercrime.

Top Three

Apax Partners and OMERS Capital Partners have agreed to acquire the Thomson Learning and Nelson Canada divisions of Thomson Corp. (NYSE: TOC), for approximately $7.75 billion. The deal is expected to close next quarter, with acquisition finance being provided by The Royal Bank of Scotland, JPMorgan, Citigroup, UBS and The Royal Bank of Canada. Morgan Stanley and RBC Capital Markets are advising Thomson on the deal. (Note: Thomson Corp. is the parent company of PE Week Wire publisher Thomson Financial).

BioNeuronics Corp. (f.k.a. NeuroVista), a Seattle-based developer of a neurostimulation device to manage and treat epilepsy, has raised $33.8 million in Series B funding. Advanced Technology Ventures and Delphi Ventures co-led the deal, and were joined by return backers Three Arch Partners, Sprout Group and Foundation Medical Partners. The company previously had raised $9.3 million in a tranched-out deal that held a first close in late 2004.

Orbitz Worldwide Inc., a Chicago-based operator of a travel reservations website, has filed for a $750 million IPO. Underwriters include Morgan Stanley, Goldman Sachs, Lehman Brothers and JPMorgan. Orbitz is a subsidiary of Travelport Ltd., which Blackstone Group and Technology Crossover Ventures bought last year from Cendant for $4.3 billion. It later added on PE-backed Worldspan for $1.4 billion.

VC Deals

Turin Networks Inc., a Petaluma, Calif.-based telecom equipment maker, has secured $26.25 million of a $52.5 million Series B-1 recap round, according to a regulatory filing. Advanced Equities is leading the deal, with return backers including Tudor Ventures, Tellabs, DCM-Doll Capital Management, Sequoia Capital, Baker Capital and Motorola Ventures. Turin previously had raised just under $190 million in total VC funding since its 1999 inception.

Conatus Pharmaceuticals, a San Diego-based drug company focused on inflammation and liver disease, has called down the final $22 million of its $27.5 million Series A round. The company had held a first close late last year, with the remainder tied to clinical milestones. Conatus was founded in July 2005 by the executive management team of Idun Pharmaceuticals, following the sale of Idun to Pfizer.

MBA Polymers Inc., a Richmond, Calif.-based recycler of plastics and durable goods, has secured $20 million of a $22 million Series E round, according to a regulatory filing. Participants include Benchmark Capital Europe, Doughty Hanson Technology Ventures, Asia West and Aloe Environment Fund.

Pegasus Biologics Inc., an Irvine, Calif.-based developer of bioimplants for soft-tissue repair and wound care for diabetic ulcers, has raised $20 million in Series C funding. Onset Ventures led the deal, and was joined Affinity Capital Management and return backers Three Arch Partners and Frazier Healthcare Ventures. The company previously had raised just under $12 million.

StrataGent Life Sciences Inc., a San Jose, Calif.-based developer of non-invasive versions of drugs that would otherwise be injected, has raised $16 million in Series B funding. Essex Woodlands Health Ventures led the deal, and was joined by Aphelion Capital and return backer Quantum Technology Partners.

Interface21, a San Francisco-based provider of open-source software for building and deploying mission-critical enterprise applications, has raised $10 million in Series A funding from Benchmark Capital. Peter Fenton, a Benchmark general partner, will serve on the Interface21 board of directors.

Sequoia Media Group, a Draper, Utah-based provider of a platform for converting personal photos and videos into multimedia productions, has raised $8.8 million in new private funding from existing backer Amerivon Holdings LLC. The deal included both new equity and debt-to-equity conversion. helps create multimedia productions from personal photos and video.

Jott Networks Inc., Seattle-based startup that converts voice into text and delivers it via email, has raised $5.4 million in second-round funding, according to The Seattle Post-Intelligencer. Bain Capital Ventures led the deal, and was joined by return backers Draper Richards, Ackerley Partners and Atomico.

ProCertus BioPharm Inc., a Madison, Wis.-based developer of therapeutics to protect cancer patients against the side effects of chemotherapy and radiotherapy, has raised $2.3 million in Series A funding. Venture Investors LLC was joined by seed backer Novartis Venture Fund.

Buyout Deals

Terra Firma has acquired aircraft leasing company Pegasus Aviation Finance Co. from Oaktree Capital Management and Pegasus management, for $5.2 billion. The move essentially doubles Terra Firma’s aircraft leasing assets, following last year’s $2.5 billion acquisition of AWAS.

British Airways has agreed to join TPG’s bid for Spanish airline carrier Iberia, according to Expansion. The British flag carrier reportedly will announce the alliance within the next few days. The two firms also are reported to be in talks with several Spanish risk capital groups that could join the consortium, including Vista Capital and Ibersuizas.

Berkshire Partners has acquired a controlling interest in HMT Inc. from Nassau Point Investors LLC. No financial terms were disclosed. HMT is a Houston, Texas-based provider of aboveground storage tank (AST) maintenance products and services, primarily for the petroleum and petrochemical industries.

Electra Private Equity has agreed to sell UK-based safety equipment maker Capital Safety Group to Candover, in a transaction valued at $565 million. Electra led a £98.3 million buyout of CSC in 1998.

Telefonica today is expected to receive three bids for its 75% stake in Dutch television producer Endemol, which is valued at approximately £2 billion. The bidders reportedly include Apax Partners with Thomas H. Lee Partners, PAI Partners with Bernard Arnault; and Italian media group Mediasat.

TPG and Warburg Pincus reportedly have decided to offer a joint bid for UK retailer New Look, which currently is owned by Apax Partners and Permira. Previous reports suggested that the two firms would submit rival bids for New Look, which is believed to be worth around £2 billion.

BB&T Capital Partners has acquired Innovative Container, a Greenville, S.C.-based industrial container reconditioning and manufacturing company. No financial terms were disclosed. The company previously had been controlled by founder Chad Odom.

Marlin Equity Partners has acquired Aldon, an Emeryville, Calif.–based provider of application lifecycle management solutions. No financial terms were disclosed.

Monitor Clipper Partners has sponsored a recapitalization of Access Communications LLC, a Berkeley Heights, N.J.–based healthcare marketing and communications agency. No financial terms were disclosed.

One, an Austrian mobile operator previously known as Connect Austria, reportedly is on the auction block for approximately €1.4 billion. German utility E.ON AG holds a 50% stake, while other shareholders include TDC AS, France Telecom and Telenor AS.

PE-Backed IPOs

Solera Holdings LLC, a San Ramon, Calif.-based claims processing company, priced 26.25 million common shares at $16 per share, for an IPO take of approximately $420 million. It had filed to sell around 21.88 million shares at between $15 and $17 per share. It will trade on the NYSE under ticker symbol SLH, while Goldman Sachs and JPMorgan served as co-lead underwriters. GTCR Golder-Rauner held a 90.6% pre-IPO ownership position, and originally planned to sell around 2.63 million shares during the IPO. GTCR’s post-IPO ownership was expected to be around 59.8 percent.

Biodel Inc., a Danbury, Conn.-based drug improvement company focused on endocrine disorders like diabetes and osteoporosis, priced five million common shares at $15 per share ($14-$16 range), for an IPO take of approximately $75 million. It will trade on the Nasdaq under ticker symbol BIOD, while Morgan Stanley and Banc of America Securities served as co-lead underwriters. The company raised $21 million in Series B funding last summer, and lists shareholders like Great Point Partners (17.4% pre-IPO stake), OrbiMed Advisors (17.4%) and Vivo Ventures (15%).

RSC Holdings Inc., a Scottsdale, Ariz.-based construction equipment rental company, has set its proposed IPO terms to around 20.83 million common shares being offered at between $23 and $25 per share. It plans to trade on the NYSE under ticker symbol RRR, with Morgan Stanley, Deutsche Bank and Lehman Brothers serving as co-lead underwriters. The company is owned by Oak Hill Capital Partners and Ripplewood Holdings, with each firm expected to hold a 34% position post-IPO.

PE Exits

Sun Group has agreed to acquire Sequoia Capital’s 9% position in Indian business process outsourcer Firstsource Solutions Ltd., according to The Economic Times. The deal is reported to be valued at $40 million.

Firms & Funds

Third Rock Ventures, a life sciences venture firm founded by four ex-Millennium Pharma executives, are looking to raise $300 million for its inaugural fund. The team includes former Millennium CEO Mark Levin, who was a partner with Mayfield up until 1994. News of the fund was first reported by a new biopharma market blog called In Vivo.

The Carlyle Group plans to list its first publicly-traded fund by the end of next month, according to BusinessWeek. It will be a leveraged finance vehicle mostly made up of mortgage-backed securities, and will trade on the Euronext.

Penfund, a Toronto-based private equity fund focused on the middle-markets, has held a Cdn$240 million first close on its third fund. It expects to hold a final close on around Cdn$250 million within the next few weeks.

Greenhill & Co. has held a £106 million first close for its debut European mid-market buyout fund.

Big Bang Ventures of Belgium has closed its second fund with €31 million in capital commitments. Limited partners include ARKimedes-Fonds, Trustcapital and European Investment Fund. The firm’s inaugural fund closed on €10 million in December 2000.

Human Resources

Castle Harlan has promoted Thomas Hickey to managing director. He had joined the firm in 2003 as a vice president, and serves on the boards of Caribbean Restaurants LLC, Horizon Lines Inc. and Baker & Taylor Acquisitions Corp. Prior to Castle Harlan, Hickey had worked in the M&A group of Credit Suisse.

Venrock has promoted Matt Trevithick to partner. He is based in the VC firm’s Menlo Park, Calif. officer, and focuses on opportunities in the energy sector.