PE Week Wire: Fri., Nov. 2, 2007

Which of the following statements is false?

Mitt Romney made his fortune as a private equity investor.

Mitt Romney has received more campaign donations from private equity pros than has any other presidential candidate.

Mitt Romney is opposed to changing the tax treatment of carried interest from capital gains to ordinary income.

Mitt Romney does not understand the carried interest tax issue.

None of the above.

Until yesterday, I would have picked number four. But, based on a TechCrunch interview with Romney, I’m leaning toward number five. And it’s simply befuddling.

Few people, let alone presidential candidates, should understand the carried interest tax issue better than Romney. He ran Bain Capital, still hangs in private equity circles and was governor of a state that probably ranks first in terms of per capita venture capitalists. But despite the resume, here is what he told TechCrunch’s Mike Arrington:

“With regard to carried interest associated with venture capital, real estate, private equity, I do not believe in raising taxes. And it is a capital gain because those individuals do make an investment, it’s a small investment, but they make an investment of their own capital and I would treat capital gains as capital gains instead of trying to re-categorize them as normal income.”

As Romney should surely know, the Levin bill would specifically maintain capital gains treatment of any carried interest derived from a general partner’s personal investment. General partners typically put up between one percent and five percent of funds, and the IRS would treat profits from those commitments just like the commitments of any outside limited partners (i.e., as capital gains). The issue at hand is how to treat GP profits derived from managing someone else’s money.

Romney may be trying to split the baby a bit by arguing that any slice of personal risk entitles an individual to capital gains benefit from the whole pie, but that wouldn’t make any sense. I’m trying to think of a proper analogy, but it’s just too silly (if you’ve got one, send it over).

I have obviously staked out a position in favor of changing carried interest tax treatment, but have the utmost respect for those who disagree (i.e., most of my readers)… Well, with a qualifier: Utmost respect as long as we’re drawing different conclusions based on an accurate understanding of the underlying issue. Unless he misspoke – and I’ve called his press office for clarification — Mitt Romney does not seem to have such an understanding. Again, simply befuddling.

*** Hat tip to Matt Marshall for pointing out the Romney issue.

Top Three

Serious Materials LLC, a Sunnyvale, Calif.-based provider of green building materials, has raised $50 million in Series B funding. New Enterprise Associates and Foundation Capital co-led the deal, and were joined by Rustic Canyon Partners.

The Blackstone Group and China National Chemical Corp. reportedly will offer to acquire Australian agricultural chemicals group Nufarm Ltd. (AX: NUF) for more than Au$3.4 billion. Merrill Lynch is advising the buyers, while Nufarm is being advised by Citigroup.

Neutral Tandem Inc., a Chicago-based provider of tandem interconnection services to competitive carriers, raised around $93 million in its IPO. The company priced just under 6.65 million common shares at $14 per share ($11-$13 range), for an initial market cap of $413.97 million. It will trade on the Nasdaq under ticker symbol TNDM, while Morgan Stanley and CIBC World Markets served as co-lead underwriters. Neutral Tandem had raised around $29 million in VC funding from firms like DCM-Doll Capital Management, New Enterprise Associates, Mesirow Capital Partners, Montagu Newhall Ass! ociates and Wasatch Venture Fund. www.neutraltandem.com

VC Deals

BAS Medical Inc., a San Mateo, Calif.-based developer of clinical applications for a peptide hormone called relaxin, has raised $20 million in Series C funding, according to VentureWire. Return backers include Domain Associates, Kleiner Perkins Caufield & Byers and Sears Capital Management Inc. It has now raised a total of $40 million. www.basmedical.com

HemaQuest Pharmaceuticals, a Newton, Mass.-based developer of small-molecule therapeutics to treat serious blood disorders, has raised $20 million in Series A funding. Backers include De Novo Ventures, Forward Ventures and Lilly Ventures.

Syntaxin Ltd., a UK-based developer of biologic drugs that control cell secretion, has raised £16 million in Series B funding. S.R. One and Life Science Partners co-led the deal, and were joined by Johnson & Johnson Development Corp. and Quest for Growth. Return backer Abingworth Management also participated.

Virtual Iron Software Inc., a Lowell, Mass.-based provider of enterprise software for creating and managing virtual infrastructure, has raised $13 million in Series D funding. The Brookside Group was joined by return backers Highland Capital Partners, SAP Ventures, GS Capital Partners, Intel Capital and Matrix Partners. Virtual Iron has raised over $44 million in total VC funding since 2003. www.virtualiron.com

Atraverda, a South Wales-based advanced materials company, has raised £10.4 million in Series B funding. BankInvest New Energy Solutions (Denmark) and Espírito Santo Ventures (Portugal) co-led the round, and were joined by return backers Scottish Equity Partners, Chord Capital, Finance Wales, EnerTech Capital and OnPoint Technologies. Atraverda has developed a platform technology with a range of commercial cleantech applications in the power storage, water treatment and construction markets.

Vapotherm Inc., a Stevensville, Md.-based manufacturer of respiratory care devices, has raised $11.25 million in Series E funding according to a regulatory filing. Return backers include QuestMark Partners. www.vtherm.com

Trivitron, an India-based med-tech company, has raised $11 million in VC funding from ePlanet Ventures and HSBC Private Equity participated.

Calient Networks Inc., a Greenwich, Conn.–based provider of intelligent fiber management systems based on all-optical switching, has raised $10 million in fourth-round funding. TeleSoft Partners led the deal, and was joined by return backers Enterprise Partners Venture Capital, Sofinnova Venture and Wall Street Technology Partners. www.calient.net

Ascent Therapeutics Inc., a Sherborn, Mass.-based drug development startup focused on cancer and inflammatory diseases, has secured $8 million of a $19 million Series A round according to a regulatory filing. Backers include Healthcare Ventures, Novartis BioVentures and TVM.

Ruckus Wireless Inc., a Sunnyvale, Calif.-based home networking company, has raised around $7.5 million in Series E funding according to a regulatory filing. The filing lists return backers Motorola Ventures, Sequoia Capital and WK Technology Fund. Ruckus previously had raised just over $31 million. www.ruckuswireless.com

Fundamental Applied Biology Inc., a Menlo Park, Calif.- based developer of protein therapeutics, has called down $4.77 million of a $21.48 million Series B round, according to a regulatory filing. Alta Partners was joined by return backer SV Life Sciences. www.f-a-b-inc.com

Bikam Pharmaceuticals Inc., a Cambridge, Mass.-based drug startup, has secured $3.64 million of an $11 million Series A round according to a regulatory filing. Backers include Healthcare Ventures and CHL Medical Partners.

Big Bear Entertainment Inc., a Tiburon, Calif.-based creator of animated music videos (“video mods”), has secured $400,000 of a $500,000 Series A round according to a regulatory filing. Backers include El Dorado Ventures and Optix Pty Ltd. (listed address is fox Studios Australia). www.bigbearent.com

Juvaris BioTherapeutics Inc., a Pleasanton, Calif.-based developer of vaccines for cancer and infectious diseases, has closed its Series A round with around $15.88 million according to a regulatory filing. The company announced the deal earlier in the year, saying it would be worth $12 million split between two tranches. The filing indicates that just over $13.8 million came in the form of equity, while the remainder was debt and a few convertible notes. Kleiner Perkins Caufield & Byers led the round. www.juvaris.com

Buyout Deals

Beecken Petty O’Keefe & Co. has acquired a majority interest in Maverick Healthcare Inc. from The Halifax Group. No financial terms were disclosed. Maverick is a Mesa, Ariz.-based provider of home healthcare products and services in the Southwest. Halifax was advised on the sale by Macquarie Securities (USA) Inc. .

Cinven has agreed to acquire Coor Service Management Group AB from 3i Group for around €540 million. Coor is a Sweden-based provider of office and factory function services, like running staff canteens and instrument calibration.

Ford Motor Co. reportedly has received six multiple offers for its Jaguar and Land Rover brands. Bidders include Ripplewood Holdings, One Equity Partners, TPG Capital, JPMorgan Chase, Terra Firma Capital Partners and Indian industrial group Tata.

Inverness Capital Partners has sponsored an equity recapitalization of Nexergy Inc., an Escondido, Calif.–based designer and manufacturer of battery packs and chargers. No financial terms were disclosed for the deal, which results in Inverness holding a majority position.

London & Continental Railways, which built the fast link for Eurostar trains between St Pancras and the Channel Tunnel, reportedly may be sold by the UK Government in the first quarter of next year. One idea is that the company will be split into three pieces: The railway link; A share of Eurostar; And property around the terminal in London.

Summit Partners has acquired Touro University International, a provider of online postsecondary education, from Touro College. No financial terms were disclosed.

PE-Backed IPOs

SoundBite Communications Inc., a Burlington, Mass.-based provider of on-demand automated voice messaging solutions, has raised around $42.6 million in its IPO. The company priced 5.2 million common shares at $8 per share, compared to its original plan to sell six million common shares at between $12 and $14 per share. Soundbite plans to trade on the Nasdaq under ticker symbol SDBT, while Cowen & Co. and Thomas Weisel Partners served as co-lead underwriters. The company has raised around $30.4 million in VC funding since 2000, from firms like North Bridge Venture Partners, Mosaic Venture Partners, Commonwealth Venture Capital and Venture Capital Fund of New England. www.soundbite.com

CreditCards.com Inc., an Austin, Texas-based online destination for consumers to search, compare, and apply for credit cards, has set its IPO terms to around 10.73 million common shares being offered at between $13 and $15 per share. It would have an initial market cap of approximately $421 million, were it to price at the high end of its range. It plans to trade on the Nasdaq, with Credit Suisse and Citi serving as co-lead underwriters. Austin Ventures sponsored a recap of CreditCards.com last fall, and holds a 65.6% pre-IPO position. Also participating on the recap were American Capital Strategies (9.6%) and company founder Dan Smith (16.1%). www.creditcards.com

Rubicon Technology Inc., a Franklin Park, Ill.-based maker of monocrystalline sapphire and other crystalline products, hasset its IPO terms to 6.7 million common shares being offered at between $12 and $14 per share. It would have an initial market cap of $269 million, were it to price at the high end of its range.Rubiconplans to trade on the Nasdaq under ticker symbol RBCN, with UBS serving as lead underwriter. It has raised nearly $44 million in VC funding since 2001, from firms like Cross Atlantic Capital Partners, Gazelle TechVentures, KB Partners and River Cities Capital Funds. www.rubitech.net

SuccessFactors Inc., a San Mateo, Calif.-based provider of on-demand performance and talent management software, has set its IPO terms to 10.79 million common shares being offered at between $8 and 410 per share. It would have an initial market cap of approximately $497 million, were it to price at the high end of its range. The company plans to trade on the NYSE Arca under ticker symbol SFX, with Morgan Stanley and Goldman Sachs serving as co-lead underwriters. Shareholders include Greylock Partners (31.8% pre-IPO stake), TPG Ventures (19.8%), Cardinal Ventures (9.1%), Canaan Partners (7.5%), Emergence Capital Partners (6.6%) and Granite Global Ventures (5.2%). www.successfactors.com

Virtual Radiologic Corp., a Minnetonka, Minn.-based provider of remote diagnostic image interpretation services (aka teleradiology), has set its IPO terms to four million common shares being offered at between $16 and $18 per share. It would have an initial market cap of approximately $295 million, were it to price at the high end of its range. Virtual Radiologic plans to trade on the Nasdaq under ticker symbol VRAD, with Goldman Sachs serving as lead underwriter. Generation Capital Partners holds a 33.3% pre-IPO position. www.virtualrad.net

PE Exits

PCN Financial Services Group has agreed to acquire Albridge Solutions Inc., a Lawrenceville, N.J.-based provider of portfolio accounting and enterprise wealth management services. No financial terms were disclosed. Albridge Solutions raised $23 million in VC funding between 2000 and 2003, from firms like Boston Ventures, Charterhouse Group International, Desai Capital Management, Axiom Venture Partners, Hudson Venture Partners, ING Aetna Financial and Allianz Private Equity Partners.

PE-Backed M&A

Cloud Packaging Solutions LLC, a portfolio company of private equity firm Cameron Holdings Corp., has acquired Automated Packaging, a Winder, Ga.-based contract manufacturer and packager of high-speed liquid filling applications. No financial terms were disclosed.

Firms & Funds

Apollo Management has secured $512.5 million in capital commitments for a credit liquidity fund, according to a regulatory filing. The listed target is $625 million.

Natural Gas Partners has secured just over $2 billion in capital commitments for its ninth fund, according to a regulatory filing. The Irving, Texas-based firm lists its target as “indeterminate.”

Citigroup Inc. shares dropped to a four-year low yesterday, after a CIBC World Markets analyst wrote that Citigroup might need to cut its dividend to raise capital.

Alex Sink, chief financial officer for the State of Florida, yesterday directed state investment managers to assess whether Florida’s portfolio has gotten too risky with changes in the market.

Human Resources

Wanching Ang has resigned as CEO of Allianz Private Equity Partners, where she also served as a managing director and head of the firm’s Munich office. Ang joined Allianz in 1999, after having previously been with Apax Partners.

Victor Blank has joined TPG as a senior advisor in the UK. Blank currently is chairman of Lloyds TSB Group, and is the former chairman of GUS PLC and Trinity Mirror.

Mark Ronald has joined Veritas Capital Partners as a special advisor. Ronald is the former chairman and CEO of BAW Systems Inc., where he also served as COO and a member of the board of directors. He currently serves on the board of Veritas portfolio company DynCorp International Inc.