One thing we learned during the recent buyout boom was that private equity pros are smarter than the folks lending them money. Like Alex Trebek to Jeff Foxworthy smarter. But never underestimate a canyon’s ability to widen.
The FT reported yesterday that Citigroup is in talks to sell some of its “hung” leveraged loans to KKR (via a dedicated hedge fund). No big surprise there, as a number of larger firms have either raised dedicated pools for such a purpose, or simply reallocated existing fund capital.
But here’s the kicker: These transactions would also be leveraged, with Citigroup providing the new leveraged loans!
Why stop there? Maybe keep the circle running a few more laps, while simultaneously removing all of those pesky covenants. And then Henry Kravis could ask Chuck Prince to be his chauffer, once that business in the woodshed is over. Oh, and who would Citigroup syndicate the new loans out to? The same funds that wouldn’t buy the original ones? It’s enough recursive ridiculousness to make my head hurt.
The whole thing harkens back to some sarcasm from an old James Altucher column on TheStreet.com:
“So welcome to the first, exclusive fund of fund of fund of funds offering. Please note if you are an institutional investment consultant, we are not paying you a cent to attend your “seminar” or to recommend the product. The F4 sells itself. We are also working on a guaranteed F4 so that we can bury even more fees in the structure. And we have also locked up F5 and F6 patents for when the business evolves to the next level. Quintuple and sextuple fee layers are the next big thing.”
*** Former Fox Interactive chief Ross Levinsohn last month teamed up with private equity firm General Atlantic, to roll up digital media companies via a platform called Velocity Investment Group. Now Matt Marshall is reporting that Levinsohn is nearing an earlier-stage agreement with ComVentures, the Silicon Valley venture shop that has taken its fair share of hits in this column and elsewhere. Marshall does not say whether or not former AOL honcho Jonathan Miller is involved, as he is with the General Atlantic deal.
I’ve made some calls on this, and learned that ComVentures and Levinsohn have been in talks for more than six months. In fact, ComVentures limited partners learned about it this past spring, albeit without Levinsohn’s name being disclosed — “just a ‘big name’ digital media guy,” an LP explains. But, to make matters more confusing, Levinsohn told Marshall that there isn’t any formal tie with ComVentures in the works. Could this become a he-said/he-said like the “Cliff Higgerson is returning to ComVentures” situation?
My guess is that Levinsohn is just being coy, but we’ll probably find out for sure on October 18, when ComVentures holds its annual meeting…
*** Wall Street layoff watch.
*** Q&A with “Two and Twenty” author Vic Fleischer.
*** Halyard Capital’s sale of Tranzact to VSS should help it get closer to raising its second fund.
*** Each month, I put together the Six Degrees of Separation feature for Buyouts Magazine. The latest comes out Monday, and connects The Blackstone Group’s John Studzinski to former professional wrestler Big John Studd…. What a silly job I have.
*** Have a great weekend and, as if it needs to be said, go Sox…
Top Three
APT Pharmaceuticals Inc., a Burlingame, Calif.-based drug company whose pipeline includes a Phase IIII drug for the prevention of lung transplant rejection, has raised $22 million in Series A-2 funding. Versant Ventures and Great Point Partners were joined by return backers Vivo Ventures and Charter Life Sciences. Camille Samuels of Versant and David Kroin of Great Point with join the APT, which has now raised $30 million to date. www.aptbio.com
Alibaba.com Inc., operator of China’s largest B2B website, has won approval from the Hong Kong Stock Exchange for its IPO, according to Reuters. The company is expected to raise approximately $1 billion, with Morgan Stanley serving as lead underwriter. Alibaba.com has raised around $107 million in total VC funding, including an $82 million Series D round in early 2004 at a $182 million post-money valuation. Shareholders include Fidelity Investments, Goldman Sachs, Granite Global Ventures, Softbank China VC, Investor AB, Transpac Capital and Venture TDF. www.alibaba.com
The Carlyle Group has closed its third Carlyle Venture Partners fund with $605 million in capital commitments. Its previous Venture Partners funds closed on $210 million in 1997 and $602 million in 2002. The new vehicle will be broader in strategy than were its predecessors, by investing in a mix of early-stage, expansion-stage growth equity and growth buyout opportunities. www.carlyle.com
VC Deals
Vidyo Inc., a Hackensack, N.J.-based provider of high-def video conferencing over the Internet, has raised $12 million in Series B funding. Rho Ventures led the deal, and was joined by return backers Sevin Rosen Funds and Star Ventures. www.vidyo.com
Verimatrix, a San Diego-based provider of content security technologies for pay-TV networks, has raised $5 million in new VC funding. Return backers include Crescendo Ventures, Mission Ventures and Cipio Partners (which acquired the position from Siemens Venture Capital). www.verimatrix.com
Mesmo Inc., an Oakland, Calif.-based social video website, has secured over half of a $900,000 Series A round, according to a regulatory filing. Backers include Felices Ventures and Maples Investments. www.mesmo.tv
Nysa Membrane Technologies Inc., a Burlington, Ontario-based developer of a membrane-based platform technology, has raised an undisclosed amount of Series B funding. The round was co-led by Jove Investment Management and BDC Venture Capital. Nysa’s platform is designed for such applications as large-scale bioprocessing, small-scale bioanalytics, potable water and food and beverage processing. www.nysamembranes.com
Visiopharm, a Danish quantitative microscopy company, has raised an undisclosed amount of private equity funding from NorthCap Partners. www.visiopharm.com
Hyperion Therapeutics Inc., a San Francisco-based drug company focused on gastroenterology and hepatology, has secured $15 million in debt financing from Comerica Bank. The company also announced several new executives. Hyperion recently announced that it had raised $40 million in second-round funding from Sofinnova Ventures, Highland Capital Partners, New Enterprise Associates and WRF Capital. www.hyperiontx.com
Buyout Deals
Charlesbank Capital Partners and Transportation Resource Partners have completed their acquisition of MasterCraft Boat Co. from US Equity Partners, a fund sponsored by Wasserstein & Co. MasterCraft management partnered with the buyers, while debt financing was be provided by Jefferies & Company. No financial terms were disclosed. MasterCraft is a Vonore, Tenn.-based maker of powerboats. It was advised on the sale by Lazard. www.mastercraft.com
GenTek Inc. (Nasdaq: GETI) said that it has received an unsolicited buyout offer from Abrams Capital, but that the $33.50 per share proposal was “inadequate” and “does not fairly value” the company. The bid would value GenTek at nearly $359 million. GenTek is a Parsippany, N.J.-based provider of specialty inorganic chemical products for treating water and wastewater, petroleum refining and the manufacture of personal-care products, and valve-train systems and components for automotive engines. www.gentek.com
KarpReilly LLC has led a buyout of Santa Barbara, Calif.-based burger chain Habit Burger Grill for less than $50 million, according to LBO Wire. Also participating on the buyside was J.P. Morgan Chase and Paul Fleming, founder of P.F. Chang’s China Bistro. www.karpreilly.com www.habitburger.com
Citigroup and JPMorgan Chase next week will begin selling at least $5 billion of leveraged loans to support KKR and TPG’s pending buyout of TXU Corp., according to Bloomberg.
PE-Backed IPOs
China Digital TV Holding Co., a Beijing-based provider of conditional access systems to China’s digital television market, raised approximately $192 million through its IPO. The company priced 12 million American depository shares at $16 per share (above its upwardly-revised $13-$15 range), which gives it an initial market cap of around $888 million. China Digital will trade on the NYSE under ticker symbol STV, while Morgan Stanley and Credit Suisse served as co-lead underwriters. Shareholders include SAIF, with a 21.8% pre-IPO stake.
PE Exits
Canadian Pacific Railway Ltd. has completed its acquisition of Dakota Minnesota and Eastern Railroad Corp. (DME), a portfolio company of Lombard Investments. The deal is valued at up to $2.48 billion, including a $1.48 billion up-front cash payment and another $1 billion in payments contingent on the development of a major rail line linking the DM&E to the Wyoming Powder River Basin coal deposits. Lombard led a $34 million buyout of DME back in 1986. www.dmerail.com www.lombardinvestments.com
PE-Backed M&A
Air2Web Inc., an Atlanta-based provider of wireless applications and content gateway services, has agreed to acquire MindMatics AG, which offers similar services in the European marketplace. No financial terms were disclosed for the deal, which is expected to close later this month. Air2Web has raised over $76 million in VC funding since its 1999 inception, from firms like The Carlyle Group, Jupiter Ventures and Vantage Point Venture Partners. MindMatics backers include T-Mobile Venture Fund, Tempo Capital and Holtzbrinck Ventures – which will all become shareholders in the combined company. www.air2web.com www.mindmatics.de
BSG Alliance Corp., an Austin, Texas-based provider of on-demand enterprise software, has acquired Industrial Science LLC, a Houston, Texas-based provider of business simulation frameworks and technology for large enterprises. No financial terms were disclosed. BSG earlier this year raised $20 million in VC funding from Foundation Capital, Hummer Winblad Venture Partners and Powershift Ventures. www.bsgalliance.com www.industrial-science.com
Firms & Funds
Guggenheim Aviation Partners has closed its second fund with $737 million in capital commitments. The firm acquired new and used aircraft, and then leases them to passenger and freight airlines. www.guggenheimpartners.com
Village Ventures has closed its second fund with $104 million in capital commitments. The Williamstown, Mass.-based firm focuses on early-stage opportunities via both its own fund and a network of affiliate funds. www.villageventures.com
LLR Partners is raising $600 million for its third fund, according to LBO Wire. The Philadelphia-based firm focuses on lower-middle-market opportunities in the Mid-Atlantic region, and closed its second fund in 2005 with $360 million. www.llrpartners.com
Human Resources
Anand Balasubrahmanyan has joined The Carlyle Group as a director in charge of Southeast Asia for Carlyle Asia Partners. He will be based in Singapore, and previously was with Morgan Stanley as an executive director and head of global capital markets for Southeast Asia. www.carlyle.com
John Hailer has been named president and CEO of Natixis Global Asset Management North America. He succeeds Jeremiah Chafkin, who has been named president of Natixis Global Asset Management Alternatives Group. Chafkin also will serve as CEO of AlphaSimplex Group, when Natixis’ acquisition of the Cambridge, Mass.-based quant manager closes later this year. www.natixis.fr
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