PE Week Wire: Fri., Sept. 28, 2007

Wither the secondary buyout market? That’s what I was thinking as I left the CNBC studios on Wednesday morning, after having discussed the relative lack of exit opportunities for buyout-backed companies. My main talking points were about the September shutout of buyout-backed IPOs (snapped last night by Duff & Phelps), while co-guest Andrew Ross Sorkin was on to say that the credit crunch also has severely slowed the ability of private equity firms to sell companies to one another.

This second thesis was not one I had heard before, save for more general carping about slowdowns in deal volume. Moreover, I could not find any relevant data, so I decided to compile some myself. The results indicated that Sorkin was both right and wrong: Right in that secondary buyouts have slowed in the past few months, but wrongbecause the slowdown has only brought us down to levels seen earlier in the year (i.e., more “normal” levels). Whereas the buyout-backed IPO window is virtually painted shut, the secondary buyout window would still need to be caulked in a New England winter.

You can download my data here. It was compiled from the “Sponsor-to-Sponsor” briefs section of Buyouts Magazine, which is published bi-weekly. I’m the one who compiles these items by rifling through old PE Week Wire issues, and believe it to be fairly comprehensive. Not perfect, mind you, but consistent in maker and method from month to month.

To make the chart, I listed each deal alongside the month in which it first appeared in Buyouts — which often referred to an announced agreement rather than afinal close. It also is worth pointing out that the publishing schedule could have weighted certain months more heavily than others, but this was nonetheless the best available option. I looked at August 2006 through September 2007, plus some deals that will appear in the first October 2007 issue (which I’ve excluded from the following analysis).

There were 221 reported secondary buyouts in the sample, which works out to a monthly average of 15.78 deals per month. The median was 15.5.

The busiest months were April through June, with 31, 26 and 26 deals, respectively. The slowest month was July, which supports Sorkin’s argument of a post-credit crunch slowdown. Since July, however, the market has picked back up. There were 17 secondary buyouts reported in August, and 11 in September. Moreover, there already are five deals in the October list — compared to just eight for all of October 2006.

These certainly aren’t salad days for buyout-backed exits, but it also isn’t the end of days…

*** A quick follow-up to yesterday’s item on Steve Young. As the SEC filings indicated, Young will not be part of Sorenson’s second fund. Sorenson managing director Fraser Bullock says that Young is spinning off to do his own thing with some other folks, but that he will remain an active member of Sorenson’s first fund. Apologies for the confusion.

Top Three

Bain Capital and Huawei Technologies Co. have agreed to acquire telecom equipment company 3Com Corp. (Nasdaq: COMS) for approximately $2.2 billion. Bain would take the majority stake, with Chinese networking company Huawei acquiring a minority position. Under terms of the transaction, 3Com stockholders would receive $5.30 per share. Leveraged finance commitments were provided by Citibank Hong Kong, Branch Citigroup Global Markets Asia, UBS AG Singapore Bank, The Hong Kong and Shanghai Banking Corp., ABN Amro and Bank of China (Hong Kong) Ltd. 3Com is being advised by Goldman Sachs, while the buyers were advised by Citigroup Global Markets and UBS Securities.

RealNetworks Inc. (Nasdaq: RNWK) has agreed to acquire Game Trust Inc., a New York-based casual game infrastructure company. Game Trust develops community and commerce capabilities within games, and has raised $16 million in VC funding from Draper Fisher Jurvetson, CSK Venture Capital, Intel Capital, New Jersey Technology Council, Silicon Alley Venture Partners, TopSpin Partners and Patriot Capital Funding.

Duff & Phelps Corp., a New York-based provider of financial advisory and I-banking services, raised $132.8 million in its IPO. It is the first buyout-backed IPO of September. The company priced 8.3 million common shares at $16 per share, which was below its estimated $16.50-$18.50 range. Duff & Phelps will begin trading today on the NYSE under ticker symbol DUF, while Goldman Sachs and UBS served as co-lead underwriters. Shareholders include Lovell Minnick Partners and Vestar Capital Partners. Lovell Minnick sponsored a management buyout of the company in 2004 from Webster Financial Corp., while Vestar helped finance the 2005 add-on acquisition of the Corporate Value Consulting business of Standard & Poor’s.

VC Deals

Imalux Corp., a Cleveland-based developer of technology for the visualization of tissue microstructure, has raised $5.1 million in Series C funding. Participants included Early Stage Partners, ElectroSonics Medical, Reservoir Venture Partners and Symark.

DECA, a Santa Monica, Calif.-based digital entertainment studio, has raised $5 million in Series A funding. Mayfield Fund led the deal, and was joined by General Catalyst Partners and Atomico Investments.

Sinexus Inc. has raised $3.5 million in Series A funding from Kleiner Perkins Caufield & Buyers and U.S. Venture Partners, according to a regulatory filing. The Palo Alto, Calif.-based medical device company is focused on the treatment of chronic sinusitis, an inflammatory disease affecting the paranasal sinuses.

GenSight, a provider of project portfolio management software, has raised $3 million in first-round funding from SIG Strategic Investments. GenSight has offices in both the UK and Doylestown, Pennsylvania.

OpTrip Inc., a Sunnyvale, Calif.-based developer of automated online travel planning technology, has raised $500,000 in Series A funding. Backers include angel group Amidzad Partners and Peter Thiel.

Widemile Inc., a Seattle-based provider of multivariate testing and digital content optimization for online marketers, has raised $4 million in convertible note financing. The company did not disclose participants, except to say that they included “existing investors, company management and industry insiders.”

Buyout Deals

Bain Capital and Huawei Technologies Co. have agreed to acquire telecom equipment company 3Com Corp. (Nasdaq: COMS), according to The Wall Street Journal. The deal would be valued at more than $2 billion, with 3Com shareholders to receive in excess of $5 per share. Bain would take the majority stake, with Chinese networking company Huawei acquiring a minority position.

Brockway Moran & Partners has recapitalized Pacific Crane Maintenance Co., a Long Beach, Calif.-based provider of on-dock equipment maintenance and repair services. No financial terms were disclosed for the deal, which was done in partnership with Pacific Crane management.

W. P. Carey & Co. and Watermark Capital Partners have acquired the Doubletree Hotel Memphis Downtown, which includes 280 guest units and a T.G.I. Friday’s restaurant. The joint venture has retained Prism Hospitality as property manager. No financial terms were disclosed.

PE-Backed IPOs

CSAV Holding Corp. (aka Chief Manufacturing), a Savage, Minn.-based maker of audio-visual mounting equipment and display solutions, has filed for a $201.25 million IPO. It plans to trade on the NYSE, with Wachovia Securities and Piper Jaffray serving as co-lead underwriters. Friedman Fleischer& Lowe led a 2003 buyout of CSAV, and currently stands as majority owner. Other shareholders include Fulham Investors and Performance Equity Management.

Trans1 Inc., a Wilmington, N.C.-based developer of a surgical device for treating a degenerative disc disease affecting the lower lumbar region of the spine, has set its IPO terms to 5.5 million common shares being offered at between $12 and $14 per share. The company’s initial market cap would be approximately $262.87 million, if it were to price at the high end of its offering range. Trans1 plans to trade on the Nasdaq under ticker symbol TSON, with Lehman Brothers and Piper Jaffray serving as co-lead underwriters. It has raised around $40 million in VC funding since 2000, from firms like Advanced Technology Ventures (19.5% pre-IPO stake), Delphi Ventures (16.3%), Cutlass Capital (15%), Sapient Capital (12%) and Thomas Weisel Healthcare Venture Partners (7.2%).

Ulta Salon, Cosmetics & Fragrance, a Romeoville, Ill.-based beauty retailer and salonoperator, has set its IPO terms to around 8.55 million common shares being offered at between $14 and $16 per share. It would have an initial market cap of approximately $907 million, were it to price at the high end of its range. The company plans to trade on the Nasdaq under ticker symbol ULTA, with JPMorgan and Wachovia Securities serving as co-lead underwriters. Shareholders include GRP Partners (26.3% pre-IPO stake), Doublemousse BV (22.5%) and Oak Investment Partners (12.9%).

PE Exits

Argan Capital is putting Poland’s largest juice maker, Hortex, on the block, according to Polish newspaper Parkiet. Argan is setting the price floor at €300 million.

Arsenal Capital Partners is in talks to sell pharma logistics company Priority Solutions International to Thermo Fisher Scientific Inc. (NYSE: TMO), according to LBO Wire. No financial terms were reported. Arsenal led a buyout of the company in 2004, and later merged it with competitor Distribution Solutions International. Other Priority Solutions shareholders include Frazier Healthcare Ventures and Audax Mezzanine.

Cloyes Gear and Products Inc., a portfolio company of KPS Capital Partners, has sold its European business to Sumitomo Electric Industries Ltd. No financial terms were disclosed. Cloyes Europe is based in Germany, and produces powdered metal components for the automotive industry in Europe.

Risc Group has acquired French application services provider Ornis for €35 million, according to alarm:clock. Ornis shareholders included Iris Capital, Elaia Partners, Société Générale Asset Management, 123Venture.Crédit Agricole Private Equity and Odysee Venture.

U.S. Senators yesterday did not express any outright opposition to Google’s proposed $3.1 billion acquisition of DoubleClick Inc., during a hearing focused on the deal’s potential threats to competition and privacy. The Senate cannot block the deal, but could be influential with FTC regulators. Current DoubleClick owners Hellman & Friedman and JMI Equity bought DoubleClick in 2005 for $1.1 billion. Read more here.

PE-Backed M&A

Reverse Logistics GmbH, a portfolio company of Monitor Clipper Partners, has acquired Dutch logistics company Cycleon Strategic. No financial terms were disclosed.