PE Week Wire: Friday, August 1, 2008

The sun is shining, the U.S. economy keeps (barely) growing and I’m suffering from a mild case of jet-lag. In other words, it’s time for some Friday Feedback. First up are a few responses to yesterday’s column, which briefly detailed the mock trial of FAS 157:

Colin: “You may be correct that private company valuations under FAS 157 are no better or worse than under the methods that most VC firms were already using. But, if so, isn’t that even more damning? FAS 157 requires more time and money (additional auditor hours, third-party valuation outsourcing, etc.), and most of that is passed onto the LPs. That means LPs are paying more without getting any real benefit.”

Ralph: “This is a lot of complaining over nothing. Our firm was basically FAS 157-complaint before there was a FAS 157. Didn’t hurt us any.”

Chris: “First you want us to pay more taxes by changing carried interest to ordinary income. Now you support FAS 157, which also takes money out of our pocket. Is there a reason you hate your readers?”

*** Mr. X on cleantech investor supply outpacing demand: “I think transitioning to cleantech is much harder than a buyout guy doing distressed debt. After all, buyout guys create the best product for the distressed debt market, and it’s all one capital stack at the end of the day. The legal nuances are some challenge, but the levers of valuation and priority and fulcrum securities are not foreign to buyout guys. Backing the wiz-bang idea in cleantech seems much more dangerous than doing so in software because of 1) Capital requirements and 2) Gov/Reg importance. How many things in technology derive a major portion of their revenues from subsidies?

*** On KKR going public: “I am surprised by your positive attitude towards this deal. As a long-term investor in KPE there is no way this deal should be approved… Many people have held this security through some rough times… If you go back and listen to past conference calls, they always refused to do buybacks to help the stock price but now they are willing to cut this deal when they are abandoning the vehicle and they stand to gain tremendously from a publicly-listed KKR. I only wish the large institutions would wake up to this travesty and let KKR know that the holders of KPE need to be treated the same way they would treat their LPs in their PE funds… Please stop giving these guys a pass. They gave up on KPE who is to say they will not do the same thing to KKR/NYSE?”

Omo: “The issue with this structure is the agency problem. Will the employees of KKR be incentivized to find good deals or will they look for deals that can boost the KKR stock price short term? Will the LPs be comfortable that this new structure will protect their investment and that both partners (KKR and LPs) interests are properly aligned?”

Kevin: “If you can’t do an IPO the old fashioned way, don’t do it at all.”

Joe: “I can’t figure out if this is the beginning of the end, or just a new beginning.”

*** Have a great weekend. Oh, and until I get over my fit of pique, Go Dodgers.


In Memoriam: Keith Benjamin

A memorial service for Keith will be held this Sunday in Sausalito. Further information is available here.

Top Three

The Carlyle Group announced that it will liquidate Carlyle-Blue Wave Partners, a hedge fund it launched in April 2007.

First Wind Holdings Inc. (f.k.a. UPC Wind), a Newton, Mass.-based developer of win power projects, has filed for a $450 million IPO. It plans to trade on the Nasdaq under ticker symbol WINDY, with Credit Suisse, Goldman Sachs and JPMorgan serving as co-lead underwriters. Shareholders include D.E. Shaw and Madison Dearborn Partners.

3Com Corp. has sued Bain Capital for a $66 million termination fee, related to the buyout firm’s failed $2.2 billion buyout effort. 3Com alleges that Bain’s reasons for pulling out of the deal were invalid, thus activating the termination fee.

VC Deals

Wellpartner Inc., a Portland, Ore.-based provider of pharmacy distribution solutions, has raised $16.1 million in Series D funding. Burrill & Co. led the round, and was joined by the Oregon Investment Fund and return backers 3i Group, Buerk Dale Victor, Integra Ventures, Greenwoods Capital Partners and Mediphase Venture Partners.

Crowd Fusion, a New York-based online publisher of vertical destination sites, has raised $3 million in Series A funding. Velocity Interactive Group led the round, and was joined by Greycroft Partners and Marc Andreesen.

Ngmoco, a San Francisco-based publisher of games for the iPhone, has raised an undisclosed amount of Series A funding. Kleiner Perkins Caufield & Byers led the round, with Maples Investments also participating.

Protagen AG, a Swiss provider of protein analytics, bio-informatics and biochips, has raised an undisclosed amount of new VC funding. Return backers include MIG AG, Munich, S-Venture Capital Dortmund GmbH and KfW. It had previously raised over $5 million.

Buyout News

Booz Allen Hamilton Inc. has completed the sale of a majority stake in its U.S. government business to The Carlyle Group for $2.54 billion. The move enabled Booz Hamilton to separate its U.S. government business and global commercial business, with each becoming stand-alone entities. Its U.S. government business has more than 18,000 employees in 80 global offices, and generates north of $2.7 billion in annual revenue.

Doughty Hanson reportedly has offered to acquire 52% of Spanish ambulance provider Seur, at an enterprise value of around €1 billion.

Spectrum Equity Investors and Great Hill Partners have acquired a majority stake in Passport Health Communications Inc., a Franklin, Tenn.-based provider of payer and patient information technology services for healthcare providers. The two firms invested $232 million, while existing Passport backer Primus Capital Funds rolled over most of its existing stake and provided additional equity.

PE-Backed IPOs

STR Holdings Inc., an Enfield, Conn.-based maker of solar power module encapsulant, has filed for a $300 million IPO. It plans to trade on the NYSE under ticker symbol PVS, with Credit Suisse and Goldman Sachs serving as co-lead underwriters. Shareholders include DLJ Merchant Banking Partners and Northwestern Mutual Life Insurance Co.

PE Exits

Belden (NYSE: BDC) has acquired Trapeze Networks, a Pleasanton, Calif.–based provider of wireless LAN equipment and network management software, for approximately $133 million in cash. Trapeze had raised just over $100 million in VC funding from firms like Accel Partners, Redpoint Ventures, Oak Investment Partners, Motorola, Castile Ventures and DAG Ventures.

DeVry Inc. (NYSE: DV) has acquired U.S. Education Corp. for $290 million in cash. Sellers were ClearLight Partners and Chicago Growth Partners. U.S. Education is a Mission Viejo, Calif.-based operator of two schools: Apollo College and Western Career College, which combined have around 8,700 students and 17 campuses.

McAfee Inc. (NYSE: MFE) has agreed to acquire Reconnex, a Mountain View, Calif.-based provider of enterprise data loss prevention solutions. The deal is valued at $46 million in cash, and is expected to close later this quarter. Reconnex had raised around $36 million in VC funding from Levensohn Venture Partners, Norwest Venture Partners, Outlook Ventures and August Capital Management.

Monster has acquired Trovix Inc., a Mountain View, Calif.–based provider of employment search and matching technologies, for $72.5 million in cash. Trovix had raised $18.25 million in VC funding since 2006 from firms like 3i Group, Granite Ventures and U.S. Venture Partners.

Stone Point Capital has agreed to sell Wayne, Pa.-based wireless handset insurer Signal Holdings LLC to Assurant Inc. (NYSE: AIZ) for $250 million in cash.

PE-Backed M&A

Advance Engineered Products Ltd., a Saskatchewan-based manufacturer of specialized truck tanks and trailers, has acquired the Lazer Inox Group, a Quebec-based maker of stainless steel and aluminum on-road tanks. No financial terms were disclosed. AEP is a portfolio company of Tricor Pacific Capital.

Alex Stewart Group, a UK-based provider of verification of the quantity and quality of commodity shipments, has acquired Eco Tech Laboratory Ltd., a provider of assay and geochemical services to the Canadian mining and exploration industry. No financial terms were disclosed. Close Brothers Private Equity sponsored a management buyout of Alex Stewart in November 2006.

Firms & Funds

Versant Ventures, a Menlo Park, Calif.-based VC firm focused on healthcare, has closed its sixth fund with $500 million in capital commitments. It had been targeting $400 million, which was the same amount as it had raised for its fifth fund.

Lombard Odier Darier Hentsch has held a €300 million first close on its fourth fund, which will focus on lower-middle-market private equity opportunities in Europe. The final target is 600 million.

Human Resources

Jamie Ebersole has joined SL Capital Partners as senior investment director for North America. He will be based in Boston, and previously ran the New York office of Allianz Private Equity Partners.

Jonathan Heathcote has joined Palamon Capital Partners as a partner. He previously spent the past nine years with European Acquisition Capital.

Todd Humphrey has been named a venture partner with Monster Venture Partners, and CEO of Monster portfolio company Wishpot. He previously was CEO of CleverSet, which was acquired earlier this year by ATG.

Resilience Capital Partners of Cleveland has made four hires: Michael Lundin, former president and CEO of Oglebay Norton Co., as an operating partner; Michael Merriman, former CEO of Lamson & Sessions, as an operating partner; David Blank, formerly of Morgan Stanley Capital Partners, as an investment associate; and Ziv Sarag, former CFO of TOA Technologies, as chief operating officer.