PE Week WIre: Friday, August 15, 2008

Battery Ventures once again wants to become a billionaire, by raising a $250 million “overage fund” to supplement the $750 million eighth fund it closed last summer. I’ve got a bunch of related items, and since bullet points are so much simpler than prose…

• Battery last raised $1 billion for its sixth fund in 2000, but then reduced it to $850 million during the Great Fund Size Cuts of 2002. It then dropped down to $450 million for its sixth fund in 2004, before raising $750 million for Fund VIII. Add in the $250 million, and it’s a perfect circle.

• Why would LPs invest in an overage fund? In some cases, they have no choice because the general fund and overall fund are stapled together. That’s the situation with Austin Ventures, for example, which is raising $600 million for its general fund and $300 million for its overage fund (final close on both set for the middle of next month). Either play in both, or don’t play at all. But there is also a fee incentive: Most of these overage funds only charge management fees on called capital, rather than on committed capital. It gives LPs a warm, fuzzy feeling…

• The result, however, is that overage fund portfolios are much more concentrated than are typical VC or PE fund portfolios.

• I spoke yesterday with Battery partner Dave Tabors – not about the fund (natch), but about his firms ability to secure leveraged financing. He said that the credit crunch has obviously affected both deal-flow and prices, but that Battery has still been able to find debt when needed. For example, he said, the firm got leveraged financing for its $85 million carve-out of HighJump Software from 3M, and portfolio company HealthVision bought a division of MediSolution using 90% leverage and 10% incremental equity.

• I also asked Tabors whether VC firm efforts to diversify into buyouts would meet the same fate as buyout firm diversification into venture capital during the dotcom daze. He said no, so I asked why? The key, he believes, is that buyout deals – by their nature (i.e., actual assets, revenue) – are less likely to go bust than are early-stage transactions.

• Of course, there’s no pesky leverage on early-stage deals – so the real answer might have more to do with firm scaling. In other words: The typical buyout deal has more potential to move the needle for a VC firm than did a typical early-stage deal for a big buyout firm (like TH Lee or Hicks Muse).

• Private Equity Insider first broke news of the Battery overage fund. Too bad, really, because I spent part of yesterday thinking I had a scoop.

*** Interesting conversation yesterday with Mike DeVries, a managing director with EDF Ventures. For those who didn’t read yesterday’s note, EDF has subpoenaed to learn the identity of a poster who printed some unflattering comments about the firm.

DeVries says his main complaint is not that the supposed entrepreneur dislikes EDF, but that he lied in his comment. Specifically, the commenter wrote: “Worked with these people on several deals…” The problem, DeVries says, is that EDF has not ever done multiple deals with the same entrepreneur.

I asked DeVries about why EDF thinks it can get the identifying info, given that TheFunded does not record such data. He declined to answer, saying he’d rather talk about it in the near future. Maybe a stall. Maybe he knows something I don’t. Also worth noting that our talk concluded with DeVries saying: “We think TheFunded provides a good service for entrepreneurs.”

*** Have a great weekend…

Top Three

Gilat Satellite Networks Ltd. (Nasdaq: GILT) yesterday issued a statement that its prospective buyers “are questioning whether all of the conditions of the merger agreement have been met.” The company agreed earlier this summer to be acquired for around $475 million, or $11.40 per share, by The Gores Group, Mivtach Shamir Holdings and DGB Investments.

Vapotherm Inc., a Stevensville, Md.-based manufacturer of respiratory care devices, has raised $20.5 million in sixth-round funding. GE Asset Management led the round, and was joined by Cross Creek Capital, Integral Capital Partners and return backers QuestMark Partners and Kaiser Permanente Ventures.

Birch Hill Equity Partners and Westerkirk Capital have offered to buy Sleep Country Canada Income Fund, a publicly-traded Canadian mattress retailer. The bid is valued at C$299 million, or C$22 per share (31.7% premium to Wednesday’s closing price). In addition, the bidders would assume approximately C$57 million in Sleep Country debt.

VC Deals

Amyris Biotechnologies Inc., an Emeryville, Calif.-based synthetic biology company that developers renewable hydrocarbon biofuels, hasexpanded its Series B round from $70 million to around $90 million, according to a regulatory filing. So far, it has called down just over $50 million of that amount. No new investors are listed. DAG Ventures was the original round lead, with Khosla Ventures, Kleiner Perkins Caufield & Byers and TPG Ventures also participating.

Xelerated, a maker of Ethernet ASSP-based chipsets for carriers, has raised $13 million in fifth-round funding. The Sixth Swedish National Pension Fund led the round, and was joined by fellow return backers Accel Partners, Alta Partners, Amadeus Capital Partners and Atlas Ventures.

Media6Degrees Inc., a New York-based provider of social graph data for brand marketers, has raised $9 million in Series A funding. U.S. Venture Partners led the round, after having previously raised seed funding from Contour Venture Partners, Coriolis Ventures and several individual angels.

Ryma Technology Solutions, a Montreal-based provider of product management solutions for software developers, has raised C$7 million in Series B funding. iNovia Capital led the round, and was joined by return backer Novacap.

Spineology Inc., a St. Paul, Minn.-based developer of minimally-invasive spinal surgery devices, has raised $1.5 million in new VC funding from Affinity Capital Management.

Buyout Deals

Apax Partners and Warburg Pincus have submitted bids for Czech broadband company, according to Dow Jones. Goldman Sachs is running the auction, which is expected to generate nearly $900 million.

Apollo Alternative Assets, an Amsterdam-listed fund affiliate of Apollo Management, said that it has already marked down its equity stake incasino operator Harrah’s by about 20 percent. Apollo and TPG Capital bought the company for $17.1 billion this past January, including around $6 billion in equity.

The Blackstone Group, The Carlyle Group and Providence Equity Partners are discussing a joint bid for UK media group Informa PLC, according to The Daily Telegraph. The firms have lined up JPMorgan to lead the debt financing. Carlyle, Providence and Hellman & Friedman originally bid on Informa in early July, but the company’s shares have since sagged and H&F reportedly dropped out of the process.

Global Ship Lease Inc. has completed its reverse merger with blank-check company Marathon Acquisition Corp. The deal was valued at approximately $1 billion. Former GSL parent company CMA (France) will hold around a 34% stake in the newly-public company.

News Corp. and Permira have agreed to take UK set-top box maker NDS Group PLC private, in a $63 per share transaction. Permira would hold a 51% equity stake, while current majority shareholder News Corp. would hold remaining 49 percent.

Probe Technology Services Inc., a Fort Worth, Texas–based provider of cased and open-hole logging tools and systems, has raised an undisclosed amount of private equity funding from Cadent Energy Partners.

Linens ‘n Things received bankruptcy court approval to close an additional 57 stores, following an earlier closure of 120 stores. The big-box retailer was acquired by Apollo Management in 2006, but filed for Chapter 11 bankruptcy protection three months ago.

Mervyn’s LLC said that it will close 26 of its 176 stores by November, with most of the shuttering to occur in California and Texas. The retailer was carved out of Target Corp. in 2004 by a consortium of private equity firms, including Sun Capital Partners.

Cox Enterprises said that it plans to sell the Austin American-Statesman, plus all of its stand-alone community newspapers in North Carolina, Colorado and Texas. It also plans to sell direct mail advertising company Valpak.

PE-Backed IPOs

IDS Group Inc., a Minneapolis-based provider of asset finance origination and portfolio management software for financial institutions and equipment manufacturers, has withdrawn registration for an $86.25 million IPO. It blamed “unfavorable equity market conditions.” Thomas Weisel Partners and Piper Jaffray had been serving as co-lead underwriters. IDS is a portfolio company of SV Investment Partners.

Human Resources

Jacob Polny has joined TPG Capital as a vice president in London. He recently received his MBA from Columbia Business School and, before that, spent three years as an associate with Altor Equity Partners.

Peter Nam has joined Denver-based merchant bank Headwaters as a principal in the firm’s Orange County office. He previously has held I-banking positions at Credit Suisse, Robertson Stephens and Dain Rauscher Wessels.

Sheeraz Haji has joined El Dorado Ventures as an entrepreneur-in-residence. He previously was president of EDV portfolio company Convio.