PE Week Wire — Friday, February 18

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It Just Got Messy

As my plane pulled into the gate last night, I got a call from Steve Barrett, chief marketing officer for liquidating law firm Testa, Hurwitz & Thibeault. We chatted briefly, with Steve declining much comment, as the firm hadn’t yet even been served with the involuntary bankruptcy petition filed by eight of its former partners (filing occurred at 1:30 yesterday afternoon in the U.S. Bankruptcy Court for the Eastern District of Massachusetts). As I walked off the plane, two fellow passengers approached (both had been sitting one row in front of me). One was a former THT attorney who had left several years back, while the other was a CFO. They asked for some details about the filing, and shook their heads. “Something just doesn’t make sense about this,” said the lawyer. “They [the ex-partners] already are the junior creditors at the back of the line, and this is almost like moving even farther back. They might have just guaranteed that they wind up with absolutely nothing.”

To understand exactly what’s happened, one needs to know a little bit about the eight plaintiffs. They are: Tom Beaudoin, David Davenport, Leslie Davis, Eric Deutsch, Gordon Hayes, John Hession, Edwin Miller and Richard Sanders. All of them left THT before the Big 10 defections last December, which snowballed into January’s mass exodus and the consequential decision to dissolve. Leslie Davis, for example, went to Heller Ehrman back in February 2001, while John Hession joined McDermott Will & Emery in July 2003. The last of the group to leave was Beaudoin, whose last day with THT was October 6, 2004 (he now is with Wilmer Cutler Pickering Hale & Dorr).

Each partner left with a significant amount of money remaining in his or her capital account –hundreds of thousands of dollars in some cases — which was to be disbursed via deferred payments over a period of several years (such a system was used with all departing THT partners, not just the plaintiffs in this case). Once THT agreed to take down its shingle, however, some folks began to worry that the firm might not have enough money to pay off both creditors and ex-partners, despite public assurances that there was plenty of loot to go around.

One such person was Edwin Miller, who left THT for Sullivan & Worcester last November. He began recruiting other former partners who might be interested in filing a preemptive claim, and also retained John Monaghan of Holland & Knight as counsel. Seven others signed on.

“They basically were asking who was going to get what, and when,” says a former partner who declined to join the group. “I felt that we should just line up behind George Thibeault – who is in charge of the liquidation – because he is a fair and capable person… who is focused on maximizing returns.”

Miller and company disagreed, however, and pressed on with their recruitment drive. They also opted against engaging in arbitration with THT, which would have been the mandatory first step, according to their ex-partnership agreements. Instead, they filed yesterday’s petition, which basically asks that THT be involuntarily put into Chapter 11 bankruptcy. If a judge agrees, THT’s liquidation will be done out in the open, with its ledgers on display for all to see.

The ex-partners obviously believe that this is their best chance of getting theirs, but two bankruptcy specialists I’ve spoken with are dubious. They say that the motion likely will cause THT creditors – particularly its landlord – to accelerate payment demands, for fear of a bankruptcy filing. In doing so, the ex-partners – as my fellow passenger said – get moved even farther back in line. Moreover, THT may have been negotiating reduced restitution deals with certain creditors, but those probably are now out the window. As one source said: “Anything that disrupts the process isn’t good for the process.”

There also is a matter of propriety here, and it is one that the ex-partners seem to have missed. Everyone associated with THT is suffering in some way from the dissolution, but ex-partners are suffering the least. Each of them – the plaintiffs and most others – has found new employment at a salary that would make the average person blush. By filing the petition, however, they basically are saying: “Pay us, and pay us now.”

I don’t begrudge anyone’s efforts to secure what they feel is owned them, but would it have been so bad to wait until some of the vendors get paid? Or how about until some more of the hundreds of back-office staff find new jobs, given that they will receive no severance once formal layoffs occur early next month? I genuinely like some of the ex-partners in this suit, but today have far more respect for those who opted not to join it.

Publishing note: The PE Week Wire will not be published Monday 2/21, in observance of the President’s Day holiday. It will return on Tuesday, in observance of my birthday.


AEA Investors, a New York-based private equity firm, has agreed to merge with hedge fund-of-funds and real estate private equity firm Aetos Capital. The combined company reportedly would be worth approximately $7 billion, although specific terms have not been disclosed.

Kohlberg, Kravis, Roberts & Co. has upped its offer for Toronto-based building products company Masonite International Corp. (NYSE: MHM). Various shareholder groups had indicated that they would not accept the original Cdn$40.20 per share bid, so KKR yesterday raised the amount to Cdn$42.25 per share. The company’s board is unanimously recommending the deal, and has rescheduled its shareholders meeting to March 31. In related news, the deal received EU approval.

Thomas Stemberg, founder and former CEO of Staples Inc., has joined Highland Capital Partners as a venture partner.

S5 Wireless Inc., a Draper, Utah-based developer of wireless technologies, has raised over $2.5 million in Series A funding led by vSpring Capital, according to a regulatory filing.

Intercity, an Istanbul, Turkey-based vehicle rental company, has raised an undisclosed amount of growth capital from Advent International and Turkven Private Equity, according to Dow Jones.

Technology Crossover Ventures and Summit Partners have agreed to acquire a significant minority position in Liquidnet Inc., a New York-based operator of an electronic institutional trading platform. The transaction was first reported by The Deal, and is worth between $200 million and $300 million, which would partially buy out company founders and initial backer TH Lee Putnam Ventures. A formal press release announcing the deal is expected to come later today. Liquidnet last raised venture capital in 2000, when it raised $10 million in Series C funding at a post-money valuation of approximately $200 million.

Zumiez Inc., an Everett, Wash.-based retailer of sports apparel, equipment, footwear and accessories, has filed to raise $57.5 million via an IPO of common stock on the Nasdaq, under proposed ticker symbol ZUMZ. In 2002, private equity firm Brentwood Private Equity acquired an indirect minority interest in the company via a vehicle called Zumiez Holdings.

Millimed Inc., a Swedish maker of minimally-invasive vascular devices, has agreed to acquire Blue Medical Devices BV, a Dutch maker of cardiovascular devices like diamond-coated coronary stents and PTCA catheter systems. No financial terms were disclosed. Millimed has received venture capital funding from such firms as Advent International, Bio Fund Management Oy, Scandinavian Life Science Venture and The Danish Growth Fund (Vaekstfonden).

YankeeTek Ventures has decided to close its doors, after being unable to raise its second fund. The Cambridge, Mass.-based firm plans to retain most of its board seats, and has enough dry powder for follow-on financings of existing portfolio companies. It raised $60 million for its inaugural fund in 2000, and had been looking to secure an additional $150 million.

NIF Ventures and SMBC Capital — the venture capital arms of Daiwa Securities Group and Sumitomo Mitsui Financial Group, respectively — have agreed to merge, effective October 1. The combined group will have approximately $1.06 billion under management. In addition, the two parent companies plan to discuss details of reorganizing and reinforcing their buyout businesses.

General Atlantic LLC (f.k.a. General Atlantic Partners) has put a succession plan in place. Firm co-founder Steven Denning has transitioned from a managing partner role to that of chairman, while managing director William Ford has assumed the title of president.

Michael Hunkapiller, founder of both Applied Biosystems and Celera Genomics, has joined Alloy Ventures as a general partner. He will focus on early-stage opportunities in the life sciences industry.

Thomas Budd has joined the London office of Gibson, Dunn & Crutcher LLP, as a partner and co-chair of the firm’s global finance practice. He previously served as a partner in the UK finance practice of Jones Day.


Naval Gazing in Misery. Oh, and Songbird

Ever have a well-planned trip that goes horribly wrong at every turn? If so, we should grab a beer and commiserate. My plan yesterday was to grab the 2pm US Air shuttle from Boston to New York, check into the Hudson Hotel, work for a while and then head over to the Buyouts Magazine re-launch party at 6pm. So I filled the trusty Pontiac’s tires (at the second gas station, since the first one had covered its air machine with mountains of grimy snow), and headed to Logan Airport. Once there, however, I learned that an international airport can actually run out of parking. The result was a ride to some outsourced parking lot in Chelsea, and a shuttle bus back to Logan (so much for the 2pm shuttle). The flight, of course, was delayed by an unexpected rainstorm in NY, so I bailed on the hotel and went straight to the party.

For a few hours, everything once again felt right with the world. I got to meet a number of PE Week Wire readers, get some good dish and have a few drinks on my corporate overlord’s dime. Then over to the Hudson, which didn’t have the Internet access it promised (they only have wireless, and my laptop simply is not that advanced). So I left, wandered the streets for 30 minutes and ended up at a Holiday Inn which also didn’t have wired high-speed access (despite saying they did on the phone). New plan: Don’t write the Wire from my hotel room. Just hope that I can get into my office the next morning without proper ID (only good decision I made all day). After putting out a small fire in my room (unsteady plastic lampshade on an exposed bulb), I settled in for nearly six hours of sleep.

The upshot of all this whining is that the info promised yesterday has been delayed (I simply didn’t get enough time to work). In the meantime, there is an update to the Songbird Hearing saga, as first reported here a couple of weeks back. It seems that the company recently received a minority investment from Procter & Gamble, which has some in-house technology that could enhance Songbird’s disposable hearing aid product. It also, of course, has a massive marketing machine. Now we Bostonians aren’t big fans of P&G right now (lots of Gillette layoffs coming), but it’s heartening to see that Songbird is being salvaged instead of scrapped. It’s taken some serious valuation haircuts along the way – from $140M post-money in late 2000 to just $45M post-money in 2002 – but still has a worthy “big idea” at its core. More on this in Monday’s print edition of PE Week.

Finally, are you a VC-backed entrepreneur who wants to know how your compensation matches up to your peer down Sand Hill Road (or any other such stretch of asphalt)? If so, participate in a compensation study being conducted by an HBS professor, Wilmer Cutler Pickering Hale & Dorr and Ernst & Young. All participants get a copy of the results.

FibroGen Inc., a South San Francisco-based drug discovery company with a specific interest in tissue fibrosis and hypoxia-inducible factor biology, has raised $100 million in Series F funding. Adage Capital Management led the deal, with other participants including Apothecary Capital, Brookside Capital Partners (an affiliate of Bain Capital), Corriente Biotechnology Partners, Duquesne Capital Management, Goldman Sachs, Janus Capital Group, Merlin BioMed Group, Och-Ziff Capital Management, The Rosewood Corp., Sigma Capital Management, T. Rowe Price, Yamanouchi Pharmaceutical Co., SMBC Capital and Bio Fund Management.

Inverness Medical Innovations Inc. (Amex: IMA) has agreed to acquire Ischemia Technologies Inc., a Denver-based provider of diagnostic tests for cardiovascular and acute care medicines. The deal is structured as a reverse triangular merger, which involves approximately $22.4 million of Inverness common stock. Ischemia has raised over $26 million in VC funding since its 1997 inception, from firms like Advantage Capital Partners, Sequel Venture Partners, Wolf Ventures, Murphree Venture Partners, Piedmont Venture Partners, Roser Ventures, Quest Capital Partners, White Pines Management and KB Partners.

VC disbursements by Canadian firms increased by 5.88% in 2004, according to figures compiled by the Canadian Venture Capital Association and MacDonald & Associates. The same report finds that fundraising for Canadian firms decreased by approximately 15 percent. Inc. of Raleigh, N.C. has raised $30 million in a VC funding round led by Polaris Venture Partners.

Vativ Technologies Inc., a San Diego provider of DSP-based silicon solution for high-bandwidth transport over copper, has raised $11 million in Series B funding. InnoCal Venture Capital led the deal, and was joined by return backers Redpoint Venture Capital, Mission Ventures and Qualcomm co-founder Andrew Viterbi.

TA Associates has taken a minority position in Microban International Ltd., a New York-based provider of built-in antimicrobial product protection. No financial terms were disclosed.

IM2 Inc., a Palo Alto, Calif.-based provider of e-commerce search solutions, has raised $8 million in Series A funding. Participants included Redpoint Ventures, Lightspeed Venture Partners and Cambrian Ventures.

Gilde Investment Management has received EU approval for its 118 million euro acquisition of Bekaert SA‘s wire-fencing unit.

Apax Partners is one of several parties interested in acquiring Telecom Italia‘s 81% ownership position in Greek mobile telecom company TIM Hellas, according to Dow Jones. The stake could be worth upwards of 1.1 billion euros.

EQT Partners has received EU approval for its 450 million euros buyout of Sweden-based Munksjo Specialty Paper from Jefferson Smurfit Group.

Bouygues SA reportedly has completed the sale of its Saur water treatment business to French private equity firm PAI Partners for approximately 1.04 billion euros. The deal allows Bouygues to retain a 15% ownership stake, and excludes Saur’s Italian and African businesses.

Aberdare Ventures has closed on over $113 million in capital commitments for its third fund, according to a regulatory filing. Limited partners include CalPERS, Princeton University and the DuPont Pension Trust. The filing indicates that Aberdare is looking for upwards of $150 million.

The Gulf Venture Capital Association (GVCA) announced its formation, with hopes of supporting the growth of the VC and private equity industries within the Arabian Gulf.

Karl Probst has joined Techno Venture Management as head of the firm’s business software group. He most recently served as managing director of T-Systems GEI and T-Systems Nova, where he was responsible for public markets and the company’s telecom business.

Ashmeet Sidana and Dave Stevens have been named venture partners with Foundation Capital. They both joined the firm last year as entrepreneurs-in-residence.

Rob Feckner has been elected president of the California Public Employees’ Retirement System (CalPERS). He is a glazing specialist for the Napa Valley Unified School District, and was first elected to the CalPERS board in 1998. Robert Carlson, retired chief counsel for the California Department of Transportation, was elected vice president.

Michael Christenson has joined Computer Associates International Inc. (NYSE: CA) as executive vice president, strategy and business development. He retired last year from Citigroup Global Markets, where he oversaw the firm’s global private equity I-banking, North American Regional I-Banking and Latin American I-Banking.


Gotta Fly…

No time for a column this morning, as I have to catch a plane to New York (plus find some clean clothes and fill two of the trusty Pontiac’s leaky tires). All apologies, but I promise that tomorrow’s edition will contain some news you didn’t already know. Until then, visit our advertisers and register for the Buyouts Symposium.

Leonard Green & Partners has agreed to sell portfolio company Phoenix Scientific Inc. to IVAX Corp.(Amex: IVC) for approximately $271.85 million. The deal includes $196.85 million in cash and $75 million in IVAX common stock, and is expected to close in the second quarter. Phoenix Scientific is a St. Joseph, Mo.-based developer and manufacturer of drugs for the animal health market, and was acquired by Leonard Green in 2002 for approximately $300 million.

Cendant Corp. (NYSE: JCD) spin-off Wright Express Corp. has raised $720 million via an IPO, formally ending speculation that it would instead be sold to private equity firms.

Battery Ventures has lost one investment professional, but added another. The defection was senior associate Larry Cheng, who just joined Fidelity Ventures as a principal. The newbie is venture partner Jason Matlof, who previously served as vice president of marketing and business development for onetime Battery portfolio company Neoteris (acquired by NetScreen in late 2003).

Andigilog, a Tempe, Ariz.-based flabless semiconductor company, has raised $6.2 million in additional Series A funding, closing out the round with $11 million. Participants in the final tranche included Valley Ventures, Mission Ventures and Palisades Ventures.

CommPartners, a Las Vegas-based VoIP facilitator, has raised $15 million in Series A funding from undisclosed backers.

Padcom Inc., a Bethlehem, Pa.-based provider of wireless connectivity solutions, has raised $10 million in venture capital funding from return backer Liberty Partners.

SugarCRM Inc., a Cupertino, Calif.-based developer of an open source CRM platform, has raised $5.75 million in Series B funding. Walden International led the round, and was joined by Series A backer Draper Fisher Jurvetson.

The Blackstone Group has entered the bidding for Enel SpA’s 62.5% stake in Italy-based telecom company Wnd SpA, according to Italian news reports. The offer is worth 7.9 billion euros (including the assumption of 4.9 billion euros in debt), which would value Wind SpA at approximately12.7 billion euros.

Hanover Direct has agreed to sell San Francisco retailer Gump’s to WaldenVC, Stone Canyon Ventures and Sand Spring Holdings, according to the San Francisco Chronicle. No financial terms were disclosed for the deal, which would include Gump’s 135 Post Stree store and its catalog and website businesses.

Veri-Tek International Corp., a Wixom, Mich.-based provider of automotive testing equipment, priced 2.5 million common shares at $6 per share (middle of $5-$7 range), for an IPO take of approximately $15 million. It plans to list on the Amex under ticker symbol VCC. Former majority-owner Quantum Value Management holds a 37.3% post-IPO position.

St. Jude Medical Inc. (NYSE: STJ) has agreed to acquire Velocimed LLC, a Maple Grove, Minn.-based maker of interventional cardiology devices. The deal is valued $74 million in cash ($84.5M minus $8.5M in Velocimed cash on hand), plus potential milestone payments. It is expected to close in the second quarter. Velocimed has raised over $34 million in venture funding from firms like Warburg Pincus, RiverVest Venture Partners and The Vertical Group.

STI Knowledge Inc., an Atlanta-based business process outsourcing company, has acquired India-based BPO Symphony Data. No financial terms were disclosed. STI Knowledge has raised around $35 million in total venture funding since its 1995 inception, from firms like Mellon Ventures, Petra Capital Partners, BV-Cornerstone Ventures and WestBridge Capital Partners.

U.S. Wireless Online Inc. (OTC BB: UWRL) has agreed to acquire Air2LAN Inc., a Jackson, Miss.-based provider of wireless broadband solutions. No pricing terms of the all-preferred stock deal were disclosed. A final close is expected to occur by the end of February. Air2LAN has raised approximately $20 million in venture funding from firms like Delta Capital Management, Advantage Capital Partners, EDC Investments and the Louisiana Economic Development Corp.

TH Lee Putnam Ventures has promoted both Sasha Grutman and Todd Miller to the position of partner. Grutman concentrates on financial and marketing services opportunities, while Miller focuses on deals in the business process outsourcing, offshore services and marketing services sectors.

Ted Schlein, a partner with Kleiner Perkins Caufield & Byers, has joined the board of KP portfolio company Endforce Inc.

GMT Communications Partners has promoted associates Rupert Shaw and Kerim Turkman to the position of principal. They both joined GMT in 2000, with Shaw previously working in DLJ’s Financial Institutions Group, and Turkman working for Merrill Lynch’s I-banking division.

David Young has joined real est*te private equity firm NDC Capital Partners as a principal. He previously served as a principal with Greenstreet/Niosi Capital Partners.

David Thayer has been named CEO of I-trax Inc. (Amex: DMX), where he previously had served as a board member. Thayer most recently served as founder and senior partner of ab3 Resources, a strategic consulting and private equity inve*tment company.

Phil Schlein, a venture partner with U.S. Venture Partners, has joined the board of Oakville Grocery Co., an Oakville, Calif.-based purveyor of fine food and wines.



CalPERS Clarification

Mark Anson of CalPERS still isn’t clarifying the “private equity bubble” argument put forth in Geneva last week, but one of his deputies is picking up the slack. Leon Shahinian, senior investment officer for alternative investments at CalPERS, sent the following email: “My understanding is that Mark’s comments were not part of his prepared speech, rather they were provided to a [Reuters] reporter during, or after, the conference. He cautioned about the overhang in the market and growing competition for private equity deals with new entrants like hedge funds creeping in. I don’t think these remarks are entirely out of the ordinary. We keep a close eye on these trends and will continue to back the best managers who have good results in a variety of market environments. By the way, our year-end numbers looked pretty solid. At 12/31/04, market value of the private equity portfolio was approximately $8.7 billion. For the one-year period, we received $2.8 billion in distributions and outperformed the public markets (Wilshire 2500 Index) by 700 basis points.”

Leon is right that Anson’s remarks aren’t unique – after all, I think they’ve been made in this space a few million times. But while great that CalPERS has made money off its private equity portfolio in the past year, such success is kind of equivalent to CalPERS losing money on its private equity portfolio following the tech market crash a few years back. In other words, almost every private equity LP did well last year, just like almost every private equity LP did poorly in 2001-2002. The real issue regards funds currently receiving commitments from CalPERS, since Anson’s bubble is in the future, not in the rear-view mirror (note: almost all of this discussion has involved late-stage PE and LBO funds, with VC funds playing second-fiddle).

So the real question is what CalPERS – and other LPs — should do going forward, short of significant asset allocation reductions. One solution I’m hearing more and more is to follow a barbell philosophy, whereby LPs focus most of their commitments on mega-funds and micro-funds. There is a growing feeling that the middle-markets are overcrowded right now, and that LPs would prefer a multi-billion-dollar LBO fund that can do what it pleases, rather than a $400 million fund that has to fight, scrape and overpay at auction. This sentiment was most recently expressed by new Blackstone Group president Tony James during an interview with Bloomberg, although he obviously isn’t the most objective person to comment on such matters. It will be interesting to see mid-market LBO fundraising numbers at the end of Q1, and if there is any bite behind all of this bark.

2. Can’t make it to the Demo conference? Well, they’ve brought it to you.

3. Boston continues to lose its homegrown corporations, including Gillette and John Hancock. Negative or positive? Depends which elected official you ask.

Highfields Capital Management, a Boston-based hedge fund manager, has proposed a $3.24 billion leveraged buyout of Circuit City Stores Inc. (NYSE: CC). The public-to-private deal would value Circuit City at $17 per share, which is a 19.47% premium over yesterday’s closing price of $14.23. Highfields currently is Circuit city’s second-largest shareholder, with around a 7% ownership position. Circuit City has retained Goldman Sachs as an advisor.

Solidcore Systems Inc., a Palo Alto, Calif.-based developer of control solutions for embedded systems, has raised $20 million in Series B funding. Menlo Ventures led the deal, and was joined by return backers Matrix Partners and Sevin Rosen Funds.

AXA Private Equity has closed its third mid-cap LBO fund with 500 million euros in LP commitments.

Kapow Technologies AS, a Denmark-based developer of a Web integration software platform, has raised 5.1 million euros in venture funding from Kennet Venture Partners.

TriCipher Inc., a San Mateo, Calif.-based developer of authentication technology, has spun out of NSD Japan, with $10.1 million in venture capital funding. Backers included ArrowPath Venture Capital, Trident Capital, Intel Capital and Wasatch Venture Capital.

Brand New Brands Inc., a Mill Valley, Calif.-based provider of food and beverage products that have clinically-proven health benefits, has raised $15 million in first-round funding. Backers include Burrill & Co., Great Spirit Ventures, Unilever Ventures and Prolog Ventures.

Jerini AG, a Berlin, Germany-based drug discovery and development company, has raised 15.5 million euros in additional venture capital, as a follow-on to the 31 million euro round closed last June. NGN Capital and The Bioscience Investment Trust co-led the deal, and were joined by return backers HealthCap, TVM, 3i Group and funds managed by IBB Beteiligungsgesellschaft.

Similarity Systems, a Dublin, Ireland-based provider of data quality management software, has raised $7 million in Series B funding. Trinity Venture Capital led the deal, and was joined by return backers like Delta Partners.

Aesthera Corp., a Livermore, Calif.-based, has raised $6.5 million in Series B funding. MedVenture Associates led the deal, and was joined by fellow new backer Adams Street Partners. The company has raised $8.5 million in total VC funding.

Palamida Inc., a San Francisco-based provider of software component license management solutions, has raised $5 million in Series A funding from Hummer Winblad Venture Partners and WaldenVC.

Norstel AB, a Swedish maker of silicon carbide crystals, wafers and epitaxial layers. Backers include Northzone Ventures, Eqvitec Partners and Creandum. In addition, the company has received 6 million euros from the Swedish government. It is a spinout from Finnish semiconductor materials company Okmetic Oyj.

SentitO Networks Inc., a Rockville, Md.-based provider of VoIP switching equipment and service delivery solutions, has received an undisclosed amount of strategic funding from Columbus Nova Investments. The infusion is part of SentitO’s previously-announced Series D round, and was made in conjunction with a strategic reseller deal made with Columbus Nova subsidiary Nova Telecom.

Banta Corp. (NYSE: BN) has agreed to sell its single-use healthcare products subsidiary to an affiliate of Fidelity Capital Investors Inc. The deal is valued at $67 million in cash, and is expected to close later this quarter. Banta Healthcare Group Ltd. is based in Neenah, Wisconsin.

Brockway Moran & Partners has completed a $121 million recapitalization of portfolio company Woodstream Corp., a Lititz, Pa.-based maker of pest control products. The deal included $31 million in financing from Allied Capital, and returns more than 60% of Brockway Moran’s original invested capital, with the firm still retaining 100% ownership. It also facilitated Woodstream’s acquisition of Knoxville, Tenn.-based animal containment company Fi-Shock Inc.

Crescent Capital Investments Inc. has purchased Tender Loving Care Health Care Services (TLC) out of bankruptcy. No pricing terms were disclosed for the deal, which included a senior credit facility arranged by Wells Fargo Foothill. An affiliate of D.B. Zwirn Finance, LLC also provided senior note financing. TLC is a Lake Success-based provider of Medicare home health care services with 66 locations in 20 states and the District of Columbia. In conjunction with the financing, TLC has renamed Wes Perry as president and CEO, a position he had held until joining Crescent Capital as a consultant in 2003.

Jinro Corp., a South Korean liquor company, reportedly has received takeover bids from 14 different companies and private equity consortia. They include Newbridge Capital, CVC Capital Partners and Affinity Partners. The company will announce a short-list of top bidders tomorrow.

DMX Music Inc., a Los Angeles-based provider of in-flight music services for air travelers, has filed to bankruptcy protection. The move is a precursor to being acquired for an undisclosed amount by Capstar Partners and Trinity Hunt Partners. DMX Music currently is a subsidiary of Liberty Media Inc. (NYSE: L).

Swander Pace Capital has hired Wachovia Securities to explore a sale of portfolio company Reef Holdings Corp., according to The Deal. Reed Holdings is a San Diego footwear maker, focused on the surfing-influenced market.

Alpha Natural Resources Inc., an Abingdon, Va.-based coal producer, priced 29.5 million common shares at $19 per share (above $16-$18 offering range), for an IPO take of approximately $560.5 million. The company had been majority-owned by First Reserve Corp., which still will hold a significant minority position.

Odimo Inc., a Sunrise, Fla.-based online retailer of brand-name watches and luxury goods, priced around 3.13 million common shares at $9 per share (low end of already-reduced range), for an IPO take of approximately $28.13 million. The company had raised over $55 million in total VC funding since its 1999 inception as DiamondDepot, from significant shareholders like Softbank Capital Partners and STI Ventures.

Bulders FirstSource Inc., a Dallas-based provider of building products to professional homebuilders, has filed to raise $275 million via an IPO of common stock on the Nasdaq, under proposed ticker symbol BLDR. The company is majority-owned by private equity firm JLL Partners.

CombinatoRx Inc., a Boston-based drug company focused on immuno-inflammatory diseases and cancer, has set its proposed IPO terms to 6 million common shares being offered at between $10 and $12 per share. The company has raised around $90 million in total VC funding since its 2000 inception, from firms like Canaan Partners, TL Ventures, Boston Millennia Partners, Flagship Ventures, BioVentures Investors, Global Life Science Ventures and Adams Street Partners.

GlassHouse Technologies Inc., a Framingham, Mass.-based provider of storage consulting and services, has acquired New York-based project management consultancy PowerPM Inc. No financial terms were disclosed. GlassHouse has raised over $33 million in venture funding, from firms like GrandBanks Capital, Kodiak Venture Partners, Jafco, Sigma Partners, Paladin Capital Management and Shiprock Capital.

QPass Inc., a Seattle-based provider of digital media software, has acquired the Encorus mobile payments software business, including the PaymentWorks product line. No financial terms were disclosed. QPass has raised over $100 million in VC funding since its 1997 inception, from groups like Accenture Technology Ventures, American Express, Dali, Hook Partners, Granite Global Ventures, Integral Capital Partners, J&W Seligman, Oak Investment Partners, Seapoint Ventures, RRE Ventures and Venrock Associates.

Cypress Semiconductor Corp. (NYSE: CY) has agreed to acquire SMaL Camera Technologies, a Cambridge, Mass.-based provider of digital imaging solutions. The deal is valued at $42.5 million in cash, but could grow thanks to a performance-based earnout plan. SMaL Camera has raised over $21 million in venture funding from firms like The Carlyle Group, Wasserstein Ventures, Stata Venture Partners and Yokogawa Electric.

John Jonge Poerink has joined private equity firm Circle Peak Capital Management as a principal, focusing on opportunities in the retail, apparel and sporting goods spaces. He most recently served as a vice president with the Limited Brands Inc., where he worked on brand and business development for Victoria’s Secret and Bath & Body Works.

Cardinal Venture Capital has promoted Christian Borcher to the position of partner. He originally joined the firm in early 2000, after having served as an attorney in Denmark, representing corporate clients like IBM, Dell and Nokia.

Penny Breen has joined Kodiak Venture Partners as vice president of finance, after having served as a financial consultant to Globespan Capital Partners. In other firm news, Murray Berkowitz has been promoted to the position of technology partner, from his previous role as entrepreneur-in-residence.

Whitecastle Investments of Toronto has closed its Whitecastle Private Equity Partners Fund with more than Cdn$60 million in limited partner commitments. The fund will target small-to-medium sized companies in the healthcare services/products, financial services and manufacturing spaces. Most of its deals will be done in Canada, but it also will look at opportunities in the Northeastern U.S.

Chrysalix Energy, a Vancouver-based private equity firm focused on the energy industry, has held a first close on its second fund. No capital size was disclosed. Limited partners included WestAM Private Equity, Robeco, Teachers’ Private Capital, Mitsubishi Corp., BASF Venture Capital and Shell Hydrogen.

Monday, February 14

Monday Mouth-Off

The sky is clear, long-stemmed roses cost $1,000 per dozen and Jose Canseco’s talents came from a bottle (although it didn’t do much for his pitching abilities). In other words, it’s time for some Monday Mouth-Off.

* First up is the idea of a narrowing window for biotech IPOs, and my suggestion that even small IPOs may be preferable to very late-stage VC rounds. Attorney “C” writes: “I very much agree with your biotech IPO comments. We just took a company public last year that had research dollars from the feds, but no products. They raised $45 million in the IPO at a $70 million pre-money valuation – they never would have gotten close to that on the venture market. Of course, now they have to deal with public company issues, but it’s probably a good trade-off. We’re talking to a number of our private research-driven clients about this. They won’t get Goldman Sachs or Morgan Stanley as their lead, but they have a chance of raising enough money to stay in the game for a couple more years.”

Peter adds: “I work with a fair number of private biotechs in the Bay Area, and agree that they will continue to try to go public as long as there is a chance that theycan get public –even if the valuation is mediocre.For the most part these IPOs are financing events and, to a lesser extent, liquidity events.Most of these companies have had several rounds of VC financing and are looking at rather tough terms for the next rounds.Their existing investors aregenerally happy to go public (even though it means losing their liquidation preferences) rather than being crammed down in another private round (or having to pony up more money).The upside to going public are pretty clear: (i) Funds at a reasonable price compared to private alternatives; (ii) A step towards eventual liquidity, either by dribbling the stock out or by selling outwhen good news sparks volume; (iii) Access to other sources of capital, such as PIPES; and (iv) A currency that can beused to acquire other companies or compounds.

The downsides are (i) The costs of being a public company; (ii) The loss of liquidation preference; and (iii) The knowledge that the stock may well languish because the company has no ability to generate news.Given these trade-offs,it makes sense for many companies to at least see what the public markets will value themat. Because these companies don’t have revenue or even approved products, it is much more difficult to determine how they will be valued, which I thinkis one reason that many companies file and then have to either lower their price or withdraw the offering.”

* Mary summed up most of your reactions to my confusion/criticism of Napster’s Super Bowl ads “Dan, we know a lot about you from what you write, and now we know that you don’t own an iPod.” Guilty as charged Mary.

* Finally there is Scott, who disagreed that the President’s federal budget proposal is worthless, because it doesn’t include future war expenses in either Iraq or Afghanistan. He writes: “I think you are missing the point. The budget is not just to show 2005, but is also to show where the country is in its long-term spending plan. We all know that once a program gets funding it is nearly impossible to cut it, so by showing only recurring expenditures, we can see if the budget increases are really being reduced or if one-time items are just not being funded anymore. Of course the war budget is to be announced soon, and those expenses can then be reviewed separately. It’s not like the war budget will be a secret. It can be thought of as analagous valuing a company.

You want to look at “normalized” expenses by taking out one-time items since they are non-recurring in nature and do not accurately reflect the ongoing nature of the business. Of course, one-time items should also be reviewed but not necessarily together. To your analogy, should you include yourhome loan closing costs in your annual budget when you pay them only one time when you buy your house?”

DPL Inc. (NYSE: DPL) has agreed to sell its limited partnership interests in 46 private equity funds to AlpInvest Partners and Lexington Partners. The portfolio’s carrying cost as of December 31, 2004 was $754 million.

Mangrove Systems Inc., a Wallingford, Conn.-based provider of metro access and switching platforms, has raised $21 million in Series B funding (including some debt from Gold Hill Venture Lending). Star Ventures was joined on the deal by return backers Bessemer Venture Capital, Highland Capital Partners and Columbia Capital.

Boise Cascade Holdings LLC, a Boise, Idaho-based provider of paper and forest products, has filed to raise $575 million via an IPO of common stock on the NYSE under proposed ticker symbol BCC. The company has been controlled by Madison Dearborn Partners since last October.

DataPower Technology Inc., a Cambridge, Mass.-based provider of XML-aware network infrastructure, has raised $10 million in new venture funding. Atlas Venture led the deal, and was joined by return backers Mobius Venture Capital, Seed Capital Partners and Venrock Associates. The company has raised over $25 million since its 1999 inception. Inc., a Toronto-based provider of online advertising solutions, has received a “significant minority investment” from TA Associates and Stripes Group.

ESilicon Corp., a Sunnyvale, Calif.-based supplier of integrated circuits, has raised $15 million in Series F funding. Investor Growth Capital led the deal, and was joined by fellow new backers NIF Ventures and CrossBridge Venture Partners. Existing shareholders also participated. ESilicon has raised approximately $86 million in total venture funding since its 2000 inception.

Intelliworks Inc., a Rockville, Md.-based provider of collaborative customer relationship management software for the higher-education market, has raised $6 million in Series A funding from Novak Biddle Venture Partners and Columbia Capital.

Election Services Corp., a Garden City, N.Y.-based provider of election services for groups like labor unions and trade associations, has raised over $4.5 million in a funding round led by North Atlantic Capital. Antaeus Enterprises also participated.

Sequoia Communications, a San Diego-based RF semiconductor company, has received an undisclosed amount of strategic funding from Motorola Ventures. The company previously raised approximately $31 million from groups like Huntington Ventures, Gabriel Venture Partners, Cadence Design Systems, Tallwood Venture Capital, Ventana Capital Management, IBM and BlueRun Ventures (f.k.a. Nokia Venture Partners).

Veritas Capital has completed its $850 million acquisition of DynCorp International LLC from Computer Services Corp. (NYSE: CSC). DynCorp is a Fort Worth, Texas-based provider of aviation maintenance, personal security and law enforcement training solutions to customers that include the U.S. Department of State and U.S. Department of Defense. It has 14,000 employees worldwide, and annual revenue of 41.6 billion for the 12 months ending October 1, 2004.

Enterprise NewsMedia LLC, a portfolio company of Heritage Partners, has recapped and acquired two newspaper companies serving Massachusetts communities. The companies are The Call Group, which runs papers in Taunton, Raynham and Lakeville, Mass., plus The Norwood Bulletin. Enterprise NewsMedia already owned The Patriot Ledger and The Brockton Enterprise.

Citigroup Venture Capital has received EU approval to acquire a minority position in Lithuanian retailer UAB Palink, for 40 million euros.

Rockwood Holdings Inc., a Princeton, N.J.-based chemicals company, has filed to raise $500 million via an IPO of common stock on the NYSE. Kohlberg Kravis Roberts & Co. is Rockwood’s majority shareholder, with DLJ Merchant Banking Partners holding a minority stake.

Accentia BioPharmaceuticals Inc., a Tampa, Fla.-based drug company focused on respiratory disease and oncology, has filed to raise $86.25 million via an IPO of common stock on the Nasdaq under proposed ticker symbol ABPI. Shareholders include The Hopkins Capital Group, McKesson Corp. and Pharmaceutical Product Development Inc.

Reddy Ice Holdings Inc., a Dallas-based manufacturer and distributor of packaged ice, has filed to raise $230 million via an IPO of common stock on the NYSE. Since August 2003, the company has been controlled by Trimaran Capital Partners and Bear Stearns Merchant Banking.

SmartBargains Inc., a Boston-based online retailer, has withdrawn plans for an $80.5 million IPO, citing management changes. The company has raised approximately $125 million in total VC funding since its 2000 inception, with significant shareholders including Highland Capital Partners, Gordon Brothers Group, Maveron LLC, America Online Inc., General Catalyst Partners, Madison Dearborn Partners and Berkshire Partners.

Shamir Optical Industry Ltd., an Israel-based provider of products and technology to the progressive spectacle lens market, has filed to raise $69 million via an IPO of common stock on the Nasdaq under proposed ticker symbol SHMR. The company plans to offer 4 million shares at between $13 and $15 per share. Company backers include Kibbutz Shamir and FIBI Investment House Ltd.

Odimo Inc., a Sunrise, Calif.-based online retailer of brand-name watches and luxury goods, has amended its IPO terms. The company plans to offer around 3.13 million common shares (down from 4.5 million) at between $9-$10 per share (down from $11-$13). It has raised over $55 million in total VC funding since its 1999 inception as DiamondDepot, from significant shareholders like Softbank Capital Partners and STI Ventures.

Alphyra, a Dublin, Ireland-based provider of electronic pre-paid services, has acquired EVS, a Germany-based provider of electronic payment solutions. Alphyra is controlled by Benchmark Capital Europe.

McKesson Corp. (NYSE: MCK) has acquired IntelliClaim Inc., a Norwalk, Conn.-based provider of claims performance technology solutions for the healthcare industry. No financial terms were disclosed. IntelliClaim had raised over $17 million in venture funding from firms like Tullis-Dickerson & Co., Rubicon Ventures and Ferrer Freeman & Co.

Net Scout Systems Inc. (Nasdaq: NTCT) has agreed to acquire Quantiva Inc., a Princeton, N.J.-based provider of automated analytics solutions for application performance management. The deal is valued at approximately $9 million in cash. Quantiva has raised over $7 million in funding from firms like 3i Group, Castile Ventures, Draper Fisher Jurvetson and the New Jersey Technology Council.

New Horizons Worldwide Inc. (Nasdaq: NEWH) has received $6 million in PIPE funding from Camden Partners, in exchange for a 13% ownership position and board seat for Camden Partners co-founding partner David Warnock.

Bob Cohn, a former general partner with Sequoia Capital and co-founder of Octel, has been named board chairman of Adomo Inc., a Scottsdale, Ariz.-based provider of enterprise voice messaging solutions.

BA Venture Partners has closed its seventh fund with $400 million from sole limited partner Bank of America.

Lexington Partners has launched its second co-investment program, with the New York State Teachers’ Retirement System and the Florida State Board of Administration committing a total of $1 billion.


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