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Random Ramblings: Apax, Hedge Funds and Antoine
A few scattered notes before I head outside for some light shoveling.
* For the past month, readers have been asking what I meant when I suggested that Apax Partners could become the next Hicks Muse. Until now, I have ignored all of you (save for Apax itself, since it was understandably the most curious). Why? Because my information – that Apax might split its U.S. and European groups into separate entities – immediately began to disintegrate. For that, I apologize.
What actually was happening with Apax became clear yesterday, when the firm’s U.S. arm agreed to merge with Saunders Karp & Megrue (effective March 15). My sources probably misinterpreted those 7-month-long negotiations as a precursor to separation, particularly given Apax’s recent change of heart regarding the raising of a global private equity fund. For background: The firm formally merged its U.S. and European operations in 2002, in preparation for a global fund-raising drive. The two groups previously had been investing out of separate funds, with Apax working out the numbers so that both the 2000-vintage U.S. and 2001-vintage European vehicles would complete their inv*stment cycles at around the same time. Last year, however, Apax revealed plans for another Europe-only fund, while quietly talking with SKM about a merger and subsequent U.S. fund-raising drive.
I spoke yesterday with SKM’s John Megrue (pending co-CEO of Apax’s U.S. efforts), and asked if there was any chance that the U.S. and European operations would ultimately go their separate ways (in a legal, not fundraising, sense). He said the answer was no, particularly because each group benefits from the other’s expertise, and that there is occasional co-inv*stment. He declined to discuss specific fund-raising times or targets for the new U.S. fund, but both Apax’s current U.S. fund and SKM’s current fund are approximately 75% committed, which means that marketing should begin any day now. Both he and a company spokeswoman declined to discuss compensation issues related to the U.S. and European groups, including the question of whether or not U.S. partners get carry from European fund deals, and vice versa.
One other Apax note of interest is that the SKM merger is the latest step in the U.S. group’s attempt to look more like its European brother – more buyout than venture capital. The U.S. arm still will do some expansion-stage and late-stage deals, but pre-revenue portfolio companies are unlikely to be added. The most notable example of this is that the firm no longer will invest in early-stage pharmaceutical companies, which has led certain partners like Lori Rafield and Eliot Charles to tender their resignations (reports of other healthcare pros leaving — including Adele Oliva– are said to be inaccurate).
* A bit of an interesting divergence of opinion between Henry Kravis of KKR and David Rubenstein of The Carlyle Group. Kravis is quite concerned about the recent arrival of hedge funds on the LBO scene, arguing that they “are not set up to build value in companies over the long term.” Rubenstein, on the other hand, is such a hedge fund believer that Carlyle reportedly might even set up its own hedge fund, like Texas Pacific Group recently did (Blackstone has a hedge fund-of-funds practice). What follows is an excerpt from a recent Buyouts interview with Rubenstein:
Buyouts: What do you see happening with the convergence of hedge funds and the private equity world?
Rubenstein: “Right now, hedge funds are getting into the private equity space. And they have a number of advantages, including the fact that they can move more quickly because they don’t have to secure debt for each transaction. Buyout firms, in response, have begun to add hedge fund and hedge fund-of-fund adjuncts to their private equity business. Ultimately, what you’re going to see in 10 years is not ‘private equity funds’ and not ‘hedge funds,’ but ‘alternative investment funds,’ which will give investors the best features of private equity funds and the best features of hedge funds. The general partners who manage them will have a lot more flexibility than they might have today.”
* Thanks for all your “barbell strategy” comments and insights. I’ll try getting to them early next week.
* I have made two terribly-timed purchases in my lifetime. The first was buying Tyco stock just days before Dennis Kozlowski was indicted (luckily, for me, the stock has since rebounded). The second was purchasing a pack of Boston Celtics tickets one day before Antoine Walker was traded away for overpaid Raef LaFrenz and under-talented Jiri Welsch. I was/am a huge Antoine fan, due largely to his on-court leadership ability. That said, I won’t quite understand yesterday’s trade until I see the product tonight on television. Does Pierce move back to the 2-spot, or does Antoine split time with Raef, leaving budding superstar Al Jefferson (not to mention Kendrick Perkins) out of the mix? This column has some readers who also are part-owners, so I beg of you, to beg of Doc and Danny: Make sure AJ gets playing time. He will be he reason that I do, or don’t, buy a ticket package next year. IT won’t be because of Antoine, no matter how much I like him.
Intel Corp. (Nasdaq: INTC) has agreed to acquire Oplus Technologies Inc., a Yokneam, Israel-based provider of systems-on-chip and software solutions for digital displays and digital TVs. No financial terms were disclosed, although various press reports suggest that the purchase price was around $100 million in cash. Oplus has raised approximately $17 million in venture capital funding, from firms like Benchmark Capital, Defta Partners, Giza Venture Capital and BRM Capital. www.oplus.com www.intel.com
Baring Vostok Capital Partners has closed its third fund with $400 million in limited partner commitments. The Moscow-based firm inv*sts primarily in mid-sized companies based in Russia, Ukraine and other former Soviet Union countries. www.bvcp.ru
Code Hennessy & Simmons of Chicago has closed its fifth buyout fund with $1.3 billion in limited partner commitments. The firm’s fourth fund had been capped at $1 billion. www.chsonline.com
CBA-Mezzanine Capital Holdings LLC (a.k.a. Mezz Cap), a Short Hills, N.J.-based commercial real estate finance company and wholesale lender, has raised $25 million in expansion-stage funding. Conning Capital Partners led the deal, and was joined by Hamilton Investment Partners, SS&C Technologies Inc. (Nasdaq: SSNC), Richard C. Trepp and an affiliate of Loeb Partners Corp. www.mezzcapfinance.com
Cogito Inc., a Provo, Utah-based provider of knowledge-centered computing applications, has closed on the first tranche of an $11.7 million Series B round. VSpring Capital and UV Partners co-led the round, with return backers Canopy Group and Wasatch Venture also participating. www.cogitoinc.com
MusicGremlin Inc., a New York-based provider of wireless digital audio device technology, has raised an undisclosed amount of Series B funding led by Allen & Co. It says that the deal brings its total venture capitalization up to $5 million. www.musicgremlin.com
Cavium Networks, a Santa Clara, Calif.-based provider of security, network services and content processing semiconductor solutions, has raised $20.06 million in Series D funding. The deal closed in mid-December (according to a regulatory filing), and included participation from Diamondhead Ventures, Alliance Ventures and Menlo Ventures. Cavium has raised over $60 million in total venture funding since its 2000 inception. www.cavium.com
Spectrum Equity Partners and Goldman Sachs Capital Partners are sponsoring a buyout bid for Viacom Inc.‘s Paramount Parks unit, according to The New York Post. Tom McGrath, former head of Viacom’s Paramount Enterprises group, is reported to be spearheading the effort, and presumably would take over Paramount Parks, were the bid to be accepted. The deal could be worth upwards of $1 billion, with Viacom expected to retain Citigroup as its advisor.
Citigroup Venture Capital and Quadrangle Capital Partners have completed the first two parts of their triple-tiered acquisition of Waynesboro, Va.-based telecom company NTelos Inc. The total deal is valued at $750 million, with NTelos recently refinancing its existing debt and repurchasing approximately 75% of its equity in a self-tender offer at $40 per share. Next, Quadrangle and CVC will acquire up to 24.9% of the post-recap equity at $40 per share (approx. $440 million). Following receipt of regulatory approvals, the Citigroup and Quadrangle next will acquire the remaining equity for $40 per share. www.ntelos.com
Adelphia Communications Corp. would accept a $17.6 billion buyout offer from Time Warner and Comcast, but only if the deal is all-cash, according to The Wall Street Journal. The current TW/Comcast bid is a combination of around $12.6 billion in cash and $5.6 billion in stock. An alternate offer from Kohlberg Kravis Roberts & Co. and Providence Equity Partners is still in the mix, but apparently is worth less than $17.6 billion.
MatlinPatterson Global Advisors has agreed to provide up to $90 million in funding to bankrupt air carrier Aloha Airgroup Inc. No additional details were disclosed.
Alan Giddins has joined 3i Group as a director within the firm’s European buyouts business. He most recently worked with SG Corporate & I-Banking (f.k.a. Hambros Bank), as managing director and head of transport and support services M&A. www.3i.com
Crosslink Capital of San Francisco is raising its fifth venture fund, with a $500 million maximum capitalization, according to a regulatory filing.
Contango Capital Management of Houston has closed its inaugural venture fund with $8.25 million in limited partner commitments from groups like Contango Oil & Gas Co. (Amex: MCF) and Sullivan Interests LP. Contango focuses on companies that develope alternative energy technologies, like portable fuel cells. www.contangocapital.com
The Overseas Private Inv*stment Corp. (OPIC) has selected Baring Latin America Partners to manage a new private equity fund that will back medium-sized companies operating in Mexico. OPIC has approved a $60 million commitment to the fund, which is planning to raise a total of between $150 million and $200 million. Baring currently manages two other OPIC-supported funds, one in Latin America and one in Africa. www.opic.gov www.bpep.com
Thursday, February 24
Greetings from the Windy City, or at least from the airport-blighted burb of Rosemont. I’ve got to bolt soon for the MWRASBIC private equity conference (that acronym needs to be shortened), but I quickly wanted to solicit your opinion on something that’s been rattling around in my brain over the past few weeks:
During a limited partner panel at the Wharton Private Equity conference in Philly last month, Barry Gonder of Grove Street Advisors (and formerly of CalPERS) talked about how top-tier LPs are starting to employ what he referred to as a “barbell” fund commitment strategy. This generally means that LPs would focus most of their allocation attentions on small/micro buyout funds or large/mega buyout funds, because they believe that the middle market is too crowded (the VC market employs an inverse cousin to this theory, but we’ll leave that for another day).
Gonder’s comments generated affirmative head nods from his fellow panelists, and seem to have morphed into conventional wisdom. I even caught myself repeating it when speaking to another journalist yesterday (note: Gonder credited someone else with the barbell term, but I can’t remember who it was).
What I’d like from you, dear reader, is your opinion on whether or not the conventional wisdom is wise. Are middle-market deals really being bid up more unreasonably than are mega-market deals, due to a glut of players? Have the historical performance benchmarks showing mid-market funds significantly outperforming mega-market funds become obsolete? Is this just an excuse for people like Gonder to recommend massive LP commitments to multi-billion funds? In short, does the barbell strategy make sense?
So, again, I ask for your guidance.
Apax Partners Worldwide has agreed to merge its U.S. arm (Apax Partners Inc.) with Saunders Karp & Megrue, effective March 15. As part of the deal, both John Megrue and Allan Karp of SKM will serve as co-CEOs of Apax Partners Inc., with the combined firm will operate out of existing Apax offices in New York and Menlo Park, Calif. SKM’s Growth Investors group – a Dallas-based team focused on the lower middle markets – will not be part of the merger, and will instead spin out as an independent entity. www.apax.com www.skmequity.com
GTCR Golder-Rauner and a group of auto repair industry executives have teamed up to form Solera Inc., a San Diego-based company that will focus on the auto physical damage claims settlement process, providing consulting, outsourced services and strategic technology solutions. GTCR will invest up to $100 million into the company, which is expected to grow both organically and via acquisitions. Tony Aquila, former president of Mitchell International, will serve as Solera’s chief executive. www.solerainc.com
Pfizer Inc. (NYSE: PFE) has agreed to acquire Idun Pharmaceuticals Inc., a San Diego-based drug company focused on a type of cell death known as apoptosis. No financial terms were disclosed. Idun has raised over $100 million in venture funding since its 1993 inception, from firms like Arch Venture Partners, Accel Partners, MPM Capital, RBC Capital Partners, Venrock Associates, Prospect Venture Partners, IVP, Sutter Hill Ventures and BioVeda Capital. www.idun.com
The Speedel Group, a Switzerland-based drug company focused on cardiovascular and metabolic diseases, has raised CHF 47.8 million (approx. $39.8 million) in new venture capital funding. No further details, including investor names, were disclosed. www.speedel.com
Scandius BioMedical Inc., a Littleton, Mass.-based maker of minimally-invasive orthopedic implants and surgical instruments, has raised $8 million in Series C funding. Stockton Partners led the deal, and was joined by return backers KBL Healthcare Ventures, Commerce Health Ventures and Ivy Healthcare Ventures. www.scandius.com
T-VIPS AS, a Norway-based provider of IP video gateways for broadcasters, has raised NOK 28 million (approx. $4.5 million) in funding from Northzone Ventures and Selaag Venture Capital. www.northzoneventures.com
SecureWave SA, a Luxembourg-based provider of endpoint security software, has raised 3 million euros in Series B funding. Index Venture led the deal, and was joined by return backer Mangrove Ventures. www.securewave.com
Jefferies Capital Partners has sponsored a buyout of Barnhill’s Buffet Inc., a chain of 41 all-you-can-eat restaurants in the Southern U.S. The deal is done in tandem with a trio of restaurant industry executives (known collectively as Dynamic Management Co.), including new Barnhill’s CEO Bob Langford. No financial terms were disclosed. www.barnhills.com
Acon Investments of Washington, D.C., has sold its controlling stake in Florimex International BV to Dutch private equity firm Bencis Capital Partners. No financial terms were disclosed. Florimex is a Netherlands-based global marketer and distributor of fresh-cut flowers, potted plants and decorative foliage. Acon originally acquired the control position in November 2001. www.florimex.com
Tapp Technologies Inc., a Canadian producer of wine and food labels, has completed a recapitalization. Pender West Capital Partners led the recap, and now will hold a majority shareholder position in Tapp Technologies. No financial terms were disclosed. www.tapptech.com
Best Brands Corp., an Egan, Minn.-based provider of specialty bakery products, has completed a recapitalization. Subsequently, the company acquired Multifoods Foodservice & Bakery Products, a division of the J.M. Smucker Co. (NYSE: SJM). No financial terms were disclosed for either event. Best Brands is owned by an inv*stor consortium that includes Brantley Partners, National City Equity Partners and Prudential Capital Group. It was advised on the recap and acquisition by Brown, Gibbons Lang & Co. www.bestbrandscorp.com
Concord Communications Inc. (Nasdaq: CCRD) has completed its acquisition of Aprisma Management Technologies Inc., from Gores Technology Group, for approximately $93 million in cash. Aprisma is a Portsmouth, N.H.-based provider of software that manages network health and performance. www.aprisma.com
Symyx Technologies Inc. (Nasdaq: SMMX) has agreed to acquire Synthematix Inc., a Durham, N.C.-based provider of organic synthesis reaction planning software systems for scientific knowledge management in chemistry research. The deal is valued at $13 million in cash, plus the possibility of an additional $4 million based revenue milestone payments. Synthematix had received venture capital funding from Catalysta Ventures and Southern Capitol Ventures. www.symyx.com www.synthematix.com
CommSoft Inc., an Albany, N.Y.-based provider of billing software for telecom companies, has acquired the Services Activation division of Denver-based Connexn Technologies. No financial terms were disclosed. CommSoft is owned by Saratoga Partners. www.commsoft.net
Curacyte AG, a Munich, Germany-based late-stage drug discovery and development company, has merged with IBFB Pharma GmbH, a Leipzig, Germany-based biopharma company focused on inflammatory diseases. The combined company will retain the Curacyte name, and has raised 16.5 million euros in Series C funding. New backers include CFH Corporate Finance Holding GmbH, IBG Beteiligungsgesellschaft Sachsen-Anhalt mbH, S-Beteiligungsmanagement Leipzig GmbH and Mittelstandische Beteiligungsgesellschaft Sachsen mbH. Return backers and existing Curacyte shareholders include Techno Venture Management, GZ Paul Partners, IKB Private Equity, Alpinvest and Stroh Cos. No financial terms of the merger were disclosed. www.curacyte.com www.ibfb.de
Mobility Venture Capital is planning to raise between $75 million and $150 million for its inaugural fund. The vehicle will be called Mobility Ventures II, since the firm is serving as a successor to Dallas-based Genesis Campus. Mobility Venture Capital’s three principals are: Roman Kikta (managing partner of Genesis Campus); Frank Lee (former partner with Vertex Partners); and Michael Buckland (Genesis Campus venture partner). Wu-Fu Chen, a general partner with Genesis Campus, will serve as a senior advisor and special limited partner. www.mobilityvc.com
Bain Capital and certain executives of portfolio company KB Toys are being charged with improperly paying themselves $121 million before KB sought Chapter 11 bankruptcy protection last year, according to The Associated Press and The Berkshire Eagle. The case will be heard Monday, with plaintiffs including Hasbro Inc., Lego Systems Inc. and various KB landlords. Bain Capital called the action “entirely without merit.”
Wednesday, February 23
Friday Feedback (The Wednesday Edition)
The sky is icy blue, the public markets are trying to rebound from yesterday’s oil-induced debacle and I’ve got to hop a plane for Chicago. In other words, it’s time for a premature (or perhaps tardy) edition of Friday Feedback.
* First up are a few replies to yesterday’s discussion of venture buyouts, in which founders generate significant liquidity without either an IPO or M&A event (and, in the case of LiquidNet, without losing much ownership). Jonas summed up many respondent sentiments by writing: “These deals are the ultimate example of cyclical economics. VCs didn’t invest a few years ago, so entrepreneurs bootstraped their companies by taking out a second home mortgage or doing without much salary. Now that some of those VCs have too much money left in older funds, they’re willing to invest enormous amounts for small stakes, and the hungry entrepreneur is all but too happy to accept.”
Linda adds: “Deals like LiquidNet might be the set-up for buyout firms finally becoming acquirers of venture-backed companies. I used to think that VC firms would need to inv*st in manufacturing companies for it to happen, but I was wrong, because it is the buyout firms that have moved toward technology.” Finally there is David, who points out a recent venture buyout that I missed: “Another company that recently has gone through the same thing is Art.com, as reported in the News & Observer this past week. I understand that they received a $30 million infusion, and owners are taking a portion out for themselves. At the same time, Art.com is considering a merger with Allposters.com.” Good catch David.
* Next up is the Testa Hurwitz saga, which continues to generate tons of emails saying either “Thanks for following this story” or “Please stop following this story.” Leaving those aside, we have Tom, who writes: “I know former Testa partners in both groups – those behind the petition and those who did not support the filing – and wholeheartedly agree with your comments and characterization. This makes the petitioners look small and ill-advised.” A Boston-area attorney, however, suggests: “Try sticking with the venture business — it will raise the odds you’ll know what you’re talking about.” As an aside, the eight petitioners yesterday filed a motion to appoint a Chapter 11 trustee. It includes a variety of allegations, which will be discussed in this space at a later date.
* Finally, we have an pension fund manager J, who asks: “Can you send a message to the general partner community, and tell them that there is no physical way that they can all close their next fund on March 31?” Yes J, I can.
* On an unrelated note, I’ll be giving a “State of the Private Equity Market” address tomorrow morning at the Hyatt Regency O’Hare (just outside of Chicago). It’s part of an event put on by the Midwest Regional Association of SBICs, and I’m pinch-hitting for a colleague (which is why you won’t see my name on the agenda). If you’re interested, agenda and registration info can be found at www.mwrasbic.org. I hope to see you there…
Providence Equity Partners, 3i Group and UK television executive David Elstein have agreed to acquire the international business of Crown Media Holdings Inc. (Nasdaq: CRWN), owner and operator of Hallmark Channel. The deal is valued at $242 million, and includes the international versions of the Hallmark Channel, the international rights to over 580 titles in the Crown Media library and a Denver, Colo.-based broadcast facility.
Shasta Ventures has closed its inaugural fund with $210 million in limited partner commitments, after having set a target of just $175 million. The Menlo Park, Calif.-based firm was founded last year by Rob Coneybeer (former general partner with New Enterprise Associates), Tod Francis (former general partner with Trinity Ventures) and Ravi Mohan (former general partner with Battery Ventures). www.shastaventures.com
Bob Metcalfe, a general partner with Polaris Venture Partners and founder of Ethernet technology, will receive the 2003 National Medals of Technology on March 14 from President Bush. It is a 2003 award because the nomination and vetting process takes over a year to complete. Other 2003 recipients include Jan Achenbach, Watts S. Humphrey and a team from Corning.
ChoiceStream Inc., a Cambridge, Mass.-based provider of personalization solutions for online customer services, has raised $7 million in Series A funding. The round was led by General Catalyst Partners. www.choicestream.com
AxioMed Spine Corp., a Beachwood, Ohio-based developer of artificial spine disks, has raised $18 million in Series B funding. Thomas, McNerney & Partners led the round, and was joined by Investor Growth Capital, Medical Venture Fund and return backers Primus Venture Partners, CID Equity Partners, Early Stage Partners, MB Venture Partners and Reservoir Venture Partners. www.axiomed.com
Majestic Research Corp., a New York-based supplier of inv*stment research, has received an undisclosed amount of Series A funding led by BV-Cornerstone Ventures.
Business.com Inc., a Santa Monica, Calif.-based search company designed for businesses, has received $6.5 million in funding from Institutional Venture Partners. The company has raised over $90 million in total venture capital for Business.com since its 1999 inception.
WiSpry Inc., an Irvine, Calif.-based developer of tunable RF components and modules for the wireless industry, has raised $6.5 million in Series A funding. Blueprint Ventures led the deal, and was joined by American River Ventures, Sid R. Bass Associates and Shepherd Ventures. www.wispry.com
Teachers’ Private Capital, the private equity arm of Ontario Teachers’ Pension Plan, has agreed to acquire CFM Corp. (TSX: CFM), an Ontario, Canada-based manufacturer of home products and related accessories. Under terms of the agreement, CFM shareholders will receive Cdn$1.50 in cash for each outstanding common share. The deal has been unanimously approved by the CFM board of directors, but still must receive two-thirds shareholder approval during an annual meeting in early April. In the meantime, Teachers’ Private Capital has agreed to provide CFM with a US$25 million interim financing facility, to handle working capital needs. www.cfmcorp.com
Centre Partners has completed its acquisition of a controlling interest in Uno Restaurant Holding Corp., a West Roxbury, Mass.-based operator of the Pizzeria Uno’s deep-dish pizza restaurant chain. No financial terms were disclosed. As part of the deal, former Au Bon Pain president and CEO Frank Guidara joined Uno as CEO. www.unos.com
Kelso & Co. has agreed to acquire Insurance Auto Auctions Inc. (Nasdaq: IAAI) for $385 million, according to various press reports. The Westchester, Ill.-based company provides auto salvage services to insurance companies.
Spyside Equity has acquired the Philadelphia-based Fruit Systems business of Degussa AG for an undisclosed amount. The business will operate under the name Sweet Ovations LLC, and is expected to retain existing management. www.sweetovations.com www.speysideequity.com
Illumina Inc. (Nasdaq: ILMN) has agreed to acquire CyVera Corp., a Wallingford, Conn.-based developer of bead-based assays for biomarker R&D and in-vitro and molecular diagnostic opportunities. The deal is valued at $17.5 million, including 1.5 million common shares of Illumina stock, plus the payment of approximately $2.3 million of CyVera’s liabilities at closing. CyVera was spun out of CiDRA Corp. (Nasdaq: CIDC) in November 2003, and has received venture backing from Teknoinv*st Management AS. www.cyvera.com
Codexis Inc., a Redwood City, Calif.-based, has acquired Julich Fine Chemicals GmbH, a German supplier of specialty enzymes for organic synthesis and chiral building blocks. No financial terms were disclosed. Codexis has raised around $35 million in venture capital funding from firms like CMEA Ventures, ChevronTexaco Technology Ventures, Pequot Capital Management and Pfizer. www.codexis.com www.juelich-chemicals.de
Air Chef Holdings LLC, a Columbus, Ohio-based provider of in-flight catering services for private jets, has acquired Arlington, Va.-based air caterer Air Culinaire Inc., plus an unnamed in-flight caterer operating out of London’s Luton Airport. No financial terms were disclosed, except that the acquisition capital was provided by Meridian Venture Partners (equity), Spring Capital (mezzanine) and JP Morgan Chase (senior financing). www.airchef.com
MedImmune Inc. has committed an additional $100 million to its MedImmune Ventures subsidiary, which so far has committed approximately $85 million to one dozen portfolio companies. MedImmune Ventures has founded in July 2002. www.medimmune.com
Joe Raffa has joined Adams Capital Management as a venture partner based in Palo Alto, Calif. He is the former CEO of NuCORE Technology Inc., a fables supplier of imaging processing chips to Japanese digital camera and camcorder makers. www.acm.com
Jay Hobbs has joined Boston Ventures Management as an operating partner. He most recently served as chairman and CEO of media and information company VNU Inc. www.bostonventures.com
Probitas Partners has promoted Robert “Mac” Hofeditz to the position of partner, and S. Kelsie Clark to the position of analyst. www.probitaspartners.com
Richard Leggert has been named president and CEO of The Center for Financial Research & Analysis, a Rockville, Md.-based portfolio company of TA Associates. Leggert most recently served as a managing director with Goldman Sachs, where he was the I-banking division’s global sector captain for software and services. www.cfraonline.com
FTVentures has added the following people to its advisory board: Michael O’Neill, former chairman and CEO of Bank of Hawaii Corp.; Philip Ryan, former CFO of Credit Suisse Group; Garen Staglin, chairman of Encorus Technologies; and Dennis Sheehan, former president and CEO of The Bisys Group. Sheehan also has been named a senior advisor to FTVentures, and will work on deal opportunities with the firm’s New York-based business services team. www.ftventures.com
RSM EquiCo, a Costa Mesa, Calif.-based I-bank focused on the middle-markets, announced that Coby Sonenshine has been named firm president. He previously served as CEO of the firm’s broker-dealer subsidiary RSM EquiCo Capital Markets, and replaces firm co-founder Richard Rodnick, who will stay on as an advisor. RSM EquiCo is part of RSM McGladrey Inc., a business segment of H&R Block. www.rsmequico.com
Tuesday, February 22
Another Way To Exit
Remember when entrepreneurs received liquidity at around the same time as did their venture capitalists, via either an IPO or acquisition? Ok, that’s still the protocol for most company founders, but a growing number have begun cashing out via what have become known as venture buyouts (or secondary venture sales — pick a term, any term). The best-known examples are companies like FastClick and Webroot, which bootstrapped themselves through the VC famine of 2001-2002, and which recently generated founder liquidity by raising Series A rounds of $75 million and $100 million respectively. There also have been a series of lower-profile situations, in which company founders take just enough cash to pay off home mortgages or other such expenses (particularly those who had essentially been working without salary for a while).
The most interesting of all these deals, however, closed last Friday, when Summit Partners and Technology Crossover Ventures paid $250 million for a minority position in Liquidnet Inc., a New York-based operator of an institutional trading platform (still awaiting a formal press release). Not only did some founding shareholders essentially cash out (CEO Seth Merrin held onto most of his holdings), but longtime Liquidnet backer TH Lee Putnam Ventures also sold a significant number of shares. For a bit of ROI perspective, TH Lee Putnam Ventures participated in a $10 million Series C deal back in early 2002, at a post-money valuation of approximately $200 million. Last Friday’s deal values LiquidNet well north of $1.5 billion (Tom Lee finally has reason to smile about his early-stage adventure).
This deal probably is the largest private equity infusion ever for a non-control stake in a financial services company, and term sheets were signed just three weeks after Liquidnet advisor FT Partners began making calls. Once it is added to the FastClick and Webroot deals – not to mention other hopefuls like Adteractive – and we’ve got the makings of a private market trend. What will be interesting to watch is how fast the VC buyers try pushing the companies into the public markets — FastClick already is in registration, while Liquidnet supposedly isn’t interested until at least 2006) — and if the trend is sustainable once VC and generalist PE firms have finished working through outsized 2000 and 2001-vintage funds. My gut feeling says that it is, so long as the companies are no longer reliant on the liquidating founders (i.e., have already implemented a succession plan).
Also, I’m writing a longer print story on this phenomenon, so encourage all insights and opinions.
* Testa Hurwitz says it plans to “vigorously contest” the involuntary bankruptcy petition discussed in this space last week. Also, the petition itself if fairly interesting. A few partners have significant cash remaining in their capital accounts, including Eric Deutsche with $504,220 plus interest. Others, however, appear to have very little reason to have joined the action. Richard Sanders, for example, is owed just $19,186 plus interest. I don’t know his current salary at Sullivan & Worcester, but it’s a good bet that $19,186 is barely a drop in his income bucket. So my question to Sanders is as follows: Is $19,186 worth so much that you would try disrupting the liquidation process, thus possibly jeopardizing millions of dollars for some of your former colleagues? My line continues to be open, waiting for a response (although I’d guess that counsel has advised you not to do so).
* Thank you for all your birthday wishes. Thanks for the gift J, and see you later tonight..
One Equity Partners has agreed to acquire Progress Rail Services Corp. from Progress Energy Inc. (NYSE: PGN). The all-equity deal is valued at $405 million, and is expected to close within 90 days. Progress Rail is an Albertville, Ala.-based supplier of products and services to the railroad industry, and currently employs approximately 3,500 people. www.progressrail.com
Ekos Corp., a Bothell, Wash.-based developer of ultrasound infusion micro-catheters for dissolving blood clots, has raised $18 million in Series B funding. NGN Capital led the deal, and was joined by MedVentures, Morgan Stanley and EGS Capital.
Draper Fisher Jurvetson has closed its eighth fund with approximately $400 million in limited partner commitments, according to a regulatory filing. www.dfj.com
Newron Pharmaceuticals SpA, an Italy-based drug company focused on the central nervous system, has raised 23 million euros in venture capital funding. HMB BioCapital and HBM BioVentures led the deal, with return backers 3i Group, Apax Partners and Atlas Venture also participating. The company said that it is leaving the round open for a few more weeks, in the hope of securing an additional 7 million euros. www.newron.com
Diaphonics Inc., a Canadian provider of voice verification-based security solutions, has raised $3.5 million. Covington Capital led the deal, and was joined by InNOVAcorp and return backers BDC Venture Capital and Nova Scotia Business Inc. www.diaphonics.com
Sequans Communications, a fables semiconductor company, has raised 7 million euros in Series B funding. Add Partners and Vision Capital co-led the deal, and were joined by Societe Generale and return backers T-source and Cap Decisif. www.sequans.com
RealOps Inc., a Herndon, Va.-based provider of integrated operations automation solutions, has raised $5 million in Series A funding led by Valhalla Partners. www.realops.com
Dedicated Devices Inc., a Nampa, Idaho-based maker of digital home networking products, has raised $6 million in Series B funding. Palomar Ventures led the deal, and was joined by return backers UV Partners, Village Ventures and Highway 12 Ventures. www.dedicateddev.com
NovaVision Inc., a Boca Raton, Fla.-based, has raised $12 million in Series B funding. Tullis-Dickerson & Co. led the deal, and was joined by return backers Noro-Moseley Partners and Crossbow Ventures. www.novavisiontherapy.com
Arete Therapeutics Inc., a Davis, Calif.-based drug development company, has raised $15 million in Series A funding. Frazier Healthcare Partners led the deal, and was joined by Three Arch Ventures and Burrill & Co. www.aretetherapeutics.com
Apax Partners is in exclusive talks to acquire foreign currency exchange company Travelex PLC, according to multiple press reports. The deal could be worth upwards of GBP 1 billion. Deutsche Bank reportedly had accepted bids from four firms, including BC Partners, Permira and KKR. www.travelex.com
TransWestern Publishing Co., a yellow pages publisher controlled by Thomas H. Lee Partners, has retained Goldman Sachs to explore strategic alternatives, including a possible sale. CIVC Partners also holds a stake in the company.
Brazos Private Equity Partners has acquired a majority position in Strategic Equipment and Supply Corp., a Dallas-based provider of equipment, services and supplies to the foodservice industry. No financial terms were disclosed. www.strategicequipment.com
ThyssenKrupp Automotive has ended negotiations to sell its Ferden Group unit to HG Capital. Ferden Group focuses on springs, and has annual sales of 350 million euros. www.thyssenkrupp.com
Millennium Technology Value Partners has made a $5.2 million “stalking horse” bid for First Virtual Communications Inc. (OTC BB: FVCCQ.PK), which currently is in Chapter 11 bankruptcy protection.
QuinetiQ PLC, a UK-based provider of defense technology and consulting services, is planning a GBP 1 billion (approx. $1.9 billion) floatation, according to the Independent of London. The company is majority-owned by the UK Ministry of Defense, but The Carlyle Group acquired a significant stake in 2003 (and controls voting rights). www.qinetiq.com
Elite Line Services Inc., a wholly owned subsidiary of G&T Conveyor Co., has acquired Ameribridge Inc., an Indianapolis-based service provider to the passenger boarding bridge industry. No financial terms were disclosed. G&T Conveyer Co. is majority-owned by private equity firm Brynwood Partners. www.gtconveyor.com
Celtic House Venture Partners is raising its third fund with a target capitalization of US$200 million. It already has received a US$50 million commitment from the CPP Investment Board. Celtic House is an Ontario, Canada-based venture firm focused on early-stage opportunities in the semiconductor, MEMS, optical and software spaces. www.celtic-house.com
Alan Baratz has been named president and CEO of NeoPath Networks Inc., a Santa Clara, Calif.-based provider of network file management solutions. He most recently served as a managing director with Warburg Pincus, and had previously held executive roles with companies like Sun Microsystems, Zaplet, Versata, Delphi Internet and IBM. Rajeev Chawla, NeoPath Networks’ founding CEO, will become executive vice president of products. The company is backed by August Capital, DCM-Doll Capital Management, Dot Edu Ventures and Gabriel Venture Partners. www.neopathnetworks.com
Stephen Bonebrake has joined the New York office of Sanders Morris Harris Group Inc. as a managing director, in charge of the technology I-banking. He most recently founded and ran Dry Fly Technologies LLC, and previously headed up technology I-banking for SG Cowen. www.smhg.net
Charles Kaye, co-president of Warburg Pincus, has been elected chairman of the U.S.-India Business Council, a membership organization comprised of 125 U.S. companies inve*ting in India. He will succeed Rajat Gupta, senior partner worldwide with McKinsey & Co. www.usibc.com
Gregory Slayton, managing director of Slayton Capital, has joined the board of Borland Software Corp. (Nasdaq: BORL). John Olsen, former president and COO of Business Objects, also joined the board. www.borland.com
Doug Mackenzie, a partner with Kleiner Perkins Caufield & Byers, has joined the board of Safeway Inc. (NYSE: SWY). www.safeway.com
Duke Street Capital has added Xavier Clarke as an analyst and Lili Hoff as a legal advisor. Clarke previously worked with PricewaterhouseCoopers in Paris, while Hoff specialized in M&A and private equity transaction with Ashurst. In other Duke Street news, the firm has promoted Beatrice Vivier, Corinne Margerit and Oliver Mayer to the position of associate director. www.dukestreetcapital.com
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