PE Week Wire — Friday, July 2

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Trial Watch: A “Bizarre” Verdict

When I sent out emails yesterday that a verdict had been reached in the Connecticut vs. Forstmann Little & Co. trial, some of you wrote in to ask what I was talking about. In order to provide some clearer context, I am first including a news piece I wrote on the verdict last night. After that will be some analysis. After that, I will pack up and head for a rafting trip in Maine:

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Forstmann Little & Co. was found liable yesterday of breaching its contract with the State of Connecticut, and for having breached its fiduciary duty. The verdict came less than two days after a Vernon, Conn. jury had begun deliberations on the case, and was notable for its absence of damages awarded to Connecticut. The state had been seeking in excess of $100 million.

“The verdicts are bizarre in some respects because it’s hard to imagine that they could characterize Forstmann Little in a worse light as a professional manager of assets,” says John MacMurray, a private equity attorney with Ropes & Gray LLP. “The jury found that Forstmann Little had committed malpractice in terms of being an asset manager, but the actual outcome is that Forstmann Little won the case because there were no monitory damages.”

The case was first filed in February 2002, and accused New York-based Forstmann Little of breaching its fiduciary responsibility to Connecticut, which had invested a total of $198 million into a pair of Forstmann Little-managed funds. Connecticut also alleged contract law violations, securities law violations and that Forstmann Little had engaged in bad faith practices and unfair dealing. At the time, Connecticut Attorney General Richard Blumenthal said:  “We want more than the $100 million-plus they wasted and wiped out. We want to make Forstmann Little the poster child for fair-dealing in the investment community.”

Opening arguments didn’t begin until June 1, by which point Superior Court Judge Samuel Sferrazza already had thrown out the securities law violations. Two weeks later, he said that the prosecution had not presented sufficient evidence to sustain the bad faith and unfair dealing charges. The final jury verdict found Forstmann Little liable of two counts of contract breach, and one count of fiduciary duty breach.

Ted Forstmann, senior founding partner of Forstmann Little, issued a statement that characterized the jury verdict as a “complete victory” for his firm. Lawyers following the case, however, point out that Forstmann Little now has a black mark on its once-sterling reputation, and that it incurred sizable defense costs. They also say that the entire episode sends a message to other private equity firms that they should develop risk management precautions before being tagged with a lawsuit of their own.

For its part, Connecticut AG Blumenthal said that he was pleased with the verdict, but obviously disappointed in the lack of damages. He added that an appeal was not out of the question.

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I’ve covered this case since before it was even filed, and thought that I had written at length about every possible verdict scenario. I was wrong.

The jury apparently felt that the breaches did not materially affect Connecticut’s decision to reinvest with Forstmann Little & Co., and perhaps bought defense arguments that the state was only complaining once certain telecom investments went bad. There also is a chance that the jury has hesitant to award damages after the judge threw out a majority of the charges against Forstmann, although attorneys I spoke with feel that the scenario is a bit far-fetched. It is important to note, however, that those same attorneys were stunned by what is, in essence, a legal victory for Connecticut and a practical victory for Forstmann Little.

Such “split decisions” do happen occasionally, but the feeling here had been that if a jury of Connecticut taxpayers were to find a wealthy New York buyout firm to be liable of breaching its fiduciary duty to Connecticut, then it also would award significant damages. It just didn’t happen, though, and I’d almost have to think that Connecticut has come too far not to at least attempt an appeal.

Almost every major East Coast newspaper is covering the verdict this morning, but the most interesting read is in The New York Times. The Gray Lady has a pure news story, and then a sidebar that suggests the verdict could cause other private equity firms to bar Connecticut from future funds. The money quote comes from John Canning, chief executive of Madison Dearborn Partners, who said: “I can’t imagine anyone inviting Connecticut into another fund. Why would anyone take that risk?” You can read more at http://www.nytimes.com/2004/07/02/business/02connect.html (free registration required).

Now I respect John Canning, but his sentiment is suspect. Connecticut has invested in at least four different private equity funds since it first filed its Forstmann Little complaint (which isn’t bad, particularly since it didn’t have a private equity investment chief until last June). In other words, there are private equity firms that gladly have taken Connecticut’s money, even while aware of the legal proceedings. How on earth does a “found liable” verdict – whether damages are assigned or not – make Connecticut seem like a less credible LP. Perhaps if it also had sued other buyout firms (i.e. appear litigation-happy), but this case always has been specifically about Forstmann Little, not the asset class as a whole.

In fact, the real stain here is on Forstmann Little’s reputation, not on Connecticut’s. There have long been rumors that the firm will not raise another fund – at least not one that Teddy Forstmann is directly involved with – and some other current Forstmann LPs say that it’s a good decision. Why? Because they wouldn’t re-up with a firm that made such boneheaded telecom investments, particularly if it also was found liable of breaching contracts and fiduciary responsibility. Teddy’s statement about being a “complete victory” for his firm may have spun The New York Times, but it won’t spin most of the private equity community… 

Kelso & Co. and Church & Dwight Co. have agreed to acquire Del Laboratories Inc. (AMEX: DEL) for $385 million in cash. Under terms of the deal, each outstanding share of Del common stock will be converted into $35 cash. This represents a slight premium for current shareholders, as Del’s stock traded down yesterday at $30.70 per share. The entire transaction is valued at $465 million, including the assumption of $80 million in debt. It is expected to close in the fourth quarter. www.dellabs.com

TransDimension Inc., an Irvine, Calif.-based provider of USB connectivity solutions for embedded applications, has closed both its Series C and Series D funding rounds with a total of $18.35 million. GKM Ventures led the Series C deal, and was joined by VantagePoint Venture Partners, iSherpa Capital, Rolling Oaks Capital and Shelter Capital Partners. VantagePoint led the Series D round, and was joined by iSherpa. In other TransDimension news, the company announced that it has acquired the peripheral connectivity assets of ARC International PLC for an undisclosed amount. www.transdimension.com

Forstmann Little & Co. has been found liable of two counts of breach of contract and one count of breach of fiduciary duty, in regards to a lawsuit brought by The State of Connecticut. The jury did not, however, award Connecticut any damages.

 

Zonare Medical Systems Inc., a Mountain View, Calif.-based developer of miniature ultrasound imaging devices, has raised $34 million in Series E funding. New investor Montagu Newhall was joined on the deal by return backers Frazier Healthcare, Draper Fisher Jurvetson ePlanet Ventures, Earlybird Venture Capital, CB Health Ventures, Merrill Lynch Ventures and Mosaix Ventures. www.zonare.com

 

Voice Genesis, a Los Angeles-based provider of downloadable software for cell phone subscribers, has raised $650,000 in bridge funding, as it prepares for a Series A fund-raising effort. The capital was provided by the Northern California Chapter of the Keiretsu Forum, a nationwide angel investor network. www.voicegenesis.com


The Riverside Co.
has sold DHD Holding Corp. (a.k.a. DHD Healthcare) to Smiths Group PLC for $55 million. DHD is a Wampsville, N.Y.-based provider of disposable medical devices for respiratory therapy, and was acquired by Riverside in February 2001. Since that time, the company has acquired both STI Medical Products (July 2001) and Pegasus Research Corp. (August 2003). Harris Williams & Co. served as exclusive advisor to DHD and Riverside on the transaction. www.dhd.com

Caisse de depot et placement du Quebec is leading an investor consortium that is buying control of Canadian natual gas distributor Gaz Metro LP. The deal is valued at approximately $670 million (Cdn$625 million), with CDP being joined by BC Investment Management Corp. and SNC-Lavalin. www.gazmetro.com

3i Group has agreed to acquire the Kemira Fine Chemicals unit of Finland-based Kemira Oyj for approximately €70 million. www.kemira.com

Pixel Magic Imaging Inc., a San Marcos, Texas-based provider of digital photography software, has received $20 million in new equity funding from Japanese investors Dai Nippon Printing Co. Ltd. and Altech ADS Co. Ltd. The deal grants the new investors a majority stake in Pixel Magic, although its existing investors will remain engaged in the company. Pixel Magic previously had raised around $16 million in VC funding from Southeast Interactive Technology Funds, Sony Corp., Barnard & Co. and Tyco Capital. www.pmimaging.com

 

SmartBargains Inc., a Boston-based online retailer, has filed to raise $80.5 million via an IPO of common stock on the Nasdaq under proposed ticker symbol SBAR. 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.

 

UTI Corp., a Collegeville, Pa.-based provider of devices, assemblies and components to medical OEMs, has completed its acquisition of MedSource Technologies Inc. (Nasdaq: MEDT). The deal, which was announced in April, has an aggregate transaction value of $230 million, including debt net, with MedSource common stockholders receiving $7.10 per share. The deal was backed by UTI investors KRG Capital Partners and DLJ Merchant Banking Partners. www.uticorporation.com

Becton, Dickenson & Co. (NYSE: BDX) has paid $25 million to acquire Atto Bioscience, a Rockville, Md.-based provider of advanced technologies for analytical microscopy. Atto had raised nearly $10 million in total VC funding, from investors like Emerging Technology Partners and the Maryland Department of Business & Economic Development. www.atto.com

C.R. Bard Inc. (NYSE: BCR) has acquired substantially all the assets of Onux Medical Inc., a Hampton, N.H.-based provider of medical devices used for tissue fixation. Terms of the deal were not disclosed. Onux had raised around $15 million in total VC funding since its 1996 inception, from investors like Boston Scientific Corp., Domain Associates and Delphi Ventures. www.onuxmedical.com

Ethicon Endo-Surgery Inc., a Johnson & Johnson company, has acquired Artemis Medical Inc., a Hayward, Calif.-based developer of biopsy site market technology. No deal terms were disclosed. Artemis had raised approximately $27 million in total VC funding since its 1999 inception, from investors like Bedrock Capital Partners, Perennial Ventures, ProQuest Investments, The Vertical Fund, Vanguard Ventures and W Capital Partners. www.artemismedical.com

 

PrivateEquityOnline.com is reporting that Michel Guillet, John Burgess and Alberto Tazartes all will retire from their managing partner posts with BC Partners within the next 18 months. Guilet will leave this October, with Burgess and Tazartes both leaving at the end of 2005. The moves follow the 2001 retirements of BC Partners co-founders Otto van der Wyck and Patrice Hoppenot. www.bcpartners.com

Sonnenschein Nath & Rosenthal LLC has added Victor Boyajian to its venture capital/emerging growth company practice. He most recently founded the capital markets group at Sills Cummis, where he practiced for nearly two decades. www.sonnenschein.com

 

Richard Kay has been named a special partner with ABS Capital Partners, where he will serve as both an advisor and board member to several ABS portfolio companies. He is the former founder, chairman and CEO of OTG Software, which received VC funding from ABS before going public in March 2000. It later merged with Legato Systems Inc. (Nasdaq: LGTO). www.abscapital.com

Alan Weinfield has joined Darby Overseas Investments as director of sales development and marketing. He previously served as director of investor relations with Franklin Templeton Investments. www.darbyoverseas.com

GKM Ventures has held a second closing on its current fund, which doubles its size from $48 million to $97 million. New limited partners include BEA Systems, Cirrus Logic, Cisco Systems, Linear Technology, Citrix, Legato/EMC, Phoenix Technology, RSA Security, Siebel Systems, Texas Instruments and Trimble Navigation. Los Angeles-based GKM also announced that it has opened a new office in Menlo Park, Calif., which will be run by new managing director David Stastny. Paul Sherer and Kai Tse also have joined the Menlo Park office, as a venture partners and principal, respectively. All three men most recently worked with Osprey Ventures. www.gkmventures.com  

Jerusalem Venture Partners (JVP) is planning to open an office in China, according to Chinese press reports. The New York-based firm, which already has one China-based portfolio company, currently is recruiting local staff for the effort. www.jvpvc.com

PrivateEquityOnline.com is reporting that Albemarle Private Equity has been removed as the general partner of a £44 million fund it formed in 1996. Approximately 90% of the fund’s limited partners opted to oust Albemarle, and replace it with Nova Capital Management.

 

Thursday, 7/1

 

VC-Backed IPO Explosion

I was hoping that we’d be able to discuss a verdict in the Connecticut vs. Forstmann Little case this morning, but it seems that the jury is still out (literally). In the meantime, today is the first day of Q3, which means that some Q2 data already is beginning to emerge. The first set of numbers relates to VC-backed IPOs, and comes to us from Thomson Venture Economics (publisher of the PE Week Wire) and the National Venture Capital Association (publisher of other things).  

Twenty-nine VC-backed companies priced on U.S. exchanges last quarter, for a total take of approximately $2.07 billion. This represents a major increase over the 13 VC-backed IPOs that priced during Q1, and is the highest number of VC-backed IPOs since 87 such companies hit the public markets in Q3 2000. It is important to note, however, that the $2.07 billion figure does not top Q1’s $2.72 billion total, which was skewed by a $1.8 billion IPO from Semiconductor Manufacturing International Corp.

This quarter’s largest deal came just this week, as Life Time Fitness Inc. raised $183.15 million. It priced at $18.50 per share, and closed trading yesterday up at $21 per share. In fact, the vast majority of Q2 IPOs are currently trading above their offering prices (19 above, eight below and one at even money). The biggest percentage gainer so far has been Santarus Inc., which priced at $9 per share and closed trading yesterday at $14.75 per share, for a 63.33% bump.

In general, however, VC-backed companies were unable to hit their target prices. The average VC-backed IPO filing included plans for $87.75 million in expected proceeds, while those same companies ended up with an average of just $70.06 million in proceeds. Among the biggest losers in this regard were a quintet of drug companies that filed to raise $86.25 million, but only ended up with $35 million. They were: Memory Pharmaceuticals Inc., Acadia Pharmaceuticals Inc., Metabasis Therapeutics Inc., Inhibitex Inc. and Momenta Pharmaceuticals Inc. (which actually ended up with just $34.5 million).

Finally, there is the future to think about. Any regular reader of our IPO News section recognizes that there have been a ton of VC-backed IPO filings of late. The pipeline currently includes 79 such offerings, with nearly a dozen scheduled to price over the next month. 

 

Centrica PLC has agreed to sell driving school and motorist services group AA to Permira Advisors Ltd. and CVC Capital Partners for approximately £1.75 billion. www.centrica.com

Camero Inc., a Herzliya, Israel-based developer of micro-power radars that would enable fire and rescue workers to “see” through walls, has raised $5 million in Series A funding. Jerusalem Global Ventures led the round, and was joined by Motorola Ventures and Walden Israel Venture Capital. The company’s system uses ultra-wideband (UWB) technology to generate a 3D image of objects concealed by solid barriers, such as walls.

Thomson Venture Economics (publisher of the PE Week Wire) and the National Venture Capital Association today released Q2 2004 data for VC-backed IPOs. In all, 29 VC-backed companies raised $2.1 billion via IPOs on U.S. exchanges.

  

ReShape Inc., a Mountain View, Calif.-based provider of chip-level design automation, has raised $12 million in Series C funding. American River Ventures led the deal, and was joined by the Bay Area Equity Fund, which is managed by J.P. Morgan Chase & Co. Return backers included New Enterprise Associates and Canaan Partners. ReShape now has raised $31 million in total VC funding since its 1997 inception, including a $12 million Series B deal in 2002 at a post-money valuation of approximately $30 million. www.reshape.com

 

Allianz Capital Partners GmbH has completed its acquisition of Invensys PLC’s Hanson Transmission business for approximately €132 million in cash.

Clayton, Dubilier & Rice is in advanced talks to buy bottled water distributor Culligan International Co. from French conglomerate Veolia Environnement for $600 million, according to yesterday’s The New York Post.

Rand Capital has sponsored a management buyout of General-Electro Mechanical Corp., a West Seneca, N.Y.-based provider of automatic riveting machines used in the assembly of aircraft components. Rand was joined on the deal by company management and an affiliate of the Erie County Industrial Development Agency. www.gemcor.com

Baltic Motors Corp., a U.S.-based company focused on importing and selling Ford and Land Rover vehicles and parts throughout Latvia, has received $6 million in private equity funding and $4.5 million in mezzanine funding from business development company MVC Capital (NYSE: MVC). Per terms of the transaction, MVC will control the Baltic Motors board of directors.

 

Wellcare Group Inc., a Tampa, Fla.-based provider of managed care services, will begin trading on the NYSE under ticker symbol WCG. The company priced over 7.33 million common shares at $17 per share (above its $14-$16 offering range), for a total IPO take of approximately $124.66 million. Wellcare Group was formed in May 2002 by Soros Private Equity Investors, which invested just over $70 million. www.wellcare.com 

 

Return Path Inc., a New York-based provider of email performance management solutions, has acquired NetCreations Inc., a provider of permission-based email acquisition and sampling services, from Consodata Group Ltd., a unit of Seat PG (OTC BB: SPGMF). Return Path has raised around $20 million in VC funding from backers Sutter Hill Ventures, Mobius Venture Capital, Flatiron Partners and JPMorgan Partners. www.returnpath.net

J.P. Morgan Chase & Co. (NYSE: JPM) and Bank One Corp. have completed the merger of their holding companies, with Bank One shareholders receiving 1.32 shares of JPMC stock for each share of Bank One stock. www.jpmorganchase.com

 

Arianne Leuftink has joined private equity placement agent BerchWood Partners LLC, where she will work out of the group’s new Amsterdam affiliate. Her initial responsibilities will involve origination, but will expand to include fund placement in Europe once the Dutch affiliate is fully licensed. Leuftink previously served as a managing director with Wilshire Private Markets Group and, before that, as an investment director with IBM Netherlands Pension Fund. www.berchwoodpartners.com

Fred Goad, a founding partner of Nashville-based VC firm Voyent Partners LLC, has joined the board of Emageon Solutions Inc., a Birmingham, Ala.-based provider of visual medical systems. www.emageon.com

Jean-Frederic de Leusse has been named chairman of the supervisory board with Credit Lyonnais Private Equity, which recently was acquired by Credit Agricole. De Leusse has been with Agricole since 2001, and replaces Alain Papiasse. In other firm news, Fabien Prevost has joined Credit Lyonnais Private Equity.

 

JZ Equity Partners, a New York-based mezzanine affiliate of The Jordan Co., says that it has won a U.S. Supreme Court decision in its anti-trust case against 3M Corp. (which had appealed a lower court ruling). The suit was brought on behalf of JZ investee company LePage Management Co. LLC, which now will receive a $25 million payment next week from 3M, as part of an $87.5 million judgment. 

 

 

    Wednesday 6/30

 

Scattered Notes

A huge news day, particularly on the IPO front, so just a few quick items: (1) An enormous email response to yesterday’s “Fahrenheit 911” column. I’ll get into greater detail during Friday Feedback, but it’s safe to say that the majority of respondents were cross with me for not fulfilling their dogmatic ideals. For example, alternate emails accused me both of “hating America” and being a “Bush apologist.” Since any discussion of this film seems to embody a talk radio-like feel, let’s just say that phone lines are still open. (2) Michael Young has taken over the MLB at-bats lead from Ichiro, which means that Todd Thompson of Piper Jaffray & Co. has taken over our contest lead. (3) I’m writing an article that touches on the increasing polarization between “haves” and “have-nots” in the limited partner community, particularly when it comes to investing in VC funds. The piece is almost done, but any interesting thoughts on the matter would be greatly appreciated… 

 

Kohlberg Kravis Roberts & Co. in April agreed to acquire satellite operator PanAmSat Corp. for approximately $4.3 billion, including $750 million of net debt. In an SEC filing yesterday, however, KKR unveiled plans to sell a majority of PanAmSat to a pair of buyout shops that had lost out on the original auction. Under terms of the agreement, The Carlyle Group and Providence Equity Partners each will purchase a 27% stake in PanAmSat once the original KKR buyout closes, with KKR retaining a 44% interest. Company management will retain the remaining 2 percent. www.panamsat.com

Worldspan Technologies Inc., an Atlanta-based provider of airline ticket transaction services, has postponed its proposed $677.25 million IPO. The company issued a press release claiming that the decision was “due to current market conditions,” and that it would “continue to evaluate market conditions and may proceed with a public offering at a later date.” Worldspan was founded in 1990 by Delta, Northwest and TWA (later acquired by American Airlines). In 2003, Citigroup Venture Capital and the Ontario Teachers’ Pension Plan Board acquired all interests in the company via a buyout that included an aggregate consideration of $901.5 million, plus a $250 million nine-year credit agreement with Delta and Northwest whereby the airlines would continue to use Worldspan for various IT services.   www.worldspan.com

Advent International has held a $125 million final close on its third healthcare-focused VC fund, named Advent Healthcare & Life Sciences III. The fund already has a pair of portfolio companies – AlgoRx Pharmaceuticals Inc. and Millimed Holdings Inc. – and counts drug developer AstaZeneca as a major limited partner. www.adventinternational.com

  

Q1 Labs Inc., a Waltham, Mass.-based network security company, has raised $11 million in third-round funding. Globespan Capital Partners co-led the deal alongside return backers Menlo Ventures and Polaris Venture Partners. Previous investors BDC Venture Capital and New Brunswick Investment Management Corp. also participated. The company now has raised $29.4 million in total VC funding since its 2001 inception. www.q1labs.com

RelayHealth Corp., an Emeryville, Calif.-based provider of online doctor-patient communication services, has raised $10 million in new VC funding. Conning Capital Partners led the deal, and was joined by return backers Venrock Associates, U.S. Venture Partners, Lilly Ventures and SI Venture Management. The company now has raised over $55 million in total VC funding since its 1999 inception. www.relayhealth.com

Kotura Inc., a Monterey Park, Calif.-based provider of opto-electronic products for the optical communications industry, has raised $11 million in new VC funding from existing investors ComVentures and ARCH Venture Partners. www.kotura.com

SmartTime Software Inc., a Framingham, Mass.-based provider of workforce management solutions, has raised an undisclosed amount of VC funding. Baird Venture Partners led the deal, and was joined by Zon Capital Partners. www.smarttime.com

Kohlberg Kravis Roberts & Co. has agreed to acquire German car parts and repair company Auto-Teile-Unger GmbH (ATU) from Doughty Hanson & Co. for approximately $1.75 billion. Doughty Hanson acquired the company in 2002, and originally had planned to float ATU on the public markets. www.atu.de

ABN AMRO Capital has led a management buyout of Finland-based homeware design company Iittala. No deal terms were disclosed. The private equity firm also announced that it has sold portfolio company UNICA, a Spain-based cleaning services company, to the Spanish subsidiary of Denmark-based ISS for approximately €73 million. www.iittala.com

Falconhead Capital has sold online and catalog golf retailer The Golf Warehouse to The Sportsman’s Guide Inc. (Nasdaq: SGDE). The transaction is valued at approximately $30 million. Thomas Weisel Partners served as financial advisor to Falconhead on the deal. www.tgw.com

 

Collegiate Funding Services Inc., a Fredericksburg, Va.-based education finance company, has set its IPO offering price range to $15-$17 per common share, and its number of offered shares to over 9.37 million. In addition, the company set its proposed ticker symbol on the Nasdaq to CFSI, and added Citigroup Global Market, CSFB, Banc of America Securities and Keefe Bruyette & Woods to its underwriters list. Collegiate lists both Lightyear Capital and TCW/Crescent Mezzanine Partners as significant shareholders. www.cfsloans.com

Placer Sierra Bancshares, a Sacramento, Calif.-based holding company for Placer Sierra Bank, has set its IPO price range to $19-$21 per common share. The company lists Belvedere Capital Partners as a significant shareholder. www.placersierrabank.com

Lumera Inc., a Bothell, Wash.-based provider of polymer materials and products, has increased its IPO offering price range from $5-$6 per common share to $6.50-$7.50 per common share. It also increased its number of offered shares from five million to six million. The company was formed in 2000 as a majority-owned subsidiary of Microvision Inc. (Nasdaq: MVIS), and since has raised around $27 million in VC funding from Acorn Ventures, The Barksdale Group, Northern Stream Capital, Cisco Systems Inc. and WRF Capital. www.lumera.com

Design Within Reach Inc., a San Francisco-based provider of modern furnishings and accessories, will begin trading on the Nasdaq under ticker symbol DWRI. The company priced 4.1 million common shares at $12 per share (above its original $9-$11 offering range), for a total IPO take of approximately $49.2 million. The company had raised nearly $15 million in VC funding since its 1998 inception, with JH Partners serving as its largest pre-IPO shareholder. www.dwr.com

Life Time Fitness Inc., an Eden Prairie, Minn.-based operator of family recreation and fitness centers, will begin trading on the NYSE under ticker symbol LTM. The company priced 9.9. million common shares at $18.50 per share (middle of its $17-$19 offering range), for a total IPO take of approximately $183.15 million. The company had raised around $87 million in private equity funding from firms like Norwest Equity Partners and Apax Partners. www.lifetimefitness.com

Interchange Corp., a Laguna Hills, Calif.-based provider of paid-search advertising searches to business on the Internet, has filed to raise $28.75 million via an IPO of common stock on the Nasdaq SmallCap Market under proposed ticker symbol INCX. Significant shareholders include Frastacky Associates Inc., Sutter Capital Management and GunnAllen Financial.

HomeBanc Corp., an Atlanta-based residential mortgage provider, has decreased its IPO offering price for the second time this week. It originally reduced its proposed price from $14-$16 per share to $11 per share, and now has lowered it down to $8-$9 per share. On Monday, the company also decreased its number of offered shares from 33.25 million down to 27.4 million, but now has changed course, and will offer 37.5 million common shares. The company began operating independently in May 2000, following a leveraged buyout of First Tennessee Bank National Association’s Atlanta banking operations. GTCR-Golder Rauner led the LBO. www.homebanc.com

Educate Inc., a Baltimore-based provider of supplemental education services, has set its IPO offering price to $14-$16 per common share, and set its number of offered shares to 15 million. The company was formed in March 2003 by affiliates of Apollo Advisors LP, in order to acquire the pre-K-12 business of Sylvain Learning Systems Inc. SSB Capital Partners also is listed as a significant shareholder. www.educateinc.com

 

Cisco Systems Inc. (Nasdaq: CSCO) has agreed to acquire Actona Technologies Inc., a Los Gatos, Calif.-based provider of wide-area file services software, for approximately $82 million in cash. Actona has raised around $21 million in VC funding since its inception, from investors like Sequoia Capital, Mayfield and Evergreen Ventures. www.actona.com

Best Manufacturing Group LLC, a portfolio company of private equity firm Main Street Resources, has acquired Artex International Inc., a Highland, Ill.-based manufacturer and supplier of textiles and garments for the U.S. textile retail and hospitality markets. No deal terms were disclosed. www.artex-inc.com

 

Mike Guthrie has joined Garnett & Helfrich Capital as a director. He most recently served as a general partner with TPG Ventures, the venture capital arm of buyout firm Texas Pacific Group. www.garnetthelfrich.com

James Lally, partner emeritus with Kleiner, Perkins, Caufield & Byers, has joined the board of Actuality Systems Inc., a Burlington, Mass.-based provider of spatial 3D visualization technology. www.actuality-systems.com

 

 

    Tuesday 6/29

 

 

View From The Choir

 

“Fahrenheit 911” came to the Boston suburbs this past weekend, approximately two years after I first heard that Michael Moore was shooting a film that would involve The Carlyle Group. For those who don’t know, Moore’s original focus was the Bush family’s close relationship with the Saudi royal family and, ipso facto, to terrorist attacks that ultimately emanated from Saudi Arabia. Such supposition still dominates the first half of “Fahrenheit 911”, but is nowhere near as intellectually honest, emotionally wrenching nor politically damning as is the film’s second half, which focuses almost exclusively on the Iraq War (which was launched after Moore began shooting).

 

Spoiler Alert: The film begins with a black screen and harrowing audio footage of Sept. 11 (far more effective than replaying the planes flying into buildings), moves over to President Bush’s reaction (concerned but immobile) and then launches into a laundry list of ties between the Bush family and the Saudi royal family. It is in discussing these linkages that Moore invokes The Carlyle Group, a massive private equity firm with an affinity for defense industry investments. Carlyle also holds a soft spot for onetime politicos like former President George H.W. Bush (who resigned from his senior advisor post last year), former Bush Secretary of State James Baker (current senior counselor), former Bush budget director Richard Darman (current senior advisor and managing director, not mentioned in the film) and former Clinton Chief of Staff Mack McLarty (current senior advisor, not mentioned in the film).

 

Moore doesn’t shed any new light on the Bush-Carlyle-Saudi connection (at least for those who have read The Iron Triangle by Dan Brody). Instead, he rehashes old chestnuts about how H.W. and members of the Bin Laden clan both served as limited partners in Carlyle funds, thus sharing a common financial interest. There also is a claim that both H.W. and some Bin Ladens were at Carlyle’s annual investor meeting on Sept. 11, although a Carlyle spokesman says that H.W. was not in attendance (the same spokesman adds that the film does not contain any other overt inaccuracies in regards to Carlyle).

 

And that’s really it for The Carlyle Group’s role in “Fahrenheit 911.” My guess is that the Iraq War may have pushed some other Carlyle footage to the cutting room floor, but what viewers ended up seeing was, in the words of my wife, no big deal. Two rich families invested in a private equity fund that made them even richer. No big deal. Perhaps you could argue that other Saudi links to the Bushes – such as Saudi backing for W’s failed oil ventures – could have caused the Administration to look the other way on Saudi-born terror, but it just doesn’t apply to the Carlyle connection. After all, both CalPERS and the Michigan State Treasury also serve as limited partners in Carlyle funds. Are they both somehow complicit in terrorism? Are the Democratic Party bastions of California and Michigan somehow complicit in electing George W. Bush?

 

In fact, Moore is guilty here of just what the Bush Administration is guilty of when it comes to juxtaposition. (Note: the following argument was made Sunday morning by Gwenn Ifill on NBC) Bush, Cheney and company have repeatedly used the words Saddam Hussein and Sept. 11 in the same sentence, hoping that Americans will connect the two, even though there is no credible evidence of a collaborative relationship between Hussein and Al Qaeda. Ditto for Moore, who shows the Bushes and Bin Ladens together just enough so that viewers may believe that there is some collaborative relationship between the two families and, in turn, the Bin Laden family’s most notorious member. Bad governance, bad documentary-making.

 

Random “Fahrenheit 911” notes: (1) There was a uniformed cop at the door, in case “the crowd gets rowdy.” I’ve only been at one film that got rowdy (opening night of “New Jack City”), and even that didn’t have cops until the very end. Glad to see my town is paying for useful police details. (2) While I disliked the first half, the second half more than made up for it. Expertly done, and worth seeing for people on both sides of the war aisle. (3) FYI 1: “Roger & Me” is one of my all-time favorite films, but I disliked “Bowling for Columbine.” (4) FYI 2: I was interviewed in 2000 by Michael Moore in a “man on the street” bit for his TV show. I was unable to really answer his questions – thanks to a combination of ignorance and alcohol. No idea if it ever aired. – Dan Primack

 

Navini Networks Inc., a Richardson, Texas-based provider of wireless broadband technology, has raised $30 million in Series D funding. Lehman Brothers Venture Partners led the deal, and was joined by return backers Austin Ventures, Granite Ventures, Sequoia Capital and Sternhill Partners. Navini now has raised $115 million in total VC funding since its 2000 inception. www.navini.com

 

Lehman Brothers is raising a new European mezzanine fund, with a €500 million target capitalization. www.lehman.com

 

Dex Media Inc., an Englewood, Colo.-based phone directories publisher, has set its IPO offering price range to $23-$26 per common share, and its number of offered shares to approximately 53.06 million. The company was created in August 2002, when Qwest Communications Inc. sold off its yellow pages unit for $7.1 billion to The Carlyle Group and Welsh, Carson, Anderson & Stowe.   www.dexmedia.com

 

BigBand Networks Inc., a Redwood City, Calif.-based provider of network platforms for video, voice and data services, has raised $25 million in new VC funding. Return backers included Charles River Ventures, Meritech Capital Partners, Evergreen Investments, Pilot House Ventures, Redpoint Ventures and Time Warner Ventures. The company now has raised over $100 million in total VC funding since its 1999 inception. In related news, BigBand was acquired the IP Cable business unit of ADC Telecommunications Inc. (Nasdaq: ADCT). www.bigbandnet.com

 

Full90 Sports Inc., a San Diego-based provider of head protection for soccer players, has raised $7 million in Series A funding led by Aperture Venture Partners. www.full90.com

 

Axxima Pharmaceuticals AG, a Munch, Germany-based drug company focused on cancer and infectious diseases, has raised €10 million in new VC funding led by return backer Techno Venture Management. www.axxima.com

 

Virogenomics Inc. has spun out its autoimmune disease technology, and secured $11 million in VC funding for the new company, named Artielle ImmunoTherapeutics Inc. Investors included UV Partners, Tenex Greenhouse and Northwest Technology Ventures. www.virogenomics.com

 

Honeywell International Inc. (NYSE: HON) has completed its sale of Honeywell Security Monitoring to GTCR-Golder Rauner for approximately $315.5 million in cash. The deal originally was announced on May 3. www.honeywell.com

 

Energy Investors Funds Group has acquired Black River Energy LP, for an undisclosed amount. The deal includes Black River Assets like Black River Generation, a Watertown, N.Y.-based coal and pet coke facility, and Hamakua Energy Partners, a Hawaii-based power plant. The deal was transacted through Energy Investors’ US Power Fund LP. www.eifgroup.com

 

Thomson Corp. (NYSE: TOC) has agreed to acquire Information Holdings Inc. (NYSE: IHI), for $28 per share. Information Holdings went public in 1998, but private equity investor Warburg Pincus still stands as the company’s largest shareholder with a 33% position. (Note: The PE Week Wire is published by Thomson Financial, an operating unit of Thomson Corp.)

 

Homex Development Corp., a Sinaloa, Mexico-based home development company, has priced its initial public offering at $15.80 per American Depository Share. The ADS will begin trading today on the NYSE under proposed ticker symbol HXM, while its common stock will trade on the Mexican Stock Exchange under ticker symbol HOMEX. Each ADS represents six common shares. Homex had received private equity funding from ZN Mexico Capital Management. www.homex.com.mx

 

Anne Stausboll has been named assistant executive officer of investment operations with the California Public Employees’ Retirement System (CalPERS), effective in September. She most recently served as California’s chief deputy treasurer, and previously spent six years in CalPERS’ legal department. www.calpers.com

 

PE Week Wire — Monday, June 28

 

Mitt Opens The Books

 

The plan this morning was to discuss The Carlyle Group’s portrayal in “Fahrenheit 911”, which I saw this past weekend (notebook in hand, uniformed cop at the door). Such discourse, however, is being temporarily preempted, so that we may bring you another chapter in the debate over private equity disclosure.

 

Last Friday, Mass. Governor Mitt Romney vetoed legislation that would have exempted the state retirement system (MassPRIM) from disclosing certain financial data from its private equity investment portfolio. There are lots of angles to this, so let’s proceed in a “notes” format: (1) The veto is stunning. Of all 50 U.S. governors, Romney was best positioned to sympathize with the private equity industry, given that he used to run Bain Capital. Not only did he break with his former colleagues, but he also broke with a national trend that saw states like Colorado and Michigan restricting the public access to private equity performance data. Finally, he defied Mass. Treasurer Tim Cahill, who had been holding the disclosure fort against a “release it all” edict from the Attorney General Tom Reilly.

 

(2) Background. The original legislation was filed over a month ago, and was then placed in conference committee. Its language was extremely vague, and in need of some serious tightening. For example, the Colorado law referred explicitly to underlying asset data (i.e. fund portfolio company information), while the Michigan law referred explicitly to both underlying asset data and top-line fund data (i.e. fund IRRs, disbursements, etc.). The Massachusetts, bill, on the other hand, reads: “Any documentary material or data made or received by any person of the state investment board, which consists of trade secrets or commercial of financial information that relates to the investment of public trust or retirement funds, shall not be disclosed to the public if disclosure is likely to impair the government’s ability to obtain such information in the future or is likely to cause substantial harm to the competitive position of the person or entity from which the information was obtained.” It did not define which types of materials would “impair the government’s ability,” nor did it identify the person who will make such determinations. It needed to.

 

(3) What happened? Nothing. The language was not substantially changed before leaving conference committee, even though Deputy Treasurer Doug Rubin told me that his office was working to do just that. Specifically, Rubin said that he did not want underlying asset information disclosed, but was amenable to the disclosure of certain top-line data, such as for VC and buyout funds that already had a few years of investment activity under their belts. Once I noticed that the language had not changed out of conference committee (over a week ago), I requested a follow-up interview with Rubin. That request was denied.

 

(4) Veto time: I spoke briefly this morning with Shawn Feddeman, press secretary for Gov. Romney. She said that Romney had never seen a copy of the bill before it hit his desk. After reading it, he decided that the public interest and the private equity industry interest did not intersect in this case, and that transparency should not be sacrificed for additional MassPRIM investment opportunities. I asked if Romney would be willing to approve a bill that only restricts disclosure of underlying assets, but she said that he’d have to see the actual legislation before making any judgments.

 

(5) What now? No word yet on whether or not the Democrat-controlled Mass. legislature will attempt to override the veto, but it wouldn’t be surprising. The original bill was sponsored by Democrats, and Treasurer Cahill is a Democrat (Romney is a Republican, while disclosure-friendly AG Tom Reilly is a Democrat). It also seems that this action opens the door for an open records request involving underlying assets, although MassPRIM has never received such a request. To date, the board has received – and has not responded to — three requests for top-line data, and it now will either have to release the info or risk being sued.

 

(6) My two cents. Gutsy move by Romney. The bill arguably put him in a no-win situation (friend to big business, or foe to public pensioners), and he went anti-pensioner populist. The challenge now is for Romney to preempt an override by meeting with legislators to draft a bill that makes sense (such as the Colorado model). Too bad this wasn’t done the first time, but there is no harm in second chances. – DP

 

EqualLogic Inc., a Nashua, N.H.-based provider of network storage solutions, has raised $20 million in Series C funding. Focus Ventures led the deal, and was joined by return backers Charles River Ventures, Sigma Partners and TD Capital Technology Ventures. The company now has raised $52 million in total VC funding since its 2001 inception. www.equallogic.com 

 

ArcLight Capital Partners, a Boston-based private equity firm focused on the energy market, has closed its second fund-raising effort with $1.6 billion. PE Week had reported a $621 million first close on the fund earlier this year, with John Hancock Mutual Life Insurance Co. serving as a cornerstone investor. Other returning LPs include the University of Texas and Caisse de depot et placement du Quebec, while new investors include Adams Street Partners and CalPERS. Probitas Partners served as the fund’s placement agent. www.arclightcapital.com

 

Apax Partners has acquired the Regent Infection Control business of SSL International PLC for £173 million (£163 million cash and £10 million of assumed debt). Regent is a Manchester, UK-based provider of powder-free latex and synthetic surgical gloves sold under the Biogel brand. www.regentmedical.com

 

S2io Inc., a Cupertino, Calif.-based provider of high-speed server and storage I/O solutions, has raised $15 million in Series C funding. JAFCO Ventures led the deal, and was joined by return backers Menlo Ventures, VenGrowth Capital Partners and BDC Venture Capital. The company now has raised $42 million in total VC funding since its 2001 inception. www.s2io.com

 

Kenet Inc., a Reading, Mass.-based developer of analog mixed-signal products, has raised $10 million in Series B funding. Oak Investment Partners led the deal, and was joined by Series A backers Venrock Associates, Kopin Corp. and CP Group. The company now has raised $17 million in total VC funding since its 2002 inception. www.kenetinc.com

 

Guardium Inc., a Waltham, Mass.-based provider of database security solutions, has raised $5 million in second-round funding. Cedar Fund led the deal, and was joined by Veritas Venture Partners and Stage One Ventures. www.guardium.com

 

American Capital Strategies has acquired an 80% position in synOdys Group SA, a global manufacturer of systems and equipment to protect people and goods from nuclear, biological and/or chemical risks. The sellers were company management and Acland Capital Investissement, which each acquired a minority interest in existing American Capital portfolio company Global Dosimetry Solutions Inc. American Capital’s investment included $72 million of senior debt, senior and junior subordinated debt and common and redeemable preferred equity. American Capital also provided a revolving credit facility. www.synodys.com

 

Bridgepoint has acquired a 60% ownership stake in Grupo Mediasat, a Madrid, Spain-based provider of promotional services to the publishing industry. No financial terms were disclosed. www.mediasatgroup.com

 

Ikanos Communications, a Fremont, Calif.-based provider of integrated chipset solutions for the broadband market, has filed to raise $85 million via an IPO of common stock on the Nasdaq under proposed ticker symbol IKAN. The company had raised approximately $100 million in total VC funding since its 1999 inception, with significant shareholders including Sequoia Capital, Walden International, Grelock, Telesoft Partners and Ridgewood Capital. www.ikanos.com

 

HomeBanc Corp., an Atlanta-based residential mortgage provider, has decreased its IPO offering price from $14-$16 per share to $11 per share, and its number of offered shares from approximately 33.25 million to approximately $27.4 million. The company began operating independently in May 2000, following a leveraged buyout of First Tennessee Bank National Association’s Atlanta banking operations. GTCR-Golder Rauner led the LBO. www.homebanc.com

 

Multi Fineline Electronix Inc., an Anaheim, Calif.-based provider of flexible printed circuit and assembly solutions to the electronic industry, has priced a $55.66 million IPO. The company did not receive any significant VC or private equity funding.

 

Cinemark Inc., a Plano, Texas-based movie theater operator, has withdrawn registration papers on a proposed $242.53 million IPO. The company announced in March that it was being acquired in a leveraged buyout led by Madison Dearborn Partners. www.cinemark.com

 

Bain Capital has raised a combined $4.25 billion for a pair of new buyout funds, as first reported by the Private Equity Analyst. www.baincapital.com

 

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