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Live from New York: Random Ramblings
Just a few more hours until I leave cold and dreary New York for cold and dreary Boston, so let’s get to a few things:
* Yesterday I moderated a limited partner panel at the Buyouts Symposium, and each of my four panelists represented groups with $1 billion or more in assets under management (HarbourVest Partners, AIG, Dupont and Rho Fund Advisors). We inevitably talked a bit about barbell strategy, with three of the four saying that they planned to commit to a $2 billion+ buyout fund in 2005. Moreover, they all extolled the virtues of the mega-funds, and dismissed my concern that some funds might become so over-capitalized that they might under-leverage some of their transactions. What was most interesting, however, was their response to my final question, which related to micro/small buyout funds, particularly those that currently qualify as SBICs (for those who don’t know, funding for new SBICs is currently on a Bush-imposed hiatus, pending an impending flurry of lobbying efforts).
Specifically, would any of these folks commit to a $50 million or $90 million buyout fund, in light of the fact that: (A) Small market funds typically feature the best performance of any type of buyout fund (in terms of IRR, not in terms of hard dollars); and (B) The prospective lack of SBIC capital could generate a greater need for small-market funding from institutional LPs. The panelists basically said that they wouldn’t go into a sub-$100 million fund, even though they might, in general, be willing to take more than a 10% stake in a particular fund. Why? Because such commitments, even if successful, wouldn’t “move the needle.” And they’re right. After all, it wouldn’t make any sense for HarbourVest – with around $2 billion allocated for primary partnership inv*sting – to make a $5, $9 or even $10 million commitment, except in an extraordinary circumstance.
What I’m trying to get at here is that it might be time for groups like HarbourVest -and others — to create new programs/funds-of-funds specifically focused on the small buyouts and/or small VC markets. Maybe raise $200 million from local county pensions and the like, and promise to never make a commitment over $10 million (while the bigger fund can only make double and triple-digit commitments). Before saying this doesn’t make sense, remember that general partners have been doing this for years. Carlyle Group raised separate VC and buyouts funds not only because the different asset classes require different skill sets, but also because they require different dollar amounts. If Carlyle made $3 million Series A plays out of its prospective $6.5 billion (or more) fund, LPs would justifiably shake their heads at the waste of manpower. Ditto for Summit Partners with its Accelerator Fund, and many, many others. Just something to think about, and something I’ll be discussing o! n my 11:15 LP panel here at the Waldorf-Astoria.
* Monday’s Buyouts will have a Q&A with JPMorgan Partners honchos Jeff Walker, Steve Murray and Michael Hannon. Some interesting background on the spinout decision, which subscribers can already access via the www.buyoutsnewsletter.com website. A few quick news items in there include fund-raising timetables for both the VC and LBO groups, and also that Latin America specialist Tim Purcell will be the only partner-level JPMP person not joining up with one of the two funds.
* Speaking of baking spinouts, lots of press reports this morning that the DLJ Merchant Banking spinout is dead in the water. It seems Tom Dean will leave to hang his own shingle, with just a handful of folks joining him. Most of the DLJMB partners will stick with CSFB, and re-launch fund-raising efforts for DLJMB IV.
* Big week for nanotech deals, which comes as a surprise to those of us who felt that VCs had thoroughly soured on the space in the wake of Nanosys’ failed IPO. Of course, if B2C Internet deals like Zappos are back in vogue. Anyway. Sara Lacey of BusinessWeek has an interesting note about this on her blog.
* I don’t know the NHL structure too well, but here’s a hypothetical: Bain gets 25 owners to sign onto its buyout offer, but big-market teams like the Bruins, Rangers and Red Wings don’t sign on. Isn’t it possible that Bain still does the deal, closes a lousy franchise like the Carolina Hurricanes, and moves them to Boston or New York? Sure there are stadium problems, but they could probably be worked out. Just thinking electronically.
* By the way, if you aren’t in the top three of a Google search, it seems no one really notices you. Do a search for ”private equity”, and take a look at the number three result.
* Finally, I am, indeed, organizing another PE Week Wire March Madness pool. All details to come on Monday, once the brackets are out. Have a great weekend.
Texas Pacific Group has hit yet another roadblock in its efforts to acquire Portland General Electric from Enron Corp. The latest problem – and it’s a big one – is that the firm’s $2.35 billion bid has been denied by The Oregon Public Utility Commission, which said that the offer’s debt portion was large enough to potentially harm consumers (via lower credit ratings). TPG has not yet revealed its next step, although it could include anything from altering the debt structure to appealing the Commission’s ruling in court. It also could bail on the deal altogether.
Microsoft Corp. (Nasdaq: MSFT) has agreed to acquire Groove Networks Inc., a Beverley, Mass.-based provider of collaboration software for the “virtual office.” No financial terms were disclosed for the deal, which is expected to close next quarter. Groove’s nearly 200 employees remaining in Massachusetts, while founder Groove founder Ray Ozzie – also a creator of Lotus Notes – will assume the role of Microsoft’s chief technology officer, reporting directly to Bill Gates. Groove has raised over $200 million in VC funding since its 1997 inception, from groups like Accel Partners, Microsoft and Intel Capital. www.microsoft.com www.groove.net
Warner Music Group Corp., a New York-based recording company, has filed to raise $750 million via an IPO of common stock. It has not yet decided on an exchange or ticker symbol. Warner Music was sold last year by Time Warner Inc. (NYSE: TWX) in a $2.6 billion buyout that included Thomas H. Lee Partners, Bain Capital, Providence Equity Partners and Edgar Bronfman‘s Music Capital Partners. www.wmg.com
ImaRx Therapeutics Inc., a Tucson, Ariz.-based drug company using nanotechnology therapies for stroke and cancer, has raised $7 million in funding from unnamed backers. www.imarx.com
Southern California Risk Management Associates Inc., an Upland, Calif.-based third-party administrator of self-funded workers compensations plans, has received an undisclosed amount of private equity funding from Peterson Partners and Eventide Risk Management. www.scrma.com www.petersonpartnerslp.com
Nordic Capital has agreed to re-acquire a controlling interest in Danish drug company Nycomed AS, which it had owned between 1999 and 2002. The deal reportedly will be for a 51% stake that valued Nycomed at 1.8 billion euros, with selling shareholders DLJ Merchant Banking Partners, Blackstone Group and AlpInvest retaining a combined minority position. Those backers originally acquired 100% of Nycomed from Nordic Capital in late 2002 for approximately 1.1 billion euros. www.nycomed.com www.nordiccapital.se
Smart Modular Technologies Inc., a Fremont, Calif.-based provider of memory modules, memory cards and communications products, is planning to issue $125 million of senior secured second lien notes due 2012, as part of a recap plan that will provide a $65.1 million dividend for shareholders like Texas Pacific Group, Shah Capital Partners and Francisco Partners. It also will repay $48.5 million of an existing $100 million secured credit facility, which will be terminated and replaced by a $35 million senior secured first lien bank facility. TPG and Francisco led a $100 million acquisition of Smart Modular from Solectron Corp. (NYSE: SLR) last summer. www.smartm.com
The Carlyle Group and Liberty Partners have completed their sale of Farmington, Conn.-based ConnectiCare Holding Co. to HIP Health Plan of New York. www.connecticare.com
Wafra Partners has agreed to sell New York-based sunglasses maker Riviera Trading Inc. to Capo Inc. for around $30 million, according to The Deal.
Veritas Capital has acquired DRS Weather Systems Inc. and DRS Broadcast Technology Inc. from DRS Technologies Inc. (NYSE: DRS). No financial terms were disclosed, except that the deal included $10.25 million in subordinated notes from Golub Capital. DRS Weather is an Enterprise, Ala.-based provider of weather radar systems for both government and commercial clients, while DRS Broadcast is a Dallas-based maker of digital and analog transmitter systems for the broadcasting market. www.veritascapital.com
Hunter Defense Technologies Inc., a Solon, Ohio-based manufacturer of military and homeland defense products, has acquired Bea Maurer Inc., a Fairfield, Va.-based maker of rapid-deploying tactical shelters for medical, communications and homeland defense uses. Bea Maurer’s senior management is also participating in this transaction, which has an aggregate value of approximately $80 million. Hunter is a portfolio company of Behrman Capital. www.huntermfgco.com www.beamaurer.com
Sertanty Inc., a provider of chem.-informatics products, and Eidogen, -based provider of structural informatics products, have merged to form San Diego-based Eidogen-Sertanty Inc. Sertanty has raised VC funding from Band of Angels and HighBar Ventures. www.sertanty.com
Spark Networks PLC, a Beverley Hills, Calif.-based provider of online personals services, has filed to raise $75 million via an IPO of American depository shares (ADS) on the Nasdaq under proposed ticker symbol SPRK. The company lists Tiger Technology Management as a significant shareholder. www.spark.net
Steven Kandarian has joined MetLife Inc. (NYSE: MET) as chief inv*stment officer. He succeeds Leland Launer, who has been named president of MetLife’s institutional business group. Kandarian is the former executive director of the Pension Benefit Guaranty Corp. and, before that, served as founder and managing partner of private equity firm Orion Partners. www.metlife.com
Presidio SGR of Italy reportedly is planning to raise 150 million euros for its second mezzanine fund. www.presidio.it
Thursday, March 10
Got to Run…
I feel quite terrible about this, but yet another day without a column. That makes two times so far this week, which is at least one time too many. My whiny defense involves yet another travel nightmare to New York on the US Air Shuttle (1pm flight yesterday, got to LaGuardia at 5:30pm), and another hotel networking dilemma (Waldorf-Astoria, for reasons I can’t understand, rebooted its servers this morning, leaving me virtually stranded). All in all, it’s been a busy morning in a busy hotel business center. It’s als the last time I ever fly US Air, save for my return flight.
But one quick note before I run upstairs to the Buyouts Symposium: Thomas H. Lee Partners will be looking to raise $6 billion for its next fund, according to a Bloomberg report of a speech given yesterday in Frankfurt by TH Lee’s Scott Sperling. Amazingly, I’m tempted to write “just $6 billion,” as market speculation has been that the Boston buyouts shop would look for upwards of $7.5 billion. On an unrelated note, I’m still trying to get through all the emails on yesterday’s column about the “Smart Institutions” paper, but please feel encouraged to keep sending them in…
Johnson & Johnson (NYSE: JNJ) has agreed to acquire TransForm Pharmaceuticals Inc., a Lexington, Mass.-based life sciences company focused on the discovery of novel crystalline forms of drug molecules. The deal is valued at approximately $230 million, and is expected to close next quarter. TransForm has received over $30 million in VC funding since its 1999 inception, from firms like Polaris Venture Partners, MPM Capital and Johnson & Johnson Development Corp. www.jj.com www.transformpharma.com
Cerberus Capital Management has led a consortium that is offering to buy Toys ‘R’ Us outright for approximately $5 billion ($23.45 per share), according to the Wall Street Journal. The move is a departure from the current auction, which only includes the company’s toys unit, but not its baby-goods unit. Cerberus reportedly is joined on the bid by Goldman Sachs and Kimco Realty Trust, while other interested parties (at least for the Toys unit) include KKR, Permira, Apollo Advisors and Bain Capital.
The Carlyle Group says that it plans to open new offices in Beijing, China, Mumbai, India and Sydney, Australia within the next three months. The moves are part of a pan-Asian reorganization and expansion strategy that also sees Carlyle managing director John Kwun named regional head of Korean buyouts (regional heads for India and Australia buyouts will be named shortly) and managing director Michael Kim leaving the firm. www.carlylegroup.com
Alantos Pharmaceuticals Holding Inc., a drug company focused on osteoarthritis/inflammation and Type II diabetes, has raised $20 million in Series B funding. Return backers include Oxford Bioscience Partners, SV Life Sciences, Earlybird, ABN Amro, Heidelberg Innovation and Ventech. The company also announced that it has moved its corporate headquarters from Germany to Cambridge, Mass., while maintaining a research facility in Germany. www.alantos.com
ColdWatt Inc., an Austin, Texas-based provider of high-efficiency power supplies, has raised $15.5 million in Series A funding. Austin Ventures and Matrix Partners co-led the deal, and were joined by GTI Ventures. www.coldwatt.com
Ucopia Communications, a France-based provider of mobility management software solutions, has raised 4 million euros in first-round funding from XAnge Capital, CITA, NEPE and CIC Vizille Capital Innovation. www.ucopia.com
TechniScan Medical Systems Inc., a Salt Lake City-based developer of ultrasound technology for breast imaging, has raised $6.7 million in new venture funding from undisclosed backers. www.techniscanmedicalsystems.com
Safend Ltd., a Tel Aviv, Israel-based end-point security solutions for the enterprise, has received an undisclosed amount of funding from Intel Capital. www.safend.com
Thomas H. Lee Partners and Texas Pacific Group reportedly have completed their $500 million acquisition of a 25% position in Fidelity National Information Services Inc., a Jacksonville, Fla.-based information services subsidiary of title insurer Fidelity National Financial Inc. The deal was part of a $2.8 billion leveraged recap. www.fnf.com
Quadriga Capital has acquired Francotyp-Postalia AG & Co. KG, a German company that owns Addison, Ill.-based mailroom solutions provider FP Mailing Solutions. No deal terms were disclosed. www.fp-usa.com
Apax Partners and Texas Pacific Group have entered exclusive talks to acquire TIM Hellas, the Greek mobile unit of Telecom Italia, according to Reuters. The deal could be worth upwards of 1.2 billion euros.
American Independent Insurance Co., a Conshohocken, Pa.-based auto insurer, has agreed to acquire The Bankers Independent Insurance Co. and Maryland Diversified Co. from American Livestock Insurance Co. and Althoa Inc. The deal is valued at $5.8 million in cash, plus possible future payments related to performance milestones. American Independent was acquired last December in a management buyout sponsored by Wand Partners and Inverness Management. www.aiico.com
CVC Capital Partners has received European Commission approval for its acquisition of Spanish metal container company Mivisa Envases SA. www.mivisa.com
Bayer AG (NYSE: BAY) has acquired Zeptosens AG, a Swiss maker of a sensitive chip system based on fluorescence detection on the surface of a planar optical waveguide. No financial terms were disclosed. Zeptosens was spun out of novartis in 1998, and since has received venture capital funding from such firms as TVM Techno Venture Management and Swiss Life Private Equity Partners. www.zeptosens.com www.bayer.com
Greg Prow has been named CEO of Planitax Inc., an Emeryville, Calif.-based provider of software and services to corporate tax departments. He previously served as chief operating officer of Mobius Venture Capital. www.planitax.com
Steven Tuch has joined Deutsche Bank Securities as managing director and head of the firm’s private placement and PIPE practice. He most recently served as head of Thomas Weisel Partners‘ private equity placement group. In related news, former Thomas Weisel Partners pros Suzanne Mulligan and John Winkler also joined the Deutsche private placement and PIPE group, as vice president and director, respectively. www.deutsche-bank.com
Christopher Lutes has joined Tucsan, Ariz.-based venture lending firm Clear Blue Ventures as chief financial officer. He previously served as CFO and executive vice president of Silicon Valley Bank. www.clearblueventures.com
Monomoy Capital Partners announced its formation as a New York-based private equity firm for distressed, under-performing and orphan businesses with revenue of between $20 million and $150 million. Its principals all come from KPS Special Situations Funds, and include Stephen Presser, Daniel Collin, Justin Hillenbrand and Philip Von Burg.
Wednesday, March 9
Smart Institutions?
A number of you have written in to ask why I spent part of Monday morning at Harvard Business School. No, I wasn’t teaching or taking a class, and yes I know that the Model Cafe isn’t open at such an ungodly hour. The reason for my visit was to share a cup of coffee with Josh Lerner, the HBS professor of I-banking who is renowned for his research on the venture capital and private equity markets (actually, we each had separate cups of coffee, but that’s probably not important). More specifically, I wanted to discuss a new working paper that has generated a good deal of buzz among limited partners.
The paper is titled Smart Institutions, Foolish Choices? The Limited Partner Performance Puzzle. I can’t reprint it here because it already has been submitted to an academic journal for publication (Josh says the process can take up to three years), but I’m free to provide a summary. Moreover, a quick Google search will turn up dozens of copies, mostly in PDF form.
The goal was to examine how private equity returns differ among different types of institutional limited partners, and the inv*stment behaviors that lead to such discrepancies. For example, do private endowments perform better than do public pensions or funds-of-funds? If so, why? Lerner says that other researchers have explored similar questions from an individual vs. institutional perspective, but that very little has delved within – and broke out – the institutional class itself.
In short, the paper found that endowments generate annual private equity returns that are 14% higher than average. The worst performing LP group was advisors, which mostly included funds-of-funds, plus a handful of discretionary advisors that inv*st under their own name. It is important to note, however, that determining the advisor class was sometimes tricky, and that Lerner and his fellow researchers — Antionette Scoar and Wan Wong – generally sided with the institution that actually was providing the capital. For example, CalPERS’ commitments made through Grove Street Advisors were credited to CalPERS (i.e., public pension), rather than to Grove Street (i.e., advisor). The performance table can be found on page 40 of the PDF. Second-worst were banks or financial institutions, while public pensions, corporate pensions and insurance companies filled out the middle (although they were all significantly lower than the endowment class, which also includes foundations).
None of this is terribly surprising, as this space spent time last year describing how funds-of-funds often are not good vehicles for nascent private equity programs (particularly when fee-doubling is taken into account). The traditional explanation for endowment out-performance, however, has been that they are one of the private equity asset class’ oldest participants, and therefore have had the most access to top-tier funds (if you were in the first Kleiner fund, you’re probably in the most recent one). Lerner tried to compensate for that problem by only examining returns for funds launched in 1990 or later. He acknowledges that the limit isn’t perfect since new firms often spin out of veteran ones, but feels that it does, indeed, knock out some of the access issues.
In fact, Lerner found that access was not even close to the determining factor in performance success or failure. Instead, the primary driver was recommitment strategy, in terms of follow-on funds. Endowments and corporate pensions are much less likely to recommit than are public pensions or advisors, and they do a better job of predicting the performance of the follow-on funds to which they do commit. For example, funds to which endowments recommitted had much better performance than did those funds in which endowments did not recommit. The reverse was true of other LP classes.
In addition, endowments were less likely to have a high concentration of geographic locality among their general partners. The more you commit close to home, the worse your performance is, Lerner found. This is a particularly important lesson for state legislatures that keep creating VC fund-of-funds to back in-state firms. Finally, Lerner also found that increased exposure to small and slow-growing funds seems to result in higher performance. This kind of validates half of the barbell strategy, albeit the more difficult half.
We’re getting a bit late, but let me offer a few additional thoughts on all of this: (A) This study should be very disturbing to public and corporate entities looking to either launch new private equity programs, or for those looking to significantly increase their exposure. We’ve all seen the 10 and 15 and 20-year benchmarks that show how private equity has outperformed most public market indices, but this study makes one wonder if only certain LPs have actually experienced that out-performance. In other words, would banks and financial institutions – as a cohesive class – have been better off putting their money in the S&P 500? A very important question for PE-advocates in these organizations to think about, particularly with the growing glut of LP overhang.
(2) Lerner believes that another major reason for endowment success has been access, but not the time-related access discussed earlier. Instead, he believes that many endowments have good VCs and PE pros on their advisory boards, and also are able to leverage their alumni in a way unavailable to public pension funds or advisors. For example, “Hey you went to Yale, don’t you want to help make money for your alma matter?” generally trumps “Hey, you lived in Michigan, don’t you want to make some money for your home state?” or “Hey, you used to have a Citibank checking account, don’t you want to increase our profits?”
(3) A have a few nit-picks with the paper, the most significant of which is the way in which it breaks up the private equity asset class. It uses three categories: early-stage VC, later-stage VC and buyouts. In my opinion, the buyouts asset class also should have been broken out, as there are more similarities between General Catalyst and Oak Inv*stment Partners than between a $50 million LBO firm and KKR. I’m also wondering if the advisor class should have included a separate sub-section for groups like Grove Street Advisors, since they basically are outsourced decision-makers. This is particularly true in light of a jump in outsourced CIO activity among traditional advisory groups like Cambridge Associates (John S. and James L. Knight Foundation, Northeastern University) and TIFF (St. Joseph’s University).
(4) I am extremely interested in your take on the paper, since I’ll be writing more about it here, and in Venture Capital Journal (if you’ve read this far, you might as well chime in). In particular, what is the reaction of fund-of-fund and endowments managers? Let the emails fly. and I’ll see many of you in New York tonight for the start of the Buyouts Symposium.
Clearwire Corp., a Kirkland, Wash.-based WiMax company led by Craig McCaw, will receive a $100 million inv*stment from Bell Canada, with Bell Canada CEO Michael Sabia joining the Clearwire board of directors. The two companies also have formed a strategic alliance, whereby Bell Canada will become Clearwire’s exclusive strategic partner for VoIP and certain other IP services and applications in the U.S. Clearwire now has raised over $200 million in private funding, including earlier deals with Intel Capital, Convergent Inv*stors, Goldman Sachs and The Edgewater Funds. www.clearwire.com
The Edgewater Funds of Chicago is looking to raise up to $300 million for its Edgewater Growth Capital Partners II fund, according to a regulatory filing. www.edgewaterfunds.com
White Rock Networks Inc., a Richardson, Texas-based provider of optical transport systems for metro markets, has acquired Seranoa Networks Inc., a Boxborough, Mass.-based maker of service edge concentrators. No financial terms were disclosed. White Rock has raised over $140 million in VC funding since its 1999 inception, from firms like Oak Inv*stment Partners, Dali, Hook Partners, Fremong Partners, Mayfield, Meritech Capital Partners and Pacesetter Capital Group. Seranoa has raised nearly $30 million in VC funding since its 2000 inception, from YankeeTek Ventures, St. Paul Venture Capital, Advent International, Schoffstall Ventures and FA Technology Ventures. www.whiterock.com www.seranoa.com
Netifice Communications Inc., a Costa Mesa, Calif.-based provider of IP virtual private network solutions, has raised $55 million in new venture funding. Fidelity Ventures and Rho Ventures were joined on the deal by return backers Columbia Capital, Boston Millennia Partners, Dolphin Equity Partners and HIG Capital. Some of the proceeds were used to acquire the SSL VPN Services business of Aventail Corp. for an undisclosed amount. Aventail has raised around $120 million in VC funding since its 1996 inception, from groups like Focus Ventures, Fidelity Ventures, Trinity Ventures, Oak Inv*stment Partners, GRP Partners, Hewlett-Packard, Madrona Venture Group, Morgan Stanley Private Equity and the XML Fund. www.netifice.com www.aventail.com
Zeus Technology Ltd., a Cambridge, UK-based provider of Internet infrastructure solutions, has raised GBP 3 million in third-round funding. Scottish Equity Partners and Cazenove Private Equity participated on the deal, which was placed by FirstCapital. www.zeus.com
Nantero Inc., a Woburn, Mass.-based nanotech company using carbon nano-tubes for the development of next-generation semiconductor devices, has raised $15 million in Series C funding. Globespan Capital Partners led the deal, and was joined by return backers Charles River Ventures, Draper Fisher Jurvetson, Stata Venture Partners and Harris & Harris Group. The company has raised $31.5 million in total VC funding since its 2001 inception. www.nantero.com
Optaros Inc., a Cambridge, Mass.-based provider of open-source consulting and systems integration, has raised $7 million in Series A funding from Charles River Ventures and General Catalyst Partners. www.optaros.com
Digital Map Products, a Costa Mesa, Calif.-based developer of map-enabled software applications and geographic information systems, has raised $1.4 million in a Series C funding round led by a $400,000 commitment from Keiretsu Forum members. www.digmap.com
Mathsoft Engineering & Education Inc., a Cambridge, Mass.-based provider of calculation management solutions for engineers, has received $3 million in follow-on funding from existing shareholder Edison Venture Fund. www.mathsoft.com
Ascenta Therapeutics Inc., a San Diego-based drug company focused on cancer therapies, raised $30 million in Series B funding last November, at a post-money valuation of approximately $45.4 million. BA Venture Partners led the deal, and was joined by Sofinnova Ventures and return backers Domain Associates, Enterprise Partners Venture Capital and U.S. Venture Partners. The company previously had raised a $6 million Series A round in 2003 at a post-money valuation of approximately $8.65 million. www.ascentatherapeutics.com
Huron Capital Partners has recapitalized, and acquired, Ross Learning LLC, in partnership with company CEO Paul Mitchell. No financial terms were disclosed for the deal, which included senior note financing from LaSalle Bank and subordinated note funding from Midwest Mezzanine Funds. Ross Learning is a Southfield, Mich.-based operator of both post-secondary career schools and workforce development programs. www.huroncapital.com www.rosslearning.com
Bridgepoint Capital has received European Commission approval for its proposed buyout of Sweden-based nursing home operator Attendo AB.
Warner Music Group could file for a $750 million to $1 billion IPO as early as this week, according to the New York Post. Goldman Sachs and Morgan Stanley are jointly leading the deal for Warner, which was acquired last year for $2.6 billion by Thomas H. Lee Partners, Bain Capital, Providence Equity Partners and Edgar Bronfman‘s Music Capital Partners. A Financial Times report last year suggested that the eventual IPO could target $5 billion. www.wmg.com
Integrated Manufacturing Group LLC has acquired two precision machining companies: Pacific Production Engineering Consulting Inc. and Niles Machine & Tool Works Inc. Both deals were facilitated by a $16.1 million inv*stment from Brooks, Houghton Interim Funding.
Agere Systems Inc. (NYSE: AGR.A, AGR.B) has acquired Modem-Art Ltd., a Raanana, Israel-based provider of advanced processor technology for 3G/UMTS mobile devices. The deal is valued at $145.1 million, including $30.5 million in cash and approximately 70.3 million shares of Agere’s Class A common stock. All 40 Modem-Art employees will join Agere and remain in Raanana, Israel. Modem-Art has raised VC funding from such groups as Genesis Partners, Tamir Fishman Ventures, BancBoston Ventures, Apax Partners and Ampal-American Israel Corp. www.agere.com www.modem-art.com
Helicomm Inc., a Carlsbad, Calif.-based provider of wireless networking solutions, has acquired WirelessPlug Co. Ltd., a Taipei, Taiwan-based maker of wireless data acquisition products for the Asian machine-to-machine market. No financial terms were disclosed. Helicomm is backed by Aspen Ventures and Global Communications Pioneers Venture Partners. www.helicomm.com www.wirelessplug.com
Got Corp., a San Jose, Calif.-based provider of customer relationship marketing technology, has acquired Smart Solutions International, a Boca Raton, Fla.-based business consultancy. No financial terms were disclosed. Got Corp. has raised over $20 million in VC funding since its 1999 inception as GotMarketing, from firms like Celtic House Venture Partners, Mosaic Venture Partners, BCE Capital and XDL Intervest Capital Corp. www.gotcorp.com www.smartsi.com
Don Stanley has joined Advanced Technology Ventures as chief financial officer, after having earlier served in a CFO role with Battery Ventures. www.atvcapital.com
Ido Sarig has joined Thomas Weisel Venture Partners as an executive-in-residence for 2005-2006, and will focus on the security, enterprise and infrastructure software spaces. He previously served as vice president of technology strategy for Mercury Interactive Corp. (Nasdaq: MERQ). www.twvp.com
Logistics Health Inc., a La Crosse, Wis.-based provider of medical readiness and homeland security solutions, has named former HHS Secretary and Wisconsin Gov. Tommy Thompson as its new president. Logistics Health received a $72.5 million equity infusion in late 2003 from TA Associates. www.logisticshealth.com
GE Commercial Finance Global Sponsor Finance has named John Trentos as senior vice president of sponsor channel origination. He has been with GE since 1995, and will be responsible for providing d*bt and lease financing for private equity-sponsored transactions in the telecom, media and entertainment sectors. www.gegmc.com
Celtic House Venture Partners has closed its third fund with $280 million in limited partner commitments. The Ottawa, Canada-based firm will maintain its early-stage focus on Canadian and UK companies in the semiconductor, systems, MEMS, optics and software spaces. www.celtic-house.com
Pine Street Partners of Albany, N.Y. has held a $25 million first close on its inaugural middle-market mezzanine fund. www.pinecap.com
Tuesday, March 8
Verbosity Takes A Holiday
All apologies for this morning’s lack of column, but I’ve been beset by a maddening procession of computer and network problems. There also is an enormous amount of news, including some large VC deals (a revival of interest in the recently-neglected nanotech sector?), an explanation for why Cardtronics pulled its IPO last week and a report that Warner Music could file for its own IPO within days. So merry news perusing, and don’t forget to visit our many advertisers (or, if that bores you, become an advertiser yourself).
Oh, and don’t forget that there is just one day left until The Buyouts Symposium at the Waldorf-Astoria in New York City.
Nano-Tex Inc., an Emeryville, Calif.-based provider of nanotech-based textile enhancements has raised $35 million in Series A funding. New backers included Norwest Venture Partners, Howard Hughes Medical Institute, Masters Capital and Firelake Capital. W.L. Ross & Co. also participated, after having become a shareholder when it acquired Nano-Tex seed-stage backer Burlington Industries Inc. www.nano-tex.com
Cardtronics Group Inc., a Houston, Texas-based operator and distributor of automated teller machines, has received $75 million in new funding from TA Associates. The deal gives former majority shareholder CapStreet Group LLC some liquidity, and provides the two firms with a combined 70% ownership position. Cardtronics last week withdrew registration papers for a proposed $115 million IPO. www.cardtronics.com
Circuit City Stories Inc. (NYSE: CC) has rejected a $3.24 billion leveraged buyout offer from hedge fund manager – and existing Circuit City shareholder — Highfields Capital Management. Circuit City was advised on its decision by Goldman Sachs. www.circuitcity.com
Colubris Networks Inc., a Waltham, Mass.-based provider of WLAN systems, has raised $15 million in third-round funding. DCM-Doll Capital Management led the deal, and was joined the Telecommunications Development fund and return backers Prism Venture Partners, Mid-Atlantic Venture Funds, GrandBanks Capital and the Business Development Bank of Canada. Colubris has raised $36 million in total funding since its 1999 inception. www.colubris.com
Peerflix Inc., a Menlo Park, Calif.-based P2P service that allows members to legally trade DVDs, has closed a Series A funding round co-led by 3i Group and BV Capital. No financial information was disclosed, although a December regulatory filing indicates that at least $1.5 million was raised. www.peerflix.com
Cadent Holdings Inc., a Carlstadt, N.J.-based maker of digital technologies for the orthodontic and dental markets, has raised $25 million in new venture funding. Star Ventures led the deal, and was joined by return backers JPMorgan Partners, Apax Partners, SV Life Sciences and Pitango Venture Capital. The company has raised over $50 million in total venture funding since its 1994 inception. www.cadent.biz
Nanomix Inc., an Emeryville, Calif.-based maker of nano-electronic detection devices for industrial and biomedical applications, has raised $16 million in Series C funding. Harris & Harris Group Inc. led the deal, and was joined by Star Ventures and return backers Alta Partners, Apax Partners, Sevin Rosen Funds and EnerTech Capital Partners. The company has raised over $40 million in total VC funding since its 2000 inception. www.nano.com
Sirtris Pharmaceuticals Inc., a Waltham, Mass.-based biotech company focused on metabolic diseases, has raised $27 million in new funding. Three Arch Partners and Cargill Ventures co-led the deal, and were joined by fellow new inv*stor Novartis Bioventures Fund. Return backers included Polaris Venture Partners, Techno Venture Management, Cardinal Partners, Skyline Ventures, and The Wellcome Trust. www.sirtrispharma.com
Axela Biosensors Inc., a Toronto-based developer of optical biosensor technologies, has received Cdn$3.5 million in follow-on Series A funding from existing shareholder VenGrowth Equity Partners. The company also secured a US$2.5 million venture loan from MMV Financial Inc. Both deals were done in preparation of a Series B fund-raising drive. www.alexabiosensors.com
OutSystems SA, a Lisbon, Portugal-based enterprise software company focused on speeding up the IT delivery process, has raised 2.2 million euros in Series B funding led by PME Inv*stments. The company was founded in March 2001 with 1 million euros in seed funding from the NeSBIC Cte Fund. www.outsystems.com
A4Vision Inc., a Sunnyvale, Calif.-based provider of identification software and 3-D facial imaging products, has received strategic funding from both Motorola Ventures and In-Q-Tel, the venture capital arm of the CIA. No financial terms of either agreement were disclosed. www.a4vision.com
GTCR Golder-Rauner has completed its recapitalization of NewQuest LLC, a Nashville, Tenn.-based managed care organization. As part of the transaction, GTCR made a $134 million inv*stment. www.myhealthspring.com
Trimaran Capital Partners has completed its $140 million acquisition of Mountainside, N.J.-based steakhouse chain operator Charlie Brown’s Inc. from Castle Harlan. Castle Harlan originally bought the company in 1997 for approximately $50 million. www.charliebrowns.com
Red Diamond Capital of New York has acquired Nutritional Laboratories International Inc., a Missoula, Mont.-based manufacturer of custom formulation for the nutritional supplement industry. Company management and food industry veteran Ronald Dananberg also participated alongside Red Diamond Capital. No financial terms were disclosed. www.reddiamondcapital.com www.nutritionallabs.com
Andlinger & Company Inc. has acquired YXLON International GmbH, a Hamburg, Germany-based maker of x-ray components and systems for industrial nondestructive testing applications.No financial terms were disclosed. YXLON had received private equity funding in the late 1990s from Botts & Co. www.yxlon.com www.andlinger.com
Imperial Capital Corp. of Toronto has acquired a majority interest in Procaps Encapsulation Inc., a Montreal-based paintball manufacturer. Company management and other existing shareholders retained a minority position. No financial terms were disclosed. www.imperialcap.com
Nordic Capital has agreed to acquire Sweden-based medical device company Atos Medical AB from Fisher Scientific International Inc. (NYSE: FSH). The deal is valued at $110 million in cash, and is expected to close later this month. www.atosmedical.com
CVC Capital Partners and Nordic Capital have agreed to acquire LEAF, the sugar confectionary division of Dutch food conglomerate CSM NV. No financial terms were disclosed. www.csm.nl
W.L. Ross & Co. has lost out on its bid to acquire Japan’s Mitsui Mining Co. Ltd., according to the Nihon Keizai newspaper. The winning consortium was led by Nippon Steel Group, and also includes Sumitomo Corp. and Daiwa Securities (which will receive a majority position).
AXA Private Equity has sponsored a leveraged management buyout of Imerys roofing product subsidiary Lariviere. The deal values Lariviere at around 155 million euros, with Axa and the management team taking a 98.77% stake. www.lariviere-sa.fr
Warner Music Group could file for a $750 million to $1 billion IPO as early as this week, according to the New York Post. Goldman Sachs and Morgan Stanley are jointly leading the deal for Warner, which was acquired last year for $2.6 billion by Thomas H. Lee Partners, Bain Capital, Providence Equity Partners and Edgar Bronfman‘s Music Capital Partners. A Financial Times report last year suggested that the eventual IPO could target $5 billion. www.wmg.com
Broadcom Corp. (Nasdaq: BRCM) has agreed to acquire Zeevo Inc., a Santa Clara, Calif.-based provider of semiconductor and software solutions to Bluetooth wireless headset products. The deal is valued at $32 million, including $29.4 million in cash and $2.6 million in restricted stock units. The deal is expected to close by March 31. Zeevo has raised over $80 million in venture capital funding since its 1999 inception, from firms like Sequoia Capital, Focus Ventures, CDIB Venture Management, Institutional Venture Partners, Raza Venture Fund and WK Associates. www.broadcom.com www.zeevo.com
National Surgical Care, a Chicago-based provider of ambulatory surgical centers, has acquired Aspen Healthcare, a Niwat, Colo.-based surgery care management and development company. No financial terms were disclosed. National Surgical care is owned by JPMorgan Partners and Brazos Private Equity Partners, while Aspen Healthcare had been majority-owned by TLC Vision Corp. (Nasdaq: TLCV) www.natsurgcare.com www.aspenhc.com
Longwood Industries LLC, a Florham Park, N.J.-based industrial rubber products manufacturer, has acquired KT Industries Ltd., a Winnipeg, Canada-based provider of specialty tapes to the graphic arts, packaging and wire and cable industries. No financial terms were disclosed. Longwood Industries is a portfolio company of Norwest Equity Partners. www.longwood-elastomers.com www.ktg.com
Auctionpay Inc., a Portland, Ore.-based provider of online and charity event payment processing services, has acquired Archetype Auction Software, a Sunriver, Ore.-based company provider of electronic management of auction event logistics for nonprofit organizations. No financial terms were disclosed. Auctionpay has received venture capital funding from Maveron LLC. www.auctionpay.com www.archetypeauction.com
Vladimir Jacimovic has joined New Enterprise Associates as a Menlo Park, Calif.-based partner focused on software and services deals. He previously served as a founding partner and managing director of Crosslink Capital, which currently is raising a new fund. www.nea.com
Catharine Burkett has joined Camden Partners, after having spent the past 4.5 years as director of private inv*stments at the University of Richmond. www.camdenpartners.com
Orrick, Herrington & Sutcliffe LLP has hired four Heller Ehrman partners who had previously worked with Venture Law Group. They are: Don Keller, Tom Tobiason, Mark Windfeld-Hansen and Mitch Zuklie. www.orrick.com
Jeff Doherty and Ingeborg Baugh have joined Hyde Park Capital Advisors as vice president of I-banking and associate of I-banking, respectively. They both will work out of Hyde Park Capital’s new Charlotte, N.C. office. Doherty previously served as a vice president of SG Cowen Securities in London, while Baugh was employed by Washington, D.C. law firm Heller & Rosenblatt. www.hydeparkcapital.com
Avalon Ventures, a San Diego-based venture firm focused on early-stage biotech and wireless technology companies, has closed its seventh fund with $75 million. Limited partners include Harvard Management Co., Paul Capital Partners, Grove Street Advisors and Invesco. www.avalonVI.com
GrowthWorks WV Management Ltd. has acquired Fullarton Capital Corp., manager of Capital Alliance Ventures and the Canadian Science & Technology Growth Fund. The move brings GrowthWorks’ assets under management to approximately Cdn$800 million. www.growthworks.ca
Monday, March 7
Monday Mouth-Off
The sky is bright, the Buyouts Symposium is just a few days away and the Wire is unusually early because I scheduled an 8:30am meeting at Harvard Business School. In other words, it’s time for some Monday Mouth-Off. Per usual, it’s a hodgepodge.
First up is Bain Capital’s proposed buyout of the National Hockey League, which has been dismissed a bit too emphatically by a number of large-market franchisees (that includes you, Mr. Jacobs). As a quick refresher, I think the deal actually could get pulled off, albeit many months down the road (perhaps even more than 12), and at a substantially higher price than Bain’s $3.5 billion opener. Most respondents, however, think that I’m spouting optimism over realism, given my intense distrust/revulsion at current NHL management (that includes you again, Mr. Jacobs).
E writes: “The real question here is why Bain is wasting its time. It should be intuitive that you need 100% owner approval, and teams like Detroit, NY Rangers, Boston, etc. would never cell. Rich guys like owning sports teams. It’s a nice theoretical idea with a near-zero chance of happening.” John adds: “Dan, perhaps your realism radar has been warped by the recent successes of the Red Sox and Patriots (plus getting Antoine back). We sports fans normally don’t get everything we want, including competent NHL ownership.” Then there is Andrew: “Do you honestly believe that Bain has a chance of getting the NHL? If so, I think you’re going to look back on that prediction like you look back on the one about Google not being able to maintain its IPO price in the aftermarket.”
Criticisms aside, one of Bain’s toughest challenges will be to find suitable equity partners, since it clearly won’t be going the entire equity tranche alone. The Boston Globe says that several interested firms – both private equity and Wall Street – already have expressed interest, although folks I’ve talked to have been hesitant, to say the least. They’ve also been glib, like the following managing director from a multi-billion dollar price equity house: “Bain is a good firm, so they must have an angle or point-of-view regarding how they can get a decent return. Our view is that we do not want the prospect of having quarrels over money with a large group of large men with large sticks.”
A few quick follow-ups to the issue of how average folks (read: not wealthy and/or connected) can get into private equity. P suggests that while business development companies (BDCs) might be easily accessible, they don’t necessarily provide the upside of true private equity. Why? Because they generally are inv*sting mezzanine debt or other related securities. On the subject of venture capital trusts, UK David writes: “You mentioned VCTs, but these are primarily tax-break driven vehicles targeted at “equity gap” small deals, where returns have been much worse than in mainstream private equity. The best route in to [participate] in the dozen or so quoted inv*stment trusts that are effectively co-inv*stment pots sitting alongside limited partnerships run by high-quality managers. If you do not trust your manager selection ability, you can also inv*st in quoted funds-of-funds vehicles, or even 3i Group.”
Finally, a number of you have written in to ask why the word “inv*stment” keeps appearing with that pesky little asterisk. Or, as Megan asked: “Is there a problem with my Outlook?” No Megan, it’s just fine. The problem is that new-fangled email security software is particularly allergic to certain words, and inv*stment (without the asterisk) is one of them. Sorry for the inconvenience.
Oh, and if you already forgot: The Buyouts Symposium begins this Wednesday night (cocktails and such), with the main event happening Thursday and Friday at the Waldorf-Astoria in New York. I look forward to seeing you there.
Insight Communications Company Inc. (Nasdaq: ICCI) has received a $10.70 per share buyout offer from The Carlyle Group and Insight co-founders/controlling shareholders Sidney Knafel and Michael Willner. The offer price represents an 11% premium over last Friday’s closing price, and values Insight at approximately $2.1 billion, including around $650 million in equity. Knafel, Willner and their related parties collectively own approximately 14% of Insight’s equity, and 62% of the vote. www.insight-com.com
Bain Capital has agreed to sell Canadian yellow pages company Advertising Directory Solutions Holdings Inc. (a.k.a. SuperPages) to the Yellow Pages Group, through the Yellow Pages Index Fund (TSX: YLO.UN). The deal is valued at Cdn$2.55 billion (US$2.07 billion) in cash, subject to deductions for indebtedness. Yellow Pages Group publishes the Bell Canada directories. www.superpages.ca
Kinh Do Corp., a Vietnam-based confectioner, has received $5 million in Series A funding from Vina Capital, according to PE Week.
Celltick Technologies Ltd., a London-based provider of idle-screen services and interactive mobile broadcast solutions, has raised $11 million in Series C funding. Amadeus Capital Partners led the deal, and was joined by return backer JVP. www.celltick.com
Zopa Ltd., a UK-based lending and borrowing exchange operator, will launch today, with venture capital support from both Benchmark Capital and Wellington Partners. www.zopa.com
Valchemy Inc., a San Mateo, Calif.-based provider of M&A software, has raised $8.5 million in Series B funding. Voyager Capital led the deal, and was joined by return backers Lightspeed Venture Partners and Discovery Ventures. The company has raised $13 million in total venture funding since its 2001 inception. www.valchemy.com
AccuRev Inc., a Lexington, Mass.-based maker of software configuration management solutions, has raised $2.1 million in a Series A funding round led by Commonwealth Capital. www.accurev.com
Ferrer Freeman & Co. and Frazier Healthcare Ventures have acquired The Peer Group Inc., an Edison, N.J.-based provider of outsourced marketing services to the pharmaceutical industry. The official acquirer is a newly-formed acquisition platform named Informed Medical Communications Inc. Peer Group was advised on the deal by Ewing Bemiss & Co. and SSG Capital Advisors.
World Kitchen Inc., the Reston, Va.-based maker of dinner plates and casserole dishes under the Corelle, Pyrex and CorningWare brands, is up for sale. The company is owned by private equity firms Kohlberg Kravis Roberts & Co. and Oaktree Capital Management.
ABN Amro Capital has acquired Glud & Marstrand Inv*st AS, a Danish retail, food and consumer products group. The deal was done in concert with company management, with selling parties including Kirkbi AS, Axcel II AS and Nordea Pension Denmark. No financial terms were disclosed. www.abnamro.com
Borealis Capital Corp. has acquired luggage makers Holiday Group Inc. of Montreal and Travelpro International Inc. of Boca Raton, Fla. No financial terms were disclosed. Borealis will hold an 80% position in each company, with co-inv*stor Manulife Capital holding a 10% stake, and company management taking the remainder. The selling party was an unnamed New York private equity firm. www.borealis-capital.com
Cinven Group has received EU approval for its pending 528 million euro acquisition of several French cable companies that currently are owned by France Telecom and Vivendi Universal.
Vetco International could soon be sold or publicly floated, according to The Daily Mail of London. The company was acquired for $925 million last year from ABB Ltd., by Candover Inv*stments, JPMorgan Partners and 3i Group. www.vetco.com
Micrus Corp., a Sunnyvale, Calif.-based medical device maker focused on cerebral vascular diseases, has filed to raise $57.5 million via an IPO of common stock on the Nasdaq under proposed ticker symbol COIL. Shareholders include UGS Capital, HBM BioVentures, International Life Science Partners, PolyTechnos Medical Devices Ltd. and Invision AG. www.micruscorp.com
CLS Worldwide Services LLC, a portfolio company of Bison Capital, has acquired Empire International Ltd., a Norwood, N.J.-based provider of chauffeured ground transportation to corporate customers. Bison Capital will be a minority shareholder of GTS Holdings, the new parent company of both CLS and Empire. www.empire-int.com
Evotec OAI AG (Frankfurt Exchange: EVT) has acquired Evotec Neurosciences GmbH (EN), a Hamburg, Germany-based drug company focused on the central nervous system. Evotec founded EN in 1999, but had its ownership diluted via a 25 million euros venture capital deal that included 3i Group, TVM-Techno Venture Management, Ventech, Star Ventures and MVM. The new deal gives Evotec the outstanding 78% that it did not already own in EN, and values EN at 49 million euros (including approximately 20 million euros of EN cash). www.evotec-neurosciences.com
Williams Scotsman Inc., a Baltimore-based mobile and modular building solutions company, has acquired Mobile Space Inc., a Chicago-based company that sells and leases mobile and modular offices. No financial terms were disclosed. Williams Scotsman is a portfolio company of The Cypress Group. www.willscot.com
Spencer Neumann has joined the Palo Alto, Calif. office of Summit Partners as a principal. He previously served as executive vice president of ABC Television for The Walt Disney Co. www.summitpartners.com
Randy L. Johnson has joined Detroit-based Stout Risius Ross Inc. as a manager in the financial advisory firm’s restructuring and performance improvement group. He previously served as director of lean manufacturing for Eagle Ottawa LLC. www.gossr.com
Glen Schwaber, a general partner with JVP, has resigned from the board of PowerDsine Ltd. (Nasdaq: PDSN), after having served on its since January 2001.
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