PE Week Wire — Friday, October 22

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Friday Feedback

The sky is gray, a gallon of gas is almost worth more than the un-trusty Pontiac and the red sox are preparing to exact vengeance for 1946, 1967 and the revival of Jeff Suppan. In other words, it’s time for Friday Feedback.

Lots of emails this week concerned Tuesday’s column, which eviscerated the Wall Street Journal editorial board for what I believed was an unfair and poorly-reasoned attack on CalPERS. J was typical of reader reaction, which mostly suggested that the paper had politics, not pensioners, on its mind. He writes: “I think your comments are right on. The lack of vintage disclosure or J-curve discussion was totally irresponsible, and strange for such a sophisticated publication. Cronyism may exist, but it is a far stretch to apply it only to Democrats. I would be curious to know the percentage of Republican GPs enjoying CalPERS’s asset allocation largesse. The whole thing felt a bit smarmy to me. Chalk it up to the political season, I guess.”

Andy adds: “This goes to show how editorial boards and editorial staffs often don’t talk at major newspapers. The WSJ has some very good reporters covering the venture capital industry, but it is clear that the editorial board doesn’t have any clue about how the market works. Its dismissal of the J-curve argument was beyond laughable. It was embarrassing.” Then there was Dan: “Shouldn’t you have to prove political cronyism before accusing someone of it? I guess the WSJ doesn’t think so.”

Finally there was F: “While I agree the use of returns as a point for argument was problematic, and certainly wouldn’t dream of making a claim that opinions published by an openly conservative editorial board aren’t politically motivated, I still don’t think the issue of returns is as important in this case as the decision process underlying certain allocations. It should be enough to raise some eyebrows that the fund has chosen to allocate to managers with the habit of donating to the political campaigns of the fund’s board members, returns be damned. I understand the issue is more complex than this, but given that the fund exists to serve out the promises made to its claimants, it would seem only proper that they have the ability to gauge whether or not their future earnings are being used to promote a political agenda that might not be to their own liking. Why then pick on CalPERS? The fact that CalPERS has adopted such an overt reform agenda as part of its investment strategy makes it THE target for groups or individuals who think such organizations should stick to trying to earn a good risk-adjusted rate of return. There the Journal would certainly qualify. That CalPERS is having to be dragged kicking and screaming toward increased transparency smacks of just a little hypocrisy.”

It is worth noting that the vast majority of emails this week concerned baseball. Specifically, questions on why my gloating seemed so subdued yesterday. The truth is that I’m simply too happy to rub it in. I didn’t think this would be true, but my joy has come almost exclusively from watching the red sox win, rather than from watching the Yankees lose. Also, it’s worth noting that my unpublished prediction of a Sox-Astros World Series will not happen. Too bad, because I thought Boston v. Houston would have been a good table-setter for Kerry v. Bush.

Finally, tomorrow is the annual City Year Serve-A-Thon in Boston. It should be good weather, and I encourage everyone in the area to participate in an event that both raises money and betters the local community. If you cannot participate, but are interested in sponsoring me, or giving to City Year independently, just send me an email and I’ll respond with instructions. I hope to see you there.

-Dan Primack

Francisco Partners, a San Francisco-based buyout firm focused on the technology market, has agreed to acquire G International, a business established to own and operate IBM‘s electronic data interchange and business exchange services units. No financial terms were disclosed. As part of the deal, Gary Greenfield, an operating partner with Francisco and president and CEO of Francisco portfolio company Global eXchange Services Inc. (GXS), will serve as CEO of G International. Francisco plans to merge GXS and G International within the next six months.

Australian Pharmaceutical Industries Ltd. has acquired New Price Retail, an Australia-based retailer of health and beauty aids, for approximately Aus $167 million (US $123 million). The seller was an investor consortium that included ABN AMRO Capital, Investec Wentworth Private Equity, company management and CHAMP, the Australian affiliate of New York-based buyout firm Castle Harlan.

Cisco Systems Inc. (Nasdaq: CSCO) has agreed to acquire Perfigo Inc., a San Francisco-based provider of packaged network access control solutions for endpoint policy analysis, compliance and access enforcement capabilities. The deal is valued at $74 million in cash, and is expected to close by January 29, 2005. Perfigo raised VC funding from Greylock in 2002.

ServiceFactory, a Stockholm, Sweden-based provider of broadband Internet access and service management systems, has raised Euro 5.5 million in new venture capital funding. POD Holding led the deal, and was joined by return backers BrainHeart Capital and TeliaSonera. The company now has raised Euro 10 million in total VC funding since its 1999 inception.

Paratek Microwave Inc., a Columbia, Md.-based provider of smart scanning antennas and miniaturized tunable radio frequency front-ends, has signed a strategic investment and development agreement with In-Q-Tel, the venture capital arm of the central Intelligence agency (CIA). No financial terms were disclosed, although the company previously had raised nearly $80 million from VC firms like Polaris Venture Partners, Novak Biddle Venture Partners, Morgenthaler, Investor AB and ABS Ventures.

AP-Aqua, a Hungary-based bottled water deliver company, has received Euro 1.5 million in venture capital funding from Euroventures.

Network Inference Inc., a Carlsbad, Calif.-based provider of adaptive software infrastructure, announced that it had raised $8.1 million in Series B funding during Q1 2004. Palomar Ventures and Nokia Venture Partners co-led the deal.

Visual Sciences LLC, a McLean, Va.-based provider of real-time visual analysis software, has signed a strategic investment and licensing agreement with In-Q-Tel, the venture capital arm of the central Intelligence agency (CIA). No financial terms were disclosed.

EKO Systems Inc., a Fairfax, Va.-based provider of software and hardware systems for the healthcare industry, has raised $5 million in Series B funding from Kaupthing Bank, through Uppspretta Icelandic Capital Venture SA.

U.S. Xpress Enterprises Inc. (Nasdaq: XPRSA) has agreed to sponsor a management buyout of Arnold Transportation Services Inc. from Jefferies Capital Partners. U.S. Xpress would make a $6.4 million equity investment, alongside an undisclosed amount of senior debt financing. Current Arnold management would obtain a 51% stake by rolling over existing stock holdings, while U.S. Xpress would receive a 49% stake. The deal is expected to close next month. Arnold Transportation Services is a Jacksonville, Fla.-based dry can truckload carrier acquired in 2003 by Jefferies.

ABN AMRO has sponsored a management buyout of France-based outsourced restaurant chain Score Groupe. The MBO is valued at Euro 100 million, with ABN AMRO receiving a 52% ownership position.

Merchants Capital Partners has sold telecom portfolio company NewTel Holdings LLC to Orion Telecommunications Ltd., a publicly-held telecom company in Australia. As part of the deal, Merchants Capital Partners will retain its ownership of New Access Communications LLC, a NewTel U.S. affiliate that serves as a non-facilities-based CLEC. No financial terms of the exit were disclosed.

Energy Investors Funds has acquired a 12.5% general partner interest in MassPower from El Paso Corp. (NYSE: EP). MassPower is a 270 megawatt gas-fire cogeneration plant located in Springfield, Mass., which has been in operation since 1993. No financial terms were disclosed on the investment, which was made out of EIF’s U.S. Power Fund. The firm previously had acquired a 17.5% stake in MassPower via its Project Finance Fund III.

NTL Inc. (Nasdaq: NTLI) has narrowed the auction for its broadcasting business, according to Dow Jones. Remaining bidders reportedly include the tandem of BC Partners and Cinven Group, plus Macquarie Communications Infrastructure Group, Apax Partners, Providence Equity Partners and Blackstone Group.

Thomas H. Lee Partners plans to sell portfolio company Eye Care Centers of America Inc. for approximately $350 million, according to The Deal. TH Lee did not comment for the story.

TeamSystem SPA, an Italy-based provider of accounting, tax and payroll management software, reportedly plans to float an IPO on the Milan Stock Exchange. The company is controlled by UK-based private equity firm Palamon Capital Partners. Co. Ltd., a Seoul, South Korea-based provider of mobile Internet solutions, has acquired Ztango Inc., a Reston, Va.-based provider of wireless multimedia and messaging services. Financial terms of the all-stock deal were not disclosed. WidenThan has raised VC funding from Nokia Venture Partners, while Ztango has raised over $50 million in VC funding from General Atlantic Partners and Sands Brothers & Co.

C-Cor Inc. (Nasdaq: CCBL) has agreed to acquire nCube Corp., a Beaverton, Ore.-based provider of on-demand media and digital advertising systems. The deal is valued at $89.9 million, including 4.5 million shares of C-Cube common stock, $20 million in cash, the assumption of certain liabilities and $35 million of senior unsecured convertible notes. NCube counted Oracle Corp. and Tako Ventures among its shareholders.

Carl Zeiss Meitec Inc. has agreed to acquire Laser Diagnostic Technologies Inc., a San Diego-based medical device company focused on glaucoma detection. No financial terms have been disclosed for the deal, which is expected to close within 45 days. Laser Diagnostic has raised over $13 million in VC funding from firms like Sigma Partners, GC&H Partners, Newtek Ventures, Sorrento Ventures and Vector Fund Management.

MEMSCAP (Euronext: MEN) has agreed to acquire Optogone, UK-based company focused on optical components integration for DWDM networks, for Euro 3.8 million worth of MEMSCAP stock. Optogone had been spun out of France-based ENST, with the backing of France Telecom, Spef Ventures and T-Souce.

The Mobile Media Company AS, an Oslo, Norway-based provider of wireless games and interactive entertainment, has acquired Telenor Interactive, a Rockville, Md.-based provider of mobile applications and messaging services in North America. Both companies have received VC support from Telenor Venture.

Kurt Vedder has been named director of strategic business development and research with De Novo Ventures, where he will be responsible for identifying emerging trends in the medical device sector and supporting existing portfolio companies. He previously has held management positions with companies like Guidant Corp. and Medtronic.

Joe Hayashi and Jason Wisniewski have joined the Irvine, Calif. office of Dorsey & Whitney LLP as associates in the firm’s corporate group. Hayashi previously worked with Montgomery & Co., while Wisniewski recently received his Master of Laws (LLM) from Georgetown University and his JD from the University of San Diego School of Law.

Edith Aviles has joined BNP Paribas as a managing director in the firm’s leveraged finance group. She previously was responsible for origination and execution of private equity placements and corporate finance advisory services with D.F. Hadley & Co.

NewSpring Capital has held a $40 million first close on its inaugural mezzanine fund. The vehicle is being marketed with a $100 million target capitalization, and is expected to conclude fundraising in the middle of next year.

   Thursday, October 21

Boston-Run Venture Capital?

It has been a long time since this space has tackled the notion of state, or city, government-managed venture capital investing into local companies. I don’t recall exactly why it even came up last time, but do remember that it culminated in my appearance in New York City as the designated “bad guy” on a panel otherwise filled with CAPCO managers and local economic development folks. In short, folks there weren’t too appreciative of my belief that money managing should be left to better-trained and better-incentived managers (i.e. fulltime professionals), as opposed to political hacks and/or VC market newbies. Moreover, I believed that the purported need for many of these local funds was questionable, given the market overcapitalization spurred by the massive fundraising drives of 1999-2001.

It is important to note that I maintained a general caveat to this general position: It does not apply to programs in geographically underserved markets. Iowa, for example, or Arkansas. Even Western Massachusetts or upstate New York. I still think companies in those regions would be better served by private professional managers, but too many of those folks seem to believe that the world ends at Sand Hill Road, and begins again at Rt. 128. In other words, startup companies in underserved regions are better with something than with nothing at all.

All of this brings me to October 2004, and a Boston Globe report that City of Boston officials “are considering plans to invest city funds directly into biotechnology companies as part of a broader effort to stimulate the hot industry within city limits and create jobs. In one scenario under discussion, officials would set up a venture capital fund of up to $10 million meant to supplement other investments in local companies, said Mark Maloney, director of the Boston Redevelopment Authority, and other officials.”

This clearly does not fall into my caveat, as Boston is awash with venture capital firms, including many that focus exclusively on life sciences or biotech investments. Nonetheless, part of me initially wanted to believe this was a good idea. Not because I’m from the area, but because I truly believe that most venerable VC firms are no longer meeting the needs of

startup companies. Instead, they’ve moved up the investment ladder, often making their first investment at the Series B round, or in a Series A round for a two-year old company that had to scavenge for seed funding elsewhere. In other words, I had begun to think that my original paradigm had lost some of its validity.

But then I kept reading the article, written by Ross Kerber. In it, Maloney insinuates that Boston would not actually be sourcing deals and doing much due diligence. Instead, it would partner with other firms. I know what you’re thinking: “Dan, this works for you, because professional money managers would be making most of the decisions.” Last year I would have agreed, but Maloney’s plan no longer works with my paradigm shift. The only reason I give Boston as pass for the plan is, as I just wrote, because the existing investor community has largely abandoned startups (not all of you, but many of you). If Boston is just teaming up with the abandoners, who does it help? Do any of these firms really need that extra $100,000 on a $12 million Series B deal? Moreover, Maloney says that Boston’s money would come with strings, like that the companies must maintain certain local employment levels, and the like. Again, what VC firm in the age of off-shoring would want to be constrained by such burdens for just a tiny bit of co-investment.

I’m softening on this issue, but the Boston plan just doesn’t work for me yet. But, as the article says, it’s still a plan in progress.

Finally, thank you to everyone I met at the Buyouts Symposium West these past two days. It was a good time had by all, particularly the unscheduled baseball watching during cocktail hours. Now it is time for me to get some rest, as I stayed up well past my bedtime watching ESPN, Fox and anything else that showed the ecstatic faces of Bostonians everywhere. Congrats to all the Sox fans who have consistently written me over the past two years, and my insincere condolences to Yankees fans. On to the World “bleeping” Series!

-Dan Primack

The Blackstone Group has agreed to acquire Boca Resorts Inc. (NYSE: RST), a Boca Raton, Fla.-based owner and operator of luxury resorts in Florida. The transaction is valued at $1.25 billion, including debt, with existing Boca shareholders to receive $24 per share. It is expected to close by early next year. Debt financial is being provided by Bank of America, Bear Stearns and Merrill Lynch.

Pentadyne Power Corp., a Chatsworth, Calif.-based provider of flywheel power systems, has held an $8 million first close on its Series C funding round, with an eye toward an additional $12 million. Investors included Nth Power, DTE Energy Ventures, Accera Venture Partners and Sempra Energy.

Tom Hicks is accelerating his departure from buyout firm Hicks, Muse,Tate & Furst, from March 2005 to year-end 2004.

Clinical MicroArrays Inc., a Natick, Mass.-based developer of tools for use in drug development and clinical diagnostics, has raised $7.5 million in Series A funding. Oxford Bioscience Partners led the deal, and was joined by Rock Maple Ventures, Fletcher Spaght Venture Partners and individual investors.

BioXell SPA, an Italy-based drug company focused on urological and chronic inflammatory diseases, has raised Euro 23 million in new venture capital funding. BB Biotech led the deal, and was joined by fellow new investors NIF Ventures and QVentures. Return backers included MPM Capital, Index Ventures, AlpInvest Partners, Life Science Partners and Investimenti Piccole Imprese. The company now has raised Euro 63 million in total VC funding since being spun out of Roche three years ago.

Intelsat Ltd., a Bermuda-based satellite company, has received shareholder approval for its acquisition by Apax Partners, Apollo Management, Madison Dearborn Partners and Permira (collectively known as Zeus Holdings Ltd.). The deal is valued at approximately $5 million, including $3 billion in cash, or $18.75 per ordinary share, and the assumption of around $2 million in Intelsat debt.

3i Group has agreed to acquire a 75% stake in Denmark-based Danfoss Marine Systems from Danfoss AS, according to Dow Jones.

Hg Capital has agreed to acquire a 46% position in Dutch mail order pharmacy DocMorris. The deal is expected to close next month, and no financial details have been disclosed.

Daewoo Group is taking bids for a defense and engineering unit named Daewoo Heavy, but Reuters is reporting that Daewoo is unlikely to reward non-Korea-based investors like The Carlyle Group. The deal could be valued at upwards of $1.3 billion.

ComVentures has acquired 19.8% of outstanding common shares of Axesstel Inc. (AMEX: AFT), a San Diego-based provider of CDMA-based fixed wireless voice and data products. The firm – via three separate funds – purchased an aggregate of 833,334 outstanding common shares for $3 million, plus an additional 1.2 million common shares from existing shareholders for an undisclosed amount.

Arpida AG, a Switzerland-based life sciences company focused on anti-infectives, has acquired CombioAS, a Denmark-based developer of chemistry technologies. No specific deal terms were disclosed, except that Arpida raised an additional $27 million in additional Series C funding to help finance the deal. Combio had raised over $7 million in VC funding from Novo AS, Scandinavian Life Science Ventures and Dansk Kapitalanlaeg AS.

MessageOne, an Austin, Texas-based provider of disaster recovery solutions, has agreed to acquire Evergreen Assurance Inc., an Austin, Texas-based provider of fail-over solutions for Microsoft Windows applications. No financial terms were disclosed. MessageOne has raised over $20 million in VC funding from firms like Impact Venture Partners, QuestMark Partners, RRE Ventures and StarVest Partners. Evergreen has raised over $13 million in VC funding from firms like Venrock Associates, Blue Chip Venture Co. and VIMAC Ventures.

Martin Kahn, a venture partner with Rho Ventures, has joined the board of InfoUSA Inc. (Nasdaq: IUSA).

Genstar Capital, a San Francisco-based private equity firm focused on the middle-markets, has closed its fourth fund with $475 million in limited partner commitments. Investors included: Caisse de depot et placement du Quebec, The Regents of the University of California, Stichting Shell Pensioenfonds, Bregal Investments, Commonfund, Goldman Sachs Private Equity Partners Funds, The California Endowment, Grove Street Advisors for the Oregon Public Employees Retirement Fund, TD Capital, CSFB Customized Fund Investment Group, Association de Bienfaisance et de Retraite des Policiers de la Communaute Urbaine de Montreal, LGT Capital Invest Limited, The Meadows Foundation, Inc., Swiss Re Private Equity Partners, Winterthur US Fund II, J.P. Morgan U.S. Pooled Corporate Finance Funds, Colgate University, Adams Street Partners, Pantheon Ventures, Inc., Wilshire Associates, and AlpInvest Partners.

Allianz, a Germany-based insurance giant, plans to further reduce its public equity exposure, and increase it private equity focus, according to The Financial Times. Allianz currently has a one percent private equity allocation.

Berkeley Capital Management has agreed to acquire the Delta Asset Management division of ING Investment Management Co. No financial terms were disclosed. The management group of the combined Berkeley and Delta business will expand their ownership to approximately 30% of the company, with financing for the transaction to be provided by current investor Lovell Minnick Partners and new investor EdgeStone Capital Partners. In 2003, Lovell Minnick Partners and Berkeley’s management team acquired substantially all of the assets of Berkeley from London Pacific Group Ltd.

EdgeStone Capital Partners of Toronto has held a Cdn $102 million first closing for its second venture capital fund. The vehicle has a Cdn $200 million target, and will focus on early-stage enterprise software and related service companies.

SJF Ventures, an early-stage firm with offices in Philadelphia and Durham, N.C., has held a $10 million first close on its second fund, with hopes of raising an additional $10 million. Limited partners include MBNA America, Wachovia, Deutsche Bank, Merrill Lynch Community Capital Association, the Community Development VC Alliance and Key Community Development Corp. In related news, SJF Advisory Services, a nonprofit affiliate that provides entrepreneurial, workforce and sustainability services, has received a $500,000 award from the U.S. Economic Development Administration.

Yellowstone Capital has formed a venture capital fund to invest in early-stage companies in the energy technology sector. Specifically, Yellowstone Energy Ventures will focus on renewable energy and alternative energy opportunities, and is currently trying to solicit between $5 million and $10 million in limited partner commitments.

    Wednesday, October 20


l apologies for today’s lack of sustantive column – particularly considering some FASB decisions of interest yesterday – but the last night’s combination of baseball, booze and Buyouts Symposium West caused me to get to sleep much later than anticipated. This, in turn, caused me to wake up far later than anticipated (and with the time difference and all.). Anyway, this space will be filled tomorrow with talk of accounting regulations and a prospective city-run venture capital program in  Boston that confuses me by its very prospect. Until then, visit our advertisers, read some news and grab a cab to the Mark Hopkins Intercontinental Hotel for the Symposium.

-Dan Primack

Infinera Corp., a Sunnyvale, Calif.-based provider of optical networking solutions, has raised $52 million in Series E funding. Returning venture capital firms included Accel Partners, Benchmark Capital, JAFCO Ventures, Kleiner Perkins Caufield & Byers, Mobius Venture Capital, Sprout Group, Sutter Hill Ventures, Venrock Associates and Worldview Technology Partners. New strategic investors included UTStarcom and CTC, while returning strategic investors included Agilent, Applied Materials Ventures, Cypress Semiconductor and Juniper Networks. The company now has raised approximately $205 million in total VC funding since its 2001 inception as Zepton Networks.

3i Group has agreed to sell portfolio company Westminster Health Care Holdings to Barchester Healthcare for GBP 525 million (approx. $930 million) in cash. Westminster operates 88 private care homes in the UK, with a particular emphasis on dementia or respite care. Debt financing for the deal was led by Royal Bank of Scotland, and also included Bank of Ireland, Allied Irish Banks and HBOS.

Celebrate Express Inc., a Kirkland, Wash.-based provider of party products for families with small children, will begin trading on the Nasdaq under ticker symbol BDAY. The company priced 3.2 million common shares at $15.50 per share, for a total IPO take of approximately $49.6 million. It originally had filed to price just over 2.85 million shares at between $13 and $15 per share. Celebrate Express had raised over $27 million in VC funding since its 1994 inception, with significant shareholders including ARCH Venture Partners, Advanced Technology Ventures and Sigma Partners. It had originally filed for a $40 million IPO on January 2000, only to pull the offering seven months later.

Emagia Corp., a Santa Clara, Calif.-based provider of enterprise cash-flow management solutions, has raised $7 million in third-round venture capital funding. New investor Timeline Ventures was joined by return backers Sigma Partners and WestBridge Capital Partners.

TeraGo Networks Inc., a Toronto, Canada-based provider of fixed wireless broadband solutions, has raised Cdn $2.5 million in new VC funding from First Ontario Fund.

Cash-U Mobile Technologies Ltd., an Israel-based provider of mobile entertainment platforms, has raised $15 million in new VC funding. Carmel Ventures led the deal, and was joined by return backers Greylock, Pitango Venture Capital and Fidelity Ventures. The company now has raised around $40 million in total VC funding since its 1999 inception. In related news, Cash-U has acquired Niragongo Technologies Ltd., and renamed the combined company Uniper Ltd. Israel-based Niragongo had raised VC funding from Carmel Ventures and AOL.

Concuity Inc., a Hayward, Calif.-based provider of contract cycle revenue management solutions, has raised $8.3 million in Series D funding. Gabriel Venture Partners led the deal, and was joined by return backers Mobius Venture Capital, Three Arch Partners and Versant Ventures.

AcroMetrix Corp., a Benicia, Calif.-based provider of quality control products for molecular diagnostics, has secured an undisclosed amount of private equity funding from Telegraph Hill Partners.

Sequel Holdings, a Dallas-based private equity firm, has led a recapitalization of Lakeview Farms Inc., a Delphos, Ohio-based maker of branded dip and dessert products. No financial terms were disclosed.

Levi Strauss & Co. has decided to pull its Dockers brand from the auction block, despite what was believed to be an $800 million bid led by Vestar Capital Partners.

VNUS Medical Technologies Inc., a San Jose, Calif.-based medical device maker focused on venous reflux disease, will begin trading on the Nasdaq under ticker symbol VNUS. The company priced nearly 5.38 million common shares at $15 per share, for a total IPO take of approximately $80.6 million. It originally had filed to price around 4.7 million shares at between $13 and $15 per share. VNUS Medical had raised over $51 million in total VC funding since its 1995 inception, with significant shareholders including Menlo Ventures, Sprout Group, Bay City Capital, BA Venture Partners, H&QW Healthcare Investors, Lighthouse Capital Partners and the General Mills Group Trust.

SmartPros Ltd., a Hawthorne, N.Y.-based provider of continuing professional education, will begin trading on the AMEX under PED. The company priced 600,000 units at $12/75 per unit, with each unit representing three common shares and one and one-half warrants. SmartPros had raised over $5 million in a 2001 venture capital deal led by DB Investor.

Attachment Technologies Inc., a Delhi Iowa-based company bought out in 2003 by Norwest Equity Partners, has changed its name to Paladin. In addition, the company has acquired Portland, Ore.-based Jewell Manufacturing Inc. for an undisclosed amount.

Click Tactics Inc., a Waltham, Mass.-based provider of direct marketing programs, has acquired Britemoon Inc., a Woburn, Mass.-based developer of marketing software. No financial terms were disclosed. In other company news, Click Tactics has raised $7.75 million in new venture capital funding from existing investors TH Lee Putnam Ventures and the Wakefield Group.

Symphony Services Corp., a Palo Alto, Calif.-based provider of business service outsourcing services, has agreed to acquire In-Reality Software Pvt. Ltd., a Prune, India-based software services company focused on product development for original equipment manufacturers (OEMs). Last year, Symphony received a $20 million investment from TH Lee Putnam Ventures.

Enpocket, a New York-based provider of mobile media solutions, has acquired Landmat, an Iceland-based provider of mobile community and content applications. No financial terms were disclosed. Enpocket has raised around $5 million in VC funding from Nokia Venture Partners, GrandBanks Capital and Dolphin Equity Partners. Landmat has raised around $6 million in total VC funding from Nokia Venture Partners and the Icelandic Software Fund.

Online Resources Corp. (Nasdaq: ORCC) has agreed to acquire Incurrent Solutions Inc., a Parsippany, N.J.-based Internet ASP to the credit card issuer industry. The deal is valued at approximately $15 million, including $8 million in cash and one million shares of Online Resources common stock. Incurrent has raised around $8 million in total VC funding since its 1997 inception, from investors like Knickerbocker LLC, New Jersey Technology Council, PA Early Stage, Rolling Hill Investments and the Edison Venture Fund.

Robert Hatch has joined Standard Life Investments (Private Equity) Ltd. as a Boston-based vice president. He recently received his MBA from the Tuck School of Business at Dartmouth College.

Steven Ratoff has joined ProQuest Investments as a venture partner. He most recently served as chairman and interim CEO of Cima Labs Inc. and, before that, had been senior vice president and CFO of the pharmaceutical group at Bristol-Myers Squibb.

Citigroup has forced three senior executives to resign. They are Deryck Maughn, chairman of international operations; Thomas Jones, head of Citigroup’s asset management division; and Peter Scaturro, chief executive of private banking. 

  Tuesday, October 19

WSJ Accusations and CalPERS Facts Don’t Match

Greetings from San Francisco, where the sky is dark, the streets are wet and my hotel’s workers are striking (had I known ahead-of-time, I certainly would have made other accommodations. Instead, I was left to assuage my guilt by buying the drum-bangers some pizzas from Uncle Vito’s).

Anyway, yesterday’s Wall Street Journal included an editorial that explicitly accused CalPERS of political cronyism when it comes time to invest pensioner monies. It read, in part: “No group has been more aggressive in promoting good corporate governance than Calpers, the giant California state pension fund. And for the past decade Calpers has more or less practiced what it preaches. Lately, however, that practice has been slipping. The most recent sign of slippage came last month when the California First Amendment Coalition (a group of news organizations) sued Calpers in state court to force the pension fund to disclose the management and advisory fees it pays to private equity and hedge funds. Calpers refused to disclose these fees, arguing that disclosure would shut it out of some funds, hampering its ability to maximize investment returns. Two years ago, Calpers resisted a similar call for transparency by refusing to disclose performance results for its 300-plus private equity funds. After the San Jose Mercury News sued to make this information public, Calpers settled out of court and began posting performance numbers on its Web site every quarter. What’s been revealed since does seem to involve cronyism.”

Now there are a number of problems with this editorial, not even including the WSJ’s decision to spell CalPERS without the acronym-appropriate capital letters. First up is the implication that CalPERS has reduced its transparency in recent years, as it pertains to private equity and hedge fund investments. This simply is untrue. The historical record over which the WSJ waxes nostalgic was notable for its lack of transparency. Sure CalPERS had to be dragged kicking and screaming into the era of disclosure, but the result is that, today, CalPERS is the nation’s most transparent investor in private equity funds (thanks to its comprehensive website data). How is this slippage? Seems like progress to me.

More important is this second charge that the already-disclosed information has exposed cronyism at CalPERS. The WSJ cites the following examples: “In 2001, Calpers began investing in Yucaipa Companies. Yucaipa’s head happens to be supermarket titan, Ron Burkle, a generous political donor to two Calpers board members — legendary Democrat Willie Brown, and state Treasurer and likely candidate for Governor Phil Angelides. Mr. Brown worked for Mr. Burkle from 1993 to 1995 as a lawyer and so did another Calpers board member, Sidney Abrams, who has done actuarial consulting for Mr. Burkle. So far, aggregate returns from these investments have been negative. Then there’s Calpers’ relationship with funds managed by Grove Street Advisors. Grove Street manages Calpers’ Emerging Ventures program that encompasses over 100 partnerships, and Calpers has also made direct investments in some of these partnerships. More than 25 of these funds’ managers have given campaign contributions to Mr. Angelides or to another Calpers’ board member, California Comptroller Steve Westly. Returns from all three of the investment funds managed by Grove Street are negative.”

According to the CalPERS website, the system has invested in two Yucaipa funds, both vintage 2002. The first seems to be a mess, with an IRR of -99.8 percent. It’s worth noting, however, that the fund only has called down $6.4 million of CalPERS’ $150 million commitment. The second fund, on the other hand, has called down $22.6 million of a $100 million commitment, and features a positive IRR of 43.5 percent. So how does the WSJ argue that the aggregate returns are negative? By only noticing that neither fund has returned capital, without immediately explaining that it would be very unusual for a 2002 fund to have returned capital by Q1 2004, which is when the CalPERS website was last updated. The WSJ does include the following line near the end of its editorial: “Calpers, we should note, argues that internal rates of return are not meaningful in the early years of a fund.” The WSJ wording makes this point sound debatable, when it actually is undeniable. Talk about spinning an issue.

The specter of political cronyism is always hanging over state pension system investments, whether in California, Texas or Massachusetts. And it is certainly possible that political influence was peddled in regards to CalPERS, but the WSJ makes its accusations without first making its case. I have my own ideas as to why this is, but wouldn’t print them without some better evidence.

Unrelated travel note: Security checkpoint at Logan Airport yesterday included the following instructions from a TSA worker: “All Red Sox caps may be kept on, all Yankees caps must be put on the X-ray belt.” Made the long line worth the wait.

-Dan Primack

Select Medical Corp. (NYSE: SEM), a Mechanicsburg, Pa.-based operator of long-term acute hospitals, has agreed to be acquired for approximately $2.3 billion by an investment group led by buyout firm Welsh, Carson, Anderson & Stowe. Thoma Cressey Equity Partners, a current Select Medical shareholder, also is participating on the deal, alongside certain members of company management. The deal will give current shareholders $18 in cash per share, which represents a 36% premium over the average closing price for the past 30 days of trading. Once the deal is closed, Select Medical will delist from the public market, and become a wholly-owned subsidiary of EGL Holding Co.

Piper Rudnick LLP and Gray Cary Ware & Freidenrich LLP have agreed to merge, effective January 1, 2005. The combined law firm will feature more than 1,300 attorneys, and 20 offices throughout the United States.

Aurora Capital Group has agreed to acquire K&F Industries Inc. for $1.06 billion in cash (approx. $350 million in equity and $750 million in debt) from Bernard L. Schwartz and Lehman Brothers Merchant Banking. The deal is expected to close next month. K&F is a New York-based manufacturer of aircraft wheels, brakes, fuel tanks and anti-skid systems for commercial, general aviation and military aircraft.

Aeluros Inc., a Mountain View, Calif.-based fabless semiconductor company, has raised $10 million in Series B funding. UOB Venture Management led the deal, and was joined by return backers New Enterprise Associates and Worldview Technology Partners. The company previously raised $10 million in Series A funding at a post-money valuation of approximately $20 million.

Capella Photonics Inc., a San Jose, Calif.-based provider of subsystems and components for optical networks, has raised $6 million in Series C funding. New investor Horizon Technology Finance was joined by return backers Bay Partners, Vanguard Ventures and BCE Capital. The company now has raised around $29 million in total VC funding since its 2000 inception.

Way Systems Inc., a Woburn, Mass.-based provider of secure mobile phone POS solutions, has raised approximately $6.5 million in Series B funding from GIV Venture Partners Fund.

Metapa Inc., a Sherman Oaks, Calif.-based provider of database software, has raised $8 million in Series C funding. Investors included Mission Ventures, EDF Ventures, Dawntreader Ventures, Impact Venture Partners and Hudson Venture Partners.

Saqqara Inc., a San Jose, Calif.-based provider of commerce data management solutions for enterprise spend management, has raised over $6 million in Series B and Series B-2 preferred stock and convertible securities. ArrowPath Venture Partners led the deal, and was joined by return backers Red Rock Ventures, Vision Capital and Cross-Atlantic Partners. Saqqara now has raised nearly $70 million in total private equity funding since its 1995 inception.

Evident Software Inc., a Bloomfield, N.J.-based provider of IT service intelligence solutions, has raised $10 million in Series B funding. Canaan Partners led the deal, and was joined by an unnamed strategic investor and return backers Fidelity Ventures, Granite Ventures, Oak Investment Partners and Intel 64 Fund. The company now has raised over $60 million in total VC funding since its 1997 inception as Apogee Networks Inc.

Scentric Inc., a Duluth, Ga.-based provider of software for storage infrastructure administrators, has raised $5.6 million in Series A funding. H.I.G. Capital and Valhalla Partners co-led the deal, and were joined by Imlay Investments and ACDC’s Seed Capital Fund.

TrustDigital, a McLean, Va.-based provider of enterprise mobile security solutions, has raised $3.1 million in Series A funding. Core Capital Partners led the deal, and was joined by Avansis Ventures. The company also has named Nick Magalito as its new chief executive. Magalito most recently served as executive vice president of USinternetowrking.

Infrared Sciences Corp., a Hauppauge, N.Y.-based developer of a medical device that helps detect breast cancer, has raised $980,000 million in Series A funding. No investor information was disclosed.

Wellspring Capital Management has agreed to acquire Home Decor, a Charlotte, N.C.-based unit of The Stanley Works (NYSE: SWK). No financial terms were disclosed on the deal. Home Decor supplies mirrored closet doors, closet organization and wall decor products, mostly through large retailers in North America and Europe.

Arlington Capital Partners has formed BrightStar Education Group Inc., an acquisition platform focused on the for-profit, post-secondary education market. The effort includes an initial capitalization of $50 million, and already has acquired Instituteof Technology, an operator of four post-secondary schools in California. Among the BrightStar board members will be former U.S. Congressman and House Majority Whip Tony Coelho, and John Danielson, a principal with The Dilenschneider Group and former chief of staff to U.S. Department of Education Secretary Rod Paige.

KRG Capital has completed a $60 million recapitalization of CIVCO Holdings Inc., a Kalona, Iowa-based provider of specialized accessories for ultrasound and minimally-invasive surgical devices. This represents a liquidity event for KRG Capital, which first invested in CIVCO 15 months ago.

The Carlyle Group has agreed to sell its 50% stake in Sigla Engineering SPA, the holding company of Riello Group, to the Riello family (Ettore, Lucia and Roberta Riello). Riello Group is a Legnago, Italy-based heating company, which was acquired by Carlyle Group and Palladio Finanziaria in July 2000.

Actional Corp., Mountain View, Calif.-based provider of Web services management software, has merged with Westbridge Technology Inc., a Mountain View, Calif.-based provider of security infrastructure solutions for Web services and service-oriented architectures. The combined company will operate under the name Actional, and has raised $12.9 million in new venture capital funding. Investors include Arrowpath Venture Capital, August Capital, Granite Ventures, International Capital Group, NEA, NeoCarta, SAIC Venture Capital and Sevin Rosen Funds. Prior to the merger, Actional had raised approximately $50 million in total VC funding since its 1998 inception, while Westbridge had secured over $10 million since 2001.

Scottish Re Group Ltd. (NYSE: SCT) has agreed to acquire the individual life reinsurance business of ING Re. Per terms of the transaction, ING will transfer to Scottish Re assets equal to reserves of approximately $800 million, and pay Scottish Re a ceding commission of $560 million. In addition, Scottish Re will raise $180 million in new capital from private equity firm The Cypress Group, plus an additional $50 million of trust-preferred securities. The deal is expected to close by year-end.

Eduardo Mestre, former head of I-banking at Citigroup, has joined Evercore Partners as vice chairman. He will be responsible for Evercore’s corporate advisory practice.

Richard Jandrain has joined Fort Washington Investment Advisors as a managing director of growth equity, in the firm’s new Columbus, Ohio office. He previously served as chief equity strategist with Banc One Investment Advisors Corp. In other Fort Washington news, the firm’s Columbus office also will welcome: Daniel Kapusta as a senior portfolio manager; David Robinson as a senior portfolio manager; and Bihag Patel as a portfolio manager.

Doug Berg has been named chief executive of Isensix Inc., a San Diego-based provider of wireless healthcare monitoring systems. He previously served as an advisor to the healthcare and life sciences group of One Equity Partners, the private equity investment arm of Bank One.

Brian Johnson has been named chief operating officer of the Minnesota Investment Network Corp., a St. Paul, Minn.-based community development venture capital firm.

Kohlberg Kravis Roberts & Co. (KKR) is planning to raise a $3.5 billion LBO fund aimed at the European market, according to The Times of London. In related news, the article also reports that Ned Gilhuly will abdicate his post as head of KKR’s European investment team, in order to return to the firm’s Silicon Valley office. No replacement has been named, although The Times suggests that both Johannes Huth and Todd Fisher are considered lead candidates.

Edmond de Rothschild Capital Partners of France has held a final close on its inaugural LBO fund, with Euro 210 million in limited partner commitments. Investors included Danske Private Equity, Adveq, Kredietbank Luxembourg and Mederic.

    Monday, October 18

Monday Mouth-Off

The beloved Red Sox are still alive, oil prices are at yet another all-time high and I will soon be on an airplane bound for the Buyout Symposium West in San Francisco. In other words, it’s time for Monday Mouth-Off.

First up is that tired old chestnut we call disclosure, and my belief that Texas AG Abbott is trying to have his cake and eat it too. Regular respondent Nari writes: “I agree with the person who said try explaining lower payouts to pensioners. There is a universal rule called risk vs. reward, and this principal works just like any other demand vs. supply principal in Economics 101. Don’t want any risk? Put it under your pillow. Please keep the dang public money away from VC funds and let the pensioners get a safe but fully-disclosed return that barely keeps up with inflation.”

Philip asks: “If a potential portfolio company has the choice between accepting money from a firm that discloses information and one that keeps all information confidential, what choice do you think will be made? How many other VCs will want to invest [alongside a fund] that discloses underlying portfolio company information?”

On the counterpoint is Jeffrey: “The entire issue is a smokescreen set up to protect poorly-performing, yet big-name, GPs. Holding certain information private creates asymmetries that distort the smooth function of the market, and to argue against freely-flowing information is, in essence, arguing for a less efficient private equity market. Such a market is in the best interest of GPs, but certainly not of LPs over time. Public companies seem to do just as fine as LP investments (in equities and bonds) with their public disclosure requirements. Funds willing to meet that market requirement will spring up to fill the market need.”

Next up is a formal apology from me to the PR reps of the world, who seem to collectively despise being referred to as flacks (even when it’s said lovingly, as it was last Friday). Frank writes: “Hate is a powerful word, but I hate the word flack. I also don’t eat pizza, and perhaps the second-most fruitless endeavor possible would be for me to ‘harass’ a reporter. Tough-in-cheek, maybe, but an attack on one’s profession is like your man Kerry drawing Cheney’s daughter into a presidential debate; just poor taste.” First part/point taken Frank, but let’s agree to strongly disagree about part/point two.

Finally, Kimberly writes in to say: “My problem with your column is your support for the Red Sox.” If it makes you feel any better Kimberley, my problem with my life is my support for the Red Sox.

-Dan Primack

Metavante Corp., the financial technology subsidiary of Marshall & Illsley Corp. (NYSE: MI), has agreed to acquire all outstanding stock of VECTORsgi, an Addison, Texas-based portfolio company of Thoma Cressey Equity Partners. The deal is valued at $100 million in cash, plus a possible $35 million in performance milestone payments. Once the transaction is closed next month, VECTORsgi will operate as a wholly-owned subsidiary of Metavante, with existing management remaining in place. VECTORsgi has created in 2003, when Thoma Cressey purchased a majority interest in Sterling Commerce’s banking systems division, and spun it out into an independent company.

ITU Ventures plans to begin marketing its third fund early next year, with a target capitalization of $175 million. The Los Angeles-based firm invests in early-stage companies that have emerged or been spun out from universities, research institutions and corporations. In related news, ITU has promoted Ramneek Gupta to the position of principal, and hired former TL Ventures investor Neel Master as a new principal.

United National Group Ltd. (Nasdaq: UNGL) has agreed to acquire Penn-America Group Inc. (NYSE: PNG) and privately-held affiliate Penn Independent Corp. for $253 million. The deal will create a specialty property and casualty insurance company named United American Indemnity Ltd., and will provide Penn-America shareholders with $13.875 in United American shares and $1.50 cash per Penn-America share (total of $15.375 per Penn America share, or a 10.5% premium over Friday’s closing price). United National is a Cayman Islands-based insurer controlled by private equity firm Fox Paine & Co. Fox Paine also would become the combined company’s largest shareholder.

Ruckus Network Inc., a Herndon, Va.-based provider of a digital entertainment network for colleges and universities, has raised $9 million in Series A funding. Battery Ventures and Shelter Capital co-led the deal, with Art Bilger of Shelter and Scott Tobin and Larry Cheng of Battery joining the Ruckus Network board of directors. In other company news, William Raduchel, former chief technology officer of AOL Time Warner and former chief information officer and chief strategy officer of Sun Microsystems, has signed on as chairman and chief executive.

VoodooVox, a Williamstown, Mass.-based provider of technology that lets radio stations turn listener lines and websites into voice/data collection tools, has raised an undisclosed amount of Series B funding from Apax Partners.

VOSS of Norway ASA, a Norwegian provider of branded consumer products like bottled water, has raised $10 million in private equity funding led by The Shansby Group.

The Carlyle Group has successfully acquired a control position in Stellex Aerostructures Inc., a Lebanon, N.J.-based provider of subsystems and components for the aerospace and defense industries. No financial terms of the transaction were disclosed.

The Jordan Co. has paid $50 million to acquire Denver-based building systems maintenance company Tolin Mechanical Systems Co., according to The Deal.

ICG Communications Inc. (OTC BB: ICGC) shareholders have approved a merger agreement with MCCC ICG Holdings LLC, a newly-formed company controlled by Columbia Capital and M/C Venture Partners.

The Riverside Co. has acquired Stoffel Seals Corp., a Nyack, N.Y.-based manufacturer of plastic, metal, and paper consumable products used in a variety of applications. No financial terms were disclosed. 

CoTherix Inc., a Belmont, Calif.-based drug development company, will begin trading on the Nasdaq under ticker symbol CTRX. The company priced 5 million common shares at $6 per share, for a total IPO take of approximately $30 million. It originally filed to price the shares at between $12-$14 per share, and later reduced the range to $8-$10 per share before settling on $6 per share. CoTherix has raised over $65 million in VC funding since its 2000 inception as Exhale Therapeutics Inc. Significant shareholders include MPM Capital, Alta Partners, Sofinnova Ventures, Sofinnova Capital, Spray Venture Partners and Frazier Healthcare.

China Netcom Group Corp. (Hong Kong) Ltd., a Beijing-based fixed-line telecom provider in China and data communications operator throughout Asia, has filed to raise $1.5 billion via an IPO of American depository shares (ADS) on the NYSE under proposed ticker symbol CN. In February 2001, Goldman Sachs and News Corp. (NYSE: NWSA) invested $325 million into China Netcom Group for a 12% ownership position.

American Reprographics Co., a Glendale, Calif.-based provider of b-to-b document management services to the architectural, engineering and construction industries, has filed to raise $230 million via an IPO of common stock on the NYSE under proposed ticker symbol ARP. Private equity firm Code Hennessy & Simmons owns a 48.9% pre-IPO stake in American Reprographics, due to its participation in a February 2000 recapitalization of the company.

Chris Brookfield has left his general partner position with Northwest Venture Associates.

Elliot Maluth has joined H.I.G. Capital as a San Francisco-based managing director. He previously served as a partner with Behrman Capital.

Adam Koopersmith has joined Evanston, Ill.-based New World Ventures as a vice president. He previously served as vice president of business development at Sportvision Inc., a New World Ventures portfolio company. Prior to that, he worked with private equity firm Berkshire Partners.

Craig Jones, co-founder and president of venture capital firm Ticonderoga Capital, is running for city counsel in Los Altos Hills, Calif.

Brian Schwartz, a managing director with H.I.G. Capital, has been appointed to the board of directors at the Memorial and Joe DiMaggio Children’s Hospital Foundation.

Affinity Equity Partners, a Singapore-based buyout firm focused on the Asia-Pacific region, has closed its first fund since spinning out from UBS Capital (Asia Pacific). The new vehicle came in at $700 million.

Veronis Suhler Stevenson is raising its fourth private equity fund focused on the communications market, and already has closed on approximately $381.5 million in limited partner commitments, according to a filing with the SEC.


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