PE Week Wire: Friday, October 3, 2008

Last night I attended Highland Capital Partners’ 20th anniversary party, which commandeered the entire Boston Science Museum. Quite the bash, including a 3-on-3 basketball tournament for Highland portfolio companies (won by O Beverages), the Celtics championship trophy (I touched it), Celtics cheerleaders (I didn’t touch them), CEOs, limited partners, local politicians and former Melrose Place star Andrew Shue.

Perhaps the best VC event I’ve ever been to in Boston, even though it wasn’t for area VCs (only one I saw was Howard Anderson, and he’s quite explicitly not a VC anymore).

Very ebullient crowd on the surface, but things were pretty different when it came to one-on-one conversations. These were all off-the-record, but it’s fair to say that I heard things that sound like a step beyond the tip of a glacier. Not just general credit concerns, but deals that have collapsed at the last minute due to pulled financing, new funds that can’t close because of cancelled commitments, LPs trying to quickly reduce asset class exposure, bankruptcy lawyers gearing up for a flood of defaults and more.

Venture capital firms like Highland may weather the coming storm better than will buyout firms, since the former almost never use leverage. But I’m really growing more and more pessimistic by the day about both sides of the private equity coin (as if you couldn’t tell by now). Some of these troubles are just so fundamental, particularly when it comes to LPs. For example, what if one of your conerstone investors is a municipal or state pension for a municipality or state that is having big problems servicing its debt? Or is an institutional investor who’s seen its overall portfolio value shrink so much that it’s now breached its private equity allocation?

Before leaving last night, I wandered up to the Museum’s top level for a bird’s eye view of the happenings below. Almost everyone in that room (myself included) will be okay, when compared to people who are truly suffering. But I couldn’t help but wonder if this was the last big celebration that I was going to see for a while…

*** Jim Lehrer did not ask the presidential candidates last Friday about possible treasury secretaries in their administrations, but McCain at least threw out some names yesterday: Warren Buffett, Meg Whitman and John Cambers. As of last check, all Obama has said on the matter was that he’d consider asking Paulson to stay (McCain declined to comment on Paulson).

*** ChemoCentryx is supposed to be public by now, having filed for a modest $57.5 million IPO last November. But that obviously hasn’t happened, since the subsequent IPO has since been nailed shut, painted over and covered in crazy glue. So what’s aVC-backed biotech companyto do?

In the case of ChemoCentryx, the answer has been to take an additional $50 million from existing investor GlaxoSmithKline. I’ve learned that the unannounced deal closed within the past two months, and came at a higher valuation than did its Series D round in March 2007 ($30m round at a $188m post-money). GSK initiated the conversations, and other existing shareholders did not participate.

The deal provides ChemoCentryx with nearly as much cash as it hoped to raise via its IPO, which means that it has plenty of leeway to continue clinical trials on compounds designed to treat autoimmune diseases, inflammatory diseases and cancers. It does not, however, provide any future liquidity options for ChemoCentryx VCs, including some that first invested back in 2001. Perhaps that’s why the company has not yet withdrawn its IPO filing, and why it remains open to potential M&A conversations.

Prior to this round, ChemoCentryx had raised $104 million in VC funding, from firms like Alta Partners, GSK, Hare & Co., HBM BioVentures, HealthCap and OrbiMed Advisors. The company declined to comment on the round, citing regulatory restrictions.

*** peHUB reported in August that David Dame had stepped down as a managing director of Key Venture Partners, in order to become “an operating partner at a middle-market buyout firm to be named later.” We’ve now learned that the firm is Huntsman Gay Capital Partners, a Utah-based shop formed last year by industrialist Jon Huntsman, former Bain Capital pro Bob Gay and a handful of folks from Sorenson Capital (including ex-49ers quarterback Steve Young).

*** As a gratuitous aside: I tried getting Young to comment about the firm earlier this year, to no avail. He did, however, graciously keep providing “no comments” each time I called. One of these occurred while I was having a beer with some friends – friends who find my work quite arcane. Perhaps the only time they’ve ever envied me was when they had to sit there listening to me on my cell phone with Steve Young. These are the things to savor…

*** Go Sox!

Top Three

Mid Europa Partners has agreed to acquire an additional 37.3% stake in Czech broadcast services company Falcon Group, from consortium partner Lehman Brothers.

Dexterra Inc., a Bothell, Wash.-based provider of mobile workforce and field service software, has raised $21.5 million in sixth-round funding. New Enterprise Associates led the round, and was joined by fellow return backers Canaan Partners, Intel Capital, Mesirow Financial, Motorola Ventures and Sigma Partners. It has now raised over $100 million in total VC funding since its 2002 inception.

UBS AG said today it will cut another 2,000 jobs from its investment banking unit, and that it will close most of its commodities business.

VC Deals

The Cloud, a UK-based wireless broadband provider, has raised €15 million in new VC funding. Ferd Venture led the round with a €7.5 million infusion, and was joined by GP Bullhound and return backers 3i Group, Accel Partners and Provider Venture Partners.

Intradigm Corp., a Palo Alto, Calif.-based developer of RNAi therapeutics, has raised $18.5 million in Series B funding. Lilly Ventures led the round, and was joined by Roche Venture Fund, MP Healthcare Venture Management and return backers Frazier Healthcare Ventures, Alta Partners, MediBic Alliance Technology Fund and Novartis Venture Fund.

Ingrain, a Houston-based rock physics company, has raised $15 million in second-round funding. Backers include Energy Ventures, Shoaibi Group, Klaveness Invest AS, Kommunal Landspensjonskasse (KLP) and Stanford University.

Auraria Networks Inc., a Boxborough, Mass.-based provider of content management and information analysis products, has raised $10 million in Series B funding, according to a regulatory filing. Pilot House Ventures was joined by return backer Matrix Partners.

Avaak, a San Diego-based provider of personal video networking solutions, has raised $7 million in Series A funding. Trinity Ventures led the round, and was joined by InterWest Partners and Leapfrog Ventures.

Redwood Systems Inc., a Danville, Calif.-based startup focused on commercial building energy conservation, has raised $4 million in Series A funding, according to a regulatory filing. Backers include Battery Ventures and U.S. Venture Partners. The company is run by former Cisco executive Dave Leonard. It does not yet have a website.

EcoMotors, a Troy, Mich.-based developer of low-emission, fuel-efficientdiesel engines, has raised $5.25 million in Series A funding from Khosla Ventures, according to a regulatory filing. The round was announced earlier this year without a dollar amount.

Transave Inc., a Monmouth Junction, N.J.-based developer of inhaled drugs for site-specific treatment of serious lung diseases, has secured a $12.5 million venture loan from CIT Healthcare and Compass Horizon Funding Co. The company has raised nearly $100 million in VC funding from firms like Quaker BioVentures, Bessemer Venture Partners, TVM Capital, Prospect Venture Partners, Fidelity Biosciences, Forbion Capital Partners and Easton Capital.

Buyout Deals

Arsenal Capital Partners has agreed to acquire the Fine Chemicals business of Ferro Corp. (NYSE: FOE), for $66 million. The deal would result in a standalone company named Novolyte Technologies, which makes electrolytes used in the manufacture of lithium ion batteries and other products. It is expected to close later this year.

CCMP Capital Asia has quit the auction for Frucor Beverages, a New Zealand Pepsi distributor that is on the block for up to A$800 million. It is unclear if CCMP Capital Asia’s partner on the process, Pacific Equity Partners, will continue alone, find a new partner or also quit.

Cerberus Capital Management has expressed interest in buying Nextel from Sprint Nextel Corp., according to The Wall Street Journal. Also expected to make a bid is Latin American telco NII Holdings Inc.

Daito Trust Construction Co. of Japan has shelved a planned $6 billion privatization plan, after proposed buyers failed to secure enough financing.

High Road Capital Partners has acquired All Current Electrical Sales Inc., a wholesale reseller of electrical parts and components used in heavy duty industrial, infrastructure and energy applications. No pricing terms were disclosed. Debt financing was provided by US Bank, PNC Bank and Babson Capital Management.

River Associates Investments has sponsored a recapitalization of Boxercraft Inc., an Atlanta-based maker of specialty apparel like licensed collegiate clothing. The deal included a $21 million one-stop financing from Patriot Capital Funding.

Seaport Capital has led an acquisition of American Internet Services Inc., a San Diego-based provider of data center co-location services. Also participating were Viridian Investment Partners and DuPont Capital Management. No financial terms were disclosed.

Tandberg, a listed Norwegian video conferencing company, announced that takeover talks with an unnamed private equity firm have ended.

PE-Backed IPOs

Safety-Kleen Inc., a Plano, Texas-based provider of oil collection, re-refining and recycling in North America, has indefinitely postponed its IPO due to “adverse market conditions.” It had planned to sell around 21.9 million common shares at between $15 and $17, with Merrill Lynch and JP Morgan serving as co-lead underwriters. Shareholders include Highland Capital Management (38% pre-IPO), Contrarian Capital Management (19.8%), JPMorgan Partners (15.5%) and GSC Group (9.2%).

PE Exits

Oracle has agreed to acquire Advanced Visual Technology Ltd., a UK-based provider of 3D visual macro space planning software for retailers. No financial terms were disclosed. AVT had raised an undisclosed amount of VC funding from Advent Venture Partners and NewMedia Spark PLC.

The Riverside Company has sold Richter Chemie-Technik GmbH to IDEX Corp. No financial terms were disclosed. Richter Chemie-Technik is a German maker of pumps and valves for handling corrosive and high-purity fluids involved in the processing of chemicals and pharmaceuticals.

Stone Point Capital has completed its sale of Wayne, Pa.-based wireless handset insurer Signal Holdings LLC to Assurant Inc. (NYSE: AIZ) for $250 million in cash.

TPG-Axon Capital Management reported yesterday that it holds a 3.86% stake in National City Corp. (NYSE: NCC), or around 81 million shares. It had reported owning more than 5% of the troubled bank’s shares as of Sept. 22.

Firms & Funds

Claremont Creek Ventures has closed its second fund with $175 million in capital commitments. The Oakland, Calif.-based firm focuses on early-stage IT opportunities in the healthcare, mobility and security spaces.

Flexpoint Ford (f.k.a. Flexpoint Partners), a Chicago-based private equity firm focused on the financial services and healthcare sectors, has closed its second fund with a total of $1.28 billion. The first $800 million is for the firm’s general fund, while the other $480 million is for an overage fund.

JPMorgan Securities has downgraded the stock of American Capital Ltd. from “neutral” to “underweight.”

Wells Fargo & Co. has agreed to buy Wachovia Corp. for $15.1 billion.

Human Resources

Dermot Hanley and Yuki Narula have joined Irish investment firm Claret Capital, in order to lead its new private equity fund teams in Dublin and New York, respectively. Hanley previously was with JPMorgan, as a Toronto-based executive director of mid-corporate investment banking. Narula also was with JPMorgan, as a New York-based executive director in its financial sponsors group.

Bank of America announced that John Thain, CEO of Merrill Lynch, will become president of global banking, securities and wealth management when BoA buys Merrill next year.