PE Week Wire, Jan. 17, 2007

Wall Street analysts beware: Your jobs could soon be outsourced.

That’s the message coming from Adventity, an India-based company that this morning announced $20 million in VC funding led by Norwest Venture Partners. Well, Adventity doesn’t put it quite so ominously, but it’s hard to miss the implications of its sales pitch to corporation, I-banks and asset managers like private equity firms and hedge funds: Get high-quality research and analytics at a far lower cost than what you are accustomed to paying.

This is known as “knowledge process outsourcing,” a twist on the more commonly-discussed business process outsourcing. Promod Haque, managing partner of NVP and a new Adventiy board member, says that the business opportunity partially relates to the cost arbitrage, but also to the availability of talent: “What you find in the high-end research and analytics space is that many of the skill sets used are by folks with engineering degrees and MBAs – and that talent is more readily available in India than in the United States.”

I followed up by asking why such a person from India wouldn’t continue following the traditional path of spending a few years in New York to make his/her fortune, with plans of then returning home. After all, you can still make better salaries on Wall Street than working for Adventity in India. His answer was two-fold: First, there is the obvious tug of home/family, and an acceptance of trading off some cash for comfort. Second, and of equal import, is the fact that U.S. immigration laws have become increasingly prohibitive.

It also should be noted that Adventity is more than just a research shop, with significant interests in areas like transaction processing. More specifically, it hopes to use such business lines to generate in-country revenue – perhaps up to 20%.

“We want to become the [First Data Corp.] of India,” Haque says. He adds that Adventity should not require additional VC funding, save for possible acquisition capital.

*** Bids are due today for Tribune Co., and it looks like private equity firms will remain on the sidelines. CNBC’s David Farber yesterday – and Zach Kouwe in today’s NY Post — reported that a group of Apollo Management, Madison Dearborn and Providence Equity Partners have done significant due diligence, but couldn’t find a way to make the numbers make sense. Ditto for Bain Capital and TH Lee. This means that the only folks likely to submit bids today are the Chandler family and, possibly, the tag-team of Ron Burkle and Eli Broad.

This development should not surprise regular readers of this column, as I’ve previously expressed disbelief that private equity firms would buy into a market (urban daily newspapers) that is so clearly sliding off a cliff. My only moment of self-doubt came when Avista agreed to acquire the Star-Tribune last month, but the basic explanation there is that Avista got a real bargain from a motivated seller (McClatchy). It is unlikely that public Tribune shareholders will be as generous. And that’s a blessing for potential bidders.

*** Does anyone know what happened to Sand Hill Slave, the VC firm executive assistant whose racy blog was a source of occasional amusement? The site seems to have disappeared, which obviously raises questions as to whether or not she was outed/discovered…

*** Coller Capital just released its latest Private Equity Barometer, and it includes some results that mirror the ACG/Thomson Dealmaker’s Survey from last week. Specifically, 49% of limited partners plan to increase their allocations over the next 12 months (57% will stay at current levels), but over 40% of LPs also expect the exit environment for North American and European buyouts will “deteriorate over the next year or two.” In other words, LPs are increasing exposure to an asset class which they expect to provide decreased returns. My head hurts.

*** We had some tech glitches last night with people trying to sign up for peHUB Premium Subscriptions, which provide archived access to all past PE Week Wires and content (for just $124, plus tax). Our techies seem to have fixed it within the last hour, but please contact me via email if problems persist.

Top Three

Cerberus Capital Management reportedly has dropped out of a group considering a rival offer for commercial real estate giant Equity Office. The consortium still includes Vornado Realty Trust, Starwood Capital and Walton Street Capital, but it is unclear if it will still be able to make an offer. The Blackstone Group agreed last year to acquire Equity Office for $36 billion (including $16 billion in assumed debt). It was believed that the rival bid would be in excess of $38 billion.

Validus Holdings Ltd., a Bermuda-based reinsurance company, has filed for a $200 million IPO. It plans to trade on the NYSE under ticker symbol VR, with Goldman Sachs and Merrill Lynch serving as co-lead underwriters. Validus was formed in October 2005, with funding from Aquiline Capital Partners, Goldman Sachs Capital Partners, Vestar Capital Partners, New Mountain Capital and Merrill Lynch Global Private Equity.

Boston-Power Inc., a Westborough, Mass.-based developer of lithium-ion batteries, has raised $15.56 million in Series B funding, according to a regulatory filing. Granite Global Ventures was joined by return backers Venrock Associates and Gabriel Venture Partners co-led the deal.

VC Deals

Tigris Pharmaceuticals Inc., a Bonita, Fla.-based developer of cancer therapies, has raised around $16 million in Series B funding. NGN Capital led the deal, and was joined by Wexford Capital and Bushido Capital Partners. Riverbank Capital Securities acted as placement agent.

PostPath Inc., a Mountain View, Calif.-based maker of Linux-based email and collaboration servers, has raised $15 million in Series C funding. Jafco Ventures led the deal, and was joined by return backers investors Matrix Partners and Worldview Technology Partners.

Trianz, a Bangalore, India-based provider of consulting, technology and outsourcing services, has raised $14 million from the NYLIM India Fund.

Circulite Inc., a Hackensack, N.J.-based maker of implantable ventrical medical devices, has secured $10.2 million of a $25 million Series B round, according to a regulatory filing. Shareholders include Giza Venture Capital and Oxford Bioscience Partners.

Electric Cloud, a Mountain View, Calif.-based provider of software production management solutions, has raised $9 million in Series C funding. Rembrandt Venture Partners led the deal, and was joined by return backers Mayfield Fund, RRE Ventures and U.S. Venture Partners.

Millennial Media, a Baltimore, Md.-based mobile advertising startup, has raised $6.3 million in Series A funding. Bessemer Venture Partners and Columbia Capital co-led the deal, with Acta Wireless also participating.

vMix Media Inc., a San Diego-based online media platform, has raised $5.5 million in Series B funding from return backers Mission Ventures and Enterprise Partners. It had announced the deal last week, but without a dollar amount.

EyeGate Pharma, a Paris-based developer of iontophoresis technology to non-invasively deliver therapeutics for ocular indications, has raised $2 million in additional Series B funding from The Nexus Group. The round total now stands at $12 million, with first-tranche backers including Innoven Partenaires and Ventech.

Geni Inc. has launched with a mission is “to create a family tree of the entire world.” The Los Angeles-based startup is run by former PayPal COO David Sacks, and has raised an undisclosed amount of VC funding from The Founders Fund.

Therative, a San Francisco-based maker of a handheld consumer medical device for the treatment of acne, has raised an undisclosed amount of Series B funding. It brings the company’s total venture capitalization to over $5 million. Backers include Foundation Capital, RWI Ventures and Band of Angels.

Buyout Deals

Formation Capital and JER Partners have agreed to acquire Genesis HealthCare Corp. (Nasdaq: GHCI) for $63 per share. The total deal is valued at $1.7 billion, including the assumption of around $450 million in debt. GHC is a Kennett Square, Pa.-based long-term care provider with over 200 skilled nursing centers and assisted living residences in 13 eastern states.

Akzo Nobel NV has received three bids for its pharmaceutical unit Organon BioSciences, according to Dow Jones. Each is in the range of Euro 8 billion to Euro 10 billion. One consortium includes Blackstone Group, Bain Capital, Alpinvest Partners NV, Apax Partners and Texas Pacific Group. The second includes KKR and Warburg Pincus, while members of the third are Carlyle Group, Advent International and BC Partners.

Interpool Inc. (NYSE: IPX) has received a $24 per share buyout offer from company CEO and chairman Martin Tuchman, who is being supported by other significant Interpool stockholders and Fortis Merchant Banking. Interpool is a Princeton, N.J.-based supplier of equipment and services to the transportation industry.

Residential Credit Solutions Inc. has been formed as a Fort Worth, Texas-based residential mortgage investment and servicing company focused on credit-sensitive and servicing-intensive mortgage assets. It is backed by a $125 million capital commitment led by Equifin Capital Partners. Och-Ziff Capital Management also participated.

ECI Partners has sponsored a Gbp56 million management buy-in of Aerial Facilities Ltd., a UK-based provider of products and solutions which extend the coverage of wireless networks. The new management team is led by CEO Ian Brown, who previously served as CEO of Redstone PLC.

Wellspring Capital Management has sponsored an equity recapitalization of ChemAid Laboratories Inc., a Saddle Brook, N.J.–based contract manufacturer of specialty hair care, skin care and bath and body treatment products. No financial terms were disclosed.

Centre Partners Management LLC and affiliate Centre Southwest Partners LLC have formed Nexus Gas Partners LLC, a Dallas-based midstream service provider of natural gas gathering, transportation, processing and related pipeline services to natural gas producers in East Texas and Northwest Louisiana. No financial terms were disclosed. In related news, Nexus announced that it has acquired Dominion Midstream Services, which was previously a privately held company of the Dallas-based Dominion Gas Group. The acquired assets consist of the Logansport gathering and dehydration system, which currently gathers approximately 100 million cubic feet of natural gas per day from the Joaquin Field in Shelby County and Panola County, Texas and the Logansport, Grand Cane, Spider and Benson Fields in DeSoto Parish, Louisiana.

PE-Backed IPOs

Animal Health International Inc., a Westlake, Texas-based distributor of animal health products, has set its proposed IPO terms to 11.8 million common shares being offered at between $10 and $12 per share. It plans to trade on the Nasdaq under ticker symbol AHII, with JPMorgan serving as lead underwriter. Charlesbank Capital Partners bought the company from Bain Capital in 2005, and holds a 76.4% pre-IPO position.

Mellanox Technologies Inc., a Santa Clara, Calif.-based provider of interconnect solutions for servers, storage and infrastructure equipment, has set its proposed IPO terms to six million common shares being offered at between $12 and $14 per share. It plans to trade on the Nasdaq under ticker symbol MLNX, with Credit Suisse and JPMorgan serving as co-lead underwriters. The company has raised $89.34 million in VC funding since its 1999 inception, from firms like Intel Capital, Sequoia Capital, U.S. Venture Partners, Jerusalem Global Ventures and Walden Israel.

PE-Backed M&A

TestAmerica a portfolio company of H.I.G. Capital has completed its acquisition of Severn Trent Laboratories Inc., an environmental testing firm with 32 laboratories throughout the United States, from Severn Trent PLC. No financial terms were disclosed.

Triad Isotopes Inc., an Orlando, Fla.-based provider of radiopharmaceuticals that are used for both diagnostic imaging procedures and disease treatment, has raised an undisclosed amount of funding from Parthenon Capital. It used the infusion to has acquire three nuclear pharmacy operators: Diversified Pharmacy Group, Cox Nuclear Pharmacies and Coastal Nuclear Pharmacies. No financial terms were disclosed for the acquisitions, after which the founders of each of the merged companies will continue as senior members of Triad’s management team.

PE Exits

GTCR has completed its sale of home security monitoring company HSM Electronic Protection Services Inc. to The Stanley Works for $545 million. GTCR acquired HSM in 2004 from Honeywell International.

Gresham Private Equity has sold UK childcare provider Busy Bee Group Ltd. to ABC Learning Centres Ltd. for Gbp71 million (approx. $140m). The deal closed late last year, with Downer & Co. advising ABC.

Allied Capital has sold portfolio company Palm Coast Data Holdco Inc. to Kable Media Services Inc., a wholly-owned subsidiary of AMREP Corp. (NYSE: AXR). The deal was valued at $92 million. Palm Coast is a Palm Coast, Fla.-based provider of fulfillment services to U.S. publishers of magazines and to membership associations. Allied acquired the company in partnership with company management in August 2005, and held an 85.7% stake.

TSG Consumer Partners has retained Piper Jaffray to explore strategic options for portfolio company Harry’s Fresh Foods, according to The Deal. Harry’s is a Portland, Ore.-based bulk seller of soups and other food products to supermarkets.

Firms & Funds

Spire Capital Partners of New York is raising up to $300 million for its second fund, according to a regulatory filing. As of December 8, it had secured $89.95 million in commitments. The firm’s inaugural fund was capped at $260 million.

Edison Venture Fund is planning to close its sixth fund by the end of March with $240 million, according to VentureWire. It already has secured $232 million in capital commitments from LPs like BlackRock, Colorado Public Employees’ Retirement Association, Lincoln Financial Group, Metropolitan Life Insurance Co., New York State & Local Retirement System and the New Jersey Investment Council.

Institutional Venture Partners is targeting $400 million for its twelfth fund, according to Private Equity Insider.

Human Resources

Ralph Parks has joined Oaktree Capital Management as chairman of its Asia-Pacific operations. He previously was chairman and CEO of JPMorgan Asia Pacific.

Clive Norton has joined Helix Associates, a private equity fund placement subsidiary of Jefferies International, as a London-based managing director. He previously was with Goldman Sachs as co-head of European private equity.

Inder Duggal has joined MMV Financial as COO and CFO. He previously was CFO, secretary, treasurer and director of Canadian technology company Hummingbird Ltd.

Stuart Duty has joined Piper Jaffray as a managing director and co-head of its Healthcare I-banking team. He previously was a partner, COO and director of strategic investments with Oracle Investment Management.

Adam Roseman, founder and CEO of ARC Investment Partners, has been named interim CEO of Xyience Inc., a Los Angeles–based maker of healthy snack bars, beverages and nutritional supplements. A permanent CEO search is underway.