PE Week Wire, Jan. 4, 2007

I was on CNBC this morning for a 2007 buyout market outlook segment (following a pre-taped interview with Carlyle Group big David Rubenstein), but we ended up getting sidetracked by a discussion of whether or not Home Depot will go private. For the record, I think there is better than a 50/50 chance of Home Depot receiving a bid – and a similar likelihood that such an offer would include the participation of recently-ousted Home Depot CEO Robert Nardelli.

It’s too bad that we spent so much time talking about Home Depot, however, because I was all ready to bust out some new 2006 LBO deal-making and fundraising numbers, from my colleagues over at Buyouts Magazine. Since I’d hate such things to go to waste:

Disclosed Deal Value

2004: $137.844 billion

2005: $199.59 billion

2006: $314.78 billion

Note: Includes leverage & assumed debt. Only for U.S.-based targets, or deals including at least one U.S. equity sponsor.

Fund-Raising Totals

2004: $42B

2005: $184B

2006: $198B

Note: Buyout plus mezzanine debt fundraising for U.S.-based firms.

Going back to crystal-ball gazing, I’d expect both the Disclosed Deal Value and Fund-Raising Totals for 2007 will be up over 2006 numbers. The former is simply because there is no indication that deals will get smaller going forward. Plus, only about half of deal values are disclosed, and it tends to skew toward larger transactions (like Equity Office, which will close in 2007). If we don’t have at least a couple of deals valued at between $40 billion and $50 billion, I’d be surprised (I almost wrote “shocked,” but it wouldn’t quite rise to that level). And Home Depot, of course, would be twice that.

As for fund-raising, there is no projected slowdown of either supply or demand. Carlyle will raise between $15 and $20 billion, KKR is raising additional funds, Bain Capital is re-opening its fund (or at least doing something comparable) and we can expect final closes from firms like Apax U.S., Providence, Silver Lake and Thomas H. Lee. Most new funds are at least double the size of their predecessors, so we should easily surpass the $200 billion mark this year.

*** There also is some new fundraising data from Private Equity Intelligence, which shows the private equity total hitting $401 billion (compared to $311 billion the previous year). One reason why it’s higher is that it’s global (Buyouts only tracks U.S.-based funds), but also because it includes both venture capital funds and funds-of-funds.

*** Final data note: I’ve compiled the 15 largest venture capital deals of 2006. Check out both the chart and my brief explanation here:

*** A reader had mentioned that HRJ Capital (f.k.a. Champion Ventures) was in the process of being sold. It seemed a bit odd – considering that it added both hedge f-of-f and buyout f-o-f capabilities last year – but I nonetheless put the question to HRJ managing director Ed Rodden. He says that no such sale is being considered, but that such rumors may have been prompted by the decision of Harris Barton and Ronnie Lott to allow more HRJ employees to share in the firm’s equity. This initially means shared carried interest, with additional plans being formulated.

*** Buyouts Magazine is now accepting nominations for its seventh annual Deals of the Year Awards, which honor LBO firms and other participants for exceptional majority-stake transactions. Winners will be selected in 14 categories; results will be published in a special yearbook to be distributed along with the April 16 edition of the magazine. Awards will be announced prior to the distribution of the yearbook at the Buyouts Symposium, to be held April 17-18 at the Grand Hyatt Hotel in New York City. You can download the entry form here:

Top Three

Cisco (Nasdaq: CSCO) has agreed to acquire IronPort Systems Inc., a San Bruno, Calif.-based provider of messaging security appliances, for $830 million in cash and stock. IronPort has raised around $94.4 million in total VC funding since its 2000 inception, from firms like Allegis Capital, Menlo Ventures, Amicus LLC, ChevronTexaco, General Motors, New Enterprise Associates, Rembrandt Venture Partners, Starter Fluid and Western Technology Investment.

Variation Biotechnologies Inc., an Ottawa, Canada-based maker of vaccines for infectious diseases, has raised US$35.7 million in Series A funding. Clarus Ventures led the deal, and was joined by Arch Venture Partners, 5AM Ventures and certain seed backers.

MetroPCS Communications Inc., a Dallas-based wireless communications services provider, has filed for a $1.125 billion IPO. Bear Stearns is serving as lead underwriter. The company has raised around $415 million in venture capital funding since its 1994 inception. It also secured an additional $688 million in late 2005 from TA Associates and Madison Dearborn Partners, but that capital was used to fund a tender offer for shares from existing stockholders (TA and Madison also provided $50m in new capital, which is included in the $688m figure). Shareholders include TA (13.24% pre-IPO stake), Madison Dearborn (13.20%), Accel Partners (11.26%) and M/C Venture Partners (8.45%). MetroPCS had priced an IPO at $17 per share back in 2003 but, before the company could begin trading on the Nasdaq exch! ange, certain accounting inconsistencies were discovered and the IPO was withdrawn.

VC Deals

vJive, a Mumbai, India-based broadband out-of-home media & digital signage network, has closed the initial tranche of a $22.6 million venture funding round led by Matrix Partners India.

Horizon Therapeutics Inc., a Palo Alto, Calif.-based drug developer, has raised $15 million in Series B funding. Scale Venture Partners (f.k.a. BA Venture Partners) led the deal, and was joined by fellow return backers Sutter Hill Ventures and Pequot Ventures. The company had raised a $6 million Series A round in late 2005 at a post-money valuation of approximately $17 million. Horizon’s initial candidate is designed to provide pain relief while reducing stomach acidity during the peak time of risk for NSAID-induced ulceration.

InvenSense Inc., a Santa Clara, Calif.-based provider of motion sensing solutions for mobile and consumer applications, has raised $11 million in Series B funding. Qualcomm Ventures was joined by return backers Artiman Ventures and Partech International.

Mochila, an online content marketplace, has raised $8 million in new venture capital funding. Charles River Ventures led the deal, and was joined by return backers Mission Ventures, The Greenspun Corp. and Jerry Colonna.

Next New Networks, a New York-based operator of micro television networks over the Internet, has raised $8 million in Series A funding from Spark Capital. The company is run by co-founder Herb Scannell, former vice chairman of MTV Networks and president of Nickelodeon.

BizCapital, a lender owned by Advantage Capital Partners, has invested $4.5 million for the creation of The Monroe Motor Speedway, which would be the first paved auto racing facility in the New Orleans region.

Phase Bioscience Inc., a Durham, N.C.-based biotherapeutics company, has secured the first tranche of its Series B funding from Johnson & Johnson Development Corp. and return backer Hatteras Venture Partners. No financial terms were disclosed.

Stentsys, a Paris, France-based developer of stents for the treatment of blocked coronary artery bifurcations, has raised an undisclosed amount of seed funding from Sofinnova Partners.

Buyout Deals

First Reserve Corp. has agreed to acquire scaffolding services provider Brand Energy & Infrastructure Services from JPMorgan Partners. No financial terms were disclosed for the deal, which comes four years after JPMorgan Partners beat out First Reserve to buy the company from DLJ Merchant Banking for around $500 million. Brand Energy currently is in registration for a $260 million IPO.

New England Capital Partners has acquired Tog Manufacturing Co. from Pegasus Management Group and Green Mountain Partners, according to LBOWire. No financial terms were disclosed. Tog is a North Adams, Mass.-based maker of submarine and power generation parts.

Lincolnshire Management has acquired BHS Inc., a provider of trucking services for the oil and gas industry in the Wind River Basin of Wyoming. No financial terms were disclosed for the deal, which will result in BHS being merged with existing Lincolnshire portfolio company Dalbo. The deal comes just days after Lincolnshire announced another Dalbo add-on: Dawn Trucking Co. of Farmington, New Mexico.

Merck & Co. (NYSE: MRK) has decided to seek potential buyers for its generics business, according to German newspaper Handelsblatt. Such a sale could generate anywhere from Euro 4 billion to Euro 5.5 billion.

PE-Backed IPOs

Oculus Innovative Sciences Inc., a Petaluma, Calif.-based developer of products intended to help prevent and treat infections in chronic and acute wounds, has amended its IPO terms. It now plans to offer 3.5 million common shares between $8 and $10 per share, as opposed to earlier plans to offer around 3.08 million shares at between $12 and $14 per share. It still plans to trade on the Nasdaq under ticker symbol OCLS, with Roth Capital Partners serving as lead underwriter. Oculus has raised over $56 million in private equity funding, from firms like Western Technology Investment and Brookstreet Securities.

PE-Backed M&A

Renal Advantage Inc., a Brentwood, Tenn.-based provider of dialysis services, has completed its previously-announced acquisition of RenaLab from Fresenius Medical Care North America. No financial terms were disclosed. RenaLab is a Jackson, Miss.-based independent clinical laboratory with administrative offices in Nashville. Renal Advantage is backed by Welsh, Carson, Anderson & Stowe.

PE Exits

Visant Corp. has agreed to sell book printer Von Hoffman to RR Donnelley & Sons Co. (NYSE: RRD) for $412.5 million in cash. Vistant (a.k.a. Jostens) is owned by KKR and DLJ Merchant Banking Partners.

ECI Partners has sold UK-based online hotel booking agency LateRooms to First Choice Holidays PLC for Gbp108 million.

Macrovision Corp. (Nasdaq: MVSN) has acquired Mediabolic Inc., a San Mateo, Calif.–based provider of software solutions for connected consumer electronics devices. The deal is valued at approximately $43.5 million in cash. Mediabolic shareholders include Aurora Ventures, Intel Capital, Spinnaker Ventures and AsiaTech Management.

NextWave Wireless Inc. (Nasdaq: WAVEV) has agreed to acquire GO Networks Inc., a Mountain View, Calif.-based developer of mobile Wi-Fi network solutions for service providers looking to deploy on campuses and in municipalities. The deal includes an initial cash payment of $13.3 million, plus up to $25.7 million in possible earnouts that would be paid in NextWave common stock. NextWave also will assume around $7.46 million in existing GO Networks obligations. GO Networks raised a $20 million Series A round in late 2004 at a post-money valuation of approximately $40 million. Backers include Accel Partners, Apax Partners, Israel Seed Partners and Pitango Venture Capital.

Firms & Funds

Mellon Financial Corp. has completed a substantial portion of the sale of its ownership interests in the direct and indirect portfolios of Mellon Ventures, Mellon’s venture capital business, to Goldman Sachs Private Investments Ltd. and New MVI LP. One or more subsequent closings will occur during the first quarter of 2007 once remaining consents to the transfer are obtained. Based on this transaction, the financial results from Mellon’s venture capital portfolio will be classified as discontinued operations in the fourth quarter of 2006. The disposal of the portfolio and related costs are expected to generate an after-tax loss of approximately $70 million. (source: Mellon 8-K filing)

Sheppard, Mullin, Richter & Hampton LLP has formed an Aerospace and Defense M&A practice. It will be led by partner Larry Braun, with newly-hired partner John Mullan (previously with Northrop Grumman) also to be involved.

Human Resources

Barry Miller has joined Pomona Capital as a partner. He had spent the past six years with AXA Private Equity, where he was head of the New York office.

Warburg Pincus has promoted both David Krieger and Justin Sadrian to the position of partner. Krieger has been with the firm since 2000, and focuses on the energy sector. Sadrian also joined Warburg Pincus in 2000, and focuses on technology, media and telecom opportunities. Both Krieger and Sadrian work out of New York.

Conduit Capital Partners, a private equity firm focused on the independent electric power industry in Latin America and the Caribbean, has promoted five professionals to partner: Eyob Easwaran, Marc Frishman, Samuel Gomez, Juan Paez and Liliana Rauch.

Trivest Partners has promoted Forest Wester to the position of Principal. He joined Trivest as an associate in 2005, and currently serves on the board of portfolio company Box-Board Products Inc.

Michael Aiello has joined Weil, Gotshal & Manges LLP as a partner in the M&A group of the firm’s corporate department. He previously was with Dewey Ballantine.

Timothy Shriver, chairman of the Special Olympics, has joined the advisory board of Leeds Equity Partners.

Seok-heon Kim, managing partner of Cornerstone Equity Partners, has joined the board of South Korean online auction marketplace Gmarket Inc. (Nasdaq: GMKT).