PE Week Wire: Mon., April 28, 2008

Yet another PE-backed airline went bust yesterday, when Eos Airlines filed for Chapter 11 bankruptcy protection. So add it to the April showers list that already includes both Aloha Airlines and ATA.

On the one hand, it’s tough to fault the Eos investors here. All airlines are struggling from higher fuel costs, and smaller carriers are particularly prone to margin troubles. But on the other hand, this company’s financing was curious from the get-go. Eos had raised $123 million from firms like Golden Gate Capital, Maveron and Sutter Hill Ventures. Do you see an established travel name in there? Nope, me neither.

In fact, I’ve heard for years that the initial Eos decision was hotly contested within Golden Gate, a private equity firm known for investing in the technology sector. It’s one thing to stray a bit from your knitting, but quite another to forego yarn altogether. Maybe that’s why Golden Gate didn’t come through with additional financing. Eos said that it had a term sheet in hand for additional financing, but that “some issues arose that prevented the parties from moving forward.” Prior reports had indicated that the company was nearing a $50 million investment from a “current investor,” which would almost have to mean Golden Gate. The only question now is which PE-backed airline is the next to go.

*** One of today’s top stories is that DataCore, a maker of storage virtualization software, has received a $30 million equity investment from Insight Equity Partners and Updata Partners. No mention is made in the press release of the company previous $85 million in VC funding, nor of existing shareholders like Flagship Ventures and New Enterprise Associates.

So I made a call to Jeff Horing, who led the deal for Insight. He says that the financing is a combined recap and equity infusion. This means that existing backers – both institutional and individual – generated some liquidity, but that many of them remain minority shareholders. He also says that the deal was not a “cram down,” although acknowledges that the company had some “tougher” rounds of financing a few years back. I assume he’s referring to the tranched-out $43 million in Series D funding, which came at basically the same $120 million post-money valuation as DataCore’s $35 million Series C round in 2000.

Horing adds that DataCore has been profitable for the past two quarters, and that he does not expect it to require additional private equity funding.

*** Headwaters MB, a middle-market I-bank based in Denver, has launched a new gaming practice. Not the type that focuses on casual MMOs, but the type that focuses on old fashioned casino gaming. Specifically, it will focus on transactions related to small and mid-sized casinos in states like California, Indiana and the Dakotas.

It seems that there are a bunch of similar practices out there – Houlihan Lokey, Morgan Joseph, Jefferies & Co., etc. – but what is new to me may (or may not) be new to you. So I spoke last week with new Headwaters hire Jim von Kreuter, who will run the firm’s effort. He says that it will focus on M&A advisory and capital-raising work for the vast array of casino-related vendors (equipment, hospitality, etc.), and also on the real estate component. Specifically, he says that a lot of real estate developers will want to build hotel/golf/casino facility, but that they don’t want to jump through the hoops of securing a gaming license. So Headwaters and others can help these developers partner with folks/tribes that already have gaming operations in place – but who don’t have much surrounding infrastructure.

*** Self-Promotion Alert: I’ll be on CNBC today at 4:30pm, to talk M&A and private equity overview stuff.

*** peHUB First Read, including the fate of VC-backed IMO and Russell Read’s next gig. I’ve also posted the latest private equity performance data from NVCA and Thomson Reuters.

Top Three

Austin Ventures has formed an acquisition platform to roll up enterprise-class social software-as-a-service companies. The Austin, Texas-based platform also will provide strategic consulting services, and will be run by former Razorfish co-founder and CEO Jeffrey Dachis. AV is committing $50 million to the venture.

Rackspace Inc., a San Antonio-based hosting company, has filed for a $400 million IPO. It plans to trade on the NYSE under ticker symbol RAX, with Goldman Sachs, Merrill Lynch and Credit Suisse serving as co-lead underwriters. The company has raised over $48 million in VC funding since 1999, from firms like Norwest Venture Partners (16.2% pre-IPO stake) and Sequoia Capital (11.6%). It had first filed for an IPO in early 2000, but pulled it later that year due to unfavorable market conditions.

Summit Partners has closed its first European private equity fund with €1 billion in capital commitments. It also raised $825 million for its fourth subordinated debt fund.

VC Deals

DataCore Software Corp., a Ft. Lauderdale, Fla.-based maker of storage virtualization software, has raised $30 million in recap and growth equity funding from Insight Venture Partners and Updata Partners. Some of the proceeds were used to provide liquidity to existing shareholders. DataCore had previously raised around $85 million over four rounds of funding, from firms like Flagship Ventures, New Enterprise Associates, Scale Venture Partners, Intel Capital, Van Wagoner Capital Management and Vista Equity Partners.

Nuon Therapeutics Inc., a San Mateo, Calif.-based developer of drugs for treatment of autoimmune and chronic inflammatory diseases and pain, has raised $27 million in Series B funding. Frazier Healthcare Ventures and Domain Associates co-led the round, and was joined by return backers GBS Venture Partners (Australia).

Xunlight Corp., a Toledo, Ohio-based developer of low-cost and flexible thin-film silicon solar modules, has raised $22 million in Series B funding. Trident Capital led the round, and was joined by return backers Emerald Technology Ventures and NGP Energy Technology Partners. The company had raised $7 million in Series A funding last July.

SurgRx Inc., a Redwood City, Calif.-based developer of laparoscopic vessel fusion tools for surgical hemostasis, has raised around $20 million in Series G funding, according to a February regulatory filing. The company has now raised around $83 million in total VC funding since 2003, from firms like Alta Partners, New Enterprise Associates, California Technology Ventures, Magnetar Capital Return, Prospect Venture Partners and Trellis Health Ventures.

Jobster Inc., a Seattle-based provider of online recruiting tools and services, has raised $7 million in Series D funding. Return backers include Ignition Venture Partners, Mayfield, Reed Elsevier Ventures and Trinity Ventures. Jobster has now raised around $53.5 million in total VC funding since 2004.

LeadPoint, a Los Angeles-based online leads exchange operator, has raised $6 million in Series E funding from Silicon Valley Bank Ventures. The company has now raised $15.5 million in total VC funding since 2004. Past backers include Redpoint Ventures.

NineSigma Inc., a Cleveland-based provider of search services for companies investigating outside research opportunities, has called down $4 million of a $4.5 million Series E round, according to a regulatory filing. Backers include River Cities Capital Funds and Blue Chip Venture Co.

Pacific Title & Art Studio, a Hollywood-based provider of post-production services to the film industry, has raised $3 million from Celerity Partners and Ticonderoga Capital.

Lead Media Partners, a South Jordan, Utah-based provider of online lead generation services to the higher education market, has raised an undisclosed amount of private equity funding from Peterson Partners.

Prematics Inc., a Bethesda, Md.-based provider of electronic prescribing services, has raised an undisclosed amount of Series B funding led by Health Evolution Partners Innovation Network.

Buyout Deals

A New York judge on Friday dismissed counterclaims filed against Clear Channel Communications, by the banks that had agreed to fund Clear Channel’s $20 billion buyout by Bain Capital and Thomas H. Lee Partners. Counterclaims against the two private equity firms will stand, with the judge ordering them to reply within the next week.

Cortec Group is in talks to acquire athletic apparel and giftware retailer EB Brands from Milestone Partners, according to LBO Wire. The deal is valued at between $130 million and $150 million, with existing EB Brands lender GE Antares Capital providing the financing. Milestone is being advised by Lazard Middle Markets.

First Reserve Corp. has completed its €261 acquisition of Gamesa Solar, the solar energy unit of Spain’s Gamesa Corporacion Tecnologica SA. Gamesa Solar designs and builds solar photovoltaic plants, plus provides turn-key project management for third parties. Gamesa was advised on the deal by Citigroup. First Reserve says that it plans to invest €600 million in the next four years in developing renewable energy assets.

AMPAM Parks Mechanical Inc., a plumbing contractor for large apartment housing projects in Southern California, has raised $23.5 million in private equity funding from Key Principal Partners. The investment is in exchange for a minority ownership position.

PE Exits

Cerberus Capital Management has agreed to sell Czech bank BankCZ, a unit of Austrian bank Bawag, to German state bank LBBW for €160 million.

Permira has agreed to sell German mobile phone carrier Debitel to Freenet for €1.63 billion. The move is strongly opposed by United Internet, which holds a 25% stake in Freenet and has been trying to buy and/or break up the company.

PE-Backed IPOs

Nexsan Corp., a Thousand Oaks, Calif.-based maker of disk-based storage systems, has filed for an $80.5 million IPO. It plans to trade on the Nasdaq under ticker symbol NXSN, with Thomas Weisel Partners serving as lead underwriter. It has raised over $17 million in VC funding since 2003, from firms like VantagePoint Venture Partners (23.2% pre-IPO stake), GESFID (20%), RRE Ventures (6.9%) and Beechtree Capital.

Verso Paper Corp., a Memphis, Tenn.-based producer of coated papers, has set its IPO terms to 18.75 million common shares being offered at between $16 and $18 per share. It would have an initial market cap of approximately $1.02 billion. Verso is wholly-owned by Apollo Management.

PE-Backed M&A

Local Insight Media LP, a publishing portfolio company of Welsh Carson Anderson & Stowe, has completed its acquisition of a collection of online directories from L.M. Berry & Co., a subsidiary of AT&T. No financial terms were disclosed.

Firms & Funds

KKR has closed its third European buyout fund with €6 billion in capital commitments, according to Dow Jones. That’s 33% more than it raised for its prior European fund, but well short of its €8 billion target.

Quaker BioVentures has closed its second fund with $420 million in capital commitments. The Philadelphia-based firm invests in early-stage life sciences companies, and had been targeting $300 million.

The Asian Development Bank has invested more in private equity firms than permitted by its own rules, according to an internal ADB report obtained by The Financial Times.

East West Capital Partners of Singapore is targeting $400 million to invest in healthcare companies in Asia and other emerging markets, according to LBO Wire.

TCR Capital, a French buyout firm focused on the lower middle-markets, has closed its third fund with over €160 million in capital commitments.

Vermeer Capital, a new French turnaround firm focused on small and mid-sized companies, has held a €75 million first close on its debut fund. A final close on €90 million in expected within the next three months.

Human Resources

David Hudson has joined Darby Overseas Investments as senior managing director in charge of the firm’s Asia operations and global infrastructure initiatives. He will be based in Hong Kong, and previously was with ING Group as president and CEO of wholesale banking in the Americas.

Claus Peter reportedly is planning to leave Société Générale, where he runs the firm’s German leveraged buyout group. Dow Jones reports that Peter will join German Private Equity Partners, a buyout firm formed by former Deutsche Telekom CEO Kai-Uwe Ricke.

Shannon Smith has left Blue Point Capital Partners, where he was a managing partner running the firm’s Charlotte office. The decision was due to “family reasons.” Smith joined the mid-market buyout firm in 1998, after having previously spent eight years with Bowles Hollowell Conner & Co. His Blue Point portfolio companies included Apex Companies, Callison Architecture, MarketPoint Direct, New Northwest Broadcasters and Nexcel Synthetics.

Ryan Watson is leaving Stone Tower Capital to join Fortress Investments, where he will work in the Macro Fund focused on special situations and distressed credit. The move is effective May 12.