PE Week Wire: Mon., Dec. 17, 2007

Don’t Judge PE By Jobs Alone

Whether portfolio companies owned by buyout shops create or destroy jobs has been the subject of much debate and research this year.

If Congress and the president were convinced that buyout firms create jobs, and therefore do some good for their portfolio companies and the economy at large, they’d be less likely to tamper with the institution. By contrast, were they convinced buyout firms destroy jobs, they’d feel just fine about the tampering.

But here’s the unfortunate truth. Whether portfolio companies create or destroy jobs in aggregate has little to say about whether they’re doing a good job for their portfolio companies. Further, reliable U.S. statistics on the subject are not available, and may never be. Many buyout shops don’t maintain the required records.

A typical buyout investment, by Boston-based The Berkshire Group, illustrates how empty a concept job growth can be in understanding the value buyout firms bring to portfolio companies. Dino Mauricio, who last month joined corporate restructuring and turnaround firm Getzler Henrich as managing director-M&A integration, from 1998 to 2002 worked at The Berkshire Group on the consolidation of half-dozen or so Canadian janitorial services companies. (Most recently Mauricio was managing director of business development at General Electric.) The result was the creation of a nationwide giant, SMS Modern Cleaning Services, employing more than 7,000 people.

Largely because of overlap in mid-management positions, the firm typically reduced head count by 10 to 15 percent in the early going of its acquisitions, according to Mauricio. (Buyout firms are bad for jobs!) However, over time the company grew so much organically that it created more than enough jobs to make up for this initial loss. (Buyout firms are good for jobs!) Then again, one of the ways the firm grew was by putting Mom and Pop cleaning services out of business. (Buyout firms are bad for jobs!) On the other hand, many of those put out of work ended up joining SMS Modern Cleaning Services, which provided more stable employment. (Buyout firms are good for jobs!)

Needless to say, buyout firms often eliminate jobs after acquiring companies, and for reasons that serve those companies well-to take advantage of low-cost labor overseas, to exit old lines of business, or perhaps to get costs in line with industry averages. Once their charges are on track, buyout shops may give their blessing to adding headcount. But buyout firms that eliminate more jobs than they create have no less claim to doing what’s best for their portfolio companies than buyout firms that create more jobs than they destroy. It all depends on the challenges and opportunities portfolio companies face, and the point at which the buyout firm sells them.

You wouldn’t know this by reading the literature on the subject. One of the industry’s most venomous critics, the Service Employees International Union, weighed in on the question in an August press release titled “SEIU Taking Action To Curb Buyout industry’s Growing Excesses.” The union found that “in the last year alone, at least 10,000 layoffs have been announced as a result of private equity buyouts.”

Over at the Web site of the Private Equity Council, an industry trade association, you’ll encounter a different point of view. There you can learn of a study by the European Venture Capital Association demonstrating that from 2000 to 2004 “employment in private equity-backed companies rose by 5.4 percent, almost eight times higher than the European Union average of 0.7 percent.” (In fact, according to EVCA, those figures represent annual growth rates for both venture capital and buyout-backed companies; the figure for buyout-backed companies only is 2.4 percent.)

On the more independent side, the transaction advisory services division of Ernst & Young recently published a study of the largest U.S. and European exits of 2006. It found employment levels equal to or greater than at acquisition in 80 percent of U.S. deals, and 60 percent of European deals. Meantime, according to The Wall Street Journal, Josh Lerner of Harvard Business School and Steven Davis of the University of Chicago’s Graduate School of Business have released preliminary results of research suggesting that, compared with competitors, portfolio companies generally eliminate more jobs, or add fewer jobs.

Other than being contradictory, here’s the problem with research of this kind. Many buyout firms don’t keep records of how many employees worked at the targets of add-on acquisitions before they buy them. Ernst & Young would have liked to demonstrate how much job growth stemmed from add-on deals versus organic growth. It couldn’t. In interviews with subjects of the study, the consulting firm found the data wasn’t always available, according to John Vester, a partner who co-led the study.

Vester said that the typically small U.S. add-on acquisitions made by portfolio companies in his study had little impact on job growth. Also, the firm did learn from study participants what percentage of their revenue growth was generated organically. Still, using Ernst & Young’s methodology, a 1,000-person portfolio company acquiring a 1,000-person company, then slashing 500 jobs, would count as 50 percent job growth. (EVCA dealt with this issue by eliminating from its pool buyout-backed companies with employment growth rates above 20 percent, on the assumption those would have involved significant add-on acquisitions.) Presumably other researchers studying the subject will run into the same roadblock. Lerner declined to comment on the methodology he and Davis are using in their study.

How many jobs are buyout firms creating or destroying? We’ll probably never know for sure. Then again, does it matter whether we do or not?

–David M. Toll

Top Three

The Blackstone Group has closed Blackstone Credit Liquidity Partners L.P. with capital commitments in excess of $1.3 billion. The fund was created to capitalize on the recent dislocations in the credit markets by investing in a broad range of debt and debt-related securities and instruments including bank debt, publicly traded debt securities, bridge financings, securities issued by CDOs, and other debt instruments. Blackstone was assisted in the fundraising by Park Hill Group.

Yucaipa Cos., the private equity firm controlled by billionaire investor Ron Burkle, and the Teamsters union have submitted a bid to bring Interstate Bakeries Corp. (Nasdaq: IBCIQ) out of bankruptcy. The Associated Press reported that the deal values the Twinkie maker at $580 million. Absent from the deal, first proposed in November, is Mexican bakery giant Grupo Bimbo, which has said it “currently is not in a position to submit a bid for the purchase of Interstate Bakeries.” Interstate Bakeries is slated to conduct an auction Jan. 22 to select an investor to fund its exit from bankruptcy. Investors interested in buying the company or financing its exit from Chapter 11 have to beat an offer from Silver Point Finance, which has ag! reed to lend Interstate Bakeries $400 million. Separately, Reuters reported that Interstate Bakeries said the proposal from Yucaipa Cos LLC and the Teamsters union did not constitute a qualifying bid for the company under terms set in bankruptcy court.

BlackRock Inc. (NYSE: BLK) reported in an SEC filing that Keith Anderson resigned as vice chairman and global chief investment officer for fixed income. He has agreed to remain as an advisor until March. The firm has named Scott Amero to succeed Anderson. Amero will continue as co-head of its fixed income portfolio management group. In addition, Peter Fisher was named co-head of BlackRock’s Fixed Income Portfolio Management Group.

VC Deals

Santé Ventures has closed its debut venture capital fund with $130 million in committed capital, the maximum amount permitted in the original offering targeted at $100 million. The healthcare-focused fund invests primarily in seed and early-stage companies developing innovative new medical technologies and healthcare services. The healthcare venture capital firm was founded by three former managers from Austin Ventures, Ascension Health Ventures and Ascension Health. The fund invests in early-stage companies developing innovative new medical technologies and healthcare services., an online shopping community that connects luxury brands with the consumers who covet them through computers, emails or cell phones, has secured $3.8 million in Series A funding from Kodiak Ventures and angel investors. Ideeli is a New York-based company of seasoned Internet and fashion leaders from companies like Oracle, Aveo,, DoubleClick, Ralph Lauren and Gucci.

Sensimed AG, a manufacturer of medical devices in the field of ophthalmology, is receiving CHF8 million (around €4.8 million) from lead investor Wellington Partners as well as co-investors Renaissance Capital and Blue Ocean Capital.Sensimed has developed a new, patented diagnostic test system that will significantly improve identification and treatment of glaucoma.

AdReady, an advertising technology company, has raised $10 million in venture funding led by Boston-based Bain Capital Ventures. Silicon Valley-based Khosla Ventures and current investor Madrona Venture Group also participated in the round.

SensorDynamics, a company that focuses on micro and wireless sensor products for automotive and industry applications, has raised $ 37 million in Series B equity funding and structured leverages. The financing round included SensorDynamics’ Series A investors, Global Equity Partners with HTA III Venture Beteiligungs-Invest AG, Siemens Venture Capital, DEWB and three new Series B investors, PONTIS Venture Partners with PVP I fund, FIDURA Private Equity Funds and IPO-Austria with its Steirische Technologie- und Wachstumsfonds.

AxoGen Inc., an Alachua, Fla.-based company that is commercializing peripheral nerve regeneration technologies, has raised $12.1 million in Series C funding from Accuitive Medical Ventures, Cardinal Partners, De Novo Ventures and Springboard Capital II, according to Biotech Week.

Nauta Capital‘s venture capital entity Nauta Tech Invest II has invested approximately EUR2.6 million in Agnitio, a Spain-based developer of biometric voice recognition solutions The operation has been carried out through a capital increase in Agnitio, subscribed by Nauta, as well as the acquisition of the shares of some of the minority shareholders. This transaction makes Nauta the shareholder of reference in the technology company.

EdgeCast Networks, a Los Angeles-based content delivery network company, has secured $6 million in Series B financing led by Steamboat Ventures, a venture capital firm affiliated with The Walt Disney Co. (NYSE: DIS). Scott Hilleboe, senior principal of Steamboat Ventures, and Jeffrey Stibel, president of web site Pros Inc. and former CEO of, will join EdgeCast’s board of directors. Steamboat will join Series A investors such as Mark Amin, Chairman of CinemaNow as well as Jon Feltheimer, CEO of Lionsgate films.

Ascendis Pharma A/S, a privately held biotech company in Copenhagen Denmark, has closed its first-round of venture capital financing and the acquisition of Complex Biosystems GmbH. The series A financing of EUR 17.6 million was led by Sofinnova Partners (France) and co-led by Gilde Healthcare Partners (The Netherlands), with participation by Zweite TechnoStart Ventures Fonds GmbH & Co. KG (Germany).

Buyout Deals

Boston Scientific Corp. (NYSE: BSX), a Natick, Mass.-based maker of medical devices, has agreed to sell its fluid management and venous access businesses to Avista Capital Partners for $425 million. The transaction is expected to close in the first quarter and is part of the planned divestiture of non-strategic assets.

Sears Holdings Corp. (Nasdaq: SHLD) has submitted a draft acquisition agreement to the furniture retailer Restoration Hardware Inc. (Nasdaq: RSTO). Sears is offering pay $6.75 for each Restoration Hardware share. The Associated Press reported that after receiving the draft agreement, Restoration Hardware’s special committee declared Sears Holdings an “excluded party” under its prior acquisition deal with Catterton Partners, which allows negotiations to move forward. The private-equity firm offered Restoration Hardware $6.70 per share on Nov. 8. Sears already owns 13.7 percent of Restoration. and

GTCR Golder Rauner LLC and Houston-based investment firm Platform Partners LLC are creating a new private aircraft services platform with the $435 million purchase of Landmark Aviation LLC from Dubai Aerospace Enterprise Ltd., according to LBO Wire. The combined entity, which will operate as Landmark Aviation, will provide fueling, maintenance, chartering and other services at 42 airports worldwide and expects combined annual sales of $450 million, GTCR Principal Craig Bondy said. The buyout firms have committed $100 million of equity to the company for future acquisitions. GTCR will own 70 percent and Platform Partners own 30 percent.

PE-Backed IPOs

Grupo Inmobiliario Tremon SA, a Spain-based property developer, has pulled the plug on an initial public offering, which was planned for Dec 19. Tremon said market conditions are not adequate for the IPO to go forward. In June, it received an acquisition offer from private equity firm Colony Capital, the offer stalled when Tremon Chairman and controlling shareholder Hilario Rodriguez.’s rejection of the bid.

Devac Inc., a Lake Forest, Calif.-based medical device company has withdrawn its planned initial public offering, according to VentureWire. The developer of drug eluting stent systems had planned to sell up to $85 million of its common shares.

PE Exits

Conduit Capital Partners LLC, a New York-based private equity investment firm focused on the independent electric power and energy industry in Latin America and the Caribbean, has sold Jamaica Energy Partners for $92.5 million and Mamonal (also known as Proelectrica) for $17.5 million. Conduit also has entered into a binding agreement to sell its 13.2 percent in Aguaytia, one of its investments in Peru. BNP Paribas acted as exclusive financial adviser to Conduit on the sales.

Omega Advisors Inc. has purchased all remaining Linn Energy LLC (Nasdaq: LINE) units that Quantum Energy Partners II LP previously held. Quantum was the initial private equity investor in Houston-based oil and gas company Linn Energy.

Teradyne Inc. (NYSE: TER), a North Reading, Mass.-based electronics test equipment supplier, has agreed to acquire Nextest Systems Corp. (Nasdaq: NEXT), a venture capital-backed maker of automatic test equipment for semiconductors, for about $325 million. Teradyne will pay $20 for each Nextest. reported that the all-cash sale will complete the exit of the venture companies that backed Nextest in its lone round of venture capital funding in November 2001. That $20 million round, which priced each Nextest share at $2.50, was led by New York-based venture capital firms Needham & Co. LLC and J&W Seligman & Co. The other investors in the round were Merrill Lynch & Co. and SG Cowen & C! o.; Roser Ventures LLC of Boulder, Colo.; Anthem Venture Partners of Santa Monica, Calif.; and memory developer Atmel Corp. of San Jose, Calif. and

PE-Backed M&A

Avista Capital Partners, a private equity firm, has signed a definitive agreement to acquire Bristol-Myers Squibb Co.’s (NYSE: BMY) Bristol-Myers Squibb Medical Imaging unit for approximately $525 million of cash proceeds. BMS MI is a leading supplier of medical imaging products for nuclear and ultrasound cardiovascular diagnostic imaging procedures. The transaction is expected to be completed by the end of January, subject to customary regulatory approvals.

Onex Corp. has completed its acquisition of Husky Injection Molding Systems Ltd. for $960 million. Husky is a supplier of injection molding equipment and services to the plastics industry. Onex and its Onex Partners Funds invested approximately $630 million of equity in Husky. Onex, as a limited partner in the Funds, invested $226 million.

Metzeler Automotive Profile, a portfolio company of Wynnchurch Capital, has completed its acquisition of GDX Automotive. Financial terms were not disclosed. This transaction and the combination of MAPS and GDX create a new global supplier in the automotive sealing systems industry. In connection with this combination, the newly formed company will assume a new name – Henniges Automotive. Wynnchurch Capital is a Rosemont, Ill.-based private equity investment firm.

Amstar Group, Sage Hospitality Resources and Inland Pacific Cos. announced the purchase of the 369-room Westin Westminster hotel in Westminster, Colo. Sage Hospitality will manage the Westin. Amstar, the financial partner, and Sage, both based in Denver, partnered with Westminster-based Inland Pacific, the previous owner of the Westin, to complete the off-market acquisition. Amstar is a real estate private equity firm.

Kohlberg Kravis Roberts & Co. has completed the acquisition of a 97.6 percent stake in local shipping company UN Ro-Ro. Trieste Bidco Denizcilik ve Tasimacilik A.S., a newly-formed entity 100% owned by investment funds advised by KKR, took over the company. Turkey This Week reported that in October shareholders representing a 97.6% in the company agreed to sell their shares in a deal valuing the whole group (excluding cash and debts) at EUR 910mn. KKR will also acquire the UN Ro-Ro Group’s three subsidiaries; 98.13% in Un Deniz Tasimaciligi, 98.9% in Un Gemicilik Sanayi, and 99.3% in UN Deniz Isletmeciligi.

Firms & Funds

Goldman Sachs Private Equity‘s fund of funds group has wrapped up the largest Asia focused vehicle of the year, closing somewhere north of $600 million, according to a person close to the effort. LBO Wire reported that the final tally for Goldman Sachs Private Equity Partners Asia Fund LP did not include the bank’s own commitment, this person said. Goldman targeted $350 million to $500 million for the fund of funds. The final tally tops the $515 million record set earlier this year, when Asia Alternatives Management LLC wrapped up its debut fund of funds.

Veroxity Holdings Inc., a Bedford, Mass.-based provider of mission critical optical data networks, has received an equity capital investment from Banc of America Capital Investors. George Morgan, a Managing Director of Banc of America Capital Investors, will join Veroxity’ as executive chairman. Financial terms were not disclosed.

Xilinx Inc. (Nasdaq: XLNX), the $2-billion California-based programmable logic chips and services major company, is betting big on the fast-growing aviation, space, defense, Wimax, IPTV and mobile markets in India, according to The Economic Times. Xilinx is also evaluating some of the Indian companies as target investments for its Asia-Pacific venture capital fund.

Advent International Corp., a venture capital company, has acquired 70% of KAI Group, a Sofia, Bulgario-based manufacturer of tiles. South East Europe Newswire reported that KAI Group plans to strengthen its positions on the local market and to increase its sales in the region. Financial terms were not disclosed.

Travel retailer Hudson Group has signed a definitive agreement with Boston-based firm Advent International that makes Advent the majority owner. Financial terms were not disclosed. Hudson Group operates more than 550 newsstands, bookstores, cafes and specialty retail concessions in 69 airports and transportation terminals throughout the United States and Canada. Hudson is Advent International’s tenth investment in travel-related businesses.

IRDI, a regional industrial development institute in Toulouse, France, in partnership with its ICSO Private Equity unit, has launched a new venture capital fund called Sud-Ouest ICSO 2, Les Echos reported. The fund will look to raise EUR100 million by the end of March, with the first EUR50 million coming from institutional investors that had invested in the fund’s predecessor, and the second half coming from new European investors. ICSO 2 and IRDI will together be able to invest a maximum of EUR10 million per expansion capital or LBO operation in the south-west of France.

A federal court confirmed Dana Corp.’s (Nasdaq: DCNAQ) Chapter 11 reorganization plan, paving the way for the auto-parts supplier to emerge from bankruptcy by the end of January. Private-equity firm Centerbridge Capital Partners has agreed to purchase $250 million in new Series A preferred shares and plans to backstop $250 million of the $540 million rights offering, according to LBO Wire. A group of Dana bondholders will backstop the sale of the remaining $290 million in Series B preferred shares.

Ross Gatlin and George Stelling launched Prophet Equity LLC, a Dallas-based turnaround private equity firm that plans to start raising its debut fund in early 2008. The firm will focus on companies in special situations, turnarounds, acquisitions, bankruptcies and reorganizations.

JER Investors Trust Inc. (NYSE: JRT) and JER Partners, the private equity arm of J.E. Robert Cos. has closed a new $220 million fund known as the JER US Debt Co-Investment Vehicle LP. The fund will be co-managed by JRT and JER Partners. The California Public Employees’ Retirement System has agreed to invest $200 million in the Fund, and JRT and JER Partners will each invest $10 million.

Human Resources

Switzerland-based logistics company Kuehne & Nagel International AG has named Xavier Urbain to its management board, effective Jan. 15. Urbain will assume responsibility for the Rail & Road Logistics unit. He fills vacancies created by Ewald Kaiser’s decision to leave the company.

Lux Research Inc., an emerging technology research firm based in Boston, has named Dennis Philbin chief executive officer to succeed company co-founder Peter Hebert, who will remain chairman. Dennis was previously spent senior vice president at IDC, an information services company. He will be responsible for the portfolio of products and services aimed at investors and industrial customers.

Highland Capital Partners, a Lexington, Mass.-based venture capital firm, named John St. Amand as a venture partner. St. Amand will help identify new entrepreneurial investment opportunities and lend his expertise to assist Highland portfolio companies. He is the founder and former chief executive officer of Telica, a Highland-backed company that specialized in advanced switching and transmission telecommunication equipment.

Peermeta Inc., an early stage mobile software platform developer focused on the intersection of digitized content, Web 2.0 services and mobile technologies, has named Jim Ricotta president and chief executive. Prior to joining the Acton, Mass.-based company, Ricotta was vice president and general manager of IBM Corp’s (NYSE: IBM) Appliance business unit. Peermeta is backed by venture capital firms Sigma Partners and Kepha Partners.