The last thing U.S. buyout firms need right now is new competition on their home turf, but it’s coming anyway. Industry headhunters tell me that they’ve been approached by European buyout firms – both large-market and mid-market – about retaining U.S. staffs to make direct investments. The Financial Times reported last month on such a move from BC Partners, and I’ve now heard half a dozen names of similar standing.
Up until now, most European firms have exhibited fright-forced provincialism, with any geographic expansion steering clear of North America. There have been a handful of exceptions, but most of them have been designed either to help portfolio companies handle the North American market, or have been relatively inactive. Permira, for example, has a New York office for direct investing, but has averaged less than one U.S. buyout per year.
A legitimate expansion of European firms into North America, however, could be very problematic for the home team. The most obvious reason is that European firms have access to cheaper capital, thanks to growing currency discrepancy. Imagine a New York and London-based firm both raised the equivalent of $5 billion in 2006, and since have each invested the same amount. Today, the New York-based firm likely has less real capital than does the London firm, since the former’s fund was denominated in dollars, while the latter’s was denominated in pounds or euros. And this is really just piling on, since U.S. buyout firms also are facing a capital currency flip vis-à-vis strategic investors, whose cash reserves require little to no leverage.
The only possible out here is that European firms may not actually be able to recruit too much top U.S. talent. If you’re a senior managing director at Blackstone or KKR, do you leave to run the New York outpost for Terra Firma? Maybe it feels a bit more entrepreneurial, but it’s also a bit disconcerting to be so far away from your partnership’s power base. BC Partners, for example, is initially staffing its shop with a quartet of partners from London and Germany – a non-local strategy which proved disastrous for many U.S.-based VC and LBO firms when done in reverse back in the late 1990s. But if the offers are sweet enough…
*** The U.S. economic outlook may be bleak, but it’s been a strong year for the world as a whole. Here’s the money quote from Newsweek International:
This year the economies of only three countries—Zimbabwe, Fiji and Tonga—are contracting. Two are highly isolated archipelagoes and the former is a hugely dysfunctional dictatorship. Harvard’s Ken Rogoff, a former chief economist at the IMF, sums it up simply: “We’re in a boom.”
*** Steve Schwarzman goes on a groveling expedition to Wall Street.
*** Is venture capital firm Spark Capital involved in a takeover attempt of CNet? TheNY Times says yes.
*** No, I’m not in Vegas for CES. Meant to be, but got caught up in other things…
*** VC-Backed Bust: N2N Commerce
*** More thoughts on Mitt Romney’s electoral struggle, and if his private equity background could prove more harmful than helpful.
*** Finally, I’m pleased to announce that we’ll be hosting a peHUB Shindig in Philadelphia on Thursday, January 17. That’s the night before the Wharton Private Equity Conference. It will be held on the top floor of a pub called Moriarty’s on Walnut Street, from between 5:30 and 7:30pm. Open bar, plenty of food and lots of good networking opportunities.
Huge thanks to Dechert LLP and Hamilton Lane, for stepping up as sponsors…
Tickets are limited, so make sure to get them early by signing up at: http://pehub.eventbrite.com. Hope to see a bunch of you there.
Top Three
Advent International has agreed to sell American Radiology Services Inc. to CML HealthCare Income Fund (TSX: CLC.UN) for $151 million. ARS is a Baltimore-based provider of diagnostic medical imaging services. It was founded in February 1997, and recapped in March 2003 by Advent, company management, Johns Hopkins University and a physicians association that provides the staffing of radiologists at ARS sites.
Genizon BioSciences, a Montreal genomics company, has raised Cdn$31 million in Series E funding. BTF BV of The Netherlands led the deal, and was joined by “several other existing investors.” Past backers have included Bio Fund Management, MVI Syerifge, Solaris Asset Management, Investissement Desjardins and HBM BioVentures. The company has now raised Cdn$130 million in total VC funding.
Sorenson Capital has closed its second fund with around $400 million in capital commitments. The Lehi, Utah-based firm’s debut fund closed on $250 million in May 2004, and invested in such companies as Omniture, MITY Enterprises, Provo Craft and Kiddie Kandids.
VC Deals
Jawbone, a San Francisco-based maker of a Bluetooth headset that eliminates dynamic background noise, has raised $30 million in new funding, according to VentureBeat. The report indicates that Sequoia Capital led the round, but does not specify if return backers Mayfield and Khosla Ventures also participated.
Aragon Surgical Inc., a Palo Alto, Calif.-based surgical device startup, has raised $25 million in Series B funding. Bay City Capital led the deal, and was joined by Integral Capital Partners and return backers Delphi Ventures and Onset Ventures.
Hillcrest Laboratories Inc., a Rockville, Md.-based maker software and hardware for delivering interactive television applications, has raised $25 million in Series D funding. AllianceBernstein led the deal, and was joined by return backers New Enterprise Associates, Columbia Capital and Grotech Capital Group. www.hillcrestlabs.com
Hakia.com, a New York-based operator of a semantic search engine, has raised $5 million in new funding from existing shareholder Prokom Investments SA. The round brings Hakia’s total venture capitalization to $21 million. http://www.hakia.com/
StudyPlaces Inc., a Indian education portal, has raised $3 million in first-round funding, according to VC Circle. Backers include Kleiner Perkins Caufield & Byers, Sherpalo Ventures and Info Edge Ltd. http://www.studyplaces.com/
Inside Contactless, a French maker of “contactless” payment chips and NFC technologies for mobile devices, has raised an undisclosed amount of funding from Motorola Ventures and HID Global. The commitments close out a €25 million round announced last December, with participation from Nokia Growth Partners, Sofinnova Partners, Vertex Management, Vertex Ventures, Siparex, GIMV, EuroUS Venture, Granite Global Ventures and Visa Ventures.
The Blackstone Group and General Electric have paid a $50 million breakup fee to PHH Corp., after a proposed $1.69 billion buyout deal fell through last week.
Emerging Capital Partners has invested $35 million into Ocean & Oil Investments Ltd., a Nigerian holding company whose main asset is a 32% equity stake in Oando PLC, a listed Nigerian indigenous oil and gas company.
Falconhead Capital has acquired three San Diego-based companies in the endurance sport event and publishing markets: Elite Racing Inc., La Jolla Holding Group LLC (Triathlete Magazine) and Competitor Publishing Inc. The companies will be combined to form a platform company known as Competitor Group Inc. No financial terms were disclosed.
S&P has lowered its ratings, including the corporate credit rating, on Buffets Holdings Inc. to ‘D’ from ‘CCC’ after the company failed to pay interest on 12.5% senior notes due in 2014. Buffets is owned by Caxton-Iseman Capital. S&P said it does not expect it Buffets to make the payment given the company’s weak liquidity and operating trends, which likely means a bankruptcy filing.
PE-Backed IPOs
IPC Systems Holdings Corp., a Jersey City, N.J.-based provider of integrated communications solutions to financial services companies, has filed for a $400 million IPO. It plans to trade on the Nasdaq under ticker symbol IPCA. Silver Lake Partners has owned the company since a late 2006 buyout. http://www.ipc.com/
Heritage-Crystal Clean Inc., an Elgin, Ill.-based provider of parts cleaning services and containerized waste services, has set its IPO terms to 1.74 million common shares being offered at between $10.50 and $12.50 per share. It plans to trade on the Nasdaq under ticker symbol HCCI, with William Blair & Co. and Piper Jaffray serving as co-lead underwriters. Bruckmann Rosser Sherrill & Co. holds a 13% pre-IPO stake. http://www.crystal-clean.com/
PE Exits
Allot Communications Ltd. (Nasdaq: ALLT) has agreed to acquire Esphion Ltd., a New Zealand–based provider of network protection solutions for carriers and Internet service providers. The deal includes a $3.5 million upfront cash payment, and $2 million in possible milestone payments. Esphion had raised VC funding from firms like Direct Capital Private Equity, No. 8 Ventures Management and New Zealand Seed Fund Management.
Hasbro Inc. (NYSE: HAS) has agreed to buy Cranium Inc., a Seattle-based maker of branded board games and toys. The deal is valued at $77.5 million, and is expected to close later this quarter. Cranium had raised around $36 million in VC funding from firms like Maveron, TPG Ventures, Peterson Partners, Quad City Ventures and Raycliff Capital.
Monster Worldwide Inc. (Nasdaq: MNST) has acquired Affinity Labs Inc., a South San Francisco-based operator of online professional and vocational communities like PoliceLink.com and TheApple.com. The deal was valued at $61 million in cash, with Goldman Sachs advising Monster. Affinity Labs had raised a $6.25 million Series A round in late 2006 from Mayfield Fund and Trinity Ventures.
PE-Backed M&A
Active Interest Media Inc., the parent company of Backpacker magazine and Yoga Journal, has acquired SNews, a provider of online trade news and information for outdoor and fitness retailers. No financial terms were disclosed. Active Interest is owned by Wind Point Partners.
Firms & Funds
Bridgepoint Capital has closed on approximately €2 billion for its fourth buyout fund, according to LBO Wire. The fund has a €4 billion target and €5 billion cap, with a final close expected sometime in Q2. http://www.bridgepoint-capital.com/
Drum Capital has closed its second distressed and corporate turnaround fund-of-funds with $435 million in capital commitments. Champlain Advisors served as placement agent.
Lincoln International, a mid-market I-bank, has opened a London office. It already had offices in Chicago, Frankfurt, Los Angeles, New York, Paris and Vienna.
Human Resources
John Ryan has joined Onset Ventures as a partner, with a focus on medical technology opportunities. He previously was with Panorama Capital, where he led the medical device practice.
Sallie Mae has named veteran banking chief Anthony Terracciano as chairman, as the student lender continues to deal with the fallout of its busted deal with J.C. Flowers. Former chairman Albert Lord will retain his CEO role.
Mark Emery has joined The Jordan Company as president of its U.S. operations management group. He previously was president and CEO of Northstar Aerospace Inc. (NYSE: NAS).
Richard Nanula has joined Colony Capital as a principal based in Los Angeles. He previously was executive vice president and CFO of biotech company Amgen.
John Icke has joined Longview Capital Partners, a Canadian investment firm focused on early stage opportunities in the natural resource sector, as president and chief operating officer. He previously was president of Accenture Business Services for Utilities.
Charlesbank Capital Partners has promoted Kevin Brown to senior vice president of accounting and finance. He joined the firm in 1998 after having served as its predecessor firm as controller.
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