This morning’s big news is that The Blackstone Group reported a $170 million net loss for its fourth quarter, which has helped shove its stock price down below $14 per share in early trading. The question to ask, therefore, is whether Blackstone’s public securities are finally approaching their bottom.
“But Dan, you’re not an equity analyst,” says the fictional reader. “How would you know?”
I wouldn’t, dear reader. But what I do know is this: The public market still doesn’t understand Blackstone, which is why buying its stock at any price is a very risky proposition. For starters, there is really no comparable. Sure there are other financial services firms and investment houses, but none centered around private equity to the same extent that Blackstone is. Second, Blackstone’s value does not – or at least should not – directly correlate to the mark-to-market value of its portfolio.
First, there are lots of questions surrounding the validity of mark-to-market for private equity in general (FASB opinion notwithstanding). Second, PE firms are often willing to take initial hits at a portfolio company in order to grow it for the long term (a big advantage of being PE-owned). Third, private equity firms typically have the luxury of waiting to sell until the time is right. The only caveats to that last part are: (A) When a troubled firm needs liquidity events in order to raise a new fund, or (B) If the firm has publicly-traded securities and is feeling shareholder pressure – something which we haven’t seen yet, but which still may befall Blackstone.
Last week I conversed with a public portfolio manager who was thinking about buying some Blackstone shares. What he didn’t understand, he admitted, was the fund management fee stream and how it fluctuates based on capital call-downs. It wasn’t the first time I’d heard similar confusion from people in positions to influence stock prices. For example, I recall being told how Blackstone was a buy last July, because it had just agreed to acquire Hilton. Maybe Hilton will or won’t be a good deal – but the presence of an agreement was certainly not much reason to buy or sell the stock. Need further proof? Listen to the analyst inanity sure to come during this morning’s earnings call.
So to reiterate: My advice is not to buy. Ever. Even if you understand what’s going on, you’ll be at the mercy of those who don’t.
*** Bain Capital did make a capital call with institutional investors last Friday, for Clear Channel.
*** Jeff Bussgang of IDG Ventures says it’s Morning in America Again – just ask the HBS and MIT Sloan kids.
*** peHUB First Read.
*** peHUB’s Deal of the Week returns from extended hibernation.
*** I’ve uploaded some videos from Buyouts East for your viewing pleasure. These include my interview with Carl Icahn, Mark Cecil’s interview with William Clark (NJ Division of Investment) and The Great Debates (SEIU, PE Council, Prof. Victor Fleischer and Terry Mullin of Arsenal Capital Partners). More are coming later today…
Top Three
The Blackstone Group posted a Q4 loss of $170 million. The firm blamed most of its decline on an investment in bond insurer Financial Guaranty Insurance Co., and overall credit market deterioration.
EKR Therapeutics Inc., a Cedar Knolls, N.J.-based drug acquisition and commercialization company focused on acute-care products, has raised $50 million in Series D funding. It also has secured $95 million in senior debt. MPM Capital and LLR Partners co-led the equity round, and were joined by return backers Quaker BioVentures, NewSpring Capital and ESP Equity Partners. The debt was provided by GE Healthcare Financial Services.
James Rubin and Daniel Selmonosky have joined BC Partners as senior partners in the firm’s New York office, effective May 1. They previously were founding partners with One Equity Partners. In related news, Raymond Svider and Justin Bateman will relocate from BC Partners’ London office to New York.
VC Deals
BrainCells Inc., a San Diego-based drug company focused on mood and anxiety disorders, has held a $30 million first close on its Series B round. The company expects to secure another $10 million within the next several months. MedImmune Ventures led the tranche, and was joined by return backersBay City Capital, Oxford Bioscience Partners, Technology Partners, Pappas Ventures and Neuro Ventures.
Altierre Corp., a San Jose, Calif.-based provider of wireless pricing solutions for retailers, has raised $22 million in Series C funding. The Galleon Group led the round, and was joined by return backers D.E. Shaw, ATA Ventures, Kinetic Ventures and Labrador Ventures. The company had previously raised $30 million in VC funding since January 2005.
Gigya, a Palo Alto, Calif.-based provider of tracking solutions for online widget makers, has raised $9.5 million in Series B funding. Mayfield led the round, and was joined by return backers Benchmark Capital and First Round Capital. www.gigya.com
Zivity, a provider of subscription-based social networking for the 18+ market, has raised $7 million in Series B funding. Backers include BlueRun Ventures and Founders Fund.
Kyte, a San Francisco-based company that lets users post music and online video at multiple destinations, has raised $6.1 million in additional Series B funding. This brings the round total to $21.1 million, including a $15 million first close announced in December. Steamboat Ventures and Intellect Capital Ventures participated on the new tranche, while prior backers included Nokia Growth Partners, DoCoMo Capital, Telefónica, Draper Fisher Jurveston, Holtzbrinck Ventures and Swisscom.
Giant Realm, a New York-based online media company focused on 16-34 year-old males, has raised $3.5 million in VC funding from William Morris Agency, Comcast Interactive Capital and Edison Venture Fund. www.giantrealm.com
Jivox, a San Mateo, Calif.-based online video advertising platform for local businesses, has raised $2.7 million in seed funding led by Opus Capital. Also participating was company founder Diaz Nesamoney, who previously helped form both Informatica (Nasdaq: INFA) and Celequest (acquired in 2007 by Cognos).
Buyout Deals
Private equity groups are “actively considering” launching a takeover bid for cable TV operator Virgin Media Inc. (VMED), according to a report in the Observer. Blackstone, Cinven, KKR and Providence Equity are ready to offer between $6 billion and $7.5 billion for the company, in which Richard Branson’s Virgin Group holds a 10.5% stake, according to a private document entitled Project Coaxial, which the Observer claimed to have seen.
BCE Inc. (BCE) said that its Cnd$52 billion buyout is still on, after the Quebec Superior Court dismissed bondholder claims that the purchase price was unfair. BCE last year agreed to be acquired by Ontario Teachers’ Pension Plan, Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity.
Bain Capital last Friday made capital calls of its institutional investors, in order to secure funds for its pending buyout of Clear Channel Communications. Get more info.
KSL Capital Partners has acquired Western Athletic Clubs, an owner and operator of nine luxury fitness facilities on the West Coast. No financial terms were disclosed.
Mason Wells is in talks to acquire Coating Excellence International LLC, according to LBO Wire. No financial terms were disclosed. CEI is a Wrightstown, Wis.-based maker of flexible packaging for paper reams and food and industrial products. www.coatingexcellence.com
MCM Capital Partners has acquired Cole Information Services from an affiliate of Sterling Capital Partners for an undisclosed amount. KeyBank provided senior financing. Cole is a Lincoln, Neb.-based database marketing company. www.coleinformation.com
Progress Energy (PGN) has completed the sale of its unregulated assets to an investor group that includes Kelso & Co., Pegasus Capital Advisors and Traxys North America. The deal is valued at $94 million in cash, and includes Powell Mountain Coal Co., Dulcimer Land Co. and Kanawha River Terminals Inc.
Symantec Corp. (Nasdaq: SYMC) has completed the sale of its Application Performance Management business to Vector Capital. The unit will operate as a standalone business named Precise Software Solutions Inc. No financial terms were disclosed. In related news, Vector said Greylock Partners is also participating on the deal, and that former Benchmark Capital partner Mark Kremer will serve as Precise’s CEO.
PE Exits
DW Healthcare Partners has sold NWT Inc. (aka Tandem Labs) to Laboratory Corp. of America Holdings (LH) for $76 million in cash. Tandem Labs is a Salt Lake City-based bioanalytical and immunoanalytical contract research organization, supporting pharma and biotech companies. The sale generated a 6.9x return on invested capital for DW Healthcare over a 34-month period. William Blair & Co. managed the process. www.tandemlabs.com
Negevtech Ltd. an Israeli maker of systems for wafer inspection and yield control, has agreed to go public via a reverse merger with a SPAC called Israel Growth Partners Acquisition Corp. (OTC BB: IGPAA). Negevtech has raised over $117 million in VC funding since 2000, from firms like Pitango Venture Capital, Lehman Brothers, Intel Capital, Star Israel, Genesis Partners, Wellington Partners, Poalim Hi-Tech Fund, Orbotech Technology Ventures and First SMI.
Roper Inc. (ROP) has completed its $367 million acquisition of CBORD Group Inc. from Sterling Investment Partners and Oak Investment Partners. The deal had originally been announced in February. CBORD is an Ithaca, N.Y.-based maker of smartcard systems to universities and other institutions. It had been acquired by Sterling and Oak in 2004, and subsequently made two acquisitions. www.roperind.com
PE-Backed M&A
Lightower Fiber LLC, a Boxborough, Mass.-based provider of digital fiber optic networks, has agreed to acquire both DataNet Communications Group Inc. and KeySpan Communications. No financial terms were disclosed for the deal, which more than triples Lightower Fiber’s available route miles. M/C Venture Partners and Wachovia Capital Partners last year acquired Lightower (then known as National Grid Wireless) from National Grid PLC for approximately $290 million.
Nfocus Neuromedical Inc., a Palo Alto, Calif.-based medical device company focused on hemorrhagic stroke, has acquired StarFire Medical Inc., a maker of therapeutic implantable devices for minimally-invasive treatment of neurovascular disease. No financial terms were disclosed. Nfocus has raised nearly $35 million in total VC funding since 1999, with current shareholders including ePlanet Ventures, Oxford Bioscience Partners and Technology Partners.
Translations.com, a New York-based provider of software localization and globalization management system solutions, has merged with Ireland’s Alchemy Software Development. No financial terms were disclosed. Translations.com had raised VC funding between 2001 and 2003 from Pennell Venture Partners and Deutsche Bank.
Firms & Funds
Cowen Group (Nasdaq: COWN) has agreed to acquire Hong Kong-based investment bank Latitude Capital Group. No financial terms were disclosed.
Integris Partners has formed as a new boutique investment bank focused on mid-market M&A activities. Its team consists of the former professionals of Doering, van den Heever and Eastwood, and three members of Headwaters MB. Integris will have offices in both Denver and Fort Collins, Colorado. www.integris-partners.com
Norwest Equity Partners has secured a $1.2 billion commitment for its ninth fund, according to LBO Wire. The entire amount came from sole limited partner Wells Fargo & Co. peHUB had previously reported that NEP affiliate Norwest Mezzanine Partners had recently received a $500 million commitment for its third fund, also from Wells Fargo. www.nep.com
Human Resources
Thomas Bernhardt has joined PCG Asset Management as a senior vice president and head of research. He previously was a senior research analyst with CTC Consulting Inc., a subsidiary of Bank of America. .
Goldman Sachs has promoted Tim Ingrassia to head of M&A in the Americas , according to a memo obtained by DealBook. He joined the firm in 1986, and most recently served as head of the firm’s consumer retail group.
Robert Goldberg has joined YL Ventures as a venture partner. He previously was a managing director with Idealab. Goldberg will work out of Silicon Valley, which will complement YL Ventures’ existing offices in Amsterdam and Israel. He also will serve on the board of existing YL Ventures portfolio company ClickTale. YL Ventures is in the midst ofraising its debut fund with a $30 million target capitalization.www.ylventures.com
Reyaz Kassamali has joined Hilco Consumer Capital as a managing director based in Toronto. He previously was with Financo. Hilco is a private equity firm focused on mid-market consumer lifestyle companies. www.hilcocc.com
Louis Friedman has joined P. Schoenfeld Asset Management as president and managing partner of a new practice focused on private investments and long-term public holdings. He previously was with Bear Stearns, as vice chairman of investment banking and global chairman of M&A.
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