PE Week Wire: Mon., Nov. 19, 2007

I was on CNBC earlier this morning (watch video) to discuss the ethics and consequences of buyout firms pulling out of agreed-upon transactions (Sallie Mae, United Rentals, etc.). The segment was promoted by an Andrew Ross Sorkin piece in yesterday’s NY Times, which asked if the smartest guys in the room had actually been posers.

I’ve gone back and forth on this question a lot, particularly given my constant comments in 2006 and early 2007 that deal multiples were being irrationally inflated. Moreover, I agree with Sorkin’s argument that bailing buyout firms – particularly ones doing so without a MAC assertion – are violating their oath to be long-term partners.

But here’s the thing, and it’s really a trump card: Buyout firms didn’t do anything but exploit the greed of corporate boards, their bankers and their lawyers. I’m not saying LBO pros are angels, but what’s wrong with them taking the best terms available? And if those terms include extraordinarily-low breakup fees ($100m in the case of United Rentals), then whose fault is that?

It kind of reminds me of the Les Miles situation. Miles is the head football coach at LSU, but he played ball, met his wife and became an assistant coach at the University of Michigan. When he originally signed with LSU in early 2005, Miles got a “termination by coach” clause that allows him to leave only if his destination is Michigan. Yesterday, the Michigan head coach has stepped down, and everyone assumes Miles is moving north (despite a $1.25m buyout fee). Don’t blame Miles if he leaves, because he’s living up to the terms of his contract. Instead, blame LSU for agreeing to the provision in the first place.

There is of course a counter-argument, which says that burned banks will retaliate against firms like Cerberus and J.C. Flowers once the credit markets come back around. It’s a point-of-view expressed recently by Paul Finnegan of Madison Dearborn Partners, who said buyout firms should sate bankers by offering up at least “cosmetic” covenants on troubled deals.

I put this forward at one of my panels at Buyouts West, and the consensus was that bankers (A) Have short-term memories; (B) May not be the same people in the next cycle (due to layoffs); and (C) Will take fees over vengeance. As one panelist noted: “Bankers are coin-operated.”

So are LBO pros. The only difference is that they seem to be a bit smarter…

Top Three

Blowtorch Entertainment, a Tiburon, Calif.-based developer of entertainment content for a youth audience, has raised $50 million in first-round funding led by Ignition Partners. The company plans to utilize multiple distribution streams, including online, theaters and DVDs.

Mubadala Development Co., an investment arm of the Abu Dhabi government, has agreed to acquire an 8.1% stake in Advanced Micro Devices Inc. (NYSE: AMD). The deal is valued at $622 million, with Mubadala receiving 49 million newly-issued AMD shares for $12.70 per share.

Spreadtrum Communications Inc. (Nasdaq: SPRD), a Shanghai-based fabless maker of wireless chipsets, has acquired Quorum Systems Inc., a San Diego-based fabless maker of CMOS RF transceivers. The deal is valued at $70 million including $55 million in cash and $15 million in stock. It also includes a $6 million cash earn-out. Spreadtrum went public this past June, and still lists shareholders like New Enterprise Associates, Fortune Venture Group and Pacific Venture Partners. Quorum had raised nearly $50 million in VC funding since last August, from firms like Band of Angels, CampVentures, Crescendo Ventures, Greylock Partners, Enterprise Partners Venture Capital, Kleiner Perkins Caufield & Byers.

VC Deals

Semtek Innovative Solutions Corp., a San Diego-based provider of a point-of-sale device hardware component that eliminates the need for payment card data to be used or stored within merchant’s payment systems, has raised $17.59 million in Series A funding, according to a regulatory filing. The round had been previously announced, but the dollar around was undisclosed. RRE Ventures and Venrock co-led the deal, and were joined by VeriFone Holdings Inc.

ForeScout Technologies Inc., a Cupertino, Calif.-based provider of network access control solutions, has expanded its Series D round to $14.38 million, according to a regulatory filing. It had held a $10 million first close in late 2005, and added another $1.25 million by earlier this year. Backers include Accel Partners, Amadeus Capital Partners, MeritechCapital Partners and Pintango Venture Capital.

Centice Corp., a Morrisville, N.C.-based developer of a pharmaceutical authentication sensor system, has raised $11.3 million in Series B funding. S-Group Direct Investments Ltd. led the round, and was joined by Innovation Ventures and return backers The Aurora Funds and Novak Biddle Venture Partners. Get more info.

Fortisphere, a McLean, Va.-based provider of enterprise virtual machine lifecycle management software, has raised $10 million in Series A funding. Fairhaven Capital Partners and Globespan Capital Partners co-led the round.

Troux Technologies Inc., an Austin, Texas-based provider of IT governance software, has secured $7.85 million of a $10 million Series E round, according to a regulatory filing. The company previously had raised around $34 million. Return backers include Austin Ventures, Greylock Partners and Verdane Capital.

ConXtech Inc., a Hayward, Calif.-based developer of a steel-frame building system, has secured $7.12 million of an $8 million Series B round led by Columbus Nova Partners, according to a regulatory filing.

Apptio, a Seattle-based provider of software for corporate data centers, has raised $7 million in first-round funding from Madrona Venture Group and Greylock Partners. The company was founded by Sunny Gupta, who previously founded iConclude, a Madrona-based company sold to Opsware for $60 million. News of the round was first reported by The Seattle Post-Intelligencer.

Calabrio Inc., a Minneapolis-based provider of customer interaction and workforce optimization software for IP-based contact centers, has secured $6 million of an $8 million Series B round, according to a regulatory filing. Shareholders include BlueStream Ventures, Cisco Systems and Split Rock Partners.

Right Sized Media Inc. (a.k.a. Entertonement), a Sausalito, Calif.-based provider of an online media service for finding, playing and sharing pop culture quotes, has secured nearly $5 million in Series A funding, according to a regulatory filing. No investor information was disclosed. The company is run by David Mandelbrot, former VP and general manager of media and entertainment at Yahoo.

LogRhythm Inc., a Boulder, Colo.-based provider of log management and analysis software, has raised around $3.25 million in Series A funding, according to a regulatory filing. Backers include Access Venture Partners and Colorado Fund.

Backchannelmedia Inc., a Boston-based provider of digital television ad serving and response capture services, has raised $3 million in additional first-round funding. The round total is now nearly $10 million. No investor information was disclosed.

Skyscanner, a Scotland-based operator of an air-travel comparison search engine, has raised £2.5 million in first-round funding led by Scottish Equity Partners.

4Info Inc., a Palo Alto, Calif.-based mobile search company, has raised $2.5 million in Series E funding from Peacock Equity, a $250 million venture capital fund formed earlier this year from GE and NBC Universal, according to a regulatory filing. The round had been announced last month, but without a dollar amount. As part of the deal, 4Info will become NBC Universal’s preferred mobile SMS advertising partner. 4Info previously had raised around $28 million from Draper Fisher Jurvetson, U.S. Venture Partners, Sand Hill Capital and Gannett Co.

beRecruited Inc., a Fort Lauderdale, Fla.-based social network for high school student-athletes seeking college recruitment, has raised an undisclosed amount of Series A funding led by Madison Parker Capital. A regulatory filing indicates that the deal was for approximately $300,000.

MobiMate Ltd., a Los, Israel-based provider of travel services for mobile devices, has raised an undisclosed amount of VC funding led by Motorola Ventures. Return backers include angels John Sculley (former Apple Computer CEO), Richard Rosenblatt (serial entrepreneur),Michael Price (Evercore Partners) and Michae Targoff (Loral Space & Communications CEO).

Buyout Deals

Aureos West Africa Fund has acquired a 33% stake in Aviance Ghana, the main cargo handling service provider at Kotoka International Airport (KIA), Ghana’s largest international airport. No financial terms were disclosed.

Fenway Partners has agreed to acquire a majority stake in Fastfrate, a provider of transportation and logistics in Canada . No financial terms were disclosed for the deal, which includes Fastfrate units Consolidated Fastfrate, Canada Drayage and Koch Transport.

Ippolita, a New York-based maker of branded luxury fashion jewelry and related products, has raised an undisclosed amount of private equity funding from Castanea Partners.

Sentinel Capital Partners has completed its re-acquisition of Canadian yarn maker Spinrite Income Fund (TSX: SNF.UN), after having taken Spinrite public two years ago. The deal was worth nearly Cn$81 million, including Cn$35 million in assumed debt. Spinrite unit holders received Cn$2.25 per unit.

Shanghai Tonva Petrochemical Co. Ltd. (Hong Kong: 8251) has received a $25 million PIPE from funds managed by CLSA Capital Partners.

PE-Backed IPOs

Internet Brands Inc., an El Segundo, Calif.-based operator of consumer media and ecommerce websites, has cut its IPO terms from 9.57 million Class A shares being offered at between $10 and $12 per share, to six million shares being sold at $8 per share. The reduction comes after Internet Brands failed to price last week, as expected. The company plans to trade on the Nasdaq under ticker symbol INET, with JPMorgan and Morgan Stanley serving as co-lead underwriters. Shareholders include Idealab, Foundation Capital and Clearstone Venture Partners.

PE Exits

The Blue Sky Group Inc. has acquired the methane sensing technology and other assets of WellDog Inc. No financial terms were disclosed. Blue Sky founded WellDog, which also raised around $12 million in VC funding from EnerTech Capital, Axiom Venture Partners and Yellowstone Capital.

Cisco Systems has completed its acquisition of Securent Inc. for approximately $100 million in cash and assumed options. Securent is a Mountain View, Calif.-based provider of entitlement management software. It raised a $6.07 million Series A round last year from Greylock Partners and Onset Ventures.

Hansen Medical Inc. (Nasdaq: HNSN) has agreed to acquire AorTx Inc., a Redwood City, Calif.-based developer of catheter-based valve technology. The deal includes an up-front payment of $5 million in cash and $5 million of Hansen stock, plus earn-outs of up to an additional $15 million in cash and $15 million in stock. AorTx has raised $5.8 million in VC funding from Bio-Star Private Equity Fund, Saratoga Ventures, MedFocus, Wilson Sonsini Goodrich & Rosati and St. Jude Medical.

Firms & Funds

IDG Ventures has raised a $100 million venture capital fund focused on early-stage techcompanies in Korea. The fund is based in Seoul, and is run by CEO and managing general partner Duk-Hwan Oh, former managing director in North Asia for market research company IDC. The team also includes vice president and general partner Sung-Taw Jie, CFO Matthew Lee andjunior partner Hak-Kyoon Kim.

Endeavour Capital has closed its fifth fund with $475 million in capital commitments, according to LBO Wire. University of Notre Dame and Commonfund Capital were joined by return LPs like Oregon State Treasury and the Washington State Investment Board.

Wind Point Partners will begin raising its seventh mid-market buyout fund in January with a $1 billion target, according to LBO Wire. It will have a $1.25 billion hard cap, and follows a $700 million sixth fund that closed in 2005.

Human Resources

Raymond Cardonne Jr. has joined Berliner Communications Inc. (OTC BB: BERL) as chief financial officer. He previously was CFO of Refac Optical Group and, in the past, has worked at both Technology Management & Funding LP and NEPA Venture Funds.