PE Week Wire: Mon., Nov. 5, 2007

Between 2000 and 2003, venture capitalists poured $3.64 billion into more than 300 “database and file management” companies, according to Thomson Financial. It reeked of desperation from VCs who had just struck out on ecommerce, nanotech, etc. The problem must be sector focus, they thought, not over-funding. If we just keep digging, there must be a homerun in there somewhere…

No surprise, but most of these companies floundered. Not only were there too many of them, but they were in competition for a waning customer pie born of macro-economic difficulties (axe, meet new infrastructure purchase). So when yet another database and file management company got funded, it was met with a collective eye-roll. Particularly if its primary business was “storage area networking,” which was the buzzword used by nearly one-third of the aforementioned startups.

All of this leads us to EqualLogic, a Nashua, N.H.-based… storage area networking company, which raised $12 million in Series A funding from Charles River Ventures and Sigma Partners in 2001. EqualLogic’s thesis was that the storage space was simply too complicated, due to the limited and proprietary nature of existing commercial verticals. The solution, it felt, would be to transpose the plug-and-play nature of Ethernet on storage (i.e., make it easy). Interesting concept, but folks like me didn’t pay too much attention. In fact, EqualLogic didn’t even merit its own write-up in PE Week.


EqualLogic today announced that it will be acquired for approximately $1.4 billion by Dell. It is the largest all-cash M&A exit ever for a VC-backed company (according to VentureSource), and is particularly noteworthy considering how many of its storage peers have since fallen by the wayside. For context, EqualLogic’s final round of VC funding came in 2004, at a post-money valuation of under $100 million, from CRV, Sigma, Focus Ventures and TD Capital Ventures. Oh, and it’s based in New England – a region that really was in need of a VC-backed tech homerun.

The company was actually scheduled to begin its IPO road-show tomorrow ($125m cover price), with most market watchers expecting major public market success. But Dell was fairly persistent in its pursuit – as was another attempted acquirer – and the EqualLogic board opted for a big-time payout and some valuable strategic synergies.

“There was a lot of money invested in the storage space back when we first funded EqualLogic,” acknowledges Greg Gretch, a managing director with Sigma Partners. “But this was a class VC success story in that the company management was a group of tech people with a novel idea and vision… and those ideas combined with execution helped them succeed within a crowded market.”

*** Quiz Time: Can you name the small/middle-market lender that is done lending, and has pink slipped most of its employees?

*** It’s time again for the bi-annual ACG/Thomson DealMakers Survey. It should only take about five minutes to complete, with results to be published here, in Buyouts Magazine and on the ACG website. So I ask of your participation here.

Top Three

Dell has agreed to buy EqualLogic, a Nashua, N.H.-based provider of SAN solutions specifically optimized for virtualization, for approximately $1.4 billion in cash. EqualLogic had raised $52 million in VC funding since 2001, from firms like Charles River Ventures, Sigma Partners, Focus Ventures and TD Capital Ventures.

W2 Group, a Waltham, Mass.–based holding company for social media marketing companies like Digital Influence Group and Racepoint Group, has raised $30 million in private equity funding from Monitor Clipper Partners. The capital will be used to foster both organic growth and to make acquisitions.

The Global Emerging Markets Group and Fiduciaria Bogota S.A. have agreed to jointly raise and sponsor a $220 million private equity fund. The vehicle will acquire both control and minority positions in small-and-mid-sized companies based in Columbia. Juan Pablo Ospina, former director general of SEAF Columbia, will serve as fund manager and oversee day-to-day operations. GEMG managing directors will also participate.

VC Deals

LEAD Therapeutics Inc., a San Bruno, Calif.–based drug discovery starrtup, has raised $17 million in Series A funding. Pappas Ventures and ProQuest Investments co-led the deal, and were joined by Mustang Ventures. LEAD plans to carry out most of its discovery research activities in China, and also has initiated two programs in infectious diseases and oncology, respectively.

LED Lighting Fixtures Inc., a Morrisville, N.C.-based maker of light fixtures for general illumination from LED light sources, has raised $16.5 million in private equity funding. The round was led by Digital Power Capital, a fund managed by Wexford Capital.

Socialtext Inc., a Palo Alto, Calif.-based provider of enterprise wiki software, has raised $9.5 million in Series C funding. Draper Fisher Jurvetson led the deal, and was joined by fellow return backers Omidyar Network and SAP Ventures. The company also announced that Eugene Lee, co-founder of and an executive with Adobe and Cisco, has been named CEO. Founding CEO Ross Mayfield will transition into a president and chairman role.

Think Passenger Inc., a Los Angeles-based provider of on-demand customer collaboration solutions, has raised $8.3 million in Series B funding. StarVest Partners and Shelter Capital Partners were joined by return backer Steamboat Ventures. Get more info.

Buyout Deals

American Capital Strategies has completed a one-stop buyout of Rug Doctor LP, a Plano, Texas–based maker of premium steam cleaning carpet care machines that are both rented and sold to consumers. No financial terms were disclosed.

Brazos Private Equity Partners has made two acquisitions in the food and beverage sector: Sadler’s Bar-B-Que Sales Ltd., a Henderson, Texas-based maker of smoked meats and other barbeque-related products; and Golden County Foods Inc., a Plover, Wis.-based manufacturer of frozen snack, appetizer and potato-based products. The two companies will operate under the umbrella of Wholesome Holdings, which is run by food industry veteran Terry O’Brien. No financial terms were disclosed for either acquisition.

Brentwood Associates has made a “significant investment” in Zoe’s Kitchen USA LLC, a Birmingham, Ala.-based fast casual restaurant chain serving Mediterranean cuisine. No financial terms were disclosed for the deal, which will result in the founding Cassimus family retaining substantial ownership and senior leadership. Fast-casual industry veteran Greg Dollarhyde will invest in the company and serve as its executive chairman. Brookwood Associatesadvised Zoe’s Kitchen on the deal.

Centra Industries Inc., a Cambridge, Ontario–based manufacturer of structural components and assemblies for commercial aircraft, has raised Cnd$24.9 million in private equity funding from Heritage Partners. The founding family will retain company control. The deal also included leveraged financing led by CIT.

First Atlantic Capital has acquired a majority interest in Sprint Industrial Holdings LLC from The CapStreet Group for an undisclosed amount. Other buy-side participants included Goldman Sachs, Cordova, Smart & Williams and Oaktree Capital Management. Sprint is a Houston, Texas-based provider of liquid and solid storage and technical safety solutions primarily to the refining, petrochemical and pipelines/transmission industries.

Mid Europa Partners has completed its acquisition of a 94% stake in Polish healthcare provider Medycyna Rodzinna, from Polish Enterprise Fund. The deal was valued at approximately $21.8 million. Bank BPH underwrote the senior credit facilities, while Mezzanine Management provided mezzanine notes and co-invested in the equity.

PE-Backed IPOs

NameMedia Inc., a Waltham, Mass.-based online marketplace for domain names, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol NAME, with Credit Suisse serving as lead underwriter. The company has raised $43.1 million in VC funding from Highland Capital Partners and Summit Partners, for pre-IPO positions of 50.5% and 22.7%, respectively.

SuccessFactors Inc., a San Mateo, Calif.-based provider of on-demand performance and talent management software, has set its IPO terms to 10.79 million common shares being offered at between $8 and $10 per share. It would have an initial market cap of approximately $497 million, were it to price at the high end of its range. The company plans to trade on the NYSE Arca under ticker symbol SFX, with Morgan Stanley and Goldman Sachs serving as co-lead underwriters. Shareholders include Greylock Partners (31.8% pre-IPO stake), TPG Ventures (19.8%), Cardinal Ventures (9.1%), Canaan Partners (7.5%), Emergence Capital Partners (6.6%) and Granite Global Ventures (5.2%).

3Par Inc., a Fremont, Calif.-based provider of utility storage solutions, has set its IPO terms to 7.5 million common shares being offered at between $11 and $13 per share. It would have an initial market cap of approximately $780 million, were it to price at the high end of its range. The company plans to trade on the Nasdaq or the NYSE, with Goldman Sachs and Credit Suisse serving as co-lead underwriters. 3Par has raised around $185 million in total VC funding since its 1999 inception, from firms like Mayfield fund (19.52% pre-IPO stake), Menlo Ventures (17.74%), Worldview Technology Partners (15.02%), Integral Capital Partners and Van Wagoner Capital Management.

Day4 Energy Inc., a Burnaby, British Columbia-based photovoltaic panel developer, has filed for an IPO in Canada. CIBC World Markets and GMP Securities will serve as co-lead underwriters. The company has raised VC funding from such firms as Goodwood Capital Fund, Discovery Capital and Chrysalix Energy.

PE Exits

Burger King Holdings Inc. (NYSE: BKC) said that its three private equity shareholders plan to offer 23 million common shares in a secondary public offering. The three firms – Bain Capital, Goldman Sachs and TPG Capital, currently hold around 79 million common shares, or a 58% position. Following the offering, the firms’ combined stake will be reduced to 41%, or 38% if over-allotment options are fully exercised.

PE-Backed M&A

Suzo-Happ Group, an Elk Grove Village, Ill.-based portfolio company of Pfingsten Partners, has acquired Dynamics Chinatec Industries Ltd., a Chinese manufacturer of parts used primarily in gaming machines. No financial terms were disclosed.

York Label, an Omaha, Neb.-based labeling company backed by Wind Point Partners, has made two acquisitions: Cameo Crafts, a Canadian maker of high-end decorative labeling and packaging technologies; and Package Service Company LLC, a Kansas City-based pressure-sensitive label company. No financial terms for either deal was disclosed.

Human Resources

James Slipper has joined Gresham Private Equity as a partner in the firm’s London office, effective December 3. Slipper currently is a director with Deloitte, where he is responsible for the Reading transaction services team.

Kevin Dunn has joined 3i Group as general counsel. He previously was a senior managing director with GE Commercial Finance, running its European leveraged financing business. Dunn succeeds Tony Brieley, who is retiring.

Guy Lewin-Smith has agreed to join the London office of Debevoise & Plimpton LLP as a partner in the firm’s corporate practice. He previously was a partner with Linklaters, and focuses on M&A, equity capital market and corporate finance advisory matters.