PE Week Wire: Mon., Oct. 29, 2007

Last November, the Boston Red Sox paid just over $50 million for the right to negotiate with Japanese pitcher Daisuke Matsuzaka. It was an extraordinary amount of money – particularly given that the club would still have to sign him – but the deal made sense for both financial and strategic reasons: (F) The Red Sox had plenty of cash on hand, while Matsuzaka would help tap new revenue streams in Japan; (S) Matsuzaka would be winning games for the Red Sox, rather than for the rival New York Yankees (which bid $32 million).

Less than two weeks later, the Red Sox announced that they had signed right-fielder J.D. Drew for $70 million over five years. Some people considered the contract to be a quid pro quo (Drew’s agent also repped Matsuzaka), and most considered it to be a top-decile payment for a top-quartile player. But there was something that everyone agreed on: The Red Sox were a team that would pay to win. More importantly, it was a team that would risk overpaying.

All of this brings us analogously to Microsoft, which last week agreed to pay $240 million for a 1.6% stake in social networking juggernaut Facebook (an aside: remember when it was named TheFacebook?). Like with the Red Sox’s Matsuzaka signing, the Facebook deal made sense for both financial and strategic reasons: (F) Microsoft is rich, and the deal will provide it with all sorts of new revenue opportunities; (S) It keeps partial Facebook ownership away from rival Google, which also wanted a piece.

But this transaction did not occur in a vacuum. It came just months after Microsoft paid for aQuantive for $6 billion, or more than 13X earnings, and days after CEO Steve Ballmer said that the company would make around 20 acquisitions per year for the next five years. The result will be that each of those 100 acquisition targets will expect a step above top-dollar from Microsoft. As one company insider told me: “Bankers would be naïve not to.”

This is a tough position from which to negotiate, which is why Microsoft needs the Facebook and aQuantive deals work on their own merits. If they don’t, it will likely be stuck with a lot more overpriced baggage down the road. If they do, well… then Microsoft will be popping champagne corks. Kind of like the Red Sox.

Other Stuff

*** I’m currently sitting in my room on the 16th floor of the Bellagio Hotel in Las Vegas, overlooking the Strip. Be here today and tomorrow, and back at the home base on Wednesday. For those who want/need/desire to contact me, email is best. Cell reception up here is surprisingly lousy.

Top Three

Puget Energy (NYSE: PSD), a regulated utility providing electric and natural gas service to the growing Puget Sound region of western Washington, has agreed to be taken private for $30 per share. The total deal is valued at $7.4 billion, including $3.2 billion in equity, $1.6 billion in leveraged financing and $2.6 billion in assumed debt. The buying consortium includes Macquarie Infrastructure Partners, the Canada Pension Plan Investment Board, British Columbia Investment Management Corp., Alberta Investment Management, Macquarie-FSS Infrastructure Trust and Macquarie Bank Ltd. .

Oxford Immunotec Ltd., a UK-based developer of a diagnostic platform to examine a patient’s cellular response to infection, has raised $40 million in Series E funding. The round will be split up over two tranches. Wellington Partners and Clarus Ventures co-led the deal, and were joined by return backers DFJ Esprit, Quester Capital Management and Dow Chemical Co. .

Stan O’Neill is expected to step down today as CEO of Merrill Lynch, after massive Q3 losses and an unauthorized merger approach with Wachovia.

VC Deals

Allozyne Inc., a Seattle-based biotech company focused on protein therapeutics, has raised $30 million in Series B funding. It will be used to advance the company’s lead product candidate, which it says is an improved version of Interferon beta for the treatment for Multiple Sclerosis. MPM Capital led the round, and was joined by return backers OVP Venture Partners, Amgen Ventures, ARCH Venture Partners and Alexandria Real Estate Equities. The company was formed in 2005 under the auspices of a VC-backed incubator called Accelerator Corp., and raised under $4 million in Series A funding at a post-money valuation of approximately $8.6 million. .

Avectra Inc., a McLean, Va.-based provider of on-demand software for membership management , has raised $26.5 million in its first round of outside funding. Sterling Venture Partners led the deal, and was joined by HarbourVest Partners. .

Inrix Inc., a Kirkland, Wash.–based provider of traffic flow information in the U.S., has raised $15 million in Series C funding. Return backers included August Capital, Bain Capital Ventures and Venrock. It previously had raised around $16 million. .

Solarflare Communications Inc., an Irvine, Calif.-based fabless semiconductor company focused on Ethernet products, has raised $14.8 million in Series A-1 funding. Return backers include Oak Investment Partners, Foundation Capital, Accel Partners, Acacia Capital Partners, Amadeus Capital Partners and Anthem Venture Partners. This is the company’s second round of VC funding since merging with Level 5 Networks 18 months ago. VentureWire reports that the company also secured $15.2 million in venture debt from Hercules Technology Growth Capital.

Vitrue Inc., an Atlanta-based video-centric social media company, has raised $10 million in Series B funding. Dace Ventures led the deal, and was joined by return backers Comcast Interactive Capital and Turner Broadcasting and General Catalyst Partners. .

Shipwire Inc., a Sunnyvale, Calif.-based provider of Web-based solutions for storing and shipping merchandise, has raised $4 million in Series A funding led by Meakem Becker Venture Capital. .

Buyout Deals

Silver Lake Partners and TPG have completed their $17.50 per share buyout of Avaya Inc., which has de-listed from the NYSE. The total deal was valued at approximately $8.3 billion. .

Warburg Pincus has completed its $65 per share buyout of Bausch & Lomb, whichhas de-listed from the NYSE. The total deal was valued at around $4.5 billion, including $830 million in assumed debt. .

Gores Group has agreed to acquire Sagem Communications from French aerospace company Safran for €383 million. SAgem provides broadband products like printing terminals and digital TV set-top boxes. It had €1.3 billion in 2006 revenue.

Essex Woodlands Health Ventures has acquired a majority stake in Bledsoe Brace Systems, a Grand Prairie, Texas-based maker of orthopedic bracing products. No financial terms were disclosed for the deal, which was done in partnership with industry veterans Greg Nelson and Andrew Myers. Nelson will become chairman and CEO, while Myers will serve as executive vice president of business development. Former CEO Gary Bledsoe will remain president of the company, and retain a “substantial” equity interest. .

Greenbriar Equity Partners and Berkshire Partners have acquired AmSafe Partners Inc., a Phoenix–based provider of safety and security systems for the aviation, air cargo, military and specialty vehicle markets. Sellers were The Pritzker Group and Admiralty Partners. No financial terms were disclosed. Oak Hill Advisors and Wells Fargo provided senior note financing, while subordinated financing was privately placed with undisclosed buyers. Credit Suisse advised Greenbriar and Berkshire, while Jefferies Quarterdeck advised the sellers. .

Pfingsten Partners has led a buyout of Tropitone Furniture Company Inc., an Irvine, Calif.-based designer and manufacturer of upscale casual outdoor furniture sold under the Tropitone and Basta Sole brands. No financial terms were disclosed for the deal, which included co-investments from HarbourVest Partners and DuPont Capital Management. Tropitone was advised by Lincoln International. .

TA Associates has acquired a majority stake in M and M Direct Ltd. from ECI Partners for an undisclosed amount. M and M is a UK-based online and mail-order retailer of discounted lifestyle, fashion and sports apparel and footwear. Steve Robinson, former CEO of Tesco Direct, will succeed Mike Tompkins as CEO. .

TAG Equity Partners has acquired Vapor Power International LLC, a Franklin Park, Ill.-based manufacturer of steam generators, thermal fluid heaters, hot water boilers, superheaters, electric boilers and power burners. No financial terms were disclosed. Vapor Power was advised on the deal by Citi Capital Strategies.

TECO Energy (NYSE: TE) has agreed to sell shipping subsidiary TECO Transport Corp. to Greenstreet Equity Partners, a Miami-based private equity firm formed by Steven Green, the former U.S. Ambassador to Singapore. The deal is valued at $405 million in cash, and is not conditioned upon obtaining debt financing. Morgan Stanley advised TECO Energy on the deal, while Greenstreet was advised by AMA Capital Partners. .

Alltel Corp. (NYSE: AT) has received FCC approval for its pending $71.50 per share buyout by TPG and GS Capital Partners. The total deal is valued at $27.5 billion, with leveraged financing being provided by Goldman Sachs, Citigroup, Barclays and RBS. Alltel is being advised by Merrill Lynch, Stephens Inc. and JP Morgan Securities. Alltel CEO Scott Ford will remain in place post-buyout.

PE-Backed IPOs

U-Blox Holding AG, a Switzerland-based maker of miniature GPS receivers and embedded computing modules, has raised CHF 135.6 million ($116.5m) in an IPO on the Swiss Stock Exchange. The company had raised over $17 million in VC funding since 2000, from 3i Group, Partners Group and Innoventure Equity Partners.

China Nepstar Chain Drugstore Ltd., the largest retail drugstore chain in China, has set its IPO terms to 20.6 millionAmerican depository shares being offered at between $11.50 and $13.50 pershare.It plans to trade on the NYSE under ticker symbol NPD, with Goldman Sachs (Asia) serving as lead underwriter. Goldman Sachs holds a 30.3% pre-IPO position.

EnteroMedics Inc., a St. Paul, Minn.–based developer of medical devices for the treatment of obesity and gastrointestinal disorders, has set its IPO terms to five million common shares being offered at between $14 and $16 per share. It would have an initial market cap of approximately $261 million, were it to price at the high end of its range. The company plans to trade on the Nasdaq under ticker symbol ETRM, with JPMorgan and Morgan Stanley serving as co-lead underwriters. EnteroMedics has raised around $65 million in total VC funding since its 2002 inception, from firms like MPM Capital (30.8% pre-IPO stake), Bay City Capital (20.4%), Aberdare Ventures (13.2%), InterWest Partners (12%), Onset Ventures (7.7%) and Charter Life Sciences (5.6%) and he Mayo Foundation for Medical Education and Research.

Symetra Financial Corp., a Bellevue, Wash.-based life insurance company, has set its IPO terms to 39.5 million common shares being offered at between $19 and $20 per share. It plans to trade on the NYSE under ticker symbol SYA, with underwriters including Merrill Lynch, Goldman Sachs, JPMorgan and Lehman Brothers. Shareholders include Vestar Capital Partners, Och-Ziff Capital Management, Highfields Capital Management, Caxton Associates, White Mountains Insurance Group and Berkshire Hathaway.

PE Exits

Beyond Media of Pensacola, Fla. has acquired Intent MediaWorks Inc., an Atlanta-based digital media distribution company. No financial terms were disclosed. Intent MediaWorks has raised over $11 million in VC funding from firms like Allen & Co., SoftBank Capital, Bertelsmann Capital Ventures, Greycroft Partners, Menemsha Capital Partners and IMW Partners. .

Littlejohn & Co. has agreed to sell Universal Lighting Technologies Inc. to Matshusita Electric Works Ltd. No financial terms were disclosed. Universal Lighting designs and manufacturers lighting ballasts and control systems, and was acquired by Littlejohn via a 2001 carveout from Magntek Inc. .

EnerNOC Inc. (Nasdaq: ENOC), a Boston-based provider of demand response and energy management solutions, has filed for a $205 million secondary public offering. The company plans to price four million common shares, with 3.2 million of them coming from selling shareholders. No additional information on the sellers was given, but major EnerNOC holders include Foundation Capital, Draper Fisher Jurvetson, Braemar Energy Ventures and DFJ New England. EnerNOC raised $97.5 million in an IPO this past May, by pricing its stock at $26 per share. At market close last Friday, it was trading up at $42.13 per share.

PE-Backed IPOs

Dace Ventures has held a first close of over $70 million on its debut fund. The Waltham, Mass.-based firm focuses on early-stage Internet-related companies, and is led by Dave Andonian. .

Human Resources

Christopher Nassetta has been named president and CEO of Hilton Hotels Corp., which was acquired last week for $26 billion by The Blackstone Group. He has spent the past seven years in charge of Host Hotels & Resorts. Former CEO Stephen Bollenbach retired upon completion of the buyout, and president and COO Matthew Hart has agreed to step down (but will remain on the board of directors). .

Mark Neumann has joined Nobska Ventures as a venture partner, focused on opportunities in Israel and the Mid-Atlantic U.S. He has spent the past seven years as CEO of 510 Ventures. .

Blue Point Capital Partners has hired three associates: Blake Oatey (previously with Morgan Joseph & Co.), Jonathan Pressnell (KeyBanc Capital Markets) and Neil Sullivan (Morgan Stanley).

Baird Capital Partners Europe has made three promotions: Andrew Ferguson to managing director, Dennis Hall to director and Simon Coote to manager.

Capital Resource Partners has promoted Jeff Potter to partner and chief operating officer. It also promoted Peter Kagunye to chief financial officer, and Nick Scola to principal.