PE Week Wire: Mon., Sept. 17, 2007

CapitalSource has laid off at least seven employees over the past few weeks, as the credit crunch continues to take its toll. The pink-slipped staffers were all based in Chicago, and worked in CapitalSource’s CLO group, credit opportunities group and syndication group.

Firm spokesman Mike Weiss said: “CapitalSource completed a modest realignment within its capital markets area reflective of the current dislocation in the credit markets. Overall activity remains strong and CapitalSource remains poised to continue to provide value added solutions to its customers as the broader market corrects.”

If that last part about strong overall activity sounds strange, it’s nothing compared to the fact that CapitalSource is actually hiring new senior staff for its core lending business. In other words, CapitalSource expects to be an active lender, but doesn’t believe most other firms will be (thus the CLO cuts). Perhaps it should be renamed ContraditionSource…

Actually, strike that. No need to antagonize a faithful advertiser. Moreover, most of the people laid off were junior folks who could probably be hired back if the credit markets return – rate cut anyone? — and CapitalSource should put more of its eggs in its core basket. And hey, Madison Dearborn has so much faith that it just bought another 2.8 million CapitalSource shares on the open market.

The bigger story here is that CapitalSource is just the tip of a giant iceberg. Executive recruiters tell me to expect many more – and larger layoffs – in the loan markets, and in a variety of other industries that rely on leveraged buyouts. It could become one of the fall’s largest financial stories.

*** Audax Group is raising a new fund to buy both senior debt and distressed debt, according to Buyouts (sub req.). It’s targeting between $1 billion and $1.5 billion, with a $500 million first close expected within the month. No huge surprise here, as Audax originally spun out of Bain Capital, with the expressed purpose of building a middle-market replica. It’s already got buyout funds and mezzanine funds. Now it gets to create its version of Sankaty Advisors.

*** That same Buyouts piece notes that Providence Equity Partners has asked LPs to use a portion of its private equity fund to acquire loans and debt securities issued by media companies. I’ve also confirmed that Leonard Green & Partners is doing the same thing, albeit not via the special purpose vehicle strategy that Providence is apparently using.

Word is that Leonard Green LPs have been receptive, in part thanks to the senior team’s banking background with DLJ. But, in general, this whole thing makes some LPs nervous. One described it to me this way: “Imagine I’ve got a very good plumber, who I call in to fix some pipes. He tells me that he could also run a pipe directly from Alaska into my home. He knows how to do piping within the home, but what this is a very different proposition. Not sure I’d be so comfortable with it.”

*** Most interesting news item today is that Atkins has a new private equity sponsor. Can North Castle succeed where Parthenon failed? I’ll be speaking with them later today, and posting some thoughts at peHUB.

*** This was supposed to be a feedback column, but I was unable to access my email between Saturday and about 40 minutes ago. That also meant that I was on the phone for 90 minutes with IT types, when I should have been writing news blurbs – and writing news blurbs when I should have been writing this column. In other words, a giant mess all around. Apologies.

Top Three

Candover is has withdrawn its €1.5 billion buyout offer for Stork, a Dutch maker of food processing equipment. The move is related to opposition led by Stork shareholder Marel HF, which holds a 25% stake. Stork now says that it is looking at “possibilities for an alternative transaction structure” with Candover and Marel.

Oanda Corp., a Toronto-based online foreign currency exchange, has raised US$100 million in second-round funding. New Enterprise Associates led the deal, and was joined by Legg Mason, Cascade Investment and T. Rowe Price. Oanda had raised a $17 million in Series A in 2005 led by Index Ventures, but Index did not participate on the new round.

Click Tactics Inc., a Waltham, Mass.-based provider of online services for direct marketing programs, has raised $36.71 million in new VC funding. Return backers JMI Equity, ABS Ventures and IDG Ventures Boston. The capital is being used for three purposes: (1) Buy out existing shareholder TH Lee Putnam Ventures; (2) Fund the acquisition of Scottsdale, Ariz.-based Intrasight; (3) Provide working capital. The company previously had raised over $50 million in VC funding since late 2000.

VC Deals

Copan Systems, a Longmont, Colo.-based provider of persistent data storage solutions, has raised $32.4 million in Series D funding. Battery Ventures led the deal, and was joined by return backers Austin Ventures, Globespan Capital Partners, Pequot Ventures, Credit Suisse, Gold Hill Capital, Presidio STX and NTT Leasing Capital (USA). Copan has raised over $83 million in total VC funding since late 2002.

Cornerstone OnDemand Inc., a Santa Monica, Calif.-based provider of talent management software and services, has raised $32 million in Series D funding. Bessemer Venture Partners and Bay Partners co-led the deal.

Teknovus Inc., a Petaluma, Calif.-based provider of broadband-access semiconductor chipsets, has raised $28 million. New backers include Lightspeed Venture Partners, Galleon Crossover Funds, Vision Venture Capital, Technology Alliance Investment and Itochu Technology Ventures. Returnees included U.S. Venture Partners, Partech International, Focus Ventures, Samsung and Mitsubishi. Teknovus has raised around $66 million in total VC funding since 2002.

Nemerix, a Manno, Switzerland–based fabless semiconductor company that develops GPS chipsets, has raised $22 million in Series C funding. Return backers include Atila Venture Partners, Auriga Partners, Oak Investment Partners, PolyTechnos Venture-Partners and VI Partners. The company has raised $65 million in total VC funding since 2002.

Intrinsic Therapeutics Inc., a Woburn, Mass.-based developer of surgical equipment for use in spinal soft tissue repair, has raised around $21 million in Series D funding, according to a regulatory filing. VentureWire reports that an “undisclosed institutional investor” led the deal, and was joined by return backers New Enterprise Associates, Spray Venture Partners and Sprout Group.

Phreesia Inc., a New York–based provider of a free patient-intake solution for the physician waiting room, has raised $10.25 million in Series B funding. Polaris Venture Partners led the round, and was joined by return backers HLM Venture Partners, Long River Ventures and Village Ventures.

Vollee, an Israeli mobile gaming company, has raised $7.5 million in Series B funding. Return backers include Benchmark Capital and BlueRun Ventures. Vollee streams a console gaming experience to 3G phones.

LocaModa Inc., a Somerville, Mass.-based developer of location-based text-messaging services, has raised $6.18 million in Series A funding, according to a regulatory filing. Shareholders include Dace Ventures, Mahindra & Mahindra Ltd. and Reliance Ports & Terminals Ltd. Among LocaModa’s products is something called Wiffiti (wireless graffiti), in which coffee shop patrons can send text messages to large screens. The company is run by Stephen Randall, who previously co-founded smartphone software company Symbion.

Golden Gateway Financial, an Emeryville, Calif.-based provider of reverse-mortgage products and services, has raised $6 million in Series A funding led by Menlo Ventures, according to a regulatory filing.

FraudWall Technologies Inc., a Palo Alto, Calif.-based anti-clickfraud startup, has called down $3.25 million of a $4.5 million Series B round led by JK&B Capital, according to a regulatory filing. The company was founded and seeded by Jim Pitkow and Ron Conway, with Sherpalo Ventures and Baseline Ventures coming aboard for the Series A.

RPM Communications, a Maynard, Mass.-based developer of an instant mobile blogging service, has raised $4 million in Series A funding. Morgenthaler Ventures led the deal, and was joined by TD Fund and individual angels.

What They Like Inc., a San Francisco-based operator of an online review and advertising website for the gaming industry, has raised $1.5 million of a $3 million Series A round, according to a regulatory filing. The company’s CEO is Ira Becker, former VP of business development with Ziff Davis and general manager of the network.

Primet Precision Materials Inc., an Ithaca, N.Y.-based maker of nanopowders and material systems, has called down $1 million of an $8 million Series B round, according to a regulatory filing. Backers include Draper Fisher Jurvetson and Cayuga Venture Fund.

BigFix Inc., an Emeryville, Calif.-based provider of targeted software bug fixes broadcast over the Internet, has raised $10 million in a private debt round, according to a regulatory filing. The company previously had raised around $26.5 million in VC funding from firms like Levensohn Venture Partners, Selby Venture Partners, Split Rock Partners and Thomas Weisel Venture Partners.

Summit Energy Services Inc., a Louisville, Ky.-based provider of energy management services, has raised $82.5 million via a common stock round led by Weston Predisio, according to a regulatory filing. The deal was recently announced, but without a dollar amount. As part of the deal, Weston Presidio partners Chip Baird and Mark Bono have joined the Summit board of directors. Harris Williams & Co. advised Summit on the deal.

Buyout Deals

Apax Partners has agreed to acquire Qualitest and Vintage Pharmaceuticals, a Huntsville, Ala.-based distributor and manufacturer of generic pharmaceuticals. No financial terms were disclosed. RBC Capital Markets served as lead arranger and bookrunner for the leveraged financing, with GE Capital committing a lead order as first lien co-arranger and syndication agent. Bear Stearns advised Q&V on the sale.

The Blackstone Group has acquired a 67% stake in food distributor Vistar Corp. from Wellspring Capital Management, which will retain a 22% position. Blackstone will invest $100 million, with Wellspring rolling over $33 million in equity. The total deal is valued at $420 million, and was first revealed in a Moody’s Investors Service report noticed by The Deal. Earlier this year, Blackstone and Wellspring (plus Bain Capital) teamed up to bid on Royal Ahold’s U.S. Foodservice unit, but lost out to a pairing of KKR and Clayton, Dubil! ier & Rice.

Hermes Private Equity has sponsored a management buy-in of UK food manufacturing company Symington’s, whose brands include Harriott, Mugshots and Symington’s. No financial terms were disclosed. Yorkshire Bank provided leveraged financing.

KKR has acquired a minority stake in Chinese cement company Tianrui Group Cement Co. Ltd., for $115 million in private equity. In related transactions, Tianrui has received an additional $335 million in commitments from the International Finance Corp. and an international banking syndicate led by JPMorgan. The loan facility is the first sponsor-related, RMB-denominated long-term syndicated loan arranged by international banks in China.

North Castle Partners has acquired a controlling interest in Atkins Nutritional Holdings Inc., a provider of nutrition weight management products and services. No financial terms were disclosed.

PPG Industries (NYSE: PPG) has agreed to sell its automotive OEM glass and replacement glass business to Platinum Equity, for approximately $500 million.

Institutional Shareholder Services is recommending that Avaya Inc. (NYSE: AV) shareholders approve a $17.50 per share buyout offer from Silver Lake Partners and TPG. The total deal would be valued in excess of $8 billion.

PE-Backed IPOs

RHI Entertainment Inc., a New York-based producer of made-for-TV movies and other television programming, has filed for a $250 million IPO. It plans to trade on the Nasdaq under ticker symbol RHIE, with JPMorgan and Banc of America securities serving as co-lead underwriters. RHI was previously known as Hallmark Entertainment, before being acquired and renamed by Kelso & Co. and members of company management in January 2006. Later that year, RHI acquired the domestic rights to Crown Media’s film library, which Crown had originally bought from Hallmark Entertainment six years earlier.

China Digital TV Holding Co., a Beijing-based provider of conditional access systems to China’s digital television market, has filed for a $150 million IPO. It plans to trade on the NYSE under ticker symbol STV, with Morgan Stanley and Credit Suisse serving as co-lead underwriters. Shareholders include SAIF, with a 21.8% pre-IPO stake.

TransMedics Inc., an Andover, Mass.-based developer of portable life support systems for organ transplants, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol TMDX, with Morgan Stanley serving as lead underwriter. The company has raised around $90 million in total VC funding since 2000, including a$25.5 million Series D round earlier this year. Shareholders include 3i Group (24.4% pre-IPO stake), Tudor Investment Corp. (14.7%), Flagship Ventures (14.3%), VantagePoint Venture Partners (10%), Sherbrooke Partners (9.2%), Alta Partners (8.9%), CB Health Ventures (7.4%), Posco BioVentures andSagamore Bioventures.

PE Exits

Abraaj Capital has sold its majority stake in Septech Holdings Ltd., a Sharjah, UAE-based maker of water and wastewater-related systems. The buyer was Septch founder and CEO David Heffernan. No financial terms were disclosed, except that Abraaj reported a 39% IRR over its three-year holding period.

Baird Capital Partners Europe has agreed to sell Team BS Management Holding to Randstad Group for €71 million. Also selling is company CEO, and minority shareholder, Dirk Schmitt. Team BS is a German provider of temporary staffing and other HR-related services. It was acquired by Baird in 2004.

CCMP Capital has sold Maynard & Harris Plastics to company management and Bank of Scotland. No financial terms were disclosed. No financial terms were disclosed for the deal, which gives company management the majority position. M&H is a UK-based provider of plastic packaging for the personal care market.

PE-Backed M&A

Farley’s & Sathers Candy Co., a portfolio company of Catterton Partners, has agreed to acquire Brach’s Confections Inc. from Barry Callebaut AG of Switzerland. No financial terms were disclosed. Brach’s is a Dallas-based manufacturer of branded and private label confectionery products. Harris Williams & Co. advised Brach’s on the sale.

Firms & Funds

Friedman Fleischer & Lowe has held a $980 million first close for its third fund, according to a regulatory filing. The San Francisco-based firm is targeting $1.5 billion, and is using Lazard Freres as placement agent. It makes middle-market investments in the U.S. and Canada, for companies with enterprise values of between $30 million and $500 million. Its second fund closed on $750 million in 2004.

Human Resources

Kurt Hilzinger has resigned as chief operating officer of drug distributor AmerisourceBergen Corp. (NYSE: ABC), in order to take a job with an undisclosed private equity firm.

Edward Banks and Ian Ferguson have joined Evercore Partners as London-based senior managing directors in the firm’s Advisory unit. Banks previously was a managing director on the UK M&A team of JPMorgan Cazenove, while Ferguson was with Merrill Lynch as a managing director focused on the aerospace, engineering and defense sectors.

Cliff Smallman has joined Waller Capital Partners as a managing director in the firm’s New York office. He previously worked in the media and telecom groups of both Deutsche Bank and CSFB, and in 2004 co-founded a boutique advisory firm named Valnic Capital.