PE Week Wire: Monday, August 11, 2008

Sequoia Capital is no longer dipping its toes into the outsourced investment management business. Instead, it’s waist-deep, splashing around and making waves.

The firm has just hired Dan Feder, who currently oversees venture capital and private equity for the Princeton Investment Management Co. In an email sent to contacts last Friday, Feder wrote, in part:

“I am, after almost eight years at Princo, moving on to become part of a new team at Sequoia Capital that will be developing a multi-asset class investment management offering. The team will aim to provide long-term (endowment-like) investment services to a variety of investors. The timing for my move to Sequoia Capital will be driven by the amount of time that it will take to implement a smooth transition at Princo. A critically important part of that transition involves working closely with our fund managers to ensure that Princo is in a position to fulfill its goal of being the best limited partner that each fund manager has.”

This is a major coup for Sequoia, which earlier this year tapped former Stanford CIO Eric Upin to run the program (often described as a down-market version of Makena Capital). It is not, however, an indication that the firm will be advising clients to invest in venture capital funds other than Sequoia. Instead, Feder is expected to focus mostly on buyout and mezzanine opportunities.

Why no venture capital? Here’s three reasons: (A) A big selling point to prospective clients – mostly small-cap endowments – will be access to Sequoia funds, which are otherwise very difficult to get into; (B) Other VC firms may be wary of Sequoia snooping around their financials; and (C) Sequoia believes that has access to most of the best deals (i.e., if Sequoia passes, why invest in a firm that bites?).

Feder declined to comment, while Sequoia has not yet responded.

*** While we wait for KKR to actually go public, here’s something to ponder: What if the so-called Blackstone Bill reemerges? You know, the piece of legislation that would require publicly-traded partnerships to pay taxes at the corporate rate. If so, wouldn’t it significantly decrease whatever valuation KKR ultimately settles on?

My dual answer is: No it won’t, but yes it would. What I mean is that the Blackstone Bill isn’t coming back anytime soon, even if President Obama has a filibuster-proof Senate. First, the public fervor over Blackstone and Fortress going public has subsided, in large part thanks to the share price smackdown each firm has received. Second, we haven’t seen the anticipated bulrush of PE firms into the public market yet, although that’s more a function of inability than antipathy.

Last, and most important: There are larger related issues to discuss – namely, carried interest taxation and the overall issue of capital gains tax rates. Some pieces of the Blackstone Bill could conceivably get rolled into those discussions, but it’s so far on the back burner that it may be forgotten altogether.

*** Speaking of pending legislation, SEIU is pushing a new transparency/corporate responsibility bill that would affect the Washington State Investment Board. I haven’t researched it enough to have an opinion, but will do so later today.

Top Three

A123Systems, a Watertown, Mass.-based maker of lithium-ion batteries, has filed for a $175 million IPO. It also disclosed another $102.1 million in VC funding, which brings its total to around $234 million. It plans to trade on the Nasdaq under ticker symbol AONE, with Morgan Stanley and Goldman Sachs serving as co-lead underwriters.

Shareholders include North Bridge Venture Partners (13.7% pre-IPO stake), General Electric (12.7%), Motorola (8.5%), Qualcomm (8.8%), Sequoia Capital, CMEA Ventures, FA Technology Ventures, Procter & Gamble, Alliance Capital, OnPoint, Carruth Management, the Massachusetts Institute of Technology and board chairman Desh Deshpande.

Alinda Capital Partners is raising its second fund, peHUB reported on Friday. The infrastructure-focused firm is targeting $3 billion, but may end up taking up to $5 billion. It closed its debut fund just over one year ago.

The German cabinet this month will approve a draft law that would enable the government to veto a foreign company’s acquisition of more than a 25% stake in a German company, according to Financial Times Deutschland.

VC Deals

GluMetrics Inc., an Irvine, Calif.-based developer of glucose monitoring devices, has raised $20.08 million in Series C funding, according to a regulatory filing. New Leaf Venture Partners and Versant Ventures were joined by return backer Advanced Technology Ventures.

Applied Identity, a San Francisco-based company that improves enterprise IT security by building user identity into the network layer, has secured $10 million of a $15.3 million Series C round, according to a regulatory filing. ABS Ventures was joined by return backers Bay Partners, Globespan Capital Partners, OVP Venture Partners and Sigma Partners.

Neuron Systems Inc., a Burlington, Mass.-based drug developer for treatment of retinal diseases, has raised $8.96 million in Series A funding, according to a regulatory filing. Backers include Domain Associates and Johnson & Johnson Development Corp.

PatientKeeper Inc., a Newton, Mass.-based provider of integrated physician information systems, has raised $7.5 million in Series F funding, according to a regulatory filing. Return backers include Frazier Healthcare Ventures, Whitney & Co. and New Enterprise Associates. The company has now raised more than $75 million in total VC funding since 1999.

Simbol Mining, a developer of lithium extraction processes, has raised $6.7 million in Series A funding co-led by Mohr Davidow Ventures and Firelake Capital.

Knowledge Adventure, a Torrance, Calif.-based provider of 3D virtual worlds for young children, has raised $5 million in Series B funding. Azure Capital and TeleSoft Partners co-led the round.

VendAsta Technologies Inc., a Canadian developer of social software for the home and home service industry, has raised C$3 million in first-round funding from Victoria Park Capital.

Vidyo Inc., Hackensack, N.J.-based provider of high-def video conferencing over the Internet, has raised $3 million in additional Series B funding according to a regulatory filing. Return backers include Rho Ventures and Sevin Rosen Funds. It has now raised $20.8 million in total VC funding, including a $12.8 million Series B infusion in the summer of 2007.

Magnify360, a Los Angeles-based behavioral marketing company, has raised $2.5 million in Series A funding, according to a regulatory filing. Backers include MHS Capital.

Real Travel Inc., a Lois Altos, Calif.-based online community for travelers, has raised $800,000 has raised in Series C funding, according to a regulatory filing. Backers include Thomvest International and Maples Investments.

MobileAware Ltd., a Dublin , Ireland–based provider of mobile customer and employee self-service solutions, has raised an undisclosed amount of new VC funding from return backers Nauta Capital and Cross Atlantic Capital Partners. The company had previously raised over $27 million.

Buyout Deals

Denham Capital has acquired a majority equity interest in Multi-Shot LLC, a Conroe, Texas-based provider of directional drilling services in the North American oilfield services industry. The deal is valued at $165 million.

Diamond Castle Holdings has completed its acquisition of York Label from Wind Point Partners, for an undisclosed amount. York Label is an Omaha, Neb.-based provider of labeling and packaging solutions to the food, beverage, consumer products and pharmaceutical markets.

IK Investment Partners has agreed to buy Axtone SA, Europe’s largest manufacturer of rail freight buffers, from Advent International. No financial terms were disclosed. Advent formed Axtone via the simultaneous acquisitions in 2006 of Poland’s Kamax and Germany’s Keystone Bahntechnik.

RJD Partners has sponsored a management buyout of IPES Holdings, a UK-based provider of outsourced fund administration services to private equity sponsors. No financial terms were disclosed.

Patriarch Partners has acquired a “significant equity interest” in BMU, the maker of AriZona Iced Tea. No financial terms were disclosed.

Perseus LLC has led a $160 million private equity investment in Vehicle Production Group LLC, a Troy, Mich.-based maker of vehicles for the taxi fleet market, paratransit markets and for consumers with mobility disabilities. Three Seasons Capital is also a VPG shareholder.

Sprint Nextel is in talks to sell its iDen wireless network to either NII Holdings or private equity firms, according to CNBC.

United Parcel Service (NYSE: UPS) reportedly is considering an offer to buy Dutch rival TNT NV, and may be partnering up with a private equity firm.

The Wicks Group of Cos. has agreed to acquire Harris Connect Inc., a Chesapeake, Va.-based provider of strategic affinity solutions. No financial terms were disclosed.

PE-Backed IPOs

Rhino Resources Inc., a Lexington, Ky.-based coal company backed by Wexford Capital, has indefinitely postponed its IPO, due to market conditions. The company had previously reduced its offering range from $16-$18 per share to $11-$12 per share, while maintaining its plan tooffer 10 million common shares. Morgan Stanley and Lehman Brothers are serving as co-lead underwriters.

Rackspace Inc. (NYSE: RAX), a San Antonio-based hosting company, saw its shares trade down 12% of in first day of trading. The company went public at $12.50 per share, but closed Friday at $10.92 per share. Rackspace had raised over $48 million in VC funding since 1999, from firms like Norwest Venture Partners (16.2% pre-IPO stake) and Sequoia Capital (11.6%).

PE-Backed M&A

The Riverside Company acquired MetroTeknik, which it will add-on to its portfolio company, Keycast Group. MetroTeknik is based in Halmstad , Sweden, and makes steel components that are required for severe environments.

Promax Nutrition, a maker of protein/energy bars and related foods, has acquired nutrition bar maker Pure of Holland LLC. No financial terms were disclosed. Promax is a portfolio company of Marwit Capital.

Firms and Funds

InterWest Partners, a venture capital firm focused on both the IT and life sciences sectors, has closed its tenth fund with $650 million in capital commitments. The firm also has promoted Chris Ehrlich, Nina Kjellson and Doug Pepper to general partner.

Norvesor Equity AS, a Norwegian private equity firm focused on the middle-markets, has closed its fifth fund with €236 million in capital commitments.

First Reserve has secured more than $4.5 billion in capital commitments for its twelfth fund, according to a July 30 regulatory filing. It is targeting $12 billion, with a $16 billion hard cap. The Greenwich, Conn.-based firm focuses on private equity opportunities in the energy sector.

Vista Equity Partners, a San Francisco-based buyout firm, is raising up to $1.4 billion for its third fund, according to a regulatory filing. Both Park Hill Group and Diamond Edge Capital Partners are serving as placement agents.

Taft Stettinius & Hollister LLP is merging with Cleveland law firm Kahn Kleinman LPA. Kahn Kleinman will become part of Taft, effective September 1.

Human Resources

Investec Investment Bank and Securities has made two hires: Gareth Taylor, formerly with Deloitte, as a director who will lead the firm’s coverage of private equity clients; and Matthew Wesley, previously with Lazard, as an associate director on the firm’s Debt Advisory team.

Patrick O’Neill has joined Avista Capital Partners as a healthcare industry advisor. He worked in various roles at Johnson & Johnson between 1976 and 2006.

Trivest Partners has made three hires: Todd Jerles as a vice president, David Briedis as an associate and Alex Acosta as an analyst.