PE Week Wire: Monday, August 18, 2008

Longtime readers may remember Michael Bleyzer, CEO of Ukraine-based private equity firm SigmaBleyzer. Back in 2004, Michael provided a moving eyewitness account of the Orange Revolution in Kyiv, which generated an extraordinary amount of feedback (I’ve reposted it here).

On Friday, I spoke briefly with Michael about the situation in Georgia, and how it may affect private equity investment in the region:

Is there much of a private equity market in Georgia?

I’m not aware of anyone activity investing there, although that doesn’t mean there is nobody. It’s a very small market with just a few real sectors for private equity. There’s some energy with hydroelectric you could do, and maybe something in food.

I went there before Saakashvilli became president, and met with the previous one. I liked the country but just couldn’t find things to do there. My general thought was that small markets on their own are difficult, and this was one with political worries as well.

You invest in Ukraine. Any worries about your business there, given the speculation that it could be where Russia goes next?

We invest not only in Ukraine, but also in Kazakhstan – and all of that is going to be impacted to some extent by what’s going on. But I don’t see an immediate danger to Ukraine, because it is a much bigger country than Georgia… Its population is one-third of Russia’s. Also, Crimea is not technically ! a disputed area, like South Ossettia is in Georgia.

But what’s happening right now in Georgia is why I’ve never felt comfortable investing in Russia, and have never done so. I’ve got lots of friends who’ve made money there and I was tempted, but was worried that the minute I go in something like this would happen.

So you think Western PE investors in Russia are in trouble?

It’s more that they’re stuck. I’d advise them to stay away from certain sectors that are particularly vulnerable to political or oligarchic influence, and just stay beneath the radar screen. The Russian economy as a whole will do fine so long as we keep using oil and gas, and some investors will continue to make money there, but it’s a very difficult situation. Russia has a clear goal of expanding its regional sphere of influence, and is winning that fight while the U.S. and the West is losing it. That means that there could be major pressures on Western investors.

Is the reason you don’t invest in Russia more one of personal morals or one of economic interest?

It is a bit of a moral issue, but on the purely economic side I think the risk is higher than the rewards I can get there. If I can get similar returns elsewhere and have the choice, I choose not to take the risk.

*** Erin asks an important question, in a post about Patriarch Partners’ acquisition of a stake AriZona Iced Tea: If Patriarch was founded by a woman (Lynn Tilton), why isn’t it called Matriarch Partners?

*** Ever since RackSpace went public earlier this month, I’ve read dozens of articles and blog posts lamenting the state of technology IPOs. A lot of it is TechMeme echo chamber weeping about how they’re being shunned by the rich kids on Wall Street, while you’ve also had folks blaming early-decade regulations (SOX makes it too expensive, separation of I-banking and research makes it too hard to get noticed, etc.).

So let me say something to the tech market’s narcissistic saddies: This isn’t about you! The entire IPO market is in the tank, and tech isn’t being punished much worse than most other sectors. For example, it’s been six full months since a pharma company went public, and that offering was a disaster.

I’m not asking techies to stop worrying, but just to see the forest for the trees. There have been just two IPOs to price this month on U.S. exchanges, and just 30 for the entire year. That compares to 138 through last August, and 217 for all of 2007. It’s hard all over, and the underlying causes are far more permeating than any anti-tech bias or regulations Eliot Spitzer dreamed up.

Top Three

Reed Elsevier has moved into the second round of bidding for its magazine unit, which includes such titles as Variety and Farmers Weekly. Remaining bidders include Bain Capital, TPG Capital, Providence Equity Partners, Candover/Cinven and Advent International/Quadrangle Group/McGraw Hill. First-round bids came in at between £1 billion and £1.25 billion.

Poly Bona, a Chinese movie distributor, is close to raising $30 million in second-round funding from return backers Sequoia Capital China and SIG Asia Investments. The company raised $5 million from Sequoia and SIG last year, and plans to eventually go public on the Nasdaq.

Catterton Partners plans to raise its seventh fund early next year, with a target of between $1.25 billion and $1.5 billion.

VC Deals

Palo Alto Networks Inc., a Sunnyvale, Calif.-based provider of enterprise network security solutions, has raised $27 million in Series C funding. Lehman Brothers Venture Partners led the round, and was joined by return backers Globespan Capital Partners, Greylock Partners and Sequoia Capital. The company has now raised around $54 million in total funding.

Aktino Inc., an Irvine, Calif.-based provider of carrier Ethernet and broadband services over bonded copper, has raised around $14.2 million in Series C funding, according to a regulatory filing. Listed shareholders include return backers Crosspoint Venture Partners, InnoCal Venture Capital, Foundation Capital, Silver Creek Ventures and Miramar Venture Partners. The company has now raised over $43 million in total VC funding.

Replay Solutions, a Redwood City, Calif.–based provider of testing automation solutions for software development, has raised just over $11 million in Series B funding, according to a regulatory filing. Sigma Partners was joined by return backers Hummer Winblad Venture Partners and Partech International. The company previously raised a $4.12 million Series A round.

GameLogic Inc., a Waltham, Mass.-based provider of solutions that help casino operators enchance customer relationships and attract new players, has secured $8 million of a $10 million Series C round, according to a regulatory filing. Listed shareholders include return backers Bain Capital Ventures, General Catalyst Partners and Maveron. The company had previously raised around $18.5 million.

Signature Diagnostics, a German molecular diagnostics company, has raised €5.1 million in Series C funding. VRP Venture Capital led the round, and was joined by KfW, OncoMethylome Sciences SA, IBG Risikokapitalfonds and BFB BeteiligungsFonds.

Ipanema Technologies, a France-based provider of application traffic management systems for wide area networks, has raised $7 million in new VC funding from London-based Noble Venture.

NetGraviton Inc., a Cambridge, Mass.-based provider of search engine marketing and optimization solutions, has raised $4 million in Series A funding led by Sigma Partners, according to a regulatory filing.

Envysion Inc., a Louisville, Colo.-based provider of managed video-as-a-service, has raised $3 million in third-round funding. ColumbiaPartners led the round, and was joined by return backers like High Country Ventures and Bear Equity.

Buyout Deals

Golden Gate Capital has agreed to acquire a majority interest in Italian restaurant chain Romano’s Macaroni Grill from Brinker International Inc. (NYSE: EAT). The deal is valued at $131.5 million in cash, including $6 million for company expansion. Brinker’s will retain a 19.9% ownership stake, plus has agreed to provide corporate services to Romano’s Macaroni Grill for at least one year.

Great Hill Partners has completed its take-private acquisition of CAM Commerce Solutions Inc., a provider of retailing and payment processing solutions for small and mid-sized businesses. The deal had an equity value of around $180 million, with CAM stockholders receiving $40.50 per share (nearly an 8% premium over the pre-announcement share price). RBC Capital Markets advised CAM on the deal.

Rio Tinto is expected first-round bids for its Alcan Engineered Products unit to come in next month, as part of an asset sale to repay debt. The company is expecting bids of around $5 billion.

Fulltech Fiber Glass Corp., a Taiwanese manufacturer of fiberglass yarn, has raised $30 million in convertible notes from CLSA Capital Partners.

PreVu Inc. (f.k.a. Wilson Leather) plans to liquidate its remaining stores after failing to obtain financing for the launch of a new retail format focused on women’s fashion accessories. The publicly-traded company had raised $45 million in PIPE funding last year, led by Goldner Hawn Johnson & Morrison.

PE Exits

AOL has acquired SocialThing Inc., a Boulder, Colo.-based digital life manager. No financial terms were disclosed. SocialThing raised around $500,000 in seed funding last year from EonBusiness and individual angels.

The Riverside Co. has sold IndustrieHansa Engineering and Consulting, a German automotive and aerospace engineering and consulting group, to Findos Investor. No financial terms were disclosed.

PE-Backed M&A

Warburg Pincus is in talks to sell ChartOne Inc. to Abry Partners portfolio company Healthport, according to LBO Wire. The deal would include $150 million in debt financing being arranged by GE Capital and NewStar Financial. ChartOne is a Burlington, Mass.-based provider of medical record workflow solutions.

Firms & Funds

Milestone Partners is nearing a final close on its third fund, according to Buyouts. The lower middle-market buyout shop was targeting $200 million, but is expected to hit its $240 million hard cap.

River Associates Investments is planning to raise its sixth lower middle-market buyout fund next year, and is in search of a placement agent.

SVB Financial Group has opened a non-bank venture lending operation in India, which will provide debt to VC-backed companies in India.

Human Resources

Abraaj Capital has named Farrukh Abbas has joined as head of operations in Pakistan. He joined the Dubai-based firm in 2005, after having served as general manager of Coca-Cola Co. in Malaysia.

Aris Hatch has joined HarbourVest Partnersas a vice president on the firm’s client relations team. She previously was with Rock Maple Funds and, before that, Advent International.