PE Week Wire: Monday, January 12, 2009

Is Steve Rattner about to become the car czar? And, if so, what does that mean for Quadrangle Group, which is currently targeting around $2 billion for its third private equity fund? And what the heck does Steve Rattner know about cars anyway (let alone about being their czar)?

The car czar job is part of legislation introduced Friday by Barney Frank, which would impose stricter conditions on TARP and the semi-associated auto bailout/restructuring package. It was also part of the original auto industry bailout bill approved by the House of Reps, but got stripped by the Senate. No word yet on how the Senate feels this time around, although Frank is hoping for a vote in his chamber by this Wednesday.

If the Senate ascents, then it would seem that Rattner is in pole position to get the job. On his ABC News blog, Jake Tapper wrote:

“Democrats tell ABC News successful private equity investor Steve Rattner of the investment firm Quadrangle Group has emerged as President-elect Barack Obama’s leading candidate to be car czar… Rattner was a major fundraiser for Sen. Hillary Clinton, D-N.Y., during the Democratic presidential primaries but after Mr. Obama felled his home state junior senator, he quickly began raising campaign cash for him as well, bringing in more than $100,000 for the then-Illinois senator’s successful campaign. Rattner’s wife Maureen White is a former fundraising chair for the Democratic National Committee.”

Rattner of course isn’t commenting, but this does come at a curious time for Quadrangle. The media-focused private equity firm is trying to raise its third fund, and word is that it’s anything but a slam-dunk. Not only is the fundraising environment tough all over, but Quadrangle’s existing LP roster is littered with state pension funds that are under particular liquidity pressure. Losing Rattner now could be way more than a flesh wound. Not only is he one of the firm’s founding principals, but he’s also its undisputed superstar. For example, when Michael Bloomberg retained Quadrangle to manage his $13 billion fortune last year, many news outlets simply reported that Bloomberg had hired Rattner.

“He knows everyone, and is clearly the top power broker at Quadrangle, which is really saying something,” says a Quadrangle investor. “Losing Steve wouldn’t necessarily be a reason not to invest in the new fund for us, but it may take away a lot of luster for new LPs.”

Another Quadrangle LP, however, disagreed: “I don’t see them raising the private equity fund without Rattner, which is why I can’t believe he’d take the car czar job. It would put all his partners at risk, and there’s no evidence that he’d even have the first clue about how to be a car czar.”

Finally, there was this from an LP source, who is not a Quadrangle investor, adds: “Steve’s political aspirations were presumably well known, so it shouldn’t come as a surprise.”

It’s also worth noting that all of this speculation is causing some nausea over at Cerberus Capital Management, the Chrysler owner that, in theory, would be under the Rattner’s thumb. A few years back, Cerberus loaned Quadrangle $125 million to buy the publisher of Maxim Magazine, but now argues that Quadrangle is in default. Or, as someone put it to the New York Post:

“It’s crazy,” said one surprised source familiar with the money squabble. “Cerberus is about to foreclose on the loan to Quadrangle, and now Steve Rattner is going to be the boss of Cerberus,” the source said.

But we’re getting ahead of ourselves. First let’s see if this thing even gets through Congress.

*** It’s been about a year since Jerry Newman left Bear Stearns, where he had been a senior managing director and head of venture capital coverage. Now we’ve learned that he’s reemerged as a co-founding partner of Next-Gen Ventures, a $20 million angel/seed fund focused on digital media and Web-based SaaS efforts. So far, the group has invested in Zogix, True Choice and FiltrBox (run by Jerry’s son, Ari).

His partner if John Wander, the founder of GiantStep Angel Network and a former principal with Stonegate Partners.

*** Big personnel move in the cleantech VC world, as Todd Kimmel has left Advanced Technology Ventures to become a partner with Mayfield Fund. For the uninitiated, Kimmel originally joined ATV in 2003 at just 27 years old, and invested in companies like Great Point Energy and CaliSolar. He then transitioned to an entrepreneur-in-residence role in 2006, and founded cellulosic ethanol company Coskata (yeah, the one that just got money from Blackstone). Early last year he returned fulltime to ATV, but now is moving on.

Last Friday I spoke to Kimmel, who said the move was largely due to Mayfield’s global platform. “Every company I invested in with ATV needed to address going outside the U.S.,” Kimmel explains. “GreatPoint has been in conversations with a Chinese power company about building a factory, CaliSolar built a facility in Germany because it got support from the German government and so on.”

He added that it was difficult to leave ATV, because “they gave me my first VC opportunity.” Kimmel has transferred all of his ATV board seats over to remaining ATV pros Bill Wiberg and Andrew Friendly, although he’ll continue advising Coskata.

I also asked Kimmel about the cleantech pieces of Obama’s proposed stimulus, and he said the following: “We obviously don’t know a lot of the specifics yet, but in general it should definitely help the cleantech investing environment. You want to have a government that’s supportive, and it looks like we’re going to have that… What I hope doesn’t happen is that the government makes tech-oriented decisions. Instead, I want them to say ‘X is an important energy space, and we’re going to allocate Y dollars to it. Hit this metric, by getting to a certain price per gallon or per watt, and we’ll be there to support you.’ That gives us an understanding of what to drive for.”

*** Shameless Plug: Next Thursday, Buyouts magazine will be hosting a 90-minute online seminar on how to profit from repurchasing debt in 2009. Panelists are from Proskauer Rose, Janofsky & Walker, Churchill Financial and Credit Suisse. Get full agenda and registration info here.

*** Last week, Costa Rica suffered one of the worst earthquakes in its history. Not only was it extremely strong, but it was centered just 22 miles outside of the capital city of San Jose. There were more than 15 people dead at last count, and hundreds more trapped in areas cut off by landslides. This has gotten very little attention in the U.S., so I wanted to share a few photos (some of which were taken by Reuters photogs). You can see them in First Read.

As regular readers know, I have a strong personal connection to Costa Rica, as my wife is from there and all of her family still lives there. They are shaken but safe. My prayers go out to everyone there, with sincere hopes that they can quickly recover and rebuild.

Top Three

Medtronic Inc. (NYSE: MDT) has agreed to acquire Ablation Frontiers Inc., a Carlsbad, Calif.-based medical device company focused on developing treatments for irregular heart rhythms. The deal includes an u! p-front payment of $225 million, plus possible earn-outs based on the achieving of clinical milestones. Ablation Frontiers had raised around $40.3 million in VC funding since 2004, from firms like Novartis Venture Fund, Affinity Ventures, Hexagon Investments, Trellis Health Ventures, Versant Ventures, Aberdare Ventures and Pequot Ventures.

Vector Capital is has agreed to acquire Israeli security software company Aladdin Knowledge Systems (Nasdaq: ALDN), for approximately $160 million. Aladdin shareholders would receive $11.50 per share in cash, which is a 20% premium to last Friday’s closing price. Last year, Aladdin rejected a $13 per share offer from Vector. Wells Fargo Foothill has committed to provide leveraged financing for the buyout.

Balderton Capital has held a $430 million first close for its fourth European venture capital fund, which is targeting $500 million. This would be Balderton’s first fund since spinning out as an independent entity from Benchmark Capital.

VC Deals

Acclarent Inc., a Menlo Park, Calif.-based developer of surgical devices for treating ear, nose and throat ailments, has raised $26 million in fourth-round funding. Johnson & Johnson Development Corp. joined return backers New Enterprise Associates, Delphi Ventures, Versant Ventures and Meritech Capital Partners. Last month, Acclarent withdrew registration for an $86.25 million IPO, citing “unfavorable market conditions.”

InSet Technologies, a Mt. Olive, N.J.-based developer of programmable implantable pumps for targeted delivery of medication, has raised $25 million in new VC funding. Clarus Ventures led the round, and was joined by return backer FatBoy Capital.

Fallbrook Technologies Inc., a San Diego-based provider of technology for improving the performance and flexibility of transmissions for vehicles and equipment, has held a first close on a $25.4 million venture capital round. NGEN Partners is leading the deal with a $10 million commitment, while Robeco also is providing $10 million from its Clean Tech Private Equity fund. Windstone Capital Partners is advising Fallbrook on the transaction.

N-trig, a Tel Aviv-based maker of natural input digitizer solutions for mobile computers, has raised $24 million in new VC funding. Backers include Aurum Ventures, Challenger Ltd., Canaan Partners, Evergreen Venture Partners and Microsoft Corp. The company had announced a $28 million round last year, plus $5 million in venture debt.

Yodle Inc., a New York-based provider of local online advertising and lead generation, has raised $10 million in Series C funding. JAFCO Ventures led the round, and was joined by return backers Draper Fisher Jurvetson and Bessemer Venture Partners. The company had previously raised $15 million since 2006.

SocialVibe, a Los Angeles-based social media monetization platform, has raised $8 million in Series B funding. JAFCO Ventures led the round, and was joined by return backer Redpoint Ventures.

StreamBase Systems Inc., a Lexington, Mass.-based provider of complex event processing software, has raised around $6.24 million in Series D funding, according to a regulatory filing. Backers include Battery Ventures, Accel Partners, Bessemer Venture Partners, Highland Capital Partners and In-Q-Tel. StreamBase had previously raised around $41 million.

SimpleTuition Inc., a Newton, Mass.-based online student loan comparison site, has raised $6 million in Series C funding, according to a regulatory filing. Backers include Atlas Ventures, Flybridge Venture Capital and North Hill Ventures.

Goodmail Systems Inc., a Mountain View, Calif.-based provider of an email certification platform, has raised $5 million in additional Series C funding led by Omidyar Network, according to VentureWire. The company had previously held a $20 million close, from Bessemer Venture Partners, SoftBank Capital, DCM and Emergence Capital Partners. The company has now raised over $49 million.

Mersive Technologies, a Lexington, Ky.-based developer of multi-projector display technology, has raised $4.6 million in Series B funding. Hopewell Ventures led the round with a $4 million commitment, and was joined by return backers Adena Ventures, the Kentucky Science & Technology Corp. and the Bluegrass Angels Venture Fund.

Mithridion Inc., a Madison, Wis.-based drug startup focused on CNS disorders like Alzheimer’s disease, has raised $2.9 million in Series B funding. Venture Investors led the round, and was joined by Rocket Ventures, The State of Wisconsin Investment Board and Wisconsin Investment Partners. Mithridion has now raised $7.4 million in total VC funding.

Airborne Mobile Inc., a Montreal-based developer of mobile phone content, has raised C$2 million in new financing from iNovia Capital., a Dublin, Ireland-based provider of a global health clinic search engine, has raised €1.25 million in new VC funding. Existing backer Mianach Venture Capital led the round, and was joined by Enterprise Ireland.

Tayside Flow Technologies Ltd., a UK-based developer of technology that reintroduces the human body’s natural bloodflow pattern, has raised £1.2 million in new VC and debt funding. Equity backers include Quayle Munro Holdings, Tom Farmer, Braveheart Investment Group and Scottish Enterprise. The debt came from Royal Bank of Scotland.

Buyout Deals

Chrysler LLC is not positioning itself for a sale, according to comments made by CEO Bob Nardelli at the North American International Auto Show. Chrysler is majority-owned by Cerberus Capital Management.

Darby Overseas Investments has acquired a 32.4% equity stake in Gangwon Wind Power Co. Ltd., South Korea’s largest wind farm operator. No financial terms were disclosed. Darby made the investment out of its $610 million Korea Emerging Infrastructure Fund.

Industrial Opportunity Partners has acquired E.B. Bradley Co., a West Coast manufacturer and distributor of specialty hardware, surfacing products, flooring and woodworking supplies. No financial terms were disclosed. Fifth Third Bank and Stonehenge Partners are providing debt.

One Equity Partners has invested $100 million into Open Range Communications, a Greenwood Village, Colo.-based provider of wireless broadband services to rural communities. The financing fulfills a requirement that will allow Open Range to tap a $267 million broadband access loan from the U.S. Department of Agriculture.

Perseus LLC has completed a leveraged recapitalization of Seismic Equipment Solutions, a Houston, Texas-based provider of seismic acquisition equipment and related services to the oil and gas exploration industry. No financial terms were disclosed. Westlake Securities advised SES on the deal.

Polaris Venture Partners has made a significant equity investment” in National Electronic Attachment Inc., a provider of secure electronic data transmission, presentation and storage services for dental claims attachments. The deal also includes NEA sister company Medical Electronic Attachment Inc., which focuses on the medical claims market. Brockwood Associates advised NEA and MEA on the deal, which closed in late December.

Premier Foods has retained Goldman Sachs to sell 40% of itself to private equity firms. Possible suitors include Bain Capital, Blackstone Group, Lion Capital and Permira.

PE-Backed M&A

Hydrasun, a Scottish oil and gas company owned by Barclays Private Equity, has acquired the hydraulics business of ATR, an Aberdeen-based oil and gas tool rental company. No financial terms were disclosed.

Bad News

Interstate Bakeries Corp., the bankrupt maker of Wonder Bread and Twinkies, said Friday that efforts to secure financing to exit bankruptcy were taking longer than expected. Early last month, the U.S. Bankruptcy Court in Kansas City approved a reorganization plan that included $600 million in financing, from firms like JPMorgan, Ripplewood Holdings, McDonnell Investment Management, Silver Point Capital and Quadrangle Group.

Merisant Worldwide Inc., the maker of tabletop sweeteners like Equal, has filed for Chapter 11 bankruptcy protection. It was sponsored by Pegasus Capital Advisors.

Waterford Wedgwood plans to cut 367 jobs at two UK subsidiaries. The Ireland-based fine china maker is currently under administration, and recently agreed to sell certain assets to KPS Capital Partners.

Firms & Funds

Arlington Capital Partners has begun raising its third buyout fund with a $750 million target. Read more…

Alvarez & Marsal has formed a European M&A advisory team focused on turnaround opportunities in the European middle markets.

Steel Partners plans to convert its Steel Partners II fund into an industrial holding company and list it on a U.S. stock exchange.

Wedbush Morgan Securities has agreed to acquire the business assets of Pacific Growth Equities, a San Francisco-based I-bank and institutional brokerage focused on in emerging growth companies in the life science and technology sectors. No financial terms were disclosed for the deal, which is expected to close next month.

Human Resources

Whit Matthews has joined SL Capital Partners as an investment manager focused on private equity. He previously worked in the University of Pennsylvania’s investment office as an associate.

Arsenal Capital Partners has promoted Christopher Johnson to vice president and Jeffrey Moffett to senior associate. Johnson joined the firm last year as a senior associate, while Moffett joined in 2006 as an associate.

Olivier Blechner has stepped down as European head of TPG Credit Management, according to The Financial Times.

Ezra Merkin has resigned as chairman of GMAC LLC, the finance company co-owned by Cerberus Capital Management and General Motors. He was recently sued by investors in his firm Ascot Partners, in relation to the Bernie Madoff scandal.

Robert Rubin, former U.S. Treasury Secretary under President Clinton, has stepped down as senior counselor to Citigroup. He will remain a director until the bank’s annual meeting later this year.