PE Week Wire: Monday, June 2, 2008

An obese amount of news this morning, which has my fingers aching and eyes glazing over. Apparently this is what happens when PR folks confuse a three-day weekend with spring break. So, for the first time in a long time, let me just direct you to some interesting stuff other people wrote:

*** Scott Kirsner returned to Boston nearly two years ago, and has spent much of that time examining why Silicon Valley kicks our butt in terms of entrepreneurial success stories. I like to think it’s because local founders are hampered by a social expectation that they spend at least 161 nights watching baseball games (we’re all given one game off for personal or religious engagements).

Scott, however, has gone a bit deeper, and yesterday pointed a finger directly at Bay State venture capitalists. Specifically, he faults them for playing things too safe, particularly when it comes to first-time founders. As a lynchpin, he reports that 80 early-stage companies have gone through the Y-Combinator incubator program in Boston, but not one has raised capital from area VCs. Hey Boston VCs: Got a rebuttal?

*** Why Start-Up Lawyers Frustrate Me, by venture capitalist and (former) start-up lawyer Jason Mendelson. This is a must-read, if you’re anywhere near this line of work.

*** Last week, I wrote a blurb about how “Boots” Del Biaggio had left Sand Hill Capital, for “personal reasons.” Seems those reasons relate to an investigation over allegations that Boots defrauded an investment firm (not SHC) of around $3 million. The Merc broke the story Friday, and has more here.

*** Dr. John F. Marshall: Retired professor. Noted lecturer. Inside trader?

*** Connie on Advanced Equities, the biggest player you probably don’t know much about.

*** Deal of (Last) Week.

*** Looks like the quick flip may not be dead. The FT is reporting that Cerberus has already pawned off over half its stake in Chrysler and GMAC.

*** James Surowiecki on how corporate M&A almost always leads to disappointment.

Top Three

Bain Capital, Blackstone Group and NBC Universal are believed to be the leading bidders for The Weather Channel, whose owner Landmark Communications had been accepting buyout offers through last Friday. Their offer would be worth around $3.5 billion, including around $1.8 billion of equity split roughly equally. GSO Capital, acquired earlier this year by Blackstone, would provide around $600 million in debt. Time Warner also is believed to have made an offer.

EdeniQ, a Visalia, Calif.–based cellulosic ethanol company, has raised $33.12 million in its first round of venture capital funding, according to a regulatory filing. The round’s largest commitments came from Advanced Equities Investments and Draper Fisher Jurvetson, while other backers included Element Partners, Angeleno Group, The Westly Group, Omninet, DAG Ventures and Northgate Capital. The deal is partially being used to help EdeniQ spin out from Altra Biofuels, which remains an EdeniQ shareholder.

Wachovia Corp. has fired Kennedy Thompson as CEO, and named chairman Lanty Smith as an interim replacement.

VC Deals

Rox Medical Inc., a San Clemente, Calif.-based medical device company focused on chronic obstructive pulmonary disease, has raised $35 million in Series C funding, according to VentureWire. Essex Woodlands Health Ventures led the round, and was joined by return backers Domain Associates, Prism VentureWorks and Versant Ventures. The company had previously raised around $16 million.

ZettaCore Inc., a Englewood, Colo.-based developer of molecular memory solutions, has called down $15 million of a $22 million Series C round, according to a regulatory filing. Return backers include Draper Fisher Jurvetson, Kleiner Perkins Caufield & Byers and Oxford Bioscience Partners. The company had previously raised around $35 million.

Syndexa Pharmaceuticals Corp., a Cambridge, Mass.-based metabolic drug discovery company, has raised $15 million in venture capital funding. The round was led by Yalcin Ayalsi, founder of Hitite Microwave Corp.

DiVitas Networks Inc., a Mountain View, Calif.-based provider of an enterprise appliance that provides voice and data mobility, has raised $12 million in Series C funding, according to a regulatory filing. Return backers include Clearstone Venture Partners and Menlo Ventures.

Persystent Technologies, a Tampa, Fla.-based provider of automated PC repair and high-speed imaging, has raised $11.6 million in Series A recap funding. ABS Ventures and Valhalla Partners co-led the round, and were joined by return backers Inflexion Partners, Tall Oaks Capital and Village Ventures.

Zannel, a San Francisco-based provider of an instant mobile messaging service, has raised $10 million in Series B funding. Alloy Ventures led the round, and was joined by return backers U.S. Venture Partners and Palomar Ventures. The company had previously raised $6 million.

First Coverage Inc., a provider of financial information management solutions to the institutional investment community, has raised $9 million in Series B funding. Commonwealth Capital Ventures led the round, and was joined by return backers GrandBanks Capital and JLA Ventures. The company’s corporate headquarters are in Toronto, while it also has a Boston office. It previously raised a $5 million Series A round in late 2006.

Grockit Inc., a San Francisco-based online test prep school, has raised $8 million in Series B funding. Integral Capital Partners led the round, and was joined by return backer Benchmark Capital.

MedVentive Inc., a provider of pay-for-performance software for evidence-based medicine, has raised $3.55 million in Series B funding, according to a regulatory filing. Return backers include HLM Venture Partners, Long River Ventures and Worcester Venture Fund. The company is based in Cambridge, Mass., even though the filing says Boston.

Correlsense, an Israel-based developer of IT SLA management software, has raised $3 million in VC funding. Backers include Vertex Venture Capital, Proseed Venture Capital and eXeed Technology.

PlayBoox Inc. (f.k.a. SalesEdge), a San Francisco-based provider of sales force software, has raised $3 million in Series A funding led by Ascend Venture Group, according to a regulatory filing.

Ondax Inc., a Monrovia, Calif.-based optical components manufacturer, has raised nearly $2.5 million in Series D funding, according to a regulatory filing. Listed shareholders include Corning Innovation Ventures, Cal Tech, Alcatel Ventures, Gabriel Venture Partners and Arcturus Capital.

DebtFolio Inc., a Framingham, Mass.-based provider of personal debt management solutions, has raised over $2.3 million in Series A funding, according to a regulatory filing. Backers include Hub Angel Investment Group.

Tremor Media, a New York-based online video advertising network, has an undisclosed amount of Series B-1 funding from European Founders Fund. It had previously raised nearly $20 million from Canaan Partners and Masthead Venture Partners.

Buyout Deals

Audax Group has acquired Great Expressions Dental Centers, a Bloomfield Hills, Mich.-based operator of nearly 100 dental centers in seven states. No financial terms were disclosed. Provident Healthcare Partners advised Great Expressions on the deal, while GMAC Financial Services arranged the debt financing.

Barclays Private Equity has agreed to acquire an 85% stake in the Novem Group, a global provider of real wood, aluminum and carbon trim for vehicle interiors. Company management will hold the remaining 15 percent. No financial terms were disclosed. Sellers include Taros Capital and 3i Group, which bought the company in 2004 from GS Capital Partners.

BC Partners has completed its acquisition of a 50.8% stake in Migros Turk TAS, Turkey’s largest supermarket chain. The deal values Migros at around $3.2 billion, which makes it the largest leveraged buyout ever for a Turkish company. BC plans to acquire the remaining shares via a tender offer. Minority investors on the deal include Turkven Private Equity and DeA Capital.

The Carlyle Group has secured an $800 million bank loan commitment to help finance its acquisition of a majority stake in Booz Allen Hamilton’s U.S. government business. The commitment comes from Bank of America, Lehman Brothers and Credit Suisse. Carlyle itself will finance nearly 49% of the $2.54 billion purchase price.

CVC Capital Partners reportedly has the best chance to acquire a 25% stake in German energy and chemicals group Evonik Industries. Its offer could be accepted as early as this week, as it is “significantly” above those of rivals Bain Capital, Blackstone Group and KKR.

Lone Star Funds has agreed to buy the operating assets of Bear Stearns Residential Mortgage Corp. No financial terms were disclosed.

Och-Ziff reportedly has committed to help finance a takeover offer for listed South African fixed-line operator Telkom. The deal would be worth around $11.9 billion, and is being led by a holding company of former South African politician-turned-businessman Tokyo Sexwale.

TPG Capital has agreed to acquire up to a 23% stake in troubled UK mortgage lender Bradford & Bingley (LSE: BB), for around £179 million.

PE-Backed IPOs

RHI Entertainment Inc., a New York-based producer of made-for-TV movies and other television programming, has set its IPO terms to 12.5 million common shares being offered at between $16 and $18 per share. 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.

PE Exits

Cerberus Capital Management has sold “significantly” more than half of its equity in Chrysler and GMAC to around 90 investors, according to The Financial Times. Buyers include Citigroup Private Equity, Aozora Bank (a Cerberus portfolio company), Avenue Capital, Oak Hill Capital Partners and York Capital.

Leiner Health Products, a bankrupt maker of vitamins and nutritional supplements, has agreed to sell its assets to NBTY (Nasdaq: NBTY) for approximately $230 million. North Castle Partners and Golden Gate Capital co-led a $650 million recap of Leiner Health back in 2004, before which North Castle had been the! sole sponsor. That deal included around $131 million in equity from each firm, and gave North Castle a 3x return on its initial investment.

Linens ‘n Things began liquidating 120 of its stores on Saturday, after getting court approval to hire liquidation firms Tiger Capital Group and SB Capital Group. The bankrupt retailer – acquired in 2006 by Apollo Management – has more than 500 total stores.

Terry Semel is considering a bid for talent agency IMG, which is currently owned by Forstmann Little, according to The New York Post. Semel is the former CEO of Yahoo and Warner Bros. Entertainment, and recently met with Teddy Fostmann and his Goldman Sachs bankers to discuss a possible transaction. The article does not identify Semel’s financial backers, except to say that he’s been meeting with private equity firms and UAE sovereign wealth funds.

PE-Backed M&A

Sorrento Networks, a Denver-based provider of metro optical access solutions, has acquired the assets of Redfern Broadband Networks, an Australia-based maker of optical networking equipment. No financial terms were disclosed. Sorrento was formed earlier this year by CHB Capital Partners, which carved out the fiber optics division of Zhone Technologies Inc. (ZHNE). Redfern had raised over US$53 million in VC funding since 2000, from firms like Allen & Buckeridge, Macquarie Technology Ventures, OCG Ventures, JPMorgan Partners and Jolimont Ventures.

Firms & Funds

Bayside Capital, a distressed debt affiliate of H.I.G. Capital, has raised $3 billion for its second fund, according to LBO Wire. It had been targeting $2 billion, after having raised $500 million for a debut vehicle in 2004.

Blackstone Kalix Advisors is raising upwards of $4.5 billion for its latest hedge fund, according to a pair of regulatory filings.

Grotech Capital Group has changed its name to Grotech Ventures. The firm has also refocused its investment strategy toward early-stage opportunities.

Origo Sino-India PLC, an AIM-listed private equity firm focused on China and India, reported 2007 net profit of $22.26 million.

Reservoir Venture Partners of Columbus, Ohio is targeting $50 million for its second fund, according to a regulatory filing. It has already secured over $28 million in commitments from investors like Nationwide Mutual Insurance Co., Huntington Capital Investment Corp. Ohio State University, Battelle Memeorial Institute and the Ohio PERS/CSFB Ohio-Midwest Fund.

Human Resources

Henri-Paul Rousseau is stepping down as president and CEO of Caisse de dépôt et placement du Québec, in order to become vice chairman of Power Corp. of Canada. He will remain an advisor to Caisse for the next three months. Caisse chief investment officer Richard Guay will serve as interim CEO.

Dan Hatcher has joined Gresham as a partner based in the firm’s London office. He previously was with Ernst & Young, where he worked with Gresham on such transactions as the secondary buyout of Betts Global last October.

Scott Klein has been named CEO of Idearc Inc. (NYSE: IAR), a multi-platform provider of advertising solutions. He has been an operating partner with Symphony Technology Group since late last year and, before that, spent four years and president and CEO of Information Resources Inc.