PE Week Wire: Monday, November 3, 2008

The sky is gray, the election is tantalizingly near and NFL quarterbacks should be fearful of appearing on my fantasy team (Brady, Young, Kitna, Schaub). In other words, it’s time for some Monday Mouth-Off.

Jackson leads us off: “Are you positive or negative on the current state of private equity? On one hand, you eviscerate Schwarzman for only focusing on the good, but then criticize Doug Kass for overstating the bad. Or are you just playing devil’s advocate? I’m craving some consistency.”

I’m craving realism Jackson, which to me is that the market is in some dire straits, but not so dire that most firms won’t eventually be able to crawl up and out. There will be at least one major firm collapse (now taking nominations), horrible returns on 2006/2007 deals and bargains for those willing and able to buy now. I guess that makes me closer to Kass’ column than Schwarzman’s speech. That said, please remember there is a difference between me writing a daily column and Kass/Schwarzman writing a single article/giving a single speech. My thinking gets to publicly evolve every 24 hours, whereas their public sentiments get stuck in time…

Bill: “There is plenty of evidence to suggest that equity invested in a very large number of 2006/2007 PE deals is currently worth nothing. The massive discounts to par within the leveraged loan market as well as the significant discounts to NAV of levered loan closed end funds is arguably pretty strong evidence that most of these deals are currently worthless. (No idea if these deals constitute the “majority” of PE deals in 2006/2007 but they tend to be the biggest ones, so there is very strong chance they do). There’s no way these senior loans can be worth way less than par without the equity being worth close to zero (they would retain some option value). Obviously the market may have overreacted, but if you were forced to “mark to market” these deals right now, the only public market information you have (i.e. what their debt is trading for), strongly indicates these deals are close to worthless. There’s really no if, and, or buts about it.”

Albert: “Thank you for pointing out that not every deal done over the past few years is going down in flames. This is especially true for many deals done in the lower middle-markets, where leverage terms didn’t get too far out of whack… The private equity industry is huge, and shouldn’t just be defined by the actions of Apollo or KKR.”

Paul on the issue of mistrust between GPs and LPs: “In good times and bad, the private equity market has relied on a functioning relationship between LPs and GPs. It’s not yet broken, but it seems to be breaking. This could become THE industry story of 2008 and 2009. We can all survive a few bad vintage years, but we can’t survive a fracturing of the bond between those who supply the capital and those who invest the capital.”

Brian: “I’ve been on the LP side for nearly two decades, and I’ve never seen so many of my peers so worried. The only bright spot is that the benchmark bar has been lowered so deep that some of us might get bonuses from negative performance.”

Laura: “If certain LPs cut back or leave the asset class altogether (like the SWFs), it would be short-term pain but long-term gain. There has been too much money flowing into funds, which has made GPs less responsive to LP concerns and more willing to take irresponsible risks.”

Finally, there is Will: “Do you just stop discussing baseball when Boston falls out of contention?” Yup.

Top Three

KKR does not plan to publicly list on the NYSE until next year, according to a statement by its Amsterdam-listed affiliate.

CaliSolar Inc., a Sunnyvale, Calif.-based developer of solar cells using “dirty” metallurgical grade silicon, has raised $51.9 million in Series B preferred stock funding, according to a regulatory filing. It also has secured another $50 million in convertible securities, for a round total of nearly $102 million. Hudson Clean Energy led the round, and was joined by return backers Advanced Technology Ventures and Globespan Capital Partners. Prior press reports say that the company plans to build a commercial plant in California next year. It had previously raised around $9 million.

Metalmark Capital has acquired a majority stake in National Healing Corp., a Boca Raton, Fla.–based provider of wound and disease management solutions for medical facilities. Existing NHC backer Scale Venture Partners will retain a minority ownership position, while Scale managing director Mark Brooks will remain company chairman. No financial terms were disclosed.

VC Deals

Novariant Inc., a Fremont, Calif.-based provider of industrial GPS solutions, has raised $40 million in Series D funding. Investor Growth Capital led the round, and was joined by Sierra Ventures, Ridgewood Capital and return backers Argonaut Private Equity, Clearstone Venture Partners, Pacifica Fund, Kirlan Venture Capital and Yasuda Enterprise Development. It had previously raised around $38 million since 2003.

WiChorus Inc., a San Jose, Calif.-based developer of 4G core infrastructure products, has raised $18 million in Series C funding, according to a regulatory filing. Return backers include Accel Partners, Mayfield Fund and Redpoint Ventures. The company has now raised over $40 million in total funding.

RockYou, a San Mateo, Calif.-based developer of social widgets, has raised $17 million in additional Series C funding from Softbank and SK Telecom Ventures. The company previously held a $35 million first close on the round led by DCM. Other company backers include Sequoia Capital and Lightspeed Venture Partners.

Palo Alto Networks Inc., a Sunnyvale, Calif.-based provider of enterprise network security solutions, has raised $10 million in additional Series C funding. Jafco Ventures led the tranche, with JAIC and Northgate Capital also participating. The company previously held a $27 million first close led by Lehman Brothers Venture Partners, with return backers Globespan Capital, Greylock Partners and Sequoia Capital also participating. The company has now raised around $64 million in total funding.

Return Path Inc., a New York-based provider of email management solutions, has raised around $10 million in Series E funding led by Union Square Ventures. The company previously raised over $30 million in VC funding from firms like Mobius Venture Capital, GC&H Partners, Sutter Hill Ventures and Western Technology Investments.

Xtalic, a Marlborough, Mass.-based developer of nanostructured alloys for corrosion and wear resistance, has raised around $10 million in Series B funding, according to a regulatory filing. Backers include Matrix Partners and North Bridge Venture Partners. It had previously raised $5.1 million.

Nanostim Inc., a San Clemente, Calif.-based developer of miniaturized, leadless cardiac pacemakers, has raised $9.7 million in Series A funding, according to a regulatory filing. Backers include InterWest Partners and U.S. Venture Partners.

Permuto Inc., a Palo Alto, Calif.-based stealth startup focused on helping users promote their websites or applications, has raised $6.03 million in Series A funding, according to a regulatory filing. Backers include Onset Ventures and Rembrandt Venture Partners. The company is led by Shaukat Shamim, former co-founder and CTO of Rhythm NewMedia who currently serves as a venture advisor with Rembrandt. Other company co-founders include Navdeep Saini, former VP of engineering for Yahoo’s search marketing group, and Stanley Wong, former VP of Search Physics Inc.

EvoStor Inc., a Los Gatos, Calif.-basedstorage software startup, has raised $5 million in Series A funding, according to a regulatory filing. Backers include Hummer Winblad Venture Partners, Starfish Technology Fund and Southern Cross Group.

Initiate Systems Inc., a Chicago-based provider of master data management solutions for the exchange of health information, has raised $5 million from BlueCross BlueShield Venture Partners.

Cebix Inc., a La Jolla, Calif.-based biopharma startup, has raised $2.85 million in Series A funding, according to a regulatory filing. Backers include HealthCap and Sofinnova Ventures. The company does not have a website.

Syncplicity, a San Francisco-based provider of online data management solutions, has raised $2.35 million in “post-seed” funding led by True Ventures.

Maxplore, a Santa Clara, Calif.-based provider of on-demand service chain and field service management solutions, has raised $2 million in VC funding from Emergence Capital Partners. The company also is receiving $1 million from, as the winner of the company’s Challenge.

Diva AG, a Zurich-based developer of a B2B publishing platform for digital media assets, has raised an undisclosed amount of VC funding from Creathor Venture.

Replisaurus Technologies AB, a Kista, Sweden-based developer of clean metallization technology for the chip packaging market, has raised €7 million in venture debt from Noble Venture Finance. It had previously raised over $15 million in VC funding from firms like Wellington Partners, Northzone Ventures, Sixth Swedish National Pension Fund, KTH Seed Capital and Business Builders.

Buyout Deals

Northstar Pacific has agreed to acquire a 35% stake in Indonesian coal mining company Bumi Resources (JK: BUMI) for $1.3 billion, from Bakrie & Brothers (JK: BNBR).

Odyssey Investment Partners has agreed to acquire SM&A (Nasdaq: WINS), a –based management consulting firm for procurement projects. The deal is valued at $119.6 million, or $6.59 per SM&A share (159% premium to last Thursday’s closing price). Caltius Mezzanine is providing financing, while Wedbush Morgan Securities is advising SM&A.

The Shawmark Group, a private equity firm focused on service providers to the U.S. intelligence community, has acquire Aspiration Software Inc., a Front Royal, Va.-based provider of IT services to the U.S. government. No financial terms were disclosed. The company will now be run by Jon Stout, a partner with Shawmark.

Temasek Holdings has formed a short-list of bidders for its third sale of power assets, which is expected to raise upwards of $2.5 billion. Arcapita and CLP Holdings are among the short-listed bidders.

TPG Capital has agreed to invest up to $150 million in Bumiputra-Commerce Holdings Bhd, the listed vehicle of Malaysian bank CIMB Group.

PE-Backed IPOs

AMC Entertainment Holdings Inc., a Kansas City-based cinema chain operator, has withdrawn registration for a $500 million IPO. It had planned to trade on the NYSE, with Credit Suisse and JPMorgan serving as co-lead underwriters. Shareholders include JPMorgan Partners (20.78%), Apollo Management (20.78%), Bain Capital (15.09%), The Carlyle Group (15.09%) and Spectrum Equity Investors (9.76%).

PE Exits

3i Group has sold its 28.5% stake in Transports Alloin, a French transport and logistics company, to Switzerland’s Kühne + Nagel. No financial terms were disclosed.

Charterhouse Capital plans to sell UK chemicals company Lucite International to Japan’s Mitsubishi Rayon Co., according to sources. No pricing details were disclosed, except that the transaction is not subject to financing.

Kirtland Capital Partners has completed its sale of Essex Crane Rental Corp. to Hyde Park Acquisition Corp. for $210 million. Essex provides lattice-boom crawler cranes and attachments, and was acquired by Kirtland in May 2000. Hyde Park is a blank check acquisition company that has changed its name to Essex Crane Rental Corp., and will seek a Nasdaq listing.

Tatara Systems, an Acton, Mass.-based provider of mobile convergence products for network operators, has sold some of its Mobile Broadband unit assets to Smith Micro Software (Nasdaq: SMSI) for an undisclosed amount. Tatara has raised around $36 million in total VC funding, from firms like Highland Capital Partners and North Bridge Venture Partners.

PE-Backed M&A

Ivytan AB, a portfolio company of EQT Partners and Lyftet Holding, has offered to buy Swedish biotech company Q-Med (ST: QMED) for approximately $502 million.

Tripos International, a drug discovery informatics company owned by Vector Capital, has completed its take-private acquisition of Pharsight Corp., a Mountain View, Calif.-based maker of drug development software. The total deal was valued at around $57 million in cash, or $5.50 per Pharsight share. Covington Associates advised Pharsight on the deal.

Firms & Funds

Brynwood Partners has secured $120 million in capital commitments for its sixth fund, according to a regulatory filing. It is targeting upwards of $400 million in total. The Greenwich, Conn.-based firm makes control investments in the lower middle-markets, and raised $250 million for its fifth fund, back in 2004.

The Carlyle Group reportedly has closed its second fund for small-cap and mid-cap buyouts of European technology companies, with €530 million in capital commitments.

UBS AG has closed its debut infrastructure fund with more than $1.5 billion in capital commitments.