PE Week Wire, Nov. 14, 2006

Last month, Ben Stein wrote in The New York Times that management buyouts of public companies should be outlawed. Pretty surprising for a free-market Republican who made his bones in the Nixon White House, before becoming an economic pundit, actor, gameshow host and economic pundit (again). So surprising, in fact, that some financial bloggers wondered if it was a fit of pique that has since abated.

It hasn’t. I spoke with Stein yesterday about the article, and have posted the entire audio interview at

My goal was to let Stein expound on the points he made in print, but also to play a bit of Devil’s Advocate. For example, if management buyouts are such good deals for company management, how come they don’t get outbid? Aren’t there certain operational efficiencies a company can recognize as a private entity that it can’t as a public entity? Isn’t there a possibility that company management will overvalue its corporate assets (the “falling in love with your own players” problem)? Don’t shareholders have the ultimate responsibility here, since they have the final vote?

So you know, I’m partially convinced by what Stein says (which also means I’m partially unconvinced). I share his major concern that company management has an unavoidable conflict of interest when it comes to a management buyout – and that management’s first fiduciary responsibility is to its shareholders. I even wonder a bit if this is where the amorphous DoJ investigation could be heading. I also share his concern that PE firms backing a management buyout are privy to more information than is a common shareholder, which means that the final shareholder vote is not being done with full transparency on both sides.

On the flip side, I’m not quite sure why Stein doesn’t have the same objection to strategic M&A deals in which the acquired company management gets options/jobs/golden parachutes with the new company. Moreover, most MBOs are done at a significant premium to current market price, and rarely get outbid by another offer.

So take a listen to the Q&A, and let me know what you think about his argument – either on the merits or in your own self-interest. What he says is obviously unsettling for the private equity market (not to mention I-banks), but that is no reason to dismiss it out of hand…

Also new at peHUB today: Vox Populi postings by Michael Goldberg of Mohr Davidow Ventures and Adrian Garcia of MesoAmerica. Plus, Alex Haislip on a pending close for Alsop Louie Partners and my quick analysis of potential LBOs for Clear Channel, Tribune & Ford

Top Three

Diamond Castle Holdings has agreed to acquire BlueStone TV Holdings Inc. from Providence Equity Partners for $230 million. BlueStone is a Wichita, Kan.–based owner and/or operator of television stations with multiple network affiliations in eight markets. DiamondCastle is parterning on the deal with Randy Bongarten, former president of Emmis Television.

Amec PLC (London: AMEC), a UK-based construction company, has rejected a Gbp1.5 billion buyout offer from First Reserve Corp. and Texas Pacific Group.

NBK Capital, a subsidiary of the National Bank of Kuwait, has held a $200 million first close on its inaugural private equity fund. The vehicle is targeting a total of $300 million, and will focus on companies looking for expansion or restructuring capital in the Gulf Cooperation Counsel, Levant, Egypt, and Turkey.

VC Deals

Attune Systems Inc., a Santa Clara, Calif.-based provider of enterprise-class network file management solutions, has raised $14 million in new VC funding. RWI Ventures led the deal, and was joined by GF Private Equity Group and return backers Alloy Ventures, QTV Capital, Rock Creek Capital and Shea Ventures.

Mobile2win, a China-based provider of mobile value-added services, reportedly has raised around $15 million in venture funding from Norwest Venture Partners and Nexus India Capital.

EPOS Technologies, an Israel-based provider of digital positioning technology, has raised $10.5 million in second-round funding. Intel Capital and Walden Israel co-led the deal, with return backer JVP also participating.

A10 Networks Inc., a San Jose, Calif.-based developer of an enterprise IP-to-ID product, has raised $9 million in Series B funding. Enspire Capital, H&Q Asia Pacific and Miven Ventures were joined by return backers Triton Ventures and Harbinger Venture.

Quintura Inc., an Alexandria, Va.-based developer of a “see and find” visual search engine, has raised an undisclosed amount of VC funding from Mangrove Capital Partners, ABRT Venture Fund and the partners of OpenView Venture Partners.

Buyout Deals

Freescale Semiconductor Inc. (NYSE: FSL) shareholders approved the pending $40 per share acquisition by The Blackstone Group, The Carlyle Group, Permira and Texas Pacific Group. The deal is expected to close later this quarter.

Caxton-Iseman Capital has agreed to acquire Valley National Gases Inc. (AMEX: VLG) for $27 per share. The total deal is valued at approximately $312 million, including around $63 million in assumed debt. Valley National is an independent U.S. distributor of industrial, medical and specialty gases delivered in “packaged” or cylinder form, related welding equipment and supplies and non-pipeline

Caltius Equity Partners has acquired a controlling interest in Meyer Control Corp., a Vacaville, Calif.-based instrumentation and control systems integrator, specializing in the water and wastewater industry. No financial terms were disclosed. Caltius partnered on the deal with David Bell, former president and COO of TestAmerica Environmental Services and TestAmerica Drilling Services.

Circle Peak Capital has acquired and recapitalized WealthTrust Inc., a Nashville, Tenn.-based wealth management subsidiary of Morgan Keegan & Co. and Regions Financial Corp. No financial terms were disclosed for the deal, which also included participation from company management and junior leverage from Falcon Investment Advisors.

GTCR has formed QFour Digital Inc., a Santa Barbara, Calif.-based acquisition platform focused on tech-based businesses in the online advertising and marketing services industry. Jeffrey Pullen, former COO of ValueClick, will serve as QFour’s CEO.

Alta Communications has acquired Retail Systems Alert Group, a Newton, Mass.–based provider of extended retail market research and analysis. No financial terms were disclosed.

PE-Backed IPOs

Accuray Inc., a Sunnyvale, Calif.-based developer of a robotic radio-surgery system, has filed for a $230 million IPO. It plans to trade on the Nasdaq under ticker symbol ARAY, with JPMorgan and UBS serving as co-lead underwriters. Shareholders include BVI International Investment and Maubeni Corp.

Edgen Murray PLC, a Baton Rouge, La.-based provider of steel products for use in the energy infrastructure market, has filed for a $200 million IPO. It plans to trade on the NYSE under ticker symbol EME, with JPMorgan and Jefferies & Co. serving as co-lead underwriters. Jefferies Capital Partners is the company’s majority shareholder.

AmWINS Group Inc., a Charlotte, N.C.-based wholesale distributor of specialty insurance products and services, has filed for a $115 million IPO. It plans to trade on the NYSE under ticker symbol AGI, with Merrill Lynch and Wachovia Securities serving as co-lead underwriters. Parthenon Capital acquired a controlling interest in AmWINS in October 2005. Inc., a Waltham, Mass.-based provider of on-demand compensation management solutions, has filed for a $50 million IPO. It plans to trade on the Nasdaq under ticker symbol SLRY, with Thomas Weisel Partners and William Blair & Co. serving as co-lead underwriters. It raised around $4 million in VC funding from groups like Lyric Capital in 2000 and 2001.

ActivBiotics Inc., a Lexington, Mass.-based developer of antibacterials for high-value chronic and infectious diseases, has canceled its proposed IPO. No reasons were given in its filing with the SEC. ActivBiotics originally planned to price four million shares at between $12 and $14 per share, but later lowered its forecast to between $8 and $10 per share. HSBC was serving as lead underwriter. ActivBiotitics has raised around $52 million in total VC funding since its 1996 inception, from firms like HealthCare Ventures, BioVentures Inv*stors, MDS Health Ventures, Delphi Ventures, China Development Industrial Bank, Canadian Medical Discoveries Fund, New England Partners and Vengrowth.

PE-Backed M&A

York Label, an Omaha-Neb.-based manufacturer of pressure-sensitive labels, has acquired SK Label Co., an El Dorado, Calif.-based label supplier to the wine, food and beverage industries.No financial terms were disclosed. York Label was formed earlier this year by Wind Point Partners, in tandem with CEO Rich Egan.

PE Exits

KPS Special Situations Funds has agreed to sell Ebro Electronics GmbH & Co. KG to Nova Analytics Corp. for an undisclosed amount. Ebro is a German producer of instruments that measure temperature, pressure, humidity and pH.

Cisco Systems (Nasdaq: CSCO) has agreed to acquire Greenfield Networks Inc., a Sunnyvale, Calif.-based provider of Ethernet silicon technology solutions for enterprise and metro markets. No financial terms were disclosed. Greenfield has raised around $46.6 million over three rounds of VC funding, including a $13.1 million Series B deal in 2003 at a $33.3 million post-money valuation. Backers include Global Catalyst Partners, Sequoia Capital, JPMorgan Partners and Walden International.

nCipher PLC (London: NCH) has acquired the assets of Britestream Networks Inc., an Austin, Texas-based semiconductor company that develops devices for Internet security. No financial terms were disclosed. Britestream had raised around $40 million in VC funding since its 2000 inception, from firms like Agave Ventures, Austin Ventures, Chisholm Private Capital Partners, Convergent Investors, Granite Ventures, JatoTech Management, Parker Price VC, Seed Capital Partners, TI Ventures, Technology Associates Management and VentureTech Alliance.

Firm & Fund News

Sofinnova Ventures of San Francisco has closed its seventh fund with $375 million in capital commitments. Returning LPs include Commonfund Capital, CalSTRS, AXA Private Equity, VenCap International, Dow Employees’ Pension Plan, Wilshire Associates, Credit Suisse (Germany) and Unigestion. New LPs include the Oregon Public Employees Retirement Fund, Pennsylvania State Employees Retirement Systems, UTIMCO, Liberty Mutual, Adveq, Caisse des Depots et Consignations Paris, the San Francisco City & County Employees’ Retirement System and the Searle Charitable Trusts.

JLA Ventures of Toronto and Montreal has closed its fourth fund with Cnd$121 million in capital commitments. Returning LPs include The Bank of Nova Scotia, Caisse de depot et placement du Quebec, CIBC, OMERS and RBC Capital Partners. New LPs include BDC Capital, Export Development Canada, FTQ, National Bank Financial, Oak Hill Investment Management, TD Capital CFOF Private Equity and Teachers’ Private Capital.

Palm Beach Capital has closed its second buyout fund with $110 million in capital commitments. The Palm Beach, Fla.-based firm focuses on private companies with earnings of between $2 million and $15 million. It already has made four deals out of the fund, totaling around 25% of the committed capital.

Human Resources

Goldner Hawn has promoted Lisa Kro to managing director and CFO, and also promoted Joseph Heinen to principal. Kro joins Goldner Hawn in 2004, after having spent 17 years with KPMG. Heinen has been with the firm since 2001, before which he was director of business development at an Internet startup.

Jack Turpin has joined turnaround firm TRG as a managing director. He previously was chief operating officer of measurement and process control equipment manufacturer EGS Gauging.

Blackstone Alternative Asset Management, a fund-of-hedge funds with approximately $15 billion dollars under management, said that New York-based managing director Gideon Berger will take over the London office at the beginning of next year.