PE Week Wire, Nov. 15, 2006

The nice thing about getting interviewed on live television is that you typically know what you’re going to be asked ahead of time. After all, you can’t let someone take a reflective moment to collect their thoughts while on air, or else viewers might flip over to competitive bass fishing.

But that doesn’t mean that the stray question doesn’t occasionally slip in, as it did while I was on CNBC this past Monday. Specifically, I got asked what mega-buyout firm I would invest in were I to have access (which I don’t). I gave the stock answer of Blackstone, but really could have used that moment of reflection. In retrospect, I wish I could have dismissed the “mega” part of the question, and instead answered KPS Special Situations Funds.

To be clear, this is not a knock on Blackstone – which is to returns what Daisuke Matsuzaka had better be to pitching. But neither Blackstone nor anyone else has announced four exits within five business days, as KPS has done over the past week. It is a remarkable achievement, and reminds me of something Probitas Partners’ Kelly DePonte said on a conference panel last year: “2005 may be the year of mega-funds, but 2006 will be the year of distressed debt and turnaround funds.”

New York-based KPS closed its second fund in 2002 with around $400 million. Limited partner CalPERS reports that it was around 34% called down through June 30, with nearly half of the principle paid back and an IRR of around 55 percent. Firm co-founder and managing principal Michael Psaros tells me that those figures are a bit off, with closer to 50% of the capital called down and a higher IRR (he definitely wanted to give me a specific number, but then thought better of it).

Psaros says that he expects the fund to be fully committed by Q1 or Q2 of next year, which means two or three new deals, plus continuing add-ons to acquisition platforms Blue Water Automotive Systems (molded thermoplastic components and assemblies for auto OEMs) and Hephaestus Holdings (forged parts for auto industry). He declined to discuss future fundraising, but the firm apparently told LPs two weeks ago to expect PPMs sometime early next year.

Just for reference, the recent exits include: Sale of Ebro Electronics to Nova Analytics Corp.; Pending sale of Speedline Technologies to Illinois Tool Works; Pending sale of Wire Rope Corp. of America to Fox Paine; and yesterday’s announcement of a pending sale of AmeriCast Technologies to Castle Harlan.

*** The NVCA looks to be calling in some of its chits before the lame duck Congress heads home for the holidays, with a push to increase in the number of available H-1B visas.

For the uninitiated, H-1B visas are granted to skilled foreign workers, and the NVCA today released new data supporting the notion that legal immigrants create an enormous amount of U.S. wealth. For example, over the past 15 years, immigrants founded 25% of U.S. public companies that have been venture-backed, representing a $500 billion combined market cap. Moreover, nearly 47% of today’s VC-backed startups have immigrant founders. You can read more at the NVCA website.

*** Lots of emails on the Ben Stein interview, but I respond to most of them with the following question: Why is it acceptable for LBO firms to have greater access to corporate information (via due diligence) than do shareholders who ultimate vote on the deals. I know this is only a secondary piece of Stein’s argument, but have yet to hear a good response.

*** I had lunch with someone last Friday who relayed some interesting career advice he received a while back: Make a list of ten people whose careers you would like to emulate. Try to get meetings with each of them, for the purpose of gaining guidance. If any of them offers you a job, take it.

Top Three

Chiasma Inc., a biotech company focused on enhanced oral delivery of proteins and small molecules, has raised $44 million in Series C funding. MPM Capital led the deal, and was joined by Arch Venture Partners and return backers Ofer Hi-Tech Group and F-2 Ventures. The company will move its headquarters from Israel to Boston, but will maintain a research subsidiary in Jerusalem.

Texas Pacific Group unexpectedly dropped out of the running for Clear Channel Communications (NYSE: CCU), thus leaving former consortium partners Bain Capital and Thomas H. Lee Partners in a major lurch. The group may still pull win the deal, but faces very stiff competition from a rival consortium made up of Blackstone Group, KKR and Providence Equity Partners.

Amit Yoran, former CEO of In-Q-Tel, has agreed to join NetWitness Corp. as CEO. NetWitness is a Herndon, Va.-based provider of network forensic analysis products.

VC Deals

Liquid Computing Inc., an Ottawa-based developer of scalable high-performance computing solutions, has raised US $27.7 million in Series B funding. Newbury Ventures led the deal, and was joined by return backers Vengrowth, ATA Ventures, Business Development Bank of Canada, Export Development Canada, Axis Investment Fund Inc. and Dr. Adam Chowaniec.

Technical Communities Inc., a San Bruno, Calif.-based service provider for tech organizations that sell to U.S. government agencies and federal contractors, has raised around $25.5 million in Series D funding from Crosspoint Venture Partners, Netmarket Partners, New Enterprise Associates and Technology Crossover Ventures.

Qihoo, a Beijing-based provider of search solutions for Internet and mobile platforms, has raised $25 million in Series B funding. Highland Capital Partners led the deal, and was joined by Redpoint Ventures and return backers Sequoia Capital China, CDH, Matrix Partners and IDG VC.

QSecure Inc., a Palo Alto, Calif.-based provider of credit card authentication solutions, has secured around $10 million of a $12 million Series B round, according to a regulatory filing. Backers include Fortune Venture Capital, SG Cowen, Media Technology Ventures and Worldview Technology Partners.

SeeSaw Networks, a Chicago-based out-of-home digital media company, has raised $10 million in Series A funding from Sutter Hill Ventures.

LifeLock, a Tempe, Ariz.-based identity theft prevention company, has raised $6 million in first-round funding from Bessemer Venture Partners.

Polar Rose AB, a Sweden-based developer of automatic facial recognition with 3D modeling for visual search applications, has raised around $5.1 million in Series A funding from Nordic Venture Partners.

Venafi Inc., a Draper, Utah-based provider of enterprise encryption management solutions, has raised $5 million in Series B funding. Foundation Capital led the deal, and was joined by return backers Origin Partners and UV Partners.

My Wines Direct Inc., a Napa, Calif.-based online wine distributor, has raised around $4.2 million in Series A funding, according to a regulatory filing. Backers include Consor Capital.

Yuzoz Ltd., an UK-based developer of a random number generator using data derived from space phenomena such as solar flares, the Northern lights, and the movement of the clouds on Venus, has received $500,000 in first-round funding from DesCap.

Intransa Inc., a San Jose, Calif.-based provider of network-centric IP storage solutions, has raised an undisclosed amount of new venture capital. Guggenheim Venture Partners led the deal, and was joined by return backers Menlo Ventures and U.S. Venture Partners. The company previously had raised around $84 million over five round of funding.

Kalologie Skincare, a Los Angeles-based specialty retailer of cosmetic dermatology treatments and cosmetic products, has raised $2.2 million in venture funding from St. Cloud Capital.

CellMax Systems, an Israel-based voice biometrics startup, has raised $2 million in Series B funding led from Jacob and Nediva Schwarz, founders of IDS Inc. and NS Enterprises Inc.

Buyout Deals

Castle Harlan has agreed to buy AmeriCast Technologies Inc. from KPS Special Situation Funds for $110 million. AmeriCast is an Atchison, Kansas-based maker of highly-engineered steel castings.

LNK Partners has led a recapitalization of Ariat International Inc., a Union City, Calif.-based maker of branded equestrian footwear, apparel, and accessories. LNK invested $61 million in exchange for a “significant minority ownership interest,” while Brentwood Associates and company management also participated.

Gulf Capital has acquired a 60% stake in Metito Holding Ltd., the Middle East’s largest provider of water and wastewater solutions and technology. No financial terms were disclosed.

Shore Points Capital Partners has acquired the assets and certain liabilities of SGS Partners and National Steelcrafters of Oregon Inc. The companies are based in Arlington, Texas, and make pellet stoves and other hearth products under the Breckwell brand. CapitalSource provided leverage for the deal. Shore Points formed earlier this year as an independent spinout of BNP Paribas’ private capital group.

PE-Backed IPOs

NYMEX Holdings Inc., the New York-based operator of the New York Mercantile Exchange, has raised its IPO terms to 6.5 million common shares being offered at between $54 and $57 per share. It previously filed to price 6 million shares at between $48 and $52 per share. It plans to trade on the NYSE under ticker symbol NMX, with JPMorgan and Merrill Lynch serving as co-lead underwriters. General Atlantic holds a 10% pre-IPO position.

IPG Photonics Corp., an Oxford, Mass.-based maker of fiber lasers and amplifiers, has set its proposed IPO terms to 9 million common shares being offered at between $13.50 and $15.50 per share. It plans to trade on the Nasdaq under ticker symbol IPGP, with Merrill Lynch and Lehman Brothers serving as co-lead underwriters. Private equity backers include TA Associates, Merrill Lynch, Apax Partners, Winston Partners, Robertson Stephens and Marconi Ventures.

PE-Backed M&A

Heartland Information Services of Toledo, Ohio has merged with Spryance Inc. of Boston, in order to form a single provider of offshore transcription services. No financial terms were disclosed. Spryance shareholders include Beecken Petty O’Keefe & Co. and International Finance Corp.

Vendio Services Inc., a San Mateo, Calif.-based provider of transactional management services for online merchants, has completed its acquisition of a majority stake in Andale Inc., a Mountain View, Calif.–based provider of listing management and research services for sellers on eBay. No financial terms were disclosed. Vendio has raised around $40 million in VC funding since its 1999 inception, from firms like Sequoia Capital, Technology Crossover Ventures, CMGI @Ventures, MVC Capital, Angel Investors, Argus Capital Group and Stanford University. Andale had raised nearly $64 million in total VC funding since its 1999 inception, from firms like Accel Partners, Mohr, Davidow Ventures, Oak Hill Capital Partners, Texas Pacific Group an! d Bowman Capital.

Firm & Fund News

Arsenal Capital Partners has closed its second fund with $500 million in capital commitments. Arsenal is a New York-based private equity firm focused on specialty products and services companies.

Benchmark Capital Europe said today that it has closes its third fund with $550 million in capital commitments. On Monday, we had mistakenly reported the final close figure as being $500 million.

New Resource Bank has launched as a San Francisco-based commercial bank that will serve entrepreneurs and “sustainable businesses.” It is backed by $24.7 million in equity capital from backers like Triodos Bank, Mitch Kapor (Lotus Development), Lee McIntire, (CH2M Hill Cos.), Lisa Gansky, (Ofoto), Ray Anderson (Interface Inc.) and Paul Dolan (Mendocino Wine Co.).

Human Resources

Erich Horsley and Frederick Malloy have joined Intervale Capital as principals. Erich previously was a principal with Watermill Ventures, while Malloy was a general partner with North Atlantic Capital. Intervale is a Cambridge, Mass.-based buyout firm focused on the lower-middle-market energy sector, with a specialization in oilfield services companies.

Joel Serface has been named director of the Clean Energy Incubator at the IC? Institute at The University of Texas at Austin. He previously served as a partner with Eastman Ventures and as a managing director with Sierra Ventures.

Nicholas Bologna has joined Eastward Capital Partners as a director. He is a former senior advisor of I-banking at Needham & Co. Eastward is a West Newton, Mass.-based venture debt firm.