PE Week Wire, Nov. 21, 2006

It’s been 15 days since the launch of, and I’m still trying to navigate the simultaneous responsibilities of publishing both a daily newsletter and a blog/news website. I don’t want either to simply become a repackaged version of the other (I obviously want you to use both), and some days I do better than others. Today is one of the others.

What follows is a republished version of something I posted yesterday afternoon, and is a continuation of our discussion over the conflicts inherent in management buyouts. I do so not because of personal laziness – although I blame that quality for an entire Monday evening spent playing Madden – but rather because I really believe that this is one of those issues that could badly damage the LBO market if not dealt with ASAP. With great exposure comes even greater responsibility, and management buyouts (in the aggregate) only are meeting the first half of that equation:

Andrew Ross Sorkin of NY Times Dealbook has developed some middle ground between Ben Stein’s call for banning management buyouts and the private equity market’s calls for continued regulatory indifference. Specifically, he has a four-part plan for fixing certain problems inherent in management buyouts. It goes something like this:

Require that a majority of minority shareholders approve the transaction. If senior management holds a control position, don’t let its vote be the only one that matters.

Use independent advisors. Real ones without either existing company relationships or a financial stake in the deal (i.e., stapled financing agreements).

Set aside up to 10% of the newly-private company for public shareholders. In other words, pre-empt the whining.

Provide some detail of the business plan for the company, once it becomes private. Let shareholders decide if management can best add value as a public or private entity.

Points one and two seem like no-brainers. Both help prevent self-dealing without much downside. If it’s really a good deal, then the minority shareholders will vote for it. Sure certain Wall Street firms will lose some fees, but not in the aggregate. It might even promote the creation of new boutique I-banks.

Points three and four are a bit trickier (as Sorkin admits).

My concern on point three isn’t so much the mechanics of it, difficult though they may be to design. Instead, it’s an issue of consistency. Assuming the point one becomes a generally-accepted principle, would a majority of this new 10% class have the right to veto a subsequent sale? If not, why not? Maybe the answer is that public and private shareholders are granted different levels of privilege, but then the same could be argued of controlling and non-controlling shareholders. It seems that you must either accept point one and deny three, or accept them both with a giant addendum to number three.

I have been arguing for a while that there is an inherent unfairness that public shareholders vote on acquisitions without knowing what the future possibilities are. I also think that the only viable solution is to demand more of the banks charged with writing fairness opinions (I’d also ask more of corporate boards, but it’s futile to request objectivity of cronies). If a company gives away its future gameplan – particularly when adoption of said plan is not yet approved – it almost certainly puts the company at a competitive disadvantage. Again, put some bite in the currently-toothless fairness opinions.

Finally, let’s add a fifth point (as first suggested by DealBook reader Andy Johnston): Make public all auctions of public companies. Once a corporate board is actively willing to consider buyout bids, retain a banker and issue what would amount to a buyout RFP (request for proposal). Give everyone one month to submit bids – which is a tight enough timeframe to still reward those private equity firms that helped initiate the deal.To be clear, I mean something even more transparent than afterthought “go shop” provisions.

Some M&A bankers may object to this proposal, saying that their selective bluebook mailing lists are designed to discourage frivolous bids. I say that I’d rather suffer through a handful of frivolous bids, rather than arbitrarily restrict the process in a may that may depress/prevent legitimate bids.

It also is worth noting, of course, that all of the above likely would require federal regulatory action. So be it. Even free markets require some ground rules.

Top Three

3i Group has raised Euro 5 billion for its fifth buyout fund, which will focus mostly on mid-market opportunities in Europe.

ZipCar Inc., a Cambridge, Mass.-based car-sharing service, has raised $25 million in its second round of venture capital funding. Greylock Partners led the “Series E” deal, while return backers included Benchmark Capital and Boston Community Ventures. Read more of this exclusive story at

Lagardère has agreed to buy European sports marketing agency Sportfive SA from Advent International, RTL Group and Goldman Sachs Capital Partners. The deal is valued at Euro 865 million.

VC Deals

Advantedge Healthcare Solutions, a New York-based provider of medical billing services to physician groups, has raised $20 million in growth capital from Safeguard Scientifics.

Teranetics Inc., a Santa Clara, Calif.-based provider of ICs for Ethernet transport, has raised around $20 million in Series C funding. Backers include Venrock Associates, US Venture Partners, Portview Communications Partners, Granite Global Ventures, Global Catalyst Partners and Columbia Capital.

Intematix Corp., a Fremont, Calif.-based developer of solid-state lighting and display phosphors, has raised $16.5 million in Series C funding. Crosslink Capital and Samsung Ventures co-led the deal, and was joined by Presidio STX and return backers Draper Fisher Jurvetson, East Gate Capital and Pacifica Fund.

Intradigm Corp., a drug development company focused on RNA interference (RNAi) therapeutics, has raised $16 million in Series A recap funding co-led by Alta Partners and Frazier Healthcare Ventures. Other backers include MediBic Alliance/Daiichi and Genentech, while return backers include Emerging Technology Partners and Novartis Ventures. The company first raised VC funding in 1999, and is moving its headquarters from Rockville, Md. to Palo Alto, California.

Aegera Therapeutics Inc., a Montreal-based drug developer, has held a Cnd$14 first close on its Series C funding round. VenGrowth led the deal, and was joined by return backers GrowthWorks, Business Development Bank of Canada, Desjardins Venture Capital, Multiple Capital and Solidarity Fund. A second close is scheduled for early 2007. In related news, Aergera has secured a $7 million venture debt facility.

Danger Inc., a Palo Alto, Calif.-based provider of mobile communications software and services, has secured $10.3 million of a $12.3 million Series E round, according to a regulatory filing. Return backers include Redpoint Ventures, Softbank Capital Partners, Mobius Technology Ventures and T-Mobile Venture Fund.

Natural Convergence Inc., a Ottawa, Canada-based supplier of VoIP application software for service providers, has raised US$10M in Series C funding. Wesley Clover and BDC Venture Capital co-led the deal, and were joined by VIMAC, Desjardins Venture Capital Group and return backers Jefferson Partners, Primaxis Technology Ventures and Purple Angel.

Bungee Labs Inc., an Orem, Utah-based provider of a system for creating and delivering next-generation Web applications, has raised $7 million in Series B funding, according to a regulatory filing. Backers include North Bridge Venture Partners, Venrock Associates and Wasatch Venture Fund.

RipCode Inc., a provider of technologies for processing Internet video content, has raised $7 million in first-round funding. Participants included Hunt Ventures, Vesbridge Partners, El Dorado Ventures and ATA Ventures. RipCode has offices in both Austin and Dallas, Texas.

The Beam Inc., a Cambridge, Mass.-based operator of an online directory of green design and building professionals, has raised $5.17 million in Series A funding led by VantagePoint Venture Partners, according to a regulatory filing.

Polimetrix Inc., a Palo Alto, Calif.-based provider of technology solutions for polling, has secured $4.53 million of an $8.13 million Series A round led by Alloy Ventures, according to a regulatory filing.

Consorte Media Inc., a San Francisco-based provider of marketing services to the Spanish-speaking market, has raised around $3.2 million in Series A funding. Backers include Mayfield and Band of Angels.

Buyout Deals

Allied Capital Corp. has committed $210.5 million to sponsor a management buyout of EarthColor Inc., a New York-based commercial printer serving the pharma, telecom and financial services markets. The Allied commitment took the form of non-voting common equity, senior subordinated notes and a senior revolving credit facility.

Arcapita has agreed to acquire dental practice management company Sanus Holdings Inc. for an undisclosed amount. CIT arranged a revolving credit facility and senior term loan, while American Capital Strategies committed senior subordinated notes, holding company PIK notes and common equity.

Bessemer Venture Partners and Insight Venture Partners have agreed to acquire Netsmart Technologies Inc. (Nasdaq SC: NTST), a Great River, N.Y.-based based provider of enterprise software for health and human services organizations. The firms will pay $16.50 per share, for an aggregate transaction value of approximately $115 million. The deal is expected to close early next year.

Boston Ventures has acquire a “substantial majority interest” in En-Touch Systems Inc., a provider of Internet, cable TV, telephone and alarm services to selected communities in the greater Houston market. No financial terms were disclosed. DH Capital advised En-Touch on the deal.

Doughty Hanson & Co. has agreed to acquire KP1, an Avignon, France-based manufacturer of prefabricated and pre-stressed concrete products, focusing on floors and structural systems for the building industry.No financial terms were disclosed, although Doughty Hanson did say that KP1 expects to generate 2006 revenue of approximately Euro 310 million.

GI Partners has agreed to acquire The telx Group Inc., a New York–based operator of “meet-me-room” network interconnection facilities. No financial terms were disclosed. UBS advised telx on the deal.

MidOcean Partners has agreed to sell its interest in Thompson Publishing Group to Avista Capital Partners. No financial terms were disclosed. Thompson Publishing is a Washington, D.C.-based provider of subscription-based information services. MidOcean acquired its interest in May 2004, and one year later helped back the company’s strategic acquisition of Sheshunoff. Avista acquired a position from Credit Suisse earlier this year.

Teachers’ Private Capital has agreed to acquire specialty resin adhesive and paper overlays producer Dynea North America from Dynea Chemicals Oy of Finland. No financial terms were disclosed.

PE Exits

3M (NYSE: MMM) has agreed to acquire SoftMed Systems Inc., a Silver Spring, Md.-based provider of health information management software and services for healthcare organizations. No financial terms were disclosed. Softmed is a portfolio company of TA Associates, and was valued at around $195 million when TA first invested in 1999.

Akamai Technologies Inc. (Nasdaq: AKAM) has agreed to acquire Nine Systems Corp., a San Diego-based provider of solutions for rich media production, publishing and distribution. The deal is valued at approximately $164 million, including $7 million in cash and 3.1 million Akamai common shares. Nine Systems raised $1.5 million in startup funding from Catalyst Investors in 2000.

Crucell NV has agreed to buy Swedish biotech company SBL Vaccin AB for Euro 39.4 million in cash from 3i Group and SEB. The deal is expected to close on Thursday.

PE-Backed M&A

GXS, a Gaithersburg, Md.-based provider of B2B ecommerce solutions, has acquired UDEX Ltd., a Newport, UK-based provider of product data quality services. No financial terms were disclosed. GXS is a portfolio company of Francisco Partners and Norwest Venture Partners, while UDEX had raised over $20 million in VC funding from firms like 3i Group, Northbridge Ventures and Montagu Private Equity.

Mailnet Services Inc., a Franklin, Tenn.-based multi-channel marketing company, has acquired database marketing and analytics firms Synapse Technology and Conclusive Strategies. The deals were partially financed via $8 million in growth capital from Frontier Capital, Morgan Keegan Mezzanine Fund and return backer Massey Burch.

Intechra Holding Corp., a Jackson, Miss.-based IT asset disposition company, has acquired Gold Circuit, a Chandler Ariz.-based asset recovery company. The deal was partially backed via a $6.5 million equity infusion from SJF Ventures and existing backers Richland Ventures, Chrysalis Ventures and Clayton Associates.


Vivus Inc. (Nasdaq: VVUS), a Mountain View, Calif.–based drug company focused on obesity and sexual health, has entered into a $33.6 million PIPE agreement. Caxton Advantage Life Sciences Fund led the financing, and was joined by Euclid SR Partners, OrbiMed Advisors, Franklin Templeton Investments and Quogue Capital.

Firm & Fund News

Red Zone Capital Partners, a McLean, Va.-based investment group headed by Washington Redskins owner Daniel Snyder, is raising $750 million for its second fund. According to a regulatory filing dated Nov. 7, it already had $126 million in commitments.

RBC Capital Markets has agreed to acquire Daniels & Associates, an M&A advisor to the cable, telecom and broadcast industries. No financial terms were disclosed.

South Korean prosecutors have indicted Lone Star Funds and Korea Exchange Bank, for stock-price manipulation related to Lone Stat’s 2003 acquisition of a controlling stake in the Korean lender.

Human Resources

Bob Milsted and Solomon Babani have joined Celtic Pharmaceutical Holdings, a global private equity firm focused on the biotech and pharma markets. Milsted will serve as a managing director and head of European development, having previously been with AstraZeneca as vice president of global regulatory affairs for oncology and infection. Banai will serve as director of contracts and vendor management, and previously was associate director in the CRO management group of Novartis Pharmaceuticals.

Simon Levene has joined the London office of Accel Partners, with a focus on opportunities in the Internet, media and communications markets. He previously spent four years as a managing director of corporate development at Yahoo.