PE Week Wire, Nov. 27, 2006

Bain Capital is running out of money. Of course, that’s a bit like saying that an ATM machine is running out of money: Rest assured that someone will show up in the morning to fill ‘er back up.

The Boston-based firm had raised $10 billion this past spring, including an $8 billion general fund and a $2 billion co-investment vehicle. Its expectation was that the capital would last at least three years, in contrast to a $4.25 billion predecessor fund that was tapped out after just 21 months. As Bain CFO Mike Goss told Buyouts Magazine at the time: “We don’t raise funds with the intention of investing them in two years… [The previous fund] was undersized relative to our market power and opportunity. Now we have a fund that should last three to four years.”

Bain limited partners, however, tell me that the new vehicle was around 30% called-down through the end of September, on deals like Dunkin Donuts and Burlington Coat Factory. Since then, it has closed on both HCA (approx. $1.2 billion from Bain) and Michaels Stores (approx. $1 billion) – and is on the hook for both OSI Restaurants and Clear Channel.

In other words, well over half of the $10 billion is committed. At this pace, it should be out of dry powder by Q2 2007 (i.e., around 15 months since holding a final close).

So now what?

Sources say that Bain has little appetite for raising another fund so close on the heels of its last one, nor is it interested in some sort of public flotation like the KKR Euronext offering. Instead, it has discussed more conventional options, which could include some sort of profit reinvestment. I’ve also been told that a Blackstone-like fund expansion could be on the table (with existing and/or new LPs), although one knowledgeable source insists that such a strategy has been ruled out. The firm, through a spokesman, declined to comment.

Some Bain critics suggest that this capital crunch is the inevitable end result of a firm that never sees a deal it doesn’t like. And there some truth to that line.

But the real moral of this story is that no firm reasonably could have been expected to have correctly forecast the exponential upswing of LBO volume over the past two years. Almost every single mega-firm has been forced to revise its latest fundraising target (Blackstone, KKR, TH Lee, etc.), and they probably still are raising too little money.

Some political partisans have suggested that the recent rash of deals has been prompted by fears of an incoming Democratic Congress, but I think it’s being propelled by its own momentum. Each time one board votes in favor of a 20% premium, it births another two boards in search of their own payday.

There will be an end, of course, but that will have to wait until a few big-name companies collapse under their own debt, are unable to exit at premium-on-premium or the longer-shot of a DoJ criminal investigation. Until then, expect LPs to just keep letting it ride.

New at We’ve created Featured Event listings for all you conference promoters out there; I discuss how the Hawkeye IPO withdrawal is just the latest in a recent string of PE-backed ethanol troubles; Denise Palmieri talks compensation issues and Silicon Valley attorney John Montgomery offers some Mid-Decade Musings. Plus, new jobs at the Careers section and updates throughout the day…

Top Three

The Carlyle Group has offered to buy Taiwan-based Advanced Semiconductor Engineering Inc. (NYSE: ASX) for $5.94 per American depository share, or around $5.5 billion overall. ASE Chairman Jason Chang is part of the Carlyle-led consortium.

OZ Communications, a Montreal, Canada-based provider of consumer mobile messaging solutions, has raised US$34 million in second-round funding. Caisse de dépôt et placement du Québec led the deal, and was joined by Fonds de Solidarite and return backer VantagePoint Venture Partners.

Hawkeye Holdings Inc., an Iowa Falls, Iowa-based ethanol producer, has withdrawn registration for a proposed $350 million IPO. It previously had postponed the offering, with CEO Bruce Rastetter saying: “We have decided to temporarily delay our IPO in light of current conditions in the equity markets, and the recent pullback in the energy segment in particular, which are not conducive at this time to achieving appropriate valuation.” Credit Suisse, Morgan Stanly and BofA were to serve as co-lead underwriters, while Thomas H. Lee Partners holds a 79% pre-IPO position.

VC Deals

Where Are You Now (WAYN), a London-based travel and lifestyle social network, has raised $11 million in Series A funding led by Esprit Capital Partners.

Mind Candy Inc., a London-based gaming company, has raised around $10.86 million in Series A funding, according to a regulatory filing. Participants include Accel Partners and Index Ventures.

Bariatric Partners Inc., a Charlotte, N.C.-based developer of a chain of surgical facilities for those suffering from severe obesity, has raised $12 million in Series B funding, according to VentureWire. Frazier Healthcare Ventures led the deal, and was joined by return backers New Enterprise Associates and Woodbrook Capital., a Chinese wireless application protocol company, reportedly has raised $8 million in first0-round funding from Sequoia Capital.

Cobalt Technologies Inc., a San Jose, Calif.-based alternative energy startup, has secured $3 million of a $9 million Series B round led by VantagePoint Venture Partners, according to a regulatory filing.

Dhruva Interactive, a Bangalore, India-based interactive gaming company, is in talks to raise around $5 million in VC funding, according to The Economic Times. Among the possible deal leads is Clearstone Venture Partners.

Music Plus Television Network Inc., a Los Angeles-based music television network, has raised an undisclosed amount of first-round funding from Kenai Investment LLC.

Tetraphase Pharmaceuticals Inc. of Newton, Mass., has secured $10.04 million of a $25.1 million Series A convertible participating preferred stock financing. MediPhase Venture Partners led the deal, with other backers including Skyline Ventures, Fidelity BioSciences, Flagship Ventures and CMEA Ventures. This item was first reported by PE Week Wire in August, with VentureWire today adding that MediPhase had taken the lead.

Buyout Deals

BC Partners has agreed to buy German utility meter-reading company Techem AG for Euro 1.28 billion, or Euro 52 per share. This beats out an alternate offer from Macquarie Bank, which says that it is examining its options.

Bayer AG (NYSE: BAY) has agreed to sell chemicals subsidiary H.C. Starck to Advent International and The Carlyle Group for approximately Euro 1.2 billion. Proceeds will be used to help finance Bayer’s acquisition of Schering. H.C. Starck is a Goslar, Germany-based maker of metal and ceramic powders, specialty chemicals and parts made from ceramics and refractory metals. It employs 3,400 people and posted 2005 sales of around Euro 920 million.

Altima has sold Czech broadcasting company Radiokomunikace AS and a 39.23% stake in T-Mobile Czech Republic for Euro 1.2 billion to Al-Bateen Investment Co., Lehman Brothers Private Equity and Mid-Europa Partners. It is believed to be the largest-ever buyout in the Czech Republic. Linklaters advised the buyers.

Close Brothers Private Equity has sponsored the management buyout of Alex Stewart (Assayers) Ltd. from the Alex Stewart Group. ASA is a UK-based provider of verification of the quantity and quality of commodity shipments, as well as assessment of samples for mining exploration. No financial terms were disclosed for the deal, which is being partially financed by debt from Barclays.

MidOcean Partners has agreed to acquire Sbarro Inc., a Melville, N.Y.–based quick-service Italian restaurant company with over 1,000 locations. No financial terms were disclosed for the deal, which will include leverage from Credit Suisse and Bank of America.

Apax Partners reportedly is planning to bid up to Gbp500 million for PR Newswire, a press release distribution company that currently is owned by United Business Media, according to The Times of London.

Raytheon Co. (NYSE: RTN) is in advanced talks to sell its Raytheon Aircraft Co. unit to a private equity firm, according to The Boston Globe. The company had retained Credit Suisse in July to explore “strategic alternatives” for the unit, and reportedly has received bids from The Carlyle Group, Cerberus Capital Management and Onex Partners. The unit is expected to be valued at between $2.75 billion and $3.25 billion.

Apax Partners and Candover are considering bids for all or part of UK newspaper group Trinity Mirror PLC, according to The Guardian.

Newbridge Capital is in talks to acquire Sigma Electric Manufacturing Corp. for around $150 million, according to The Economic Times. Sigma is a Raleigh, N.C.-based maker of products like cable connectors and transformer connectors, with manufacturing plants in Pune and Jaipur, India.

Nilgiris Dairy Farm, a branded food company in Southern India, has raised $65 million in private equity funding from Actis. Various news reports put the company valuation at around $100 million.

PE-Backed IPOs

Synta Pharmaceuticals Corp., a Lexington, Mass.-based small-molecule drug company focused on cancer and chronic inflammatory diseases, has filed for a $115 million IPO. It plans to trade on the Nasdaq under ticker symbol SNTA, with Bear Stearns and Lehman Brothers serving as co-lead underwriters. Synta previously filed for a $115 million IPO in early 2005, but pulled the registration that June due to “unfavorable market conditions.” The company has raised over $196 million in venture capital funding from firms like Caxton Group, Galleon Group, AIG SunAmerica, Wyandanch Partners and Aperture Partners.

Altra Holdings Inc., a Quincy, Mass.-based provider of mechanical power transmission and motion control products, has set its proposed IPO terms to 10 million common shares being offered at between $14 and $16 per share. It plans to trade on the Nasdaq under ticker symbol AIMC, with Merrill Lynch serving as lead underwriter (Wachovia previously had been co-lead underwriter, but now is serving in a backing position). Genstar Capital is Altra’s majority shareholder, with Caisse de dépôt et placement du Québec also holding a significant stake.

Carrols Restaurant Group Inc., a Syracuse, N.Y.-based franchisor of Burger King, Pollo Tropical and Toca Cabana restaurants, has set its proposed IPO terms to 15 million common shares being offered at between $14 and $16 per share. It plans to trade on the Nasdaq, with Wachovia Securities and Banc of America Securities serving as co-lead underwriters. Shareholders include Madison Dearborn Partners and Bahrain International Bank.

Heely’s Inc., a Carrollton, Texas-based maker of youth footwear with a removable wheel in the heel, has set its proposed IPO terms to 6.25 million common shares being offered at between $16 and $18 per share. It plans to trade on the Nasdaq under ticker symbol HLYS, with Bear Stearns and Wachovia serving as co-lead underwriters. Shareholders include Capital Southwest Venture Corp.

Isilon Systems Inc., a Seattle-based provider of clustered storage solutions, has set its proposed IPO terms to 8.35 million common shares at between $8.50 and $9.50 per share. It plans to trade on the Nasdaq under ticker symbol ISLN, with Morgan Stanley and Merrill Lynch serving as co-lead underwriters. The company has raised nearly $70 million in total VC funding since its 2001 inception, from firms like Atlas Venture, Madrona Venture Group, Sequoia Capital and Lehman Brothers.

Medecision Inc., a Wayne, Pa.-based provider of medical management solutions to healthcare payers and regional health information organizations, has reduced its IPO forecast from $14.-$16 per share to $11.50-$13.50 per share. It still plans to sell 5.5 million shares, and trade on the Nasdaq under ticker symbol MEDE. The company also dropped Wachovia Securities as a co-lead underwriter. Cowen & Co. and CIBC world Markets now will split those duties. Medecision has raised $38.4 million in VC funding from firms like Grotech Capital Group, Stockwell Fund, Liberty Ventures, DWS Investment and Britannia Business Expansion Fund.

NewStar Financial Inc., a Boston-based provider of debt financing for middle-market businesses, has set its proposed IPO terms to 11 million common shares being offered at between $15 and $17 per share. It plans to trade on the Nasdaq under ticker symbol NEWS, with underwriters including Goldman Sachs, Morgan Stanley, Citigroup and Wachovia Securities. Shareholders include Capital Z Partners, Corsair Capital, JPMorgan Capital and Northwestern Mutual Life Insurance Co.

PE Exits

KRG Capital Partners has sold FMI International LLC to Maritime Logistics US Holdings Inc. for over $100 million in cash and stock. FMI is a Carteret, N.J.-based logistics provider for the apparel, retail and footwear industries.

Business Objects Inc. (Nasdaq: BOBJ) has acquired Nsite Software Inc., a Sunnyvale, Calif.-based provider of on-demand applications for the enterprise, according to VentureBeat. No financial terms were disclosed. Nsite has raised around $14 million in total VC funding since its 1998 inception, from firms like Worldview Technology Partners, Outlook Ventures and Copan Inc.

PE-Backed M&A

LGC Wireless Inc., a San Jose, Calif.-based wireless networking company, has bought the Cellular Mobile business unit of Alvarion Ltd. (Nasdaq: ALVR) for approximately $15 million in convertible notes and the assumption of certain liabilities. LGC has raised around $78 million in total VC funding since its 1996 inception, from firms like Associated Venture Investors, Allegis Capital, Crimson, Crystal Internet Ventures, Dali Hook Partners, GunnAllen Venture Partners, Mayfield, Rembrandt Venture Partners and Telesystem-Argo Global Capital.

Other Deals

MassMutual Capital Partners and Cerberus Capital Management each have agreed to invest $300 million in Scottish Re Group Ltd. (NYSE: SCT), via the purchase of a total of one million newly-issued convertible preferred shares of Scottish Re.

Mirabilis Ventures has purchased Trump Tower Tampa from SimDag Investments LLC. No financial terms were disclosed.

Easton-Bell Sports Inc. has entered into a $175 million credit agreement with Wachovia. Net proceeds will be used to make a distribution to equity holders like Fenway Partners and Teachers’ Private Capital.

Akesis Pharmaceuticals Inc. (OTC BB: AKES), a San Diego-based drug company focused on diabetes and other metabolic diseases, has raised $3.51 million in PIPE funding led by Avalon Ventures.

Firm & Fund News

Krokus Private Equity of Warsaw has held a Euro 52 million first close on a new fund that will target expansion capital and buyout opportunities in the Polish middle market. The fund has a target of Euro 75 million, with committed limited partners including Natexis Private Equity, the European Bank for Reconstruction and Development and InvestKredit.

AlixPartners, a global turnaround consultancy based in Southfield, Mich., plans to open an office in India next year.

Human Resources

Liu Chuanzhi and Edward Tian have joined Kohlberg Kravis Roberts & Co. as senior advisors to the firm in China. Chuanzhi is the president of Legend Holdings, and is the former chairman and president of Lenovo Group. Tian is the founder and chairman of China Broadband Capital Partners, the first government-sponsored TMT sector-focused private equity fund in China. Tian also is vice chairman and former CEO of China Netcom Group.

Rupert Bell has joined 3i Group as a London-based director within the firm’s growth capital unit. He previously served as a director with San Aire Private Equity (bought by Dunedin in 2005).