PE Week Wire, Nov. 30, 2006

I was on CNBC earlier this morning to discuss possible buyouts of newspaper companies. For the uninitiated, both Tribune Co. and Trinity Mirror are on the block, while various folks have expressed interest in buying the New York Times and/or its Boston Globe subsidiary. My basic point was that these are basically vanity plays – albeit, in some cases, altruistic vanity plays – and that return-driven institutions should steer clear.

But fellow conversant Charlie Gasparino disagreed, saying that I was glossing over several key points. Specifically, he said that many newspapers still have strong profit margins of 20%, and that papers like the Wall Street Journal have successfully navigated the online waters.

First, I plead entirely guilty to glossing over certain points. You only get about 120 seconds of total speaking time on a typical CNBC segment, so glossing is essential. I briefly responded on the WSJ/online point, by noting that WSJ is not representative of the overall newspaper market because it has a more targeted audience and does not rely on classified ads for used cars and apartment rentals. WSJ vs. NY Times might not be apples to oranges, but it’s at least apples to a very different type of apples. In fact, I’d liken the WSJ’s biz model much more to that of magazines than to that of newspapers.

What I did not have time to respond to was the profit margin issue. First, a quick search on Yahoo Finance seems to dispute his 20% figure. The New York Times Co. has a profit margin of 5.16%, and an operating margin of 11.10 percent. The Tribune Co. reports an 8.85% profit margin, and a 20.41% operating margin. If I’m wrong, I’m sure one of you analysts will correct me. If Gasparino was wrong – as it seems he was – this will serve as his correction.

But far more important is an indisputable downward trend in newspaper circulation and revenue. Gasparino said something like “We’ll have to see what kind of impact the Internet has on them…” – but we already know! Unless someone pulls the online plug tomorrow (or, as Sen. Ted Stevens might say, stuffs the tubes), newspaper circ and revenue will continue to decline. It’s no surprise that firms considering formal bids for Tribune Co. are talking about bids either at, or below, its current stock price. This is not a healthy industry, as Gasparino implied.

Which brings us back to vanity. I completely understand wanting to own the hometown paper. I think it ranks just below owning the hometown sports franchise: Less fun but more influence. And if I were uber-wealthy like Jack Welch, Eli Broad or Bruce Toll, I also would make a bid.

But they are only investing their own money, and can afford a future hit. Private equity firms are investing on someone else’s behalf, and should not back these deals unless they have a revolutionary plan for turning the ship around (like Yahoo might have were it to have bought the Mercury News). Added operational efficiencies like combined bureaus and Mumbai copywriters will only go so far.

Maybe Carlyle, Bain, Providence, etc. do have such a plan in their head. As a journalist, I hope so. But also as a journalist, I doubt it.

Internship Rodeo Update: We have 15 firms participating so far in our 4th Annual Internship Rodeo. We want more. Please email me if your firm is interested in hiring a summer intern from the current crop of 1st year MBAs.

New at

• We confirm a GigaOm report that BitTorrent has raised $25 million in VC funding.

• Alex Haislip discusses both Alexa critics and YouTube spoils

• Alexis Lakes channels Monty Python is discussing Sevin Rosen.

• New job postings on the Careers page

• Regular news and blog updates throughout the day…

Top Three

Concert Pharmaceuticals Inc., a Lexington, Mass.-based developer of small-molecule drugs for unmet medical needs, has raised $48.5 million in Series B funding. Flagship Ventures led the deal, and was joined by Brookside Capital Partners, New Leaf Venture Partners and return backers Three Arch Partners, TVM Capital, Skyline Ventures, Greylock Partners and QVT Fund.

Hellman & Friedman and Texas Pacific Group have completed their public-to-private acquisition of Intergraph Corp. (Nasdaq: INGR), a Huntsville, Ala.–based provider of spatial information management (SIM) software. The deal is valued at $1.3 billion, with Intergraph shareholders receiving $44 per share. Goldman Sachs advised Intergraph, while Morgan Stanley advised H&F and TPG.

Fraikin Groupe SA, a France-based truck leasing company, plans to raise up to Euro 520.7 million via an IPO that would value the company at over Euro 1.6 billion. Eurazeo is the company’s majority shareholder, with other backers include Rhone Group, Pragma Capital and WestLB. The move comes one month after a La Tribune report that Terra Firma Capital Partners, CVC Capital and Cinven had offered to buy Fraikin for around Euro 1.5 billion.

VC Deals

Travelguru, an Indian online travel portal, has raised $15 million in venture capital funding from Battery Ventures and Sequoia Capital India.

Horizon Wimba, a New York-based provider of collaborative software to the online education market, has raised $10 million in new VC funding. Tudor Ventures led the deal, and was joined by return backers The Argentum Group, First Analysis Corp. and Gefinor Ventures.

Five Star Technologies, Cleveland-based provider of inks and dispersions for use in electronics packaging and assembly, has raised $7.1 million in Series A recap funding, at a post-money valuation of around $14.11 million. Morgenthaler Ventures led the deal, and was joined by CTTV Investments (ChevronTexaco), Early Stage Partners, Industrial Technology Ventures and Reservoir Venture Partners.

Syndero Inc., a San Francisco-based online marketing company, has raised $7 million in Series A funding led by Trident Capital, according to VentureWire.

NextHop Technologies Inc., a Mountain View, Calif.-based networking software company, has raised $4.8 million in Series C funding. Return backers include New Enterprise Associates, Duchossois Technology Partners, Labrador Ventures and Parker Price Venture Capital. NextHop has now raised $41.8 million in total VC funding since its 2000 inception.

OnMeta Inc., a Santa Monica, Calif.-based search engine focused on entertainment, has raised $2 million in Series A funding, as first reported yesterday at Backers include Draper Associates, First Round Capital and Zone Ventures.

Renovar Inc., a Madison, Wis.-based developer of kidney disease diagnostics, has raised $1.22 million in second-round funding. Participants include NEW Capital Fund, Wisconsin Investment Partners and undisclosed individuals.

Grauna Aerospace, a Brazilian supplier of parts to the aerospace industry, has raised an undisclosed amount of venture capital funding from Stratus.

Symyx Technologies,Inc. (Nasdaq: SMMX) has formed an independent company called Visyx Technologies to develop and pursue commercial applications of proprietary sensor technologies. CMEA Ventures has provided most of the spinout’s funding, while Symyx has contributed $400,000 and retained rights to apply the sensor technologies in certain pharmaceutical, chemical and refining applications. This is Symyx’s second VC-backed spinout, having formed Ilypsa Inc. in 2003.

Buyout Deals

Diamond Castle Holdings has completed its acquisition of customer relationship services company PRC LLC from IAC/InterActiveCorp (Nasdaq: IACI). No financial terms were disclosed for the deal, which was done in partnership with PRC management.

Rockwood Holdings Inc. (NYSE: ROC) has agreed to sell its Groupe Novasep subsidiary to a consortium that includes Gilde Buyout Partners BV, Banexi Capital and Groupe Novasep management. The deal values Groupe Novasep at approximately Euro 425 million, and is expected to close within 60 days. Groupe Novasep specializes in the production of active pharmaceutical ingredients, developing new purification processes and large-scale chromatography.

Blue Wolf Capital Management has agreed to acquire Pittsburgh-based landfill gas developer Montauk Energy Capital LLC from DQE Financial Corp., a subsidiary of Duquesne Light Holdings Inc. The deal is valued at approximately $110 million, and is expected to close by year-end. GoldenTtree Asset Management has agreed to provide senior financing.

Empower RF Systems Inc., an Inglewood, Calif.-based provider of ultra-broadband radio frequency amplifiers has received a minority investment from Summit Partners.

Steve & Barry’s University Sportswear, a Port Washington, N.Y.-based casual apparel retailer, has received a minority investment from TA Associates.

Arca Capital Group has agreed to invest approximately $55 million to reconstruct the so-called Slovak Therapeutic Spas (SLK) in the town of Trencianske Teplice.

PE-Backed IPOs

Claymont Steel Holdings Inc. (f.k.a. CitiSteel), a Claymont, Del.-based non-union maker of custom discrete steel plate, has set its proposed IPO terms to 6.25 million common shares being offered at between $15 and $17 per share. It plans to trade on the Nasdaq under ticker symbol PLTE, with Jefferies & Co. serving as lead underwriter. H.I.G. Capital holds a 99.3% pre-IPO position.

PE Exits

Broadcom Corp. (Nasdaq: BRCM) has agreed to acquire LVL7 Systems Inc., a Morrisville, N.C.-based provider of networking software for OEMs and ODM-. The deal is valued at approximately $62 million in cash, and is expected to close by year-end. LVL7 has raised around $45 million in total VC funding since its 1999 inception, from firms like Broadcom, Carlyle Venture Partners, Gabriel Venture Partners, HIG Capital, Lighthouse Capital Partners, Research Triangle Ventures and US Venture Partners.

PE-Backed M&A

Circle Software Inc., a provider of software solutions for the commercial real estate market, has agreed to merge into Realm Business Solutions Inc., a Houston, Texas-based provider of software and services for managing real estate portfolios. Existing Realm shareholders Insight Venture Partners and Lightyear Capital will provide additional equity for the transaction, although specific financial details were not disclosed.

Edgeio Inc., a Menlo Park, Calif.-based online classifieds company, has acquire the assets of Adaptive Real Estate Services, which has around 1.5 million homes listed for sale. No financial terms were disclosed. Edgeio raised $5 million last month from Intel Capital, Millennium Technology Ventures, RSS Investors and Trans Cosmos USA.

Other Deals

Paul Capital Healthcare (f.k.a. Paul Royalty Fund) has committed up to $10 million in additional capital to Acorda Therapeutics (Nasdaq: ACOR). The tranched-out deal includes $5 million at closing and the potential for an additional $5 million if it achieves a 2006 sales milestone. Paul Capital previously had invested $15 million, in order to fund salesforce expansion.

Firms & Funds

Linden LLC, a Chicago-based firm focused on mid-market buyouts in the healthcare and life sciences sector, has closed its inaugural fund with $200 million in capital commitments. It other Linden news, the firm has hired former Allegiance Healthcare executive Anthony Kesman as an operating partner.

Human Resources

Amit Chandra has resigned as Merrill Lynch & Co.’s top executive in India, in order to pursue unspecified private equity opportunities.

Lehman Brothers has named Michael Tory as head of UK I-banking, just one year after he joined the firm from Morgan Stanley. Former UK banking chief Anthony Fry will focus more on client development.

Peter Olaynack has joined middle-market I-bank Morgan Joseph & Co. as a managing director of corporate finance. He will maintain offices in both New York and Miami, and previously was a senior managing director with Bear Stearns.