PE Week Wire, Nov. 8, 2006

Until quite recently, conventional wisdom was that the best buyout bang came from middle-market bucks. Part of the rationale was that middle-market firms used to get more proprietary dealflow than did their bigger brothers, but the primary justification was found in fund returns data.

Unfortunately, much of that datamistakenly used modern standards to determine fund category (i.e., small, middle, large, mega),withoutconsidering thecontext of specific vintage years/eras. For example, Blackstone’s $800 million first fund was being referred to as middle-market (or perhaps large-market), even though it was certainly a mega-fund when it closed in 1988.

Today, of course, everyone believes that bigger is better. Proprietary dealflow is nearly as rare in the middle-markets as it is in the mega-markets, and an increased proclivity toward financial engineering – enabled by drunken lenders – means that $1 billion+ deals can seemingly return their principal just days after close.

Why am I bringing this up? Because contributor Mike X reports that mega-firm Texas Pacific Group is planning to raise a middle-market buyout fund. I’ve confirmed this with several LP sources (it’s going to be global), and it follows up on a Monday report that Silver Lake Partners also is considering a middle-market effort.

Mike asks why TPG would raise a middle-market fund, rather than simply make some middle-market deals out of its $15 billion general fund (a la Warburg Pincus)? One reason could be to give limited partners more defined investment parameters, but TPG has gone in the exact opposite direction when it’s come to geography (via its subsumation of Asian affiliate Newbridge).

Either way, I think the more salient question is why mega-firms are dipping down into the middle-markets at all? It can’t be a fear that the party’s over, because they then would hedge by including middle-market deals in the general funds.

Neither TPG nor SLP would talk to me about this, so I ask you: What is going on here?

*** Mike X originally posted the TPG scoop over at Vox Populi, and we’ve got a trio of new posts for you this morning:

• Bart Schachter, a managing director of Blueprint Ventures and occasional PE Week Wire fill-in columnist, takes on Sevin Rosen Funds.

• Kelly DePonte of Probitas Partners explains why private equity is not a natural fit within commercial banks and I-banks.

• Jon Nieman of Capital IQ asks readers about various technologies available for PE pros.

*** David Tanner, a co-founding principal of Quadrangle Group, has transitioned into a senior advisor role. The firm’s website says it happened back in March, which means I’m only eight months late letting you know.

*** I was planning to write this morning about how VenturePAC candidates fared in yesterday’s federal elections, but need to hold off until a few more of the close races are called. Hoping to get to it on later today.

As for Wire-endorsed candidates, we went one for two. Tim Mahoney won Mark Foley’s old House seat in Florida, but Ned Lamont couldn’t best Joe Lieberman twice in Connecticut (usually you only need to do it once). A reader this morning suggests that we actually should have been 2-for-3, because Sen. Diane Feinstein is married to Blum Capital chairman Richard Blum. Tempting, but spouse alone doesn’t cut it. Lamont’s wife is a VC, but he mostly made the cut due to his background as a VC-backed entrepreneur. But 50% ain’t bad… After all, it’s better than the GOP did.

Top Three

Network Appliance Inc. (Nasdaq: NTAP) has agreed to acquire Topio Inc., a Santa Clara, Calif.–based provider of data replication and disaster recovery software, for $160 million in cash. Topio has raised nearly $30 million in VC funding since its 2001 inception, from firms like Sequoia Capital, Sigma Partners and Star Ventures.

Broad Oak Energy Inc. of Dallas, Texas has received a private equity commitment of up to $150 million from Warburg Pincus, in order to pursue the acquisition, exploration and development of oil and gas leasehold interests in certain onshore regions of the United States.

Amoun Pharmaceuticals of Egypt has been acquired for approximately $460 million by Citigroup Venture Capital, Capital International Private Equity Fund IV and Concord International. The deal involves the 93% of the company’s stock that is not publicly traded. The buyers ! are expected to make an offer for the 7% of remaining shares.

VC Deals

Tejas Networks, an India-based provider of optical networking products, has raised $20 million in fourth-round funding. Sandstone Capital led the deal, and was SUN Technologies and return backers Battery Ventures, Intel Capital and Dr. Gururaj “Desh” Deshpande. The company has raised around $45 million in total VC funding since its 2000 inception.

Turn Inc., a San Mateo, Calif.-based online automatic-targeting advertising network, has raised $18 million. Backers include Norwest Venture Partners, Trident Capital and Shasta Ventures. The company held a first close back in early 2005.

Dilithium Networks, a Petaluma, Calif.-based provider of converged video solutions for the broadband and wireless markets, has secured $16.77 million of a $25 million Series D round, according to a regulatory filing. Shareholders include U.S. Venture Partners, Motorola Ventures, Deutsche Bank Capital and CM Capital.

United Information Technology Ltd., a Beijing-based provider of IT management and storage solutions in China, has raised $10.5 million in private equity funding from Orchid Asia Group Management.

Axsun Technologies Inc., a Billerica, Mass.-based manufacturer of MEMS-based micro-optoelectronic “spectral engines,” has raised $10 million in Series D funding. Electro Scientific Industries led the deal, and was joined by return backers like Prism VentureWorks, Vantage Point Venture Partners and Stata Venture Partners. The company also secured a $5 million loan from Bridge Bank.

AlterPoint Inc., an Austin, Texas-based provider of network management software, has raised $7.5 million in new Series C funding. Return backers include Austin Ventures, JK&B Capital and Palomar Ventures. The company has raised $39 million in total VC funding since its 2001 inception.

Zvents Inc., a San Mateo, Calif.-based social networking company focused on local events, has raised $7 million in first-round funding. VantagePoint Venture Partners led the deal, and was joined by Red Rock Ventures and NetService Ventures.

Clear2Pay NV, a Belgian provider of payment software solutions for financial institutions, has raised Euro 2 million in new venture capital from Iris Capital. In addition, Iris purchased Euro 1 million in existing equity from undisclosed shareholders. Clear2Pay raised a Euro 15.7 million round earlier this year from GIMV and AGF Private Equity.

iCardiac Technologies Inc., a Rochester, N.Y.-based commercializer of cardiac safety technologies developed at the University of Rochester Medical Center, has raised $2 million in additional Series A funding. The round total is now $4 million, from backers Advantage Capital Partners and Stonehenge Capital.

BinOptics Corp., an Ithaca, N.Y.-based provider of integrated micro-photonic chips for datacom, telecom and optical storage applications, has secured $1.6 million of a $6 million Series C round, according to a regulatory filing. Backers include Draper Fisher Jurvetson, FA Technology Ventures, ArrowPath Capital and ZAD Global Fund.

Agiliance Inc., a Mountain View, Calif.-based provider of security risk and compliance management solutions, said that Intel Capital has joined its Series B funding round. The company announced last month that it had raised $6.5 million from Walden International and Red Rock Ventures. No word on how much Intel put in.

Vendavo Corp., a Palo Alto, Calif.-based provider of B2B price management solutions, has raised an undisclosed amount of strategic funding from SAP Ventures. The company previously had raised around $61 million since its 1998 inception, from firms like DCM-Doll Capital Management, Sigma Partners, Split Rock/St. Paul Venture Capital, InterWest Partners and spectrum Equity Investors.

Buyout Deals

Archer Capital has agreed to buy listed Australian sporting goods retailer Rebel Sport for Au$4.60 per share. The deal values Rebel Sport at approximately Au$370 million.

JCDecaux SA may soon enter the auction for rival Clear Channel Outdoor Holdings Inc., according to the Wall Street Journal. The paper says that the French company is discussing a joint bid with two undisclosed private equity firms. Two private equity consortiums already have formed to bid. The first includes Blackstone Group, KKR and Providence Equity Partners. The other includes Thomas H. Lee Partners, Texas Pacific Group and Bain Capital.

Baring Asia Private Equity has acquired a 25% stake in AirTAC Automatic Industrial Co., a Chinese manufacturer and distributor of pneumatic components. No financial terms were disclosed.

The Glover Park Group, a Chicago–based lobbying and PR firm, has raised an undisclosed amount of private funding from Svoboda, Collins and Madison Capital Funding. Glover was advised on the deal by AdMedia Partners.

GP Investments has acquired a 14.4% stake in Brazilian shopping center developer Grupo Ecisa for approximately $45 million. In related news, a U.S.-based real estate private equity firm also will subscribe for an equal equity stake.

PE-Backed IPOs

Double-Take Software Inc., a Southborough, Mass.-based provider of software for reducing downtime of business-critical systems, has set its proposed IPO terms to 7.5 million common shares being offered at between $9 and $11 per share. It plans to trade on the Nasdaq under ticker symbol DBTK, with Cowen & Co. and Thomas Weisel Partners serving as co-lead underwriters. Shareholders include ABS Capital Partners, J&W Seligman & Co. and Lake Street Capital.

NACG Holdings Inc., an Alberta, Canada-based energy services company, has set its proposed IPO terms to 12.5 million common shares being offered at between $19 and $21 per share. It plans to trade on the NYSE under ticker symbol NOA, with Credit Suisse, UBS and Jeffries & Co. serving as co-lead underwriters. Its equity sponsors include The Sterling Group, Genstar Capital, Perry Strategic Capital and SF Holdings (f.k.a. Stephens Group).

PE-Backed M&A

MediaWhiz, a provider of performance-based online marketing services, has acquired Cincinnati-based Text Link Ads. No financial terms were disclosed for the deal , which was partially financed by existing MediaWhiz investor Lake Capital.

PE Exits

AOL has acquired The Relegence Corp., a New York-based financial news and information search technology company. No financial terms were disclosed. Relegence had raised over $13 million in VC funding from Hudson Venture Partners, Phoenix Partners, Broadband Venture Partners and Entertainment Media Ventures.

Firm & Fund News

The California Public Employees’ System (CalPERS) has made a $500 million commitment to the KKR 2006 Fund, which is expected to close on $15.5 billion.

EDF Ventures of Ann Arbor, Mich. has opened a San Diego office, which will be managed by existing general partner Beau Laskey.

Human Resources

Wanda Felton has been named a managing director with Helix Associates, the private equity fund placement unit of Jeffries & Company. She most recently founded private equity advisory Map Capital Advisors, and before that worked on the fund placement team at Credit Suisse and as a managing director for Hamilton Lane.

Redwood Capital Group has made the following promotions: Robert Dressler to Partner; David Freeland to Vice President; and Janny Lee to Vice President. Redwood is a New York-based I-bank focused on the tech, communications and media industries.

Niall Carroll, managing director of ACT Venture Capital, has been elected chairman of the Irish Venture Capital Association. He succeeds Des Fahey, CEO of the Dublin Business Innovation Centre.


Correction: Charles Banks, former CEO of plumbing and heating products company Wolseley PLC, is the latest partner at Clayton, Dubilier & Rice. He was misidentified in Monday’s edition.