This column has devoted significant space to the “publicization” of private equity, whereby Joe Investor gains direct access to an asset class that previously had treated him like a female applicant for membership at Augusta National. Examples include business development companies (BDCs), special purpose acquisition vehicles (SPACs) and the listed Apollo and KKR funds in Europe.
My gut response to this trend has been positive – gatekeepers can seem so Old Boy’s Club – although I am concerned that these vehicles are not generally structured to provide the same ROI potential as would a traditional GP-LP arrangement. Baby steps, I guess.
The latest such progression will come next week from PowerShares, in the form of an exchange-listed fund (ETF) focused on companies whose “principal business is to invest in – and lend capital to – privately-held companies.” For the uninitiated, ETFs initially issue their shares in large blocks called “creation units,” after which they often are broken up and traded on the secondary market. They also are known for trading at significant discounts to portfolio valuation.
The PowerShares vehicle will trade on the AMEX, and is based on an index formulated by Red Rocks Capital of Golden, Colorado. It currently contains 34 companies (each with different weighting), including: Usual suspects like Apollo Investments (4%), American Capital Strategies (8%) and Macquarie Infrastructure (5.5%); slightly further reaches like Silicon Valley Bank (7.5%) and CIT Group (6%); and some bubble nostalgia companies like CMGI (3%).
I spoke last week with the Red Rocks guys, who believe that this vehicle could transform the private equity securities market like REITs transformed the real estate securities market. The primary buyers are expected to be defined contribution plans, but expectations also are that the individual investor interest will be stirred up by the current PE market hype. I asked if the index would ever include foreign securities – Onex, the Apollo & KKR Euronext funds, 3i, etc. – but Red Rocks declined to comment on any future additions.
This fund already has taken some press barbs from those who believe that it is a byproduct of the aforementioned hype. Some analysts also have warned that investors might not understand the illiquid nature of the index’s underlying portfolio companies (even though the ETF shares, of course, would be tradable).
The first point is fair, and I’d hope that prospective buyers understand that they aren’t getting into the new Carlyle fund. Valuation fluctuations will be less dramatic – both up and down – than in a traditional fund, and even outstanding performance will not approximate the latest Blackstone Group or Sequoia Capital fund. Instead, it could be a useful tool for diversification – just as REITs have been (since they also have some underlying liquidity issues). It is admittedly a double-blind pool – like a traditional fund-of-funds — but at least the initial top-layer portfolio can provide some performance guidance.
It is impossible to predict which will be proven correct: My optimism or critic pessimism. But one thing is for sure: Copycats will come quickly, just as they have after past private equity “publicization” innovations. And just as before, most of the followers will fade away just as fast.
*** Anticipatory note: I have no dog in the above fight. Neither Powershares nor Red Rocks has not paid me, promised me shares nor offered to winterize my swimming pool. If I ever have a financial interest in something discussed here, you’ll be the first to know.
*** Quiz Time: One of the companies within the Red Rocks index is seriously considering a private LBO/hedge fund. Nothing is finalized yet, with a launch date more likely to occur in Q1 2007. Can you name it? Hint: It is not one of the firms that already has a private fund (i.e., not KKR, Apollo, etc.).
*** Finally, yet another sad note to report from the private equity community. Janet Intrieri, a partner with Lake Pointe Capital, passed away after a car accident. A wake will be held this Sunday afternoon at the Foran Funeral Home in Summit, Illinois. The funeral will occur next Monday morning at Our Lady of Snows Church in Chicago.
KKR has withdrawn its Au$18.2 billion buyout offer for Australian retailer Coles Myer, after the bid was rejected by Coles Myer’s board. The KKR consortium had included Bain Capital, Carlyle Group, CVC Capital Partners, TPG and Pacific Equity Partners. It would have been the largest-ever leveraged buyout of an Australian company. www.colesmyer.com
Xencor Inc., a Monrovia, Calif.-based developer of protein and antibody therapeutics, has raised $45 million in Series E funding. MedImmune Ventures led the deal, and was joined by Novo Nordisk, HealthCare Ventures and return backer Zen Investments. The company has now raised around $130 million in total VC funding since its 1997 inception. www.xencor.com
Susser Holdings Inc., a Corpus Christie, Texas-based convenience store chain operator and wholesale fuel distributor in Texas and Okalahoma, priced 6.5 million common shares at $16.50 per share ($16-$18 range), for an IPO take of approximately $107 million. It will trade on the Nasdaq under ticker symbol SUSS, while Merrill Lynch served as lead underwriter. Wellspring Capital Management last year acquired a majority equity stake.
KeyEye Communications Inc., a Sacramento, Calif.-based fabless semiconductor company that provides connectivity solutions to networking equipment makers, has raised $16 million in Series B-1 funding. Menlo Ventures and American River Ventures participated in the deal, just as they both did on a $15 million Series B round in 2004. www.keyeye.net
Igglo Oy, a Finland–based online real estate company, has raised €12.5 million in first-round funding, according to VentureWire. Benchmark Capital Europe led the deal, and was joined by Taivas Group. www.igglo.fi
W5 Networks Inc., a Fremont, Calif.-based provider of wireless solutions for the retail industry, has raised $12 million in second-round funding. Frazier Technology Ventures led the round, and was joined by return backers like Thomas Weisel Venture Partners and U.S. Venture Partners. www.w5networks.com
DeviceVM Inc., a San Jose, Calif.-based developer of virtualization software, has raised $10.4 million in Series A funding led by Storm Ventures, according to a regulatory filing. www.devicevm.com
VMLogix Inc., a Bangalore, India-based provider of virtual infrastructure management technology to simplify the software lifecycle, has raised $3.5 million in Series A funding from Bain Capital Ventures. www.vmlogix.com
Narzana Technologies, an India-based mobile entertainment content company, reportedly has raised $1.5 million from Sequoia Capital India. www.narzana.com
Bloomberg LP is not for sale – at least not now. The New York Times reports that the financial content company has received approaches from such potential buyers as Blackstone Group, KKR, McGraw-Hill and Thomson, but that Michael Bloomberg is not currently interested in selling. A sale could generate around $12 billion. www.bloomberg.com
The Blackstone Group reportedly has held buyout talks with listed French IT services company Atos Origin, but has not yet made a bid. City AM, a London newspaper, reports that the deal could be worth around €3.6 billion. www.blackstone.com
Caltius Equity Partners of Los Angeles has acquired a controlling interest in Starpoint Health Inc., an Irvine, Calif.–based manager of multi-specialty outpatient surgery centers throughout Southern California. No financial terms were disclosed for the deal, which was done in partnership with company management. www.caltius.com www.starpointhealth.com
Energy Investor Funds and John Hancock Life Insurance Co. have acquired Berkshire Power Company LLC, a 272-megawatt natural gas fired power plant located in Agawam, Massachusetts. No financial terms were disclosed. www.eifgroup.com
Hispania Capital Partners of Chicago has acquired a “substantial interest” in NEPS LLC, a Salem, N.H.-based provider of enterprise content management and print management solutions. No financial terms were disclosed. www.hispaniapartners.com www.neps.com
PE-Backed IPOs
NYMEX Holdings Inc., the New York-based operator of the New York Mercantile Exchange, has set its proposed IPO pricing terms to 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. www.nymex.com
Logitech International (Nasdaq: LOGI) has acquired Slim Devices Inc., a Mountain View, Calif.–based developer of home-networked music systems. The deal is valued at $20 million in cash, plus possible earn-outs. Slim Devices has raised angel funding from such individuals as Bill Tai of Charles River Ventures. www.logitech.com www.slimdevices.com
AtriA Capital Partenaires, a France-based middle-market buyout firm, has closed its third fund with €300 million in capital commitments. Limited partners include Altius Associates, CalSTRS, and Pantheon Ventures. www.atria-partenaires.com
Bertelsmann AG has formed a venture capital fund focused on the digital media sector. It will be run by former Random House corporate development chief Richard Sarnoff, have an initial capitalization of €50 million and will be based in Luxembourg. www.bertelsmann.com
David Fishman and Elizabeth Katz have joined Vector Capital as a principal and vice president, respectively. Fishman previously was a managing director of M&A at Goldman Sachs, with a focus on the technology and media markets. Katz previously served as director of corporate business development for PeopleSoft. www.vectorcapital.com
Charlie Liamos has joined MedVenture Associates as an executive-in-residence. He previously served as president and CEO of Fovioptics Inc., a developer of non-invasive blood glucose monitoring devices. www.medven.com
Bryan, Garnier & Co., a Pan-European banking boutique, has promoted Bruno Tourme to partner. He now will head up the firm’s corporate finance technology group. www.bryangarnier.com
Ron Tysoe, former vice chairman and CFO of Federated Department Stores, has joined Perella Weinberg Partners as a senior advisor. www.pwpartners.com
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