PE Week Wire, Oct. 2, 2006

The sun is shining, the Red Sox season is mercifully over and at least one of the PE Week Wire’s endorsed candidates will win office this November (since he’s officially running against Rep. Mark Foley). In other words it’s time for Monday Mouth-Off.

First up are some emails about the AA Capital situation, in which the Chicago-based private equity firm stands accused of defrauding its union pension fund clients. Jarvis writes: “The primary villain here is obviously Orecchio, but you’re right to call out the CFO as well. How can an asset manager with over $100 million in client funds not keep a general ledger, or at least inquire as to the justification for outrageous expense reports? Forget breach of fiduciary duty. That’s a breach of common sense.”

Elaine also chimes in on the CFO issue: “You once wrote that CFOs should stand up and become more integral parts of their firm’s decision making. Perhaps the CFO at AA Capital needs to begin by setting her sights a bit lower.”

R: “While you don’t ‘condone’ the majority GP actions you can ‘understand it’ and you save your inspection for the people who were the smaller GPs for not blowing the whistle. Reverse your thinking–I can understand why the minions did not blow the whistle—but my vitriol is reserved for the main bad actor.” I’m with you R, and garbled my message. The point I wanted to make was that Orecchio’s motive was obviously greed and, if convicted, he will deserve the penalties he pays. But what was the motive for the other partners to cover for him? This second part just confuses me a bit more than does greed. Still not sure I’m explaining this well…

*** Pat on Parthenon Capital’s fundraising travails: “When Parthenon launched this fund, Atkins had just hit the skids and the overall fund performance was so-so. It wasn’t until nine months into the fundraising that a couple of big exits were executed and dramatically boosted returns – as Parthenon had anticipated. However, in a busy market, many LPs had either literally said no or had mentally gone on to the other deals in their rapidly growing pile of PPMs that threatens to overwhelm their desks. Getting prospective LPs to revisit stale deals is very difficult. Given Atkins, they would have been better placed to have held of launching the fund until those deals had exited, launching on the back of good new.”

*** Chris on last Friday’s fundraising advice: “As someone who has been on both the LP and GP side of the table,I would agree that an excellent way to get a LP’s attention is to be introduced through a successful GP relationship. That said,I would also argue that the best way is to get a LP’s attention is toberecommended by one of your existing, reputableLPs. It has been my experience that most LPs place a lot of confidence in a GP recommendation from another reputable LP.”

*** Francis chimes in on the NY Times piece about a possible rift between KKR and Blackstone, and my use of the term “intentional uncooperativeness.” He writes: “Doesn’t that sound almost like [gulp] competition?” Point taken.

*** Finally, a big thanks to everyone who participated in our Reader Survey. So let me tell you a bit about yourselves: Most of you are men, with just over 50% being between the ages of 18 and 34 years-old. A majority is married, and travels multiple times each month. You also are wealthy, with just 18% reporting annual household income of under $100,000. Forty-five percent report household income in excess of $201,000, and it seems we have plenty of millionaires and multi-millionaires. There is a near-even split between VCs and LBO pros, with a healthy number of consultants and I-bankers.

I was a bit surprised to see that nearly 90% of readers are based in the U.S., although the highest geographic concentrations were to be expected: New York Tri-State in first place, followed by virtual tie between Boston and San Francisco Bay. The best part, however, is that most of you read this publication each day, and 67% of you have been subscribers for more than one year. As always, you are most appreciated.

Top Three

Texas Pacific Group and Colony Capital are in talks to acquire Harrah’s Entertainment Inc. (NYSE: HET), according to The Wall Street Journal. No purchase price details were disclosed, but Harrah’s has a market cap of around $12.34 billion, plus $10.2 billion in debt.

Amgen (Nasdaq: AMGN) has agreed to acquire Avidia Inc., a Mountain View, Calif.-based drug company discovers and develops a new class of human therapeutics known as Avimers. The deal is valued at $290 million, plus up to an additional $90 million in milestone earn-outs. Avidia has raised over $78 million in total VC funding since its 2003 inception, including a $43.8 million Series C deal last year at a pre-money valuation of approximately $56.2 million.

Essex Woodlands Health Ventures has added six new professionals: Guido Neils joins as a partner, after having been chief operating officer of Guidant Corp. (acquired by Boston Scientific); Ron Eastman joins as a partner, after having been CEO of Rinat Neuroscience (Essex Woodlands portfolio company acquired by Pfizer); Nic Shronos joins as an adjunct partner, and is chief medical and scientific officer of the American Cardiovascular Research Institute and the Saint Joseph’s Institute; Michael Gertner joins as an adjunct partner, and is co-director of the Surgical Innovation program at Stanford Medical School; Elizabeth McCabe joins as a recruiting partner, and is a veteran executive recruiter in the healthcare sector; and Scott Barry joins as a principal, after having served as global head of pharma M&A for Novartis Pharmaceuticals. Essex Woodlands also announced that it has opened a New York City office.

VC Deals

BelAir Networks, a Kanata, Ontario–based provider of mobile wireless broadband mesh network solutions, has raised US$21.4 million in Series D funding. Ventures West Management led the deal, and was joined by Trilogy Equity Partners and return backers Comcast Interactive Capital, T-Mobile Venture Fund, Panorama Capital, VenGrowth Capital Partners Inc., BDC Venture Capital and MMV Financial. MMV Financial also provided an additional $5 million in debt financing.

Reva Systems Corp., a Chelmsford, Mass.-based RFID company, has raised $13.5 million in Series B funding at a post-money valuation of approximately $38 million. Cisco Systems and SAP Ventures were joined by return backers Charles River Ventures and North Bridge Venture Partners.

Mintera Corp., an Acton, Mass.-based developer of 40 Gigabit-per-second fiber-optic transport subsystems, has raised $10 million in third-round funding. Polaris Venture Partners and RRE Ventures co-led the deal, and were joined by fellow return backers Court Square Ventures, Star Ventures and Portview Communications Partners.

nContact Surgical Inc., a Morrisville, N.C.-based developer of tissue coagulation devices for use in surgical procedures, has raised $7.5 million in Series B funding, according to a regulatory filing. Finistere Partners was joined by return backers like Intersouth Partners and Massey Burch Capital.

HyPerformix Inc., an Austin, Texas-based provider of predictive IT management solutions, has raised $5 million in third-round funding. Silicon Valley Bank was joined by return backers like M/C Venture Partners and Morgan Stanley Venture Partners.

Zola Açaí, the maker of Açaí Power Juice, has raised an undisclosed amount of private equity funding from Emigrant Capital.

Buyout Deals

AWG PLC (LSE: AWG), a UK water and waste management utility, has agreed to be acquired for £2.2 billion by a consortium that includes 3i Group, CPP Investment Board, Colonial First State, Industry Funds Management and a unit of Commonwealth Bank of Australia.

Royal Ahold reportedly is close to putting its U.S. Foodservice unit on the auction block for €3 billion, with possible bidders including KKR and Cerberus Capital. Royal Ahold currently is in merger talks with smaller rival Delhaize, but a sale of Ahold’s U.S. Foodservice division would make it a merger of equals.

Misys PLC, a UK-based provider of IT solutions to the banking industry, has terminated takeover talks “with immediate effect.” Both General Atlantic and Permira had expressed interest, but never made formal bids. In related news, Misys announced that CEO Kevin Lomax has resigned.

MBK Partners is close to winning the $1.6 billion auction for Taiwanese cable television company China Network Systems, according to The Wall Street Journal.

Silver Lake Partners has completed its $800 million acquisition of IPC Information Systems LLC from GS Capital Partners. IPC is a New York–based provider of mission-critical trading floor communications solutions to the financial industry, and was advised by Goldman Sachs. JPMorgan and Morgan Stanley advised Silver Lake.

Gordon Brothers Group and Bruckmann, Rosser, Sherrill & Co. have acquired personalized gift retailer Things Remembered from a subsidiary of Luxottica Group SpA (NYSE: LUX). The deal was valued at approximately $200 million.

Berkshire Partners and Weston Presidio have acquired Alameda, Calif.-based party supply retailer PA Acquisition Corp. (a.k.a. Party America) from Gordon Brothers Group. The deal is valued at approximately $42 million, including assumed debt, with Party America being folded into a holding company – AAH Holdings Corp. – that had acquired Party City Corp. last year.

Brentwood Associates has acquired The Teaching Co., a Chantilly, Va.–based publisher and direct marketer of university-level courses on DVD, audio CD and other formats. No financial terms were disclosed for the deal, which included equity participation by company management. The Teaching Co. was advised by Berkery, Noyes & Co.

The Sterling Group and The Stephens Group have acquired a majority stake in BTEC Turbines LP, a Houston, Texas-based provider of refurbishment, repair and packaging for large gas turbines. No financial terms were disclosed.

Eureka Growth Capital has acquired a majority interest in Cherry Hill Photo Enterprises Inc., a Cherry Hill, N.J.–based provider of special event digital photography services to mall developers, as part of a recapitalization. No financial terms were disclosed for the deal, which also included participation by company management.

PE-Backed IPOs

This week’s IPO calendar includes expected pricings from eHealth Inc. and Susser Holdings Corp.

PE-Backed M&A

Broder Brothers Co., a Plymouth, Mich.-based distributor of imprintable activewear, has acquired substantially all the assets of Northlake, Ill.-based competitor Amtex Imports Inc. The deal was valued at approximately $6.8 million, plus around $4.5 million in net working capital. Broder Brothers was acquired in May 2000 by Bain Capital.

CRC Health Group, a Cupertino, Calif.–based chemical dependency and related behavioral health organization, has agreed to acquire Aspen Education Group, a Cerritos, Calif.-based provider of educational assistance to struggling young people and their families. No financial terms were disclosed for the deal, which is expected to close next month. CRC Health Group was acquired in February by Bain Capital. Aspen shareholders include Warburg Pincus, Frazier Healthcare Ventures and Caltius Mezzanine.

Critical Homecare Solutions Inc., a portfolio company of Kohlberg & Co., has acquired Specialty Pharma Inc., a Cromwell, Conn.-based regional provider of home infusion and respiratory therapy services. No financial terms were disclosed. Specialty Pharma had been controlled by Eureka Growth Capital.

PE Exits

Amgen (Nasdaq: AMGN) has agreed to acquire Avidia Inc., a Mountain View, Calif.-based drug company discovers and develops a new class of human therapeutics known as Avimers. The deal is valued at $290 million, plus up to an additional $90 million in milestone earn-outs. Avidia has raised over $78 million in total VC funding since its 2003 inception, including a $43.8 million Series C deal last year at a pre-money valuation of approximately $56.2 million.

Firms & Funds

Partners Group of Switzerland has closed its latest direct European buyout fund with €368 million in capital commitments. Earlier this year, Partners closed its European buyout fund-of-funds with €279 million.

Cooley Godward LLP and Kronish Lieb Weiner & Hellman LLP today begin operating as one firm under the name Cooley Godward Kronish LLP.

China Opportunity Acquisition Corp., a New York-based blank check acquisition company focused on businesses with principal operations in China, has filed to raise $36 million via an IPO. It plans to trade on the OTC Bulletin Board, with EarlyBird Capital serving as underwriter. The management team includes: Chairman and CEO Harry Edelson, managing partner of Edelson Technology Partners, and director Rose-Marie Fox, founder of Cornerstone Financial LLC.

JPMorgan Chase has completed its acquisition of The Bank of New York’s consumer, small-business and middle-market banking businesses.

Human Resources

Barbia Mesbah has joined Brookstone Partners as a principal. He previously was a vice president with Emigrant Capital and, before that, was a partner and co-head of the specialty chemicals practice at Kline & Co.

Lisa Steffens has joined J.F. Lehman & Co. as director of investor relations. She previously was a risk consultant and project manager for the Shaw Group. J.F. Lehman also has added two senior analysts: H. Lee French (Wachovia Securities) and Bryan Rubin (RBC Capital Markets).

Hercules Technology Growth Capital has promoted David Lund to chief financial officer and hired Jessica Baron as corporate controller. Lund joined Hercules in 2005 as vice president of finance and senior corporate comptroller, while Baron previously was a finance business manager at Cisco Systems.