PE Week Wire, Oct. 20, 2006

Last month, BNP Paribas quietly spun out its last remaining private equity group. This one has renamed itself Shore Points Capital, and focuses on acquisitions of mid-market manufacturing, distribution and services companies.

Many such spinouts result in the former parent bank taking a limited partner stake in the first independent fund, plus retaining its interest in the existing portfolio. This one, however, was more like a secondary asset purchase, with a large secondary/fund-of-funds shop backing an acquisition of most existing portfolio companies, plus providing capital for future deals (nope, I don’t know which one). BNP Paribas is now out of the direct private equity market, after having previously spun out PAI Partners and the Banexi funds.

I share this with you not so much for the scoop-aliciousness of it (Mmmm… banky), but more because it highlights a growing divergence in the way that financial institutions are treating internal private equity sponsors.

Two years ago, it seemed that almost everyone was moving in the same direction: Away. JPMorgan Chase, Morgan Stanley, Deutsche, Mellon, etc. all began spinning out – or killing off – internal private equity programs. Goldman Sachs and Citigroup were the stubborn anchors, while Credit Suisse only kept its in-house program after proving unable to spin it out. I made special note that Key Bank was launching an in-house VC program to compliment and existing PE group, but now both are securing third-party capital for new funds.

Today, however, you’ve got two distinct camps: Those who continue to move away like BNP Paribas, and those like Morgan Stanley that are coming back into the fold. One also could argue that there is a third wave, whereby groups like Blackstone actually are transforming themselves into I-banks – but that’s a richer topic than a Friday morning deserves.

Some folks believe that this divergence mostly breaks along the commercial bank vs. I-bank fault line, but I think it’s more than just classical risk biases. It’s also more than just senior management changes, although that clearly has played a role at places like BNP and Morgan Stanley.

I think it’s a question of understanding one’s core business. Banks need to diversify/grow their held assets, which is why commitments to private equity funds make perfect sense. They also need to grow their client base, which is partially why so many banks have fund placement units (plus it makes some nifty coin). But anything that could come into conflict with their core advisory clients is a sideline, and it’s the very reason that so many financial institutions began spinning out private equity teams. It should be more valuable to have KKR as a regular client, than to risk that by competing with KKR for a particular deal.

JPMorgan Chase understood this, and I hope it resists the urge to follow Morgan Stanley back into the direct investing market (the relatively-small One Equity Partners notwithstanding). It makes some money off of private equity via its limited partner commitments to its spinout funds (Panorama and CCMP Capital), and does not have to worry about client conflicts. BNP Paribas could say the same thing, if only it hadn’t opted against a recurring role with Shore Points. But perhaps – in this limited case – it’s better to be safe than sorry.

*** This morning I went to the Adobe homepage to pull a press release about its acquisition of VC-backed Serious Magic. Maybe this is silly, but I was surprised to see that Adobe’s press releases are displayed on-the-page (i.e., HTML) instead of in the .pdf format used by so many other companies. You’d think if anyone were to use it…

*** HCA has set a shareholder meeting date for its proposed going-private buyout: November 16 at the company’s Nashville, Tenn. executive offices.

*** Finally, a few corrections. First, I used a double-negative yesterday when trying to say that neither PowerShares nor Red Rocks Capital had given me any money or other goodies. Seems I actually wrote that they had done so (which they have not). Second, BluePrint Ventures should have been listed as a returning VC backer of KeyEye. Finally, a news item last week indicated that GlobalStar Inc. had withdrawn its $100 million IPO registration. This was my mistake, and the offering papers are still valid with an eventual pricing anticipated.

*** Have a great weekend…

Top Three

Deutsche Bank has agreed to buy UK wealth manager Tilney Group Ltd. from Bridgepoint and company management. No financial terms were disclosed for the deal, which is expected to close later this quarter. Tilney has around £6.7 billion in assets under management, and 330 employees.

DFJ VinaCapital has launched as a $50 million venture capital fund focused on technology and privatized telecom companies in Vietnam. It is a joint venture between Vietnam-based VinaCapital and Menlo Park, Calif.-based Draper Fisher Jurvetson.

ExlService Holdings Inc., a New York-based provider of business process outsourcing solutions, priced five million common shares at $13.50 per share ($10-$12 range), for an IPO take of approximately $67.5 million. It will trade on the Nasdaq under ticker symbol EXLS, while Citigroup and Goldman Sachs served as co-lead underwriters. The company had been acquired in 2002 by Oak Hill Capital Partners and Financial Technology Ventures, via a management buyout from Conseco.

VC Deals

Atrenta Inc., a San Jose, Calif.-based provider of predictive analysis solutions, has raised $16 million in Series D funding. Samsung Ventures and Hercules Technology Growth Capital co-led the deal, and were joined by return backers Venrock Associates, TL Ventures, Smart Technology Ventures, Investcorp Technology Ventures and Finaventures.

Liquid Air Lab GmbH, a Germany-based developer of “spodradio” mobile radio and podcasting solutions, has raised $10 million in Series B funding. Benchmark Capital Europe led the deal, and was joined by return backer Baytech Venture Capital.

Sub-One Technology, a Pleasanton, Calif.-based developer of nanotech systems for depositing smooth, pure films on the internal surfaces of a broad spectrum of products, has raised $7 million in Series B funding. Advanced Technology Ventures led the deal, and was joined by return backers Chevron Technology Ventures and ITI Energy.

mVisible Technologies Inc., a Deerfield Beach, Fla.-based, developer of mobile content delivery solutions, has raised $3 million in Series A funding led by World Angels Inc.

Connec, a Brazil-based maker of thin client computers and embedded software, has raised around $2.5 million from Stratus VC. The deal gives Stratus a 20% ownership stake in Connec, and is expected to be followed by additional capital infusions over the next two years.

Buyout Deals

InterMedia Partners of New York has agreed to buy Puerto Rican television station WAPA-TV from LIN TV Corp. (NYSE: TVL). The deal is valued at $130 million in cash, and also includes the acquisition of WJPX-TV (programmed as MTV in Puerto Rico) and WAPA America (cable/satellite channel targeting Hispanics in mainland U.S.).

Freescale Semiconductor Inc. said that six class-action petitions have been filed against it and its directors, in reference to the pending $17.6 billion buyout being led by The Blackstone Group. The petitions allege that Freescale breached fiduciary duty by not taking the proper steps to maximize shareholder value. Other members of the buying consortium include Carlyle Group, Perima and Texas Pacific Group.

CIT Group is providing £69 million in acquisition financing for HgCapital’s £99.87 million management buyout of SHL Group, a listed UK-based provider of psychometric assessment services.

PE-Backed IPOs

LeMaitre Vascular Inc., a Burlington, Mass.-based developer of medical devices for the treatment of peripheral vascular disease, priced 5.5 million common shares at $7 per share, for an IPO take of approximately $38.5 million. It had planned to sell six million shares at between $8 and $10 per share. LeMaitre will trade on the Nasdaq under ticker symbol LMAT, while Goldman Sachs served as lead underwriter. Housatonic Partners held a 14.3% pre-IPO position.

Innophos Holdings Inc., a Cranbury, N.J.-based specialty phosphates company, has set its proposed IPO terms to around 8.7 million common shares being offered art between $14 and $16 per share. It plans to trade on the Nasdaq under ticker symbol IPHS, with Bear Stearns and Credit Suisse serving as co-lead underwriters. Bain Capital acquired Innophos in 2004 from Rhodia for $550 million.

OrbComm Inc., a Ft. Lee, N.J.-based operator of commercial wireless messaging systems for narrowband communications, set its proposed IPO terms to around 11.15 million common shares being offered at between $12 and $14 per share. It plans to trade on the Nasdaq under ticker symbol ORBC, with UBS and Morgan Stanley serving as co-lead underwriters. The company has raised around $105 million in VC funding from firms like Pacific Corporate Group, Ridgewood Capital, SES Global Participations and Northwood Ventures.

PE Exits

Adobe Systems Inc. (Nasdaq: ADBE) has acquired Serious Magic Inc., a Folsom, Calif.-based provider of video software communications tools. No financial terms were disclosed. Serious Magic had raised VC funding from Mayfield.

Sequoia Capital and Artis Capital aren’t the only firms set to profit from Google’s $1.65 billion acquisition of YouTube. The New York Times reports that Universal Music Group, BMG Music Entertainment and Warner Music Group each received small YouTube stakes as part of music-licensing deals signed shortly before the Google deal was announced. The three companies stand to gain up to $50 million collectively.

PE-Backed M&A

Springer Science & Business Media, a German portfolio company of Cinven and Candover, has approached rival publisher and conference organizer Informa about a takeover. The talks are in their early stages, but the combined company would be worth in excess of €4 billion.

Firms & Funds

Quartillium, the fund-of-funds unit of France-based Finama, said that it is about to begin raising its third fund-of-funds. Its current vehicle has made recent commitments to: Dunedin Buyout Fund II, Cinven IV; Alpha V; Edgestone Equity Partners III, Mangrove II, Scottish Equity Partners III, Almack Mezzanine I, Granite Global Ventures III, ABRY Senior Equity II, Gleacher Mezzanine II, Prairie Capital IV and TA Subordinated Debt Fund II.

Bernard Arnault, chairman of LVMH Moët Hennessy Louis Vuitton, and Albert Frère reportedly have raised €1 billion for a Europe-focused buyout fund.

Human Resources

Machtelt Groothuis has joined 3i Group as an Amsterdam-based director on the firm’s European buyouts team. He previously was with Taros Capital Holdings, which was the spinout of AlpInvest’s direct buyouts team.

Tricor Pacific Capital has made four hires: Joseph Lucke joins as a Vancouver-based vice president, after having been a principal with DLJ Merchant Banking Partners; Rob Wildeman joins as a Vancouver-based senior associate, after having been an I-banking associate with Citigroup; Derek Senft joins as a Vancouver-based associate, after having been an I-banking analyst with CIBC World Markets; and Jonathan Dries joins as a Chicago-based associate, after having worked on M&A transactions for Robert W. Baird & Co.

Alan Bear and David Wherritt have joined Probitas Partners, with a focus on real estate fund placement. Bear will serve as a principal, and previously ran his own transactional and strategic investment advisory. Wherritt comes aboard as an associate, and previously was an analyst in the real estate private funds group of Credit Suisse.

In Memoriam

Richard Duvall, co-founder and CEO of venture-backed Zopa, passed away earlier this week from pancreatic cancer. His wife Krys has asked that any donations in his memory be sent to Pancreatic Cancer UK. More information is available here.