PE Week Wire, Oct. 25, 2006

Greetings from Portland, Ore., where this afternoon I’ll be conducting a “keynote interview” with John Connors, as part of the Venture Northwest conference. For those who don’t know, John is the former Microsoft CFO who now works as a partner with Seattle-based VC firm Ignition Partners. Current portfolio companies include Jobster, BioPassword and FIREapps.

I’ve got lots of questions to ask, including things like: “What big-company lessons are transferable to startups, and which are not?” and “When you joined Ignition, you quipped that you were looking forward to being able to spend more time on your boat. Did it work out that way?” If you’ve got something specific you’d like asked, send it on over to me ASAP – as we go on at 1pm PT. In the meantime, just a few notes before I head downstairs:

*** I spent part of last night at an Intel Capital reception, and learned that almost all of the Intel Capital layoffs have been completed. A few of the unlucky souls were floating around the room last night, and were easily identifiable by the lack of company affiliation on their name badges.

*** A friendly travel tip: If you’re flying from Boston to Portland, don’t go through Phoenix. It really takes far too long.

*** There is a palpable frustration here that the Pacific Northwest’s startup scene plays such a secondary role to its neighbors down the Coast in Silicon Valley. Not surprise, of course, but a feeling that PN should be closing the gap a bit faster. Four separate people said last night that they hope I’m “impressed with the quality of the presenting companies” today – as compared to similar presentations in the Valley. I’m from Worcester originally, so I’m pretty quick to sniff out feelings of geographic inferiority.

*** Lots of talk today that private equity firms could be circling newspaper publishers like Tribune Co. and The Boston Globe (LBO firms not specifically mentioned in Globe stories, but some are certainly interested). This is, of course, being chalked up to ego/hubris on the part of potential buyers, since big-city dailies likely will continue to be cannibalized by the Internet until just a few scraps of newsprint remain underneath the silent printing presses.

So let’s instead focus on the very successful IPO of community news publisher GateHouse Media, which many pundits expected to fall flat on its face. Part of the skepticism was financial (the GateHouse numbers don’t seem to justify the IPO pricing), but more of it was a view that the big-market troubles will eventually be visited upon the small markets. Institutional investors disagreed, and they were right to.

As I’ve previously written, community newspapers succeed because they provide a one-stop source for information not available elsewhere. There is little in today’s Boston Globe that can’t be found elsewhere (particularly online – where the paper remains inexplicable free-of-charge) – but the average community paper includes all sorts of offline items like school lunch menus, church picnic dates and Little League scores. Craig’s List simply isn’t opening a Framingham, Mass channel anytime soon. Emerging companies like may eventually begin to eat into local publishers, but any critical mass is a long way off. So, for now, I’d rather have a public piece of GateHouse than a privatized piece of Tribune or Globe.

Top Three

The Blackstone Group and PAI Partners have agreed to buy UK-based biscuits maker United Biscuits from Cinven and MidOcean Partners. The deal is valued at just over £1.6 billion, and gives United Biscuits an enterprise value of around £2.4 billion. Blackstone had been considered the leading bidder for several weeks, after a Premier Foods-led group dropped out.

VaxInnate Corp., a Cranbury, N.J.–based developer of vaccines for both pandemic and seasonal influenza, has raised $40 million in Series C funding. New Leaf Venture Partners led the deal, and was joined by Canaan Partners and return backers HealthCare Ventures, Oxford Bioscience Partners, MedImmune Ventures and CHL Medical Ventures.

Madison Dearborn Partners has agreed to acquire The Yankee Candle Company Inc. (NYSE: YCC) for $34.75 per share. The total deal is valued at around $1.7 billion, including $300 million in assumed debt.

VC Deals

Zoom Systems, a San Francisco-based developer of automated retail solutions, has raised $35 million in Series D funding. Motorola Ventures was joined by return backers Goldman Sachs and Sierra Ventures.

Synacor, a Buffalo, N.Y.-based provider of online content and technology solutions for broadband and Internet service providers, has raised $17 million in Series C funding. North Atlantic Capital led the deal, and was joined by Mitsui & Co. and return backers Crystal Ventures, Advantage Capital Partners, Walden International, Intel Capital and Rand Capital.

Sur La Table Inc., a Seattle–based retailer of kitchen supplies, has secured around $11 million of a $12 million Series B round, according to a regulatory filing. Shareholders include Freeman Spogli & Co.

VertenSys Ltd., a Manchester, UK-based provider of IO virtualization solutions, has raised $12 million in Series A funding. Scottish Equity Partners led the deal, and was joined by Celtic House Venture Partners and GIMV.

MonoSphere Inc., a Redwood City, Calif.-based provider of storage capacity planning software, has raised $11 million in Series B funding. Intel Capital led the deal, and was joined by return backers ComVentures and Lightspeed Venture Partners.

Coveo Solutions Inc., a provider of enterprise search solutions, has raised $6 million in Series A funding. Solidarity Fund QFL and Propulsion Ventures co-led the deal, and were joined by Fier Succes and seed backer Acces Capital.

Rec Room, a Chicago-based retailer of household game/recreational room furnishings, has raised $6 million in Series A funding led by Highland Capital Partners.

Zebra Imaging Inc., an Austin, Texas-based provider of holographic displays and virtualization technologies, has raised $5.9 million in Series C funding. Voyager Capital led the deal, and was joined by Nuevo Private Equities and SAIC Venture Capital Corp.

Ciranova Inc., a Santa Clara, Calif.-based developer of cell generator technology for custom analog and mixed-signal IC design, has raised $4 million in third-round funding. AsiaTech Management led the deal, and was joined by return backers Alloy Ventures and US Venture Partners.

Vanguard Voice Systems Inc., a Santa Margarita, Calif.-based developer of voice-activated mobile data entry technologies, has raised $3 million in Series A funding led by Berkshire Ventures, according to VentureWire.

Data Depth Corp., an Issaquah, Wash.-based provider of digital content marketing and licensing solutions, has secured $1.29 million of a $2 million Series C round led by Rustic Canyon Ventures, according to a regulatory filing.

Amano, a UK-based purveyor of “slow fast food,” has raised £1 million over two rounds of VC funding from The Capital Fund.

Minicom Advanced Systems Ltd., an Israel-based maker of digital and analog solutions for KVM (keyboard, video, mouse) server management, has received an undisclosed amount of funding from Intel Capital.

Buyout Deals

Universal American Financial Corp. (NYSE: UHCO) has received an $18.15 per share buyout offer from a group that includes CEO Richard Barasch, Capital Z Partners, Lee Equity Partners, Perry Capital and Welsh, Carson, Anderson & Stowe. The deal would value UAF at around $1.06 billion.

CDC Capital Investissements has offered to buy Belgian fast-food company Quick Restaurants SA for Euro37.8 per share, or Euro730 million overall.

Altor Equity Partners has bought Norwegian clothing company Helly Hansen ASA from Investcorp for an undisclosed amount.

USI Holdings Inc. (Nasdaq: USIH) says that it has received a buyout offer – and has formed a special committee of independent directors to examine the offer. The insurance broker also has retained Lazard and law firm Dewey Ballantine.

Pacific Equity Partners has offered to buy listed Australian travel agent Flight Centre for Au$17.20 per share. The deal would value Flight Centre at Au$1.6 billion.

Leonard Green & Partners is nearing a deal to buy Irvine, Calif.-based aftermarket motorcycle parts company Motorsport Aftermarket Group Inc. from Duff Ackerman & Goodrich, according to LBOWire.

Countrywide PLC, a U.K. property and financial services company, has accepted a £900 million management buyout offer sponsored by 3i Group, according to The Telegraph of London.

Wynnchurch Capital Partners of Chicago has acquired SPX Dock Products Inc., a Carrolton, Texas-based manufacturer of loading dock equipment, from SPX Corp. (NYSE: SPW). No financial terms were disclosed. SPX Deck Products will change its name to 4Front Engineered Solutions Inc.

CMS Cos. and Quad Partners have acquired Beckfield College, a Florence, Ky.-based for-profit, post-secondary college. No financial terms were disclosed.

PE-Backed IPOs

GateHouse Media Inc., a Fairport, N.Y.-based community newspaper publisher, priced 13.8 million common shares at $18 per share ($16-$18 range), for an IPO take of approximately $248.4 million. It will trade on the NYSE under ticker symbol GHS, while Goldman Sachs and Wachovia Securities served as co-lead underwriters. Fortress Inv*stment Group held a 95.9% pre-IPO position.

Eagle Rock Energy Partners LP, a Houston-based natural gas gatherer, processor and transporter, priced 12.5 million common units at $19 per unit ($19-$21 range), for an IPO take of approximately $237.5 million. It will trade on the NYSE under ticker symbol ERE, while UBS, Lehman Brothers and Goldman Sachs served as co-lead underwriters. Natural Gas Partners was listed as a significant shareholder.

Flagstone Reinsurance Holdings Ltd., a Bermuda-based reinsurer, has filed for a $175 million IPO. It plans to trade on the NYSE under ticker symbol FSR, with Lehman Brothers and Citigroup serving as co-lead underwriters. The company completed a $715 million initial capitalization earlier this year co-led by Lehman Brothers Merchant Banking and Lightyear Capital.

Thermage Inc., a Hayward, Calif.-based maker of medical devices for the non-invasive treatment of wrinkles, has set its proposed IPO terms to six million common shares being offered at between $11 and $13 per share. It plans to trade on the Nasdaq under ticker symbol THRM, with Merrill Lynch serving as lead underwriter. The company has raised around $48 million in VC funding since its 2001 inception, from firms like Draper Fisher Jurvetson, Essex Woodlands Health Ventures, Institutional Venture Partners, Morgenthaler Venture Partners and Technology Partners.

Physicians Formula Holdings Inc., an Azusa, Calif.-based cosmetics company, 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 FACE, with Citigroup and Deutsche Bank Securities serving as co-lead underwriters. Summit Partners holds a 76.8% pre-IPO position.

PE-Backed M&A

Aptuit Inc., a Greenwich, Conn.-based provider of streamlining and support services for drug developers, has agreed to acquire SSCI Inc., a West Lafayette, Ind.–based solid state chemistry company. No financial terms were disclosed for the deal, which is expected to close within 30 days. Aptuit is backed by Welsh, Carson, Anderson & Stowe and Temasek Holdings.

PE Exits

Digg Inc., a San Francisco-based provider of online news/blog rating services, entered into possible acquisition talks with such suitors as News Corp., according to Tech Crunch. A deal seems unlikely, however, as none of the offers reached a $150 million bottom threshold. The result is that Digg likely will seek additional VC funding. It already has raised around $3 million from firms like Greylock and Omidyar Network.

Firms & Funds

The Aurora Funds of Durham, N.C. and The Trelys Funds of Columbia, S.C. have agreed to merge, in order to form a single early-stage VC firm focused on companies in the Southeastern U.S.

Barclays Capital has bought a 40% stake in NGP Energy Capital Management, an Irving, Texas-based private equity firm focused on the energy market. No financial terms were disclosed.

The Carlyle Group has secured over $430 million for its $1 billion-targeted infrastructure fund, according to regulatory filings.

Pala Investments of Switzerland has raised $900 million for a multi-strategy fund focused on the mining industry. It will use private equity, VC and hedge fund strategies, and is run by former executives of Goldman Sachs and Russia-based OAO Mechel.

The Altira Group of Denver has raised $94 million for its fifth energy-focused VC fund, according to a regulatory filing. Limited partners include Leland Stanford Junior University, Andrew W. Mellon Foundation and Park Street Capital.

Human Resources

Jeffrey Halpern has joined Credit Suisse as head of market risk management for multi-manager portfolios for alternative investments. He previously was head of risk management with Moore Capital Management.