PE Week Wire, Oct. 5, 2006

There have been many critics of the recent boom in SPAC filings, particularly given that the asset class is the historical home of hucksters and con artists. After all, these vehicles literally have the words “blank check” in their S-1 filings.

But it finally may be time to reign in the catcalls, since many respected investors are using SPACs to sidestep what has become a very difficult IPO environment for small companies (particularly for small medical companies). The latest example came yesterday, when Ithaka Acquisition Corp. (OTC BB: ITHK) agreed to acquire Alsius Corp., an Irvine, Calif.-based developer of catheter products to control patient temperature in hospital critical care settings.

Alsius competitors include Radiant Medical, InnerCool Therapies, ice cubes and heat lamps. It had filed for a $100 million IPO in April, then received and responded to some SEC comments and finally was told by its bankers to wait until fall to attempt pricing. During that waiting period, Alsius was introduced to Ithaka and eventually opted to do the deal – even though it resulted in a “crushing” of its VC valuation.

Paul Brooke, a co-founder of Ithaka and a venture partner with MPM Capital, says that SPACs are “a mechanism that can insert themselves into the process for small medical companies that are ready to become public, but which cannot because the IPO mechanism is broken.” Brooke believes that this break has been caused by many factors, including: (1) The Spitzer-induced Chinese wall between research analysts (who understand med-tech) and bankers (who don’t); and (2) The fact that hedge funds are now playing a much larger role in IPO pricings, at the expense of more patient mutual funds.

There is certainly an argument to be made that companies like Alsius shouldn’t be going public in the first place, particularly if they can’t make a profit after more than a decade in business and nearly $100 million in VC funding. But both Brooke and Alsius CFO Brett Scott insist that such a move is critical to the company’s growth, since it provides certain financial options that would not be available otherwise (no preferences, for example).

More of these deals are certainly coming, at least judging by the continuing parade of new SPAC offerings from established VCs and PR pros. The ultimate test, however, will be twofold. First, do the acquired companies succeed? Second, do VCs have enough faith in SPACs to continue funding early-stage med-tech companies that have dwindling opportunities to go public by traditional means?

*** I’m worried that this column is beginning to resemble PE Consultants in Trouble, an unpopular straight-to-video flick from 1983. But since the material keeps coming, I’ll keep reporting it.

Today’s news involves Aldus Equity Partners, a Dallas-based shop founded in 1998. Sources tell me that Aldus’ partners have effectively ousted firm founder Saul Meyer, and now are in the process of informing clients. I’m getting muddled tales as to the specific backroom politics, so will hold off until there is something more concrete. Both Meyer and an Aldus spokesman declined comment. Ditto for certain Aldus clients like Wal-Mart.

This seems to be a reverse negative of the Pacific Corporate Group situation, since the Aldus partners gained firm control at the founder’s expense (and only one person is leaving, compared to four). But it is worth noting that the two firms share a few clients, including the beleaguered New York City public pension systems. I really can’t make this stuff up…

*** The Boston Globe is keeping tabs on an odd story about Richard Garnick, a top Keane Inc. executive who believes he was fired for discussing possible job opportunities with The Carlyle Group.

Garnick was viewed as a possible CEO candidate at Keane, but was terminated for allegedly violating Keane’s travel policy and having unauthorized communications. At issue – according to Garnick – was the expensing of a one-day trip to Washington DC, in which Garnick both conducted company business and also discussed a possible job with Carlyle, were the Keane CEO gig to fall through. Garnick is now suing for defamation, breach of contract and invasion of privacy.

I don’t know the law on this, but if everyone who does what Garnick did was fired, the corporate unemployment rate would skyrocket.

Top Three

Amsterdam Molecular Therapeutics BV, a Dutch gene therapy company, has raised €22 million in Series A funding. ABN Amro Capital led the deal, and was joined by Advent Venture Partners, Gilde Healthcare Partners and Crédit Agricole Private Equity.

Merrill Lynch Global Private Equity has acquired Grupo Convermex SA de CV from JPMorgan Partners for an undisclosed amount. Grupo Convermex is a Mexican producer and distributor of plastic disposable tableware products.

Home Inns & Hotels Management Inc., an operator of an economy hotel chain in China, has filed for an $80 million IPO. It plans to trade on the Nasdaq under ticker symbol HMIN, with Credit Suisse and Merrill Lynch serving as co-lead underwriters. Shareholders include Poly Victory Inv*stments Ltd., AsiaStar IT Fund, IDG Technology Ventures and Kangaroo Inv*stments LLC.

VC Deals

Tenby Pharma Inc., a Tampa, Fla.-based drug startup, has raised $25 million in Series A funding, according to a regulatory filing. Backers include Avalon Ventures and Quintiles Transnational & PharmaBio Development.

EnVivo Pharmaceuticals Inc., a Watertown, Mass.-based drug company focused on neurodegenerative diseases, has raised $24 million in Series C funding led by Fidelity Biosciences.

Santhera Pharmaceuticals, a Swiss drug company focused on neuromuscular diseases, has raised €10 million in Series C funding. It also has the option to call down an additional €5 million. NGN Capital led the deal, and was joined by fellow return backers Carnegie Asset Management, GIMV, Dow Chemical, Clariden Biotechnology Fund and 3i Group. New shareholders include NeoMed Management, Schroder Investment Management SA and BioMedinvest.

Yelp Inc., a San Francisco-based provider of localized social networking and directory services, has raised $10 million in second-round funding from Benchmark Capital. It raised $5 million last year in a Series A round led by Bessemer Venture Partners.

Wyplay SAS, a France-based developer of “all-in-one” home entertainment boxes, has raised €4 million from Sofinnova Partners.

Zannel Inc., a Menlo Park, Calif.-based mobile media startup, has raised $6 million in Series A funding co-led by U.S. Venture Partners and Palomar Ventures.

Prolacta Bioscience, a Monrovia, Calif.-based provider of specialty formulations of human milk for the premature and critically-ill infants, has raised $5 million in Series B funding. New backers include Arcturus Capital, DFJ Mercury, Philip Capital, Funk Ventures Capital and the Gideon Hixon Fund. Returning shareholders include DFJ Frontier, Draper Richards and Draper Associates.

Chip Estimate Corp., a Cupertino, Calif.-based provider of architectural-level chip planning solutions, has raised $3.5 million in second-round funding led by ITU Ventures.

Visual i|o, a Somerville, Mass.-based provider of visual analytics solutions for the enterprise, has raised $3 million from Logispring.

GroSolar, a White River Junction, Vt.-based solar integration firm, has raised $2.25 million in first-round funding. SJF Ventures led the deal, and was joined by Calvert Social Inv*stment Fund and Allco Financial Group.

DecImmune Therapeutics Inc., a Boston-based drug company focused on inflammation and autoimmunity, has raised $2.085 million in Series A funding, according to a regulatory filing. Backers include Amgen Ventures and HealthCare Ventures.

B5Media Inc., a Toronto-based blogging network, has raised US$2 million in VC funding from Brightspark Ventures and JLA Ventures.

CityVoter Inc., a Cambridge, Mass.-based developer of online city guides for media companies, has raised $1.1 million in Series A funding led by Tudor Ventures.

Buyout Deals

J.W. Childs Associates has acquired Atlanta-based specialty staffing firm EmployBridge Holding Co. from majority shareholder CGW Southeast Partners. No financial terms were disclosed for the deal, which included participation by senior EmployBridge management.

General Atlantic is among the private equity firms in talks to acquire listed HR software provider Northgate Information Solutions PLC, according to The Independent newspaper. The deal could be valued is excess of $1 billion, with the company confirming that it has received “a number of unsolicited approaches.”

Pfingsten Partners has acquired PowerVar Inc., a Waukegan, Ill.–based supplier of power quality control solutions for the medical instrumentation, computer, retail point-of-sale, industrial and audio/video markets. No financial terms were disclosed.

MSD Capital has acquired a majority interest in ValleyCrest Companies, a Calabasas, Calif.–based provider of landscaping services. No financial terms were disclosed for the deal, which results in ValleyCrest management retaining an equity position.

Creo Capital Partners of Los Angeles has acquired Mountain High Hosiery Ltd., a San Diego-based manufacturer of men’s, women’s and children’s hosiery. No financial terms were disclosed.

California Check Cashing Stores LLC, a retailer of “alternative” financial services like check-cashing and payroll advances, has raised an undisclosed amount of private equity funding from Golden Gate Capital.

Warburg Pincus reportedly has acquired an 18% position in Grupo Pinar, a Spanish property developer. No financial terms were disclosed.

PE-Backed IPOs

Comverge Inc., an East Hanover, N.J.-based provider of hardware and software to utilities, has filed for a $90 million IPO. It plans to trade on the Nasdaq under ticker symbol COMV, with Citigroup serving as lead underwriter. The company has raised nearly $40 million in VC funding from firms like Nth Power, EnerTech Capital Partners, Rockport Capital Partners, Norsk Hydro Ventures, Ridgewood Capital, Easton Hunt, Data Systems & Software Inc., Air Products & Chemicals Inc. and Partners for Growth.

First Mercury Financial Corp., a Southfield, Mich.-based provider of insurance products to the specialty commercial insurance markets, has set its proposed IPO terms to around 9.7 million common shares being offered at between $16 and $18 per share. It plans to trade on the NYSE under ticker symbol FMR, with JPMorgan and Keefe, Bruyette & Woods serving as co-lead underwriters. Glencoe Capital is the company’s majority shareholder.

PE-Backed M&A

Eicon Networks Corp. has completed its acquisition of Intel Corp.’s media & signalling business. Eicon also announced that it has changed its name to Dialogic Corp., and that it has raised an undisclosed amount of private funding from Investcorp Technology Ventures (equity lead) and Tennenbaum Capital Partners (equity and credit facility).

Serena Software Inc., a San Mateo, Calif.-based provider of change governance software, has agreed to acquire Pacific Edge Software Inc., a Bellevue, Wash.–based provider of project and portfolio management solutions. No financial terms were disclosed for the deal, which is expected to close later this month. Serena Software is a portfolio company of Silver Lake Partners, while Pacific Edge has raised over $44 million in VC funding from firms like Fluke Venture Partners, Northwest Venture Associates, Sequoia Capital, Stanford University, Foundation Capital, Dain Rauscher Corp. and Newbury Ventures.

Fonality Inc., a Culver City, Calif.-based provider of IP telephony systems for small and medium businesses, has acquired TrixBox, an online forum in which users can discuss open-source telephony and download Asterisk-based software. No financial terms were disclosed. Fonality raised $5 million in Series B funding last year led by Azure Capital Partners.

Transtar Industries Inc., a Walton Hills, Ohio-based distributor of auto aftermarket transmission repair partners, has acquired Atlanta-based APD Transmission Parts for an undisclosed amount. Transtar is a portfolio company of Linsalata Capital Partners.


Plexxikon Inc. of Berkley, Calif. has signed a strategic development and commercialization deal with Roche, which could be valued at upwards of $706 million. The deal includes two Plexxikon candidates: An investigational targeted cancer therapy which selectively inhibits B-Raf, a mutated form of the BRAF kinase gene; and an in vitro assay to screen for the presence of the B-Raf mutation in biological samples taken from patient tumors. Plexxikon has raised over $56 million in VC funding from firms like Advanced Technology Ventures, Alta Partners, CW Group, Astellas Venture Capital, GIMV, NIF Ventures, Pappas Ventures and Walden International.

Firms & Funds

Apax Partners is raising up to €700 million for its Apax France VII fund, according to a regulatory filing. It already has secured over €370 million in capital commitments.

Shamrock Capital Advisors has closed its second private equity fund with $311.5 million in capital commitments. The Burbank, Calif.-based firm focuses on lower and middle-market companies in the media and communications space. Examples include a leveraged buyout of Harlem Globetrotters International Inc. and a growth equity play for online lead-generation network NextWave Media Group.

Dunedin Capital Partners of Scotland has closed its second mid-market buyout fund with £250 million in capital commitments.

CTI Capital of Quebec has closed its CTI Life Sciences Fund with Cnd$100 million in capital commitments. The vehicle will provide venture capital to Canadian biotech, pharmaceutical and medical device companies. Limited partners include Caisse de dépôt et placement du Québec, the Solidarity Fund QFL/Fonds de solidarité FTQ, FIER Partners and the Régime de rentes du Mouvement Desjardins.

Human Resources

General Atlantic announced that William Ford will become the firm’s CEO, effective on Jan. 1, 2007. He had been named firm president in Feb. 2005, and also will remain investment committee chairman. Steven Denning will continue to serve as chairman, and as a member of various committees. In addition, managing director Rene Kern will become chair of the firm’s portfolio committee, while managing director Mark Dzialga will become deputy chair of the firm’s investment committee.

Clive Dolman and Alexis Dormandy have joined Candover as operations partners, a new position. Dolman previously served as CFO of former Candover portfolio companies Swissport (sold to Ferrovial in 2005) and European Rail Catering (sold to Rail Gourmet in 1997). Dormandy previously was chief marketing officer with Orange.

Brian Levinehas been promoted to senior vice president of mid-market I-bankValufinder Group.The firm also has hired David Schenkel has joined Valufinder as a vice president.

Pieter Smits has joined Main Capital Partners as an investment manager. He previously was a global account manager with Verizon Business.