PE Week Wire, Sept. 18, 2006


There will be no last-minute reconciliation between Pacific Corporate Group and the three managing directors who resigned last week over compensation concerns. The two sides spent much of the weekend in negotiations, but to no avail. I can’t say whether the salary demands of Monte Brem, Tara Blackburn and Steve Moseley were appropriate or excessive. In the end – from a client perspective — it doesn’t really matter. Expect a formal statement from PCG sometime later today.

So what now for PCG and the departed?

The former is sweating, and it should be. Public pensions often get derided in this space as dumb money, but few of them are stupid (NYC being a possible exception). Managers at Oregon, CalPERS, Illinois Teachers and elsewhere must have noticed by now that the only consistency at PCG is its ability to drive away top talent. The most important part of an LP-Advisor relationship is the actual relationship between individuals, and that is simply something that PCG clients can no longer trust to be maintained.

PCG plans to engage an executive search firm to find a replacement for Steve Moseley (co-investments), while it has promoted Michelle Davidson to take on Tara Blackburn’s responsibilities. Monte Brem will not be replaced, with his duties being taken over by a newly-formed management committee that includes Chris Bower, Mark Oemcke, Tom Keck and David Scopelliti. No final decisions yet in regards to European managing director Michael Russell, who may be the next to leave.

Brem, Blackburn and Moseley each signed non-compete clauses with PCG, so will be unable to work until those are satisfied. Some older PCG non-competes lasted six months, but I’m not sure if they’ve been changed since then. One possibility, however, is that the trio could offer PCG a deal whereby they help retain certain clients in the short-term, and then are allowed to transition said clients to a new firm early next year (Brem, Blackburn & Moseley Advisors?). Just speculation, of course, but it seems like a logical move for all involved.

*** The Rapt Inc. lawsuit has been settled out-of-court, according to PE Week. No details were disclosed. The case had involved two of three Rapt Inc. founders suing venture backers Accel Partners and Levensohn Venture Partners for fraud and breach of fiduciary duty.

*** A few months ago, I told you that three IT-focused partners had left TL Ventures to go out on their own. Today, they emerged as Guggenheim Venture Partners. Michael Burns, Javier Fernandez and Eric Rothfus will focused on networking, communications and components deals for the new firm, which will operate as an affiliate of Guggenheim Partners. Still no word on what this means for TL Ventures, which is down to just four managing directors (including its CFO).

*** Finally, an inappropriate personal plea: I am desperately searching for a hotel room in NYC for tomorrow night (UN meetings have taken up all the space). If you were supposed to be in NYC but are canceling, please let me know…

Top Three

Freescale Semiconductor Inc. (NYSE: FSL) has agreed to be acquired for $40 per share, for a total equity value of $17.6 billion. Blackstone Group is leading the buying consortium, which also includes The Carlyle Group, Permira Funds and Texas Pacific Group. A losing consortium included KKR, Apax, Bain Capital and Silver Lake Partners.

Oak Hill Capital Partners has agreed to sell Westlake, Ohio-based truck stop operator TravelCenters of America Inc. to Hospitality Properties Trust (NYSE: HPT) for approximately $1.9 billion. Oak hill acquired TA in November 2000.

Caspian Networks Inc., a San Jose, Calif.-based optical networking company, in on the block. Light Reading reported last week that Caspian had ceased operations, and multiple press reports today say that its VC backers are actively seeking acquirers. Caspian has raised around $325 million in total VC funding since its 1999 inception. This includes an $85 million Series C deal in 2000 at a $390 million post-money valuation, and subsequent million Series A recap at a $195 million post-money valuation. Caspian’s most recent deal valued the company at just $85 million. Current shareholders include ABN Amro, Alloy Ventures, Morgenthaler, New Enterprise Associates, Oak Inv*stment Partners and U.S. Venture Partners.

VC Deals

LifeSize Inc., an Austin, Texas-based provider of high-def videoconferencing systems, has raised $25 million in Series D funding. Lehman Brothers Venture Capital led the deal, and was joined by return backers Austin Ventures, Norwest Venture Partners, Redpoint Ventures, Sutter Hill Ventures and Pinnacle Ventures. The company has raised around $90 million in total VC funding since its 2003 inception.

OpSource Inc., a Santa Clara, Calif.-based developer of enterprise infrastructure operations platforms, has raised $20 million in private equity, venture leasing and credit lines. Intel Capital led the Series C equity tranche, and was joined by return backers ComVentures, Artiman Ventures, and Key Venture Partners. Western Technology Inv*stment provided the venture leasing, while Silicon Valley Bank extended an additional line of credit.

SchoolNet Inc., a New York-based provider of software for helping public school districts improve efficiency and academic achievement, has raised $19 million in Series C funding. Backers include The Carlyle Group, Hamilton Lane and the New York City Inv*stment Fund. Inc., a White Plains, N.Y.-based online retailer for automotive parts and accessories, has raised $17.88 million in new Series A funding, according to a regulatory filing. Backers include Polaris Venture Partners and MidMark Capital. has raised over $110 million in total VC funding since its 1999 inception, and last month acquired iCarz Inc.

PeakStream Inc., a Redwood City, Calif.-based provider of software application platforms to the high-performance computing market, has raised $17 million in Series B funding. Foundation Capital led the deal, and was joined by return backers Sequoia Capital and Kleiner Perkins Caufield & Byers.

Emphany Systems Inc., an East Palo Alto, Calif.-based developer of wireless sensor platform solutions, has raised $13.35 million in first-round funding, according to a regulatory filing. Backers include Sigma Partners, OVP Venture Partners, New Venture Partners and Intel Capital.

Multifamily Technology Solutions Inc. (a.k.a. MyNewPlace), a San Francisco-based Internet listing service for apartment building leasing, has raised $12 million in Series B funding. Sutter Hill Ventures and Split Rock Partners co-led the deal, and were joined by return backers like Trinity Ventures and United Dominion Realty Trust.

Tremor Network, a New York-based online ad sales company focused on in-banner and video ads, has raised $8.4 million in first-round funding. Masthead Venture Partners and Canaan Partners co-led the deal.

Peak Surgical Inc., a Palo Alto, Calif.-based surgical device startup, has raised around $8 million in Series B funding, according to a regulatory filing. Backers include Venrock Associates and Lehman Brothers.

Liquid Machines Inc., a Waltham, Mass.–based provider of enterprise rights management software, has raised $7.5 million in Series C funding. Goldman Sachs led the deal, and was joined by return backers Atlas Ventures, Draper Fisher Jurvetson and Masthead Ventures. The company has raised around $27 million in total VC funding since its 2001 inception.

Quantance Inc., a Sunnyvale, Calif.-based semiconductor startup, has secured $6.5 million of a $7 million Series A round, according to a regulatory filing. Backers include Camp Ventures, InterWest Partners and Granite Ventures.

Innotas Inc., an Oakland, Calif.-based provider of project portfolio management software, has raised $5.5 million in second-round funding. ArrowPath Venture Partners and ComVentures joined seed backer Cedar Circle.

Neopolitan Networks Inc., a Palo Alto, Calif.-based gigabit Ethernet network service provider, has secured $2.74 million of a $5 million Series A round, according to a regulatory filing. Backers included OakStone Venture Partners.

Buyout Deals

Nordwind Capital (Germany) and Value Management Services (Austria) have acquired electronics retailers Cosmos Elektrohandels GmbH and Niedermeyer for an undisclosed amount.

AWG PLC, owner of UK-based Anglian Water, reportedly will accept a £2.2 billion buyout offer from Canada Pension Plan and 3i Group.

Astorg Partners has completed its acquisition of a 51% stake in Groupe Staci, a France–based provider of logistic services for non-commercial products. No financial terms were disclosed. Sellers included Initiative & Finance, which sponsored a public-to-private buyout of Groupe Staci in 2004.

Marina Medical Billing Service Inc., a Cerritos, Calif.–based provider of revenue cycle management services for hospital emergency department physician groups, has completed a recapitalization. American Capital Strategies sponsored the deal, by providing a revolving credit facility, senior term loan, senior and junior subordinated debt and convertible preferred and common equity. No pricing terms were disclosed.

Tabi International Corp., a Toronto-based fashion retailer, has completed a recapitalization. CapitalSource provided $31 million in debt and equity as part of the deal, although further financial details were not disclosed. Tabi management now holds a 40% equity stake, with Catterton Partners continuing to hold “a significant portion” of the balance.

PE-Backed IPOs

ASAlliances Biofuels LLC, a Dallas-based development-stage ethanol company, has filed to raise $300 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol ASAB, with UBS and Lehman Brothers serving as co-lead underwriters. Shareholders include American Capital Strategies and Laminar Direct Capital (D.E. Shaw affiliate).

This week’s IPO calendar includes expected pricings from Hawkeye Holdings Inc., Omni Financial Services, Warner Chilcott Ltd., Home Diagnostics Inc., Riverbed Technology Inc., CommVault Systems Inc. and Divx Inc.

PE-Backed M&A

Geokinetics Inc., a Houston, Texas-based provider of seismic acquisition and data processing services to oil and gas companies onshore in the U.S. and in Canada, has raised $100 million from Avista Capital Partners. The new capital will be used to partially finance Geokinetics’ previously-announced $125 million acquisition of Grant Geophysical Inc. It came in the form of a $50 million senior bridge note (expected to be redeemed upon securing permanent debt funding) and a $50 million subordinated note (to be exchanged for convertible preferred stock, after senior bridge note redemption).

Acadia Healthcare Co., an Atlanta–based operator of inpatient psychiatric facilities, has acquired Kids Behavioral Health LLC, which includes behavioral healthcare adolescent treatment facilities in Pu’ukamalu, Hawaii and Butte, Montana. No financial terms were disclosed. Acadia Healthcare is a portfolio company of Waud Capital Partners.

Iron Triangle Payment Systems of Louisville, Ky. has acquired the Independent Sales Organization merchant processing businesses of BA Merchant Services. No financial terms were disclosed. Iron Triangle was formed by GTCR as an acquisition platform focused on the transaction processing and payment services

PE Exits

EMC Corp. is planning to acquire Network Intelligence Inc., according to CNet. The deal could be worth up to $250 million, including an initial payment of between $170 million and $175 million. Network Intelligence is a Westwood, Mass.-based provider of software that converts enterprise data into compliance and security information. It has raised around $25 million in VC funding from firms like Ascent Venture Partners, Bain Capital Ventures, Egan Managed Capital, Castile Ventures and JMI Equity.

H.I.G. Capital has sold Transtar Metals Holdings Inc., a Torrance, Calif.-based manager of an alloy supply chain for the aerospace and defense industries, to A.M. Castle & Co. (AMEX: CAS). No financial terms were disclosed. Edgeview Partners advised Transtar on the sale.

H.I.G. Capital has sold Cable Express Holding Co. to Dycom Industries Inc. (NYSE: DY) for $54.7 million (including $8.7 million of assumed debt). Cable Express is a Westerville, Ohio-based installer and maintainer of customer premise equipment.

Human Resources

Edward Chorle has joined Advanced Equities Financial Corp. as general counsel and executive vice president. He previously was with Shefsky & Froelich Ltd.