PE Week Wire, Sept. 21, 2006

First up is yesterday’s lament that former Gillette chief Jim Kilts got a plum private equity gig. Specifically, I oppose Kilts accepting a $165 million golden parachute, when his brokered sale of Gillette to P&G resulted in countless layoffs and plant closures. Karan writes: “I think your words on Jim Kilts are a tad unfair.You say that he made himself rich while he made others poor. Okay that may be true, but he also made a lot of other people rich or richer. Don’t get me wrong — there are a lot of questionable PE deals and situations where people get paid for creating little value — but I don’t think Jim Kilts falls under this umbrella.He turned Gilette around.Are you going to write bad things about people who make themselves rich, improve things for consumers, but in turn put other companies out of business?” Ralph adds: “Kilts was hired to create stockholder value.He did that in spades. That is what he was paid for.”

I agree Ralph, which is why he earned a hefty salary while serving as CEO. But the $165 million package gets paid on his way out, when he is no longer creating anything. Who benefits other than Kilts himself? That deal is the labor equivalent of blood money, as it was only “earned” by agreeing to put other people out of work. Does a CEO have no responsibility to his employees? Could he have not used some of the $165 million to help out ex-Gillette workers? Karan, your point is well taken. But I believe there is a difference between putting other companies out of business by growing your own company (thus adding jobs), and taking an obscene payout that directly leads to the suffering of others.

A former UBS pro writes: “You forgot to mention that Kilts was hired by his buddy Blair Effron, who had been Gillette’s coverage banker for years at UBS. He was pretty hands-on, which is uncommon for a group head… perhaps this job is just returning a favor for a high-paying mandate.” And then there is K: “Three investment bankers and a greedy CEO without any real private equity experience between them. Sounds like cocktail party rock-stars that think highly of themselves but no real experience. Kind of group I love to hate.”

*** Moving on last week’s discussion of Spark Capital investing in “late night entertainment” company TwistBox. Alex writes: “One thing to keep in mind is that pension funds don’t actually have the legalground to choose non-universal moralities over returns. They have a legalfiduciary duty to the fund and its constituents to make the best investment decisions and generate the best returns possible. Now, the folks that oversee those professionals may decide to make those type of moral or political choices (for example,a state government may decide to mandate that its pensionmaynot invest in acertain country like Iran or Syria), but without those types of requirements placed on the investment professionals, they should always be choosing return.”

Rick asks: “How do Sharia-compliant LPs deal with leverage and interest in light of the Muslim proscription against lending/borrowing money? It seems to me that there’s almost no US fund or portfolio company that would be truly compliant.” Good question. Anyone have an answer?

*** Andy noticed an unusual participant in the recent $60 million Series D round for Amicus Therapeutics: “Interesting to see Och-Ziff in the middle of that venture group doing the Amicus Therapeutics deal.I’m sure they are expecting the venture returns like everyone else in the group, but for them to be a long term holder there must be something else.Market disrupting technology that will influence a long or shorttrading position in a public company? Key view on research that may have similar implications? Always interesting when hedge funds nose around venture capital deals.”

*** Shawna asks: “I know you are a Boston guy, but are you ever returning to the West Coast (other than weddings in LA)?” Yup. I’ll be in Portland, Oregon on October 25 for the Venture Northwest event, where I’ll do a “keynote interview” of John Connors, the Ignition Partners VC who previously was CFO of Microsoft. Also, I’ll be in San Fran on Nov. 6-7 for Buyouts Symposium West. Hope to see some of you there…

*** Finally, are you an MBA candidate who runs your school’s private equity and/or venture captial club? If so, please drop me an email. I’m preparing something you might be interested in…

Top Three

Warner Chilcott, a Rockaway, N.J.-based drug company focused on women’s healthcare and dermatology, priced 70.6 million common shares at $15 per share (below $17-$19 range), for an IPO take of approximately $1.06 billion. It plans to trade on the Nasdaq under ticker symbol WCRX, while Goldman Sachs served as lead underwriter. The company was taken private in early 2005 for $3.1 billion by a private equity consortium that included Bain Capital, DLJ Merchant Banking Partners, JPMorgan Partners and Thomas H. Lee Partners.

Lone Star Funds has acquired B-Line LLC, a Seattle-based specialty finance firm, from Golden Gate Capital. No financial terms were disclosed.

Knight Energy Group LLC has paid $165 million to acquire a series of producing and undeveloped oil and gas properties, located primarily in Oklahoma and Texas. Financing for the deal was led by Greenhill Capital Partners, with Reservoir Capital Partners and RCH Energy Opportunity Fund also participating.

VC Deals

Ideal Image Development Inc., a Tampa, Fla.-based provider of laser hair removal services, has raised $16 million in private equity and debt financing. H.I.G. Capital led the equity tranche, while Orix Venture Finance provided the debt.

MODASolutions Inc., a Kanata, Ontario-based provider of alternative payment solutions, has raised US$11 million in second-round funding. Celtic House Venture Partners and Propulsion Ventures co-led the deal, and were joined by return backers BDC Venture Capital and the Ottawa Angel Alliance.

Seventymm Services Pty Ltd., an Bangalore, India-based online movie rental company, has raised $7 million in second-round funding. Matrix Partners led the deal, and was joined by return backer Draper Fisher Jurvetson.

Packetmotion Inc., a San Jose, Calif.-based provider of enterprise security software, has raised $5.97 million in Series B-1 funding, according to a regulatory filing. Return backers include Onset Venture Partners, Intel Capital and Mohr, Davidow Ventures.

Vignani Technologies Pvt Ltd., an India-based engineering services provider, has raised $4 million in first-round funding from Intel Capital, Jafco and KT Ventures.

Abla-Tx Inc., a Boulder, Colo.-based developer of software-based algorithms to monitor thermal ablation of tumors, has secured $2 million of a $2.5 million Series B round, according to a regulatory filing. Backers include Flagship Ventures and Sequel Venture Partners.

Buyout Deals

Morgenthaler Partners has acquired Mark Andy Inc. from Dover Corp. (NYSE: DOV) for an undisclosed amount. Madison Capital Funding led the leverage tranche, with Hancock Capital Management also participating. Mark Andy is a St. Louis-based manufacturer of narrow-web printing equipment.

Incisive Media PLC, a listed UK-based business information publisher, is recommending a Gbp199 million cash offer from Apax Partners.

Emigrant Capital has agreed to acquire Next Proteins Inc.’s protein bar business, in partnership with the business’ management. No financial terms were disclosed.

K&K Iron Works Inc., a Chicago-based engineering firm that fabricates and erects structural steel components, has raised an undisclosed amount of private equity funding from H.I.G. Capital and company founders.

PE-Backed IPOs

Riverbed Technology Inc., a San Francisco-based provider of wide area network performance software, priced 8.4 million common shares at $9.75 per share (above $7-$8.50 range), for an IPO take of $81.9 million. It plans to trade on the Nasdaq under ticker symbol RVBD, while Goldman Sachs served as lead underwriter. The company had raised $56.6 million in VC funding since its 2002 inception, from firms like Accel Partners, Lightspeed Venture Partners, UT Partners, Meritech Capital Partners and Goldman Sachs.

Home Diagnostics Inc., a Ft. Lauderdale, Fla.-based provider of blood glucose monitoring systems and disposable supplies for diabetics, priced 6.6 million common shares at $12 per share (below $14-$16 range), for an IPO take of approximately $79.19 million. It plans to trade on the Nasdaq under ticker symbol HDIX, while JPMorgan and Piper Jaffray served as co-lead underwriters. Shareholders include Albion Investors and Medical Growth Partners.

Paradigm Ltd., a Cayman Islands-based provider of enterprise software for the global oil and gas exploration and production market, has filed to raise $200 million via an IPO of common stock. It plans to trade on the Nasdaq, with Lehman Brothers, UBS and Banc of America Securities serving as co-lead underwriters. Fox Paine holds a 92.3% pre-IPO position.

Miasole Inc., a San Jose, Calif.-based manufacturer of thin-film solar cells, hopes to price an IPO within 12 to 18 months, according to a CNet interview with company CEO David Pearce. The company has raised over $21 million in VC funding from firms like Kleiner Perkins Caufield & Byers, VantagePoint Venture Partners, Firelake Strategic Technology Fund, Garage Technology Ventures and Nippon Kouatsu Electric Company.

PE-Backed M&A

SecureWorks Inc. of Atlanta and LURHQ Corp. of Myrtle Beach, S.C. of have merged, in order to form a single provider of managed information security services. No financial terms were disclosed. SecureWorks has raised around $30 million in VC funding from firms like Alliance Technology Ventures, GE Equity, Mellon Ventures, Noro-Moseley Partners and SBK Capital. LURHQ was backed by Frontier Capital.

Central American Capital Group has acquired a 49.9% stake in Amnet Telecommunications Holdings Ltd., which provides cable television and broadband Internet access in El Salvador, Costa Rica and Honduras. No financial terms were disclosed. CACG was formed as an acquisition platform by MesoAmerica of Costa Rica, with the Kazma family participating on the Amnet deal.

Pentaho Corp., an Orlando, Fla.-based provider of open-source business intelligence software, has acquired the Weka open source data mining project developed by the University of Waikato in New Zealand. No financial terms were disclosed. Pentaho has raised $13 million in VC funding from firms like Index Ventures and New Enterprise Associates.

Frontier Drilling, a Houston, Texas-based provider of offshore drilling and production services for the oil industry, has agreed to acquire and refurbish the Transocean Explorer, a second-generation semisubmersible drilling rig currently capable of drilling in water depths of up to 1,250 feet. The deal is partially financed via a $27 million private equity infusion from Avista Capital Partners.

PE Exits

Telco Systems, a Foxboro, Mass.-based subsidiary of BATM Advanced Communications (London: BVC), has acquired the assets of Critical Telecom Corp., an Ottawa-based developer of broadband enabling platforms for IP-based access networks. No financial terms were disclosed. Critical Telecom has raised VC funding from BDC Venture Capital, Crown Ventures, Tellus Ventures and VenGrowth Capital.

CDW Corp. (Nasdaq: CDWC) has agreed to acquire Berbee Information Networks Corp., a Madison, Wis.-based independent IT solution provider, for $175 million in cash. Berbee had raised $17.5 million in 2000 from One Equity Partners and Baird Capital Partners, with Baird still listing Berbee as a portfolio company.

Firms & Funds

CVC Capital Partners is planning to raise €4 billion for its fifth fund, according to Bloomberg. The news comes just one year after CVC closed its fourth fund with €6 billion, and is being done to help CVC better avoid club deals.

Human Resources

Robert Willumstad, the former president and chief operating officer of Citigroup, has been named chairman of American International Group (AIG).

David McVeigh has joined The Blackstone Group as an executive director in the firm’s private equity unit. He previously was a partner with McKinsey & Co., where he led the firm’s North American Chemicals and Northeast Energy and Materials practices.

TVM Capital has promoted Bong Koh to principal. He is a current Kauffman Fellow who has completed an ophthalmology residency at Harvard Medical School (Mass Eye & Ear Infirmary) and internal medicine training at Stanford Medical School.

Royal Bank of Scotland said that Euan Hamilton, head of global leveraged finance and high yield, will relocate to the U.S., while John Hourican will join the team as head of leveraged finance and high yield for Europe and Asia-Pacific. Hourican currently is chief operating officer of RBS’ Global Banking & Markets group.

C. Kim Goodwin has joined Credit Suisse Asset Management as head of equities. She previously was CIO for equities at State Street Research Management.

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