PE Week Wire, Sept. 29, 2006

Today represents the end of Q3 2006, which means that it’s time for a quick look back on the quarter’s PE-backed IPO activity. Buyout-backed offerings bested VC-backed offerings in terms of both volume and total raised (see chart below), but LBO-backed companies were not so fortunate in the aftermarket.

The average aftermarket performance for VC-backed IPOs was 22.73%, as of yesterday’s market close, with all but one company trading above its IPO offering price. This compares to a paltry 1.07% for the buyout-backed crowd, which had only two companies above IPO offering price (plus one at break-even). It also is important to note that the below totals include two companies that priced yesterday – Shutterfly (VC) and Bare Escentuals (BUY) – and that neither of them, therefore, are included in the aftermarket calculations.

Quarter No. of VC-Backed IPOs Total Raised

Q3 2005 19 $1.46 billion

Q4 2005 17 $1.57 billion

Q1 2006 10 $540.82 million

Q2 2006 19 $2.01 billion

Q3 2006 8 $934 million

Quarter No. of Buyout-Backed IPOs Total Raised

Q3 2005 23 $4.7 billion

Q4 2005 10 $1.38 billion

Q1 2006 17 $4.37 billion

Q2 2006 17 $4.37 billion

Q3 2006 9 $2.5 billion

*** I only attended a small part of yesterday’s Master Class on PE and VC Fund-Raising in New York, but I was there for a panel of placement agents and, of course, my keynote interview with Barry Gonder of Grove Street Advisors. A few, non-comprehensive takeaways for fund-raisers:

If you’ve got a large firm, don’t bring everyone to the LP meetings. LPs will be overwhelmed. The unofficial limit seems to be five.

That said, make sure that you have at least a couple of presenters, if you have an entire day of meetings. A solo presenter will be punch-drunk by the time 3pm comes around. As an addendum, don’t think that your managing partner must be the lead presenter. If someone else at your firm is a more effective evangelist, use him/her.

There may not be any underserved PE markets, in terms of geography, industry or strategy. I offered up Latin America and the Middle East, but Barry believed the political risks were too great. In other words, a market must deserve investment before we can consider the possibility that it’s underserved. This is why the PE market is not underserving manufacturers of Snorks merchandise. Or pet rock makers. Or companies that make pet rocks painted like Snorks. Or… Well, you get the idea.

Before you present to an LP, find out what they are looking for. This is best accomplished by asking other GPs who have presented to them, but also can be done via direct contact. Certain LPs don’t like Power Points, for example.

The best way to get an LPs attention is to be introduced by a GP that already has made money for that LP.

If an LP doesn’t invest but you raise the fund anyway, keep in touch with that LP for the next time around.

*** Quiz Answer: Two weeks ago, I asked if you could name the corporate bigshot-turned-VC who is planning to launch a niche fund under his firm’s banner. Your hint was to think retail. The answer is Tom Stemberg, the former Staples founder and CEO who currently toils as a venture partner with Highland Capital Partners. The details of his new retail fund – including its relationship to Highland — are not yet set, but expect more clarity within a month or two.

*** QuizTime: Keeping with the niche fund theme… Can you name the bi-coastal VC firm that is planning a traditional energy fund (i.e., not cleantech). Hint: The firm’s name is an unintentional giveaway.

Top Three

Athenagen Inc., a South San Francisco-based drug company focused on neurovascular diseases, has raised $50 million in Series B funding. Sanderling Ventures and Clarus Ventures co-led the deal, and were joined by Index Ventures and return backers Charter Life Sciences and Astellas Venture Management.

Sun Capital Partners has made a $9 per share bid for Talk America Holdings Inc. (Nasdaq: TALK), a New Hope, Pa.-based telecom company in which it already holds a 13.9% stake. Talk America last week had agreed to be acquired by Richmond, Va.-based Cavalier Telephone LLC for $8.10 per share. The Sun bid values Talk America at around $274.3 million.

Bare Escentuals Inc., a San Francisco-based cosmetics company, priced 16 million common shares at $22 per share ($15-$17 range), for an IPO take of approximately $352 million. It will trade on the Nasdaq under ticker symbol BARE, while Goldman Sachs and CIBC World Markets served as co-lead underwriters. Shareholders Berkshire Partners and JH Partners hold post-IPO positions of 38.2% and 25.8%, respectively.

VC Deals

CoAxia Inc. has signed a term sheet for an $11 million Series C funding round. Return backers include Canaan Partners, Prism Venture Partners, Affinity Capital Management and Baird Venture Partners. The Maple Grove, Minn.-based company develops perfusion augmentation therapies to improve outcomes for patients with cerebral ischemia resulting from stroke.

Twisted Pair Solutions Inc., a Seattle developer of IP-based communications software, has raised $9 million in its first round of institutional VC funding. Ignition Partners and Core Capital Partners co-led the deal, and were joined by Chart Venture Partners.

Group IV Semiconductor, an Ottawa-based developer of “silicon light-bulbs,” has raised Cnd$9.1 million from Khosla Ventures, BDC Capital, EnCana Corp. and the Sustainable Development Technology Canada initiative.

ObjectVideo Inc., a Reston, Va.-based provider of video processing software for physical security applications, has raised $8 million in Series E funding, according to a regulatory filing. Backers include ABS Ventures, CMGI @Ventures, Novak Biddle Venture Partners and Updata Partners.

Fotolog Inc., a New York-based photo blogging community, has raised $4.1 million in Series C funding, according to a regulatory filing. Return backers include 3i Group and BV Capital.

Kurtosys Systems Inc., a New York-based provider of financial reporting software and services, has secured $3.4 million of a $5.15 million Series A deal led by True Ventures, according to a regulatory filing.

DoublePositive Marketing Group Inc., a Baltimore-based provider of sales lead generation solutions, has raised $2.7 million in Series B funding. The Grosnevor Funds led the deal, and were joined by return backers WWC Capital Group, Inner Harbor Brothers ( founders) and Stein Kretsinger (former senior executive).

ForteMedia Inc., a Cupertino, Calif.-based provider of voice processing technology for automobile, PC and portable devices, has raised an undisclosed amount of strategic funding from Intel Capital. Existing ForteMedia shareholders include iGlobe Partners, Marvell Semiconductor, Pac-Link Management and UMC Capital.

Buyout Deals

GATX Corp. (NYSE: GMT) has agreed to sell most of its aircraft leasing business to Och Ziff Capital Management and Macquarie Bank for approximately $1.5 billion.

Lone Star Funds has agreed to acquire Japanese lender Korakuen Finance Co. from Tokyyo Dome Corp. for approximately $429 million.

The Riverside Co. has acquired It’s Just Lunch International, a Palm Desert, Calif.–based franchisor of matchmaking and dating services. No financial terms were disclosed for the deal, which also included participation from company management.

PE-Backed IPOs

Shutterfly Inc., a Redwood City, Calif.-based provider of online digital photo services, priced 5.8 million common shares at $15 per share ($13-$15 range), for an IPO take of approximately $87 million. It will trade on the Nasdaq under ticker symbol SFLY, while JPMorgan served as lead underwriter. The company raised around $67 million in total VC funding from firms like Mohr, Davidow Ventures, Sutter Hill Ventures, Granite Ventures and Jim Clark’s Monaco Ventures.

Altra Holdings Inc., a Quincy, Mass.-based provider of mechanical power transmission and motion control products, has filed to raise $172.5 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol AIMC, with Merrill Lynch and Wachovia Securities serving as co-lead underwriters. Genstar Capital is Altra’s majority shareholder, with Caisse de dépôt et placement du Québec also holding a significant stake.

Animal Health International Inc. (a.k.a. Walco), a Westlake, Texas-based distributor of animal health products in the U.S., has filed to raise $155.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol AHII, with JPMorgan serving as lead underwriter. Charlesbank Capital Partners holds a 76.4% pre-IPO position.

Mellanox Technologies Inc., a Santa Clara, Calif.-based provider of interconnect solutions for servers, storage andinfrastructure equipment, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol MLNX, with Credit Suisse and JPMorgan serving as co-lead underwriters. The company has raised nearly $90 million in VC funding since its 1999 inception, from firms like Intel Capital, Sequoia Capital, U.S. Venture Partners, Jerusalem Global Ventures and Walden Israel.

PE-Backed M&A

Zavata Inc. (f.k.a. Integreo Inc.), an Atlanta-based provider of BPO solutions for the healthcare market, has acquired Accordis Inc., a Princeton, N.J.-based provider of business office services for hospitals and emergency transport agencies. No financial terms were disclosed. Zavata has raised around $36 million in VC funding from firms like BV-Cornerstone Ventures, Mellon Ventures, Petra Capital Partners and Sequoia Capital India.

PE Exits

3i Group has sold its minority stake in Vibration Technology Ltd. (Vibtech) to Sercel, a division of Compagnie General de Geophysique. 3i received £6 million from the sale, after having invested a total of £3 million. Vibtech is a UK-based provider of wireless solutions for the oil, gas and mineral exploration sector.

Firms & Funds

ECM Equity Capital Management of Germany reportedly has closed its second mid-market private equity fund with €250 million in capital commitments.

Human Resources

Mark Denomme and Kevin Grossman have joined Hercules Technology Growth Capital as managing directors. Denomme will work out of Boston, and previously was a senior vice president with Brown Brothers Harriman. Grossman will work out of Boulder, Colo., and was a senior vice president and senior lender in Silicon Valley Bank’s Colorado office.


Corrections: Yesterday’s edition incorrectly identified a public share offering from Eagle Test Systems as an IPO. It was a secondary offering. Also, Wednesday’s edition incorrectly reported that Rutland Plastic Technologies was based in the UK. It actually is based in Charlotte, NC.