PE Week Wire: Thurs., April 12, 2007

Curt Schilling wants $48 million. And it has nothing to do with a possible contract extension from the Red Sox. Instead, it’s for a videogame startup he founded last year called 38 Studios. If successful, it would be the largest-ever first round funding for a gaming company.

38 Games is developing online multiplayer games, with initial products that will incorporate storylines from author R.A. Salvatore and visuals from comic book icon Todd MacFarlane. Not much more is known about the Maynard, Mass.-based company, except that its team includes vets from Midway Games, Hasbro and Disney.

By all accounts, Schilling seems to be very involved in the company’s vision and operations. He’s met with a number of VCs over the past few months, and will be invaluable once there is a product to promote. He’s even launched a blog called 38 Pitches, which is designed to discuss both the company and baseball (it’s only discussed baseball so far). The downside to Schilling’s intense involvement, of course, is that he is a first-time entrepreneur who doesn’t yet know much about how venture capital works. More than one VC I’ve spoken with has come away with the impression that an investment would require quite a bit of “babysitting.” At the same time, almost all of them like the idea of hanging out with Curt Schilling, and respect the team. And since any respectable term sheet would include a request for box seats…

The big issue here is the round size. Game publishers typically raise single-digit or very low double-digit millions for their first round, and then raise more later. Turbine, for example, raised $15 million in a Series AA recap in 2003, and now has another $37 million in the bank. RealTime Worlds was launched with less than $2 million in 2004, and later scored $31 million from NEA.

So why is 38 Studios asking for $48 million at the outset? No idea, and company CEO Brett Close did not return my calls. All I can assume is that the company would prefer the increased flexibility of a large bank account, and thinks VCs will be willing to invest at what is basically a Series B or Series C valuation. What remains to be seen is if the lure of a baseball superstar can overcome what would be typical VC angst at such an abnormal transaction.

Top Three

CVC has abandoned its attempt to acquire UK supermarket chain J Sainsbury PLC, following the prior pullout of consortium partners KKR, Blackstone and TPG.

Comcast Corp. (Nasdaq: CMCSA) has agreed to acquire Fandango Inc., a Los Angeles-based movie ticket reseller via the Internet, telephone or mobile device. No financial terms were disclosed for the deal, which is expected to close later this quarter. Fandango has raised around $61 million in VC funding since 2000, from firms like Accretive Technology Partners, Cinemark, General Atlantic, Lowes Corp. and Technology Crossover Ventures. It was advised on the sale by Banc of America Securities.

Sun Capital Partners has closed its fifth fund with $6 billion in capital commitments. The Boca Raton, Fla.-based firm originally went to market with a $4 billion target and a 25% carry. Sun’s prior fund closed on $1.5 billion in 2005.

VC Deals

Ecrio Inc., a Cupertino, Calif.-based provider of real-time communications software for mobile phones, has secured $14.5 million of a $25 million Series C-1 round, according to a regulatory filing. Backers include NTT DoCoMo, Nexit Ventures and CIR Ventures.

OnRequest Images, a Seattle-based provider of custom imagery, has raised $9 million in Series C funding. Menlo Ventures was joined by return backers Maveron and Frazier Technology Ventures.

Right Hemisphere, a Fremont, Calif.-based provider of visual product communication and collaboration solutions, has raised an undisclosed amount of strategic funding from SAP Ventures.

Octopz Inc., a Toronto-based developer of an on-demand online collaboration software platform to business users, has raised an undisclosed amount of venture funding from GrowthWorks Commercialization Fund.

Buyout Deals

Airline Partners Australia, the private equity consortium bidding on Qantas Airways, has modified its conditions in order to sidestep skeptical shareholders. The group reduced its acceptance requirement from 90% to 70%, and extended the closing date by 14 days to May 4. The current offer is Au$5.45 per share, which would value Qantas at around Au$10.82 billion. Bidders include TPG, Macquarie Bank and Allco Finance Group.

MedImmune Inc. (Nasdaq: MEDI) has retained Goldman Sachs to explore strategic alternatives that could include a sale of the company. The move comes after MedImmune received “indications of interest by major pharmaceutical companies, coupled with recent expressions by certain stockholders of dissatisfaction with the company’s short-term stock price performance.” MedImmune’s market cap was approximately $9 billion at market close yesterday.

Magna International confirmed that it is in talks with Onex about making a joint bid for Chrysler, according to The Globe & Mail.

NovaStar Financial Inc. (NYSE: NFI), a Kansas City-based residential mortgage lender, has retained Deutsche Bank to help it explore strategic alternatives, including a possible sale of the company. The company’s market cap is around $188 million. In related news, Wachovia Capital Markets has arranged an additional $100 million financing facility for NewStar.

ManorCare Inc. (NYSE: HCR), a Toledo, Ohio-based nursing home operator, has retained JPMorgan to explore strategic alternatives, including a possible sale of the company. The company’s current market cap is just shy of $4.5 billion.

Enhanced Equity Fund has completed a recapitalization of PrePak Systems Inc., a Cookeville, Tenn.–based contract packaging organization for the pharmaceutical market. The deal includes $11.5 million in senior secured notes from Technology Investment Capital Corp.

PE-Backed IPOs

This month’s remaining IPO calendar includes expected pricings from Comverge Inc. (4/12), Tailwind Financial (4/12), Cinemark Holdings (4/23), OceanFreight Inc. (4/24), Ocean Power Technologies (4/24), MetroPCS Communications (4/25), Pharmasset Inc. (4/25), CardioMEMS (4/25) and Edenor (4/25).

PE-Backed M&A

Entropic Communications Inc., a San Diego-based provider of home networking for digital entertainment, has agreed to acquire RF Magic Inc., a San Diego–based developer of RF systems-on-a-chip.No financial terms were disclosed. The companies share fourventure backers: Anthem Venture Partners, CMEA Ventures, Comcast Interactive Capital and Revolution Ventures. Entropic has raised over $75 million in total VC funding since 2001, from firms like Anthem, CMEA, Comcast, Revolution, Cisco Systems, Intel Capital, Liberty Associated Partners, Mission Ventures, Motorola Ventures, Panasonic Ventures, Redpoint Ventures, Time Warner and YAS Broadband Ventures. RF Magic has raised around $60 million in total VC funding, with a most recent post-money valuation of $90 million. Backers include Anthem, CMEA, Comcast, Revolution, Conexant Systems, Finaventures, Granite Ventures, Hamilton BioVentures, RPM Ventures, STMicroelectronics and TI Ventrues.

The Frank Gates Cos. of Columbus, Ohio and Attenta of Birmingham, Ala. last month merged into a single risk management company called Risk Management Solutions Inc. The deal was financed via a $52.5 million equity investment from KRG Capital Partners, which will hold a controlling interest.

Forbes Media has acquired, a website for investor education. No financial terms were disclosed. Forbes Media was formed last summer by Forbes and Elevation Partners.

Warner Music Group overvalued UK rival EMI when it bid 320 pence per share last year, according Scott Sperling, co-president of WMG shareholder Thomas H. Lee Partners. Speaking at a Reuters-sponsored conference in New York yesterday, Sperling said that WMG still was interested in merging with EMI, but at a significantly lower price.

JetDirect Aviation LLC has agreed to acquire fellow private jet company Sentient Jet Inc. No financial terms were disclosed. JetDirect shareholders include CD Ventures, Argosy Capital, ABS Capital Partners, Brantley Partners, HSBC and AIG.

PE Exits

ArcLight Capital Partners and Competitive Power Ventures have agreed to sell CPV Wind Ventures LLC to Spain-based Iberdrola SA. No financial terms were disclosed for the deal, which is expected to close early next month. CPV Wind owns a portfolio of wind power projects totaling 3,500 megawatts across 15 states. It also has a contract for a large block of General Electric wind turbines to support the development portfolio.

American Capital Strategies has sold Kingway to Unarco, a wholly-owned subsidiary of The Renco Group. No financial terms were disclosed. Kingway is a Lewisville, Texas-based manufacturer of industrial storage rack systems.

Linsalata Capital Partners has agreed to sell Adorn LLC to Patrick Industries Inc. (Nasdaq: PATK). No financial terms were disclosed. Adorn is an Elkhart, Ind.-based maker of interior components to the recreational vehicle and manufactured housing industries.

Firms & Funds

3i Group and India Infrastructure Finance Company Ltd. (IIFCL) have formed a strategic partnership to provide equity and debt financing for infrastructure projects in India. No financial terms were disclosed.

Valor Equity Partners of Chicago is raising up to $200 million for its second fund, according to a regulatory filing. The lower-middle-market firm raised $120 million for its inaugural fund in 2002.

Brantley Capital Corp., a publicly-traded business development company, has agreed to liquidate by selling substantially all of its investment assets to Venture Capital Fund of America III.