PE Week Wire: Thurs., April 24, 2008

The sun is shining, the Celtics are cruising and I’m taking tomorrow off. In other words it’s time for some Thursday Throwback.

Most of the week’s email came in response to yesterday’s column, in which I bemoaned the mega-buyout world’s decision to keep raising larger funds in a smaller deal environment. My prompt was Warburg Pincus raising $15 billion, and it would seem that most of you believe I’ve got some sort of grudge.

Michael: “Why do you hate Warburg Pincus so much? Did they turn you down for a job or something?”

Gordon: “Why do you insist on using the ‘greed’ or ‘goldrush’ labels when a firm chooses to grow its business due to increased demand for its services? Obviously Warburg would not be in this position had it not grown successfully in the past – why do you assume that they cannot continue on this path? Would you label a manufacturing company or restaurateur as being greedy if they make a decision to expand their business? Were you being greedy by setting up peHub to take advantage of increased demand for your product?”

Jaime: “Why do liberals like you have such a problem with private equity firms that are successful? I’d bet that you’ll be professing your support for some legislation next year to limit how much profit private equity firms can generate before having to hand over 50% to Congress and the other 50% to labor unions.”

*** There are some less disparaging comments coming up, but what you just read was the vast majority of what I received. So let me state for the record: I don’t hate Warburg Pincus, nor do I have any animus toward any individual members of the firm. In fact, I have repeatedly praised Warburg Pincus for handing over 100% of its transaction fees to limited partners. Yesterday’s column reflected the culmination of a trend – a dangerous trend that I had hoped Warburg Pincus might help stem (because of its commendable independent streak). I stand by the column, but obviously respect your vociferous disapproval. Ok, back to the Throwback:

Jean-François: I see several reasons to raise more money now… You need the same, if not more, equity today to close the same deal compared to last year… USD denominated funds that are active outside the US need to compensate for the weak USD (after all, USD 15 billion is not even EUR 10 billion). To keep playing with EUR denominated funds, international USD funds need to raise more money… Some firms have also expanded (number of people, sectors covered, new geographies like Eastern Europe or Turkey), which should justify larger funds.”

LP William: “You forgot they need more equity capital because they can’t use much leverage. Of course why then pay 2 and 20? Wait, we paid 2 and 20 for leverage??? Deny Deny!”

Anon: While I agree with your premise of “what goes up must go down” in regards to purchase price and deal size, it does neglect the general lack of available leverage, which may force firms to inject a higher percentage of equity into a deal. This trend may mean that only the best companies get purchased as leverage will no longer make your return (gasp! – you actually need to buy good companies), but it also means more equity is needed for the same deal… All that said, I agree that these mega-funds are too big and have an ever shrinking universe (at least currently) of companies that fit their equity check size. Unfortunately, much like people “never got fired for buying IBM”, pension managers will never get fired for committing to Blackstone. However, they might if they commit to a first or second time $250.0 million fund, regardless of the return potential.

*** Share your own thoughts on this issue


New at peHUB

* peHUB First Read, including how to get fired from a job in finance. Plus, big day for Bessemer Venture Partners, with three exits (PA Semi, Sirtris Pharma and Gracenote).

* Is North Carolina the new limited partner nexus?

* Quiz Time. Who may be the next to (sort of) mimic Sequoia’s expansion plans. Worth noting that I wrote this before hearing of yet another big-name firm that is in the market for a new finance and operations partner who also will be straying from the VC path. The firm’s top dog denied in an email that it’s doing any such thing, but methinks he was parsing my words…

* Most people know that the Celtics’ principal owners are Wyc Grousbeck (Highland Capital Partners) and Steve Pagliuca (Bain Capital). But did you know that the limited partnership group also includes such names as TPG Capital’s David Bonderman, Tudor Investment Corp.’s Jim Pallotta and Accel Partners’ Jim Breyer? More names here, and a top on how to find them during a game…

Top Three

Silver Lake Sumeru has agreed to acquire i2, the investigative analysis and visualization software technology business of ChoicePoint Inc. (NYSE: CPS). The deal is valued at $185 million. Merrill Lynch and Wachovia are advising ChoicePoint on the deal.

Citigroup is in talk to sell Nikko Antfactory, a Japanese private equity and venture capital firm it acquired via its buyout of Nikko Cordial. R

Russell Read is stepping down as chief investment officer of CalPERS, the nation’s largest public pension fund. He had joined the system in June 2006, and plans to pursue investments in green technologies. No word on if he plans to do so individually, or as part of a larger institution. CalPERS said that Anne Stausboll will succeed Read on an interim basis.

VC Deals

Retail Convergence Inc., a Boston-based ecommerce conglomerate, has raised $25 million in Series A funding. Participants include Breakaway Ventures, New England Development, Mugar Investments and General Catalyst Partners. The company’s first addition was, and now has launched, an invitation-only private sale ecommerce site.

Capnia Inc., a Palo Alto, Calif.-based developer of therapeutic products using a medical gas delivery system, has secured $19.2 million of a $21.4 million Series C round, according to a regulatory filing. Return backers include Asset Management, Vivo Ventures and Teknoinvest.

Aldagen Inc., a Durham, N.C.-based developer of clinical-stage regenerative therapies, has raised $18.4 million in Series D funding. Return backers include Intersouth Partners, Tullis-Dickerson, Harbert Venture Partners and The Aurora Funds. It had previously raised over $46 million.

Audience, a Mountain View, Calif.-based provider of voice processing solutions, has raised $15 million in Series C funding. Return backers included NEA, Tallwood Venture Capital, Vulcan Capital and VentureTech Alliance. The company has now raised $45 million in total funding.

Silverpop, an Atlanta-based provider of on-demand marketing technology, has raised $15 million in new funding. D.E. Shaw led the round, and was joined by return backers like Draper Fisher Jurvetson. The company has now raised over $67 million in total VC funding since 1999.

Frontage Laboratories Inc., a Malvern, Pa.-based contract research organization for pharma and biotech companies, has raised $10 million in growth equity funding led by Baird Capital Partners Asia. Frontage has a facility in Shanghai.

RightScale, a Santa Barbara, Calif.-based provider of automated management platform for Internet cloud computing services, has raised $4.5 million in Series A funding from Benchmark Capital.

BeamExpress SA, a Swiss developer of vertical cavity surface-emitting laser technology, has raised $1.3 million in first-round funding from I-Source of France.

Buyout Deals

Agfa-Gevaert, a Belgian imaging technology group, reportedly has hired Lazard to help it explore strategic options.

Apax Partners has resumed its pursuit of German fashion house Escada AG, according to Financial Times Deutschland. Escada said on April 9 that it had been in negotiations with Apax for months, but that the firm was abandoning the effort. Today’s story, however, says that Apax may team up on a bid with Rustam Aksenenko, a Russian investor and holder of a 27% Escada ownership position.

The Blackstone Group reportedly is considering a buyout bid for Nordic IT services company TietoEnator, which earlier this week rejected a €1.1 billion offer from Nordic Capital.

HM Capital Partners has acquired TriDimension Energy, a Dallas-based oil and gas exploration company that focuses on finding oil in existing fields and redeveloping historic fields. No financial terms were disclosed.

Mid Europa Partners has agreed to acquire up to 100% of Centrum Medyczne, Poland’s third-largest private healthcare provider (by revenue). No financial terms were disclosed.

Welsh Carson Anderson & Stowe has merged three companies into a single entity that will provide land transportation services to the U.S. energy industry. The three companies are Ace Transportation Inc., Dynasty Transportation Inc. and Texas Hot Shot Co. No financial terms were disclosed.

PE Exits

Comptel (Helsinki: CTL1V) has acquired Axiom Systems, a UK-based software developer focused on the broadband fulfillment mark. No financial terms were disclosed. Axiom had £7.8 million in net sales last year, and had raised around $30 million in VC funding from firms like Geocapital Partners and HgCapital.

Firms & Funds

Hudson Ferry Capital has postponed fundraising for its debut vehicle, according to LBO Wire. The small-market buyout shop was formed in mid-2006, and began looking to raise $400 million. It held a $40 million first close last fall, from LPs like MassMutual, National City, Babson Capital and CIT Group. It plans to resume fundraising once it has completed a few new deals.

Sun European Partners has opened offices in both Paris and Frankfurt. The firm, an affiliate of Sun Capital Partners, originally launched in London four years ago.

Human Resources

Ronan Cunningham is stepping down as head of private equity for Ireland’s National Pensions Reserve Fund, and will join General Atlantic Partners, according to LBO Wire. He will start at GA this summer, and focus on investor relations. Prior to joining the Ireland pension, Cunningham was a London-based partner with Adams Street Partners.

Alyssa Morrisroe has joined Lincoln International as a vice president focused on the aerospace and defense markets. She previously was a vice president at Jeffries Quarterdeck.

Thomas Cresante has joined Blue Point Capital as an operating partner in the firm’s Seattle office. He previously was CEO of Special Devices Inc.

Michael Starkenburg, a onetime partner with Sprout Group, has joined Image Metrics as chief operating officer. Image Metrics develops computer-generated facial animation for video games and films.