PE Week Wire: Thurs., March 22, 2007

Running a bit late this morning, so just time for a few quick notes…

I had lunch yesterday with a couple of bankers who focus on currency foreign exchange related to private equity transactions. Both were European natives, so the question arose of why the European public seems so much less charitable toward private equity than does its U.S. counterpart. After all, each day’s European press carries a new story of proposed private equity regulation from one country or another, while the general attitude on this side of the Atlantic has been shocked awe. In fact, I’m don’t recall any member of Congress proposing a single piece of PE-related legislation (although there have been a number of state bills).

None of us could come up with a terribly good explanation for this fissure, particularly when one considers that PE is perhaps more institutionalized in Europe than in the U.S. – given all the publicly-traded funds over there. But here’s one possible culprit: Enron.

No, not the quasi-PE partnerships that Andy Fastow created – but the overall Enron experience as remembered in the collective American psyche. It was a very complicated story, but the simple abstract was: Enron executives cooked the books each quarter to meet or exceed Wall Street expectations, in order to artificially inflate their stock price. In other words, had Enron not been public, this would not have happened. This is not to excuse criminal malfeasance, but rather just to suggest that the episode made ordinary Americans just a bit more skeptical of public company motivations – while corporate Americans have become less enthralled due to all the post-Enron regulatory changes (SOX, etc.). Europeans obviously know the Enron story, but it doesn’t quite hit home the same way…

*** A kind of disturbing story related to the pending $19 billion buyout of Clear Channel by Bain Capital and Thomas H. Lee Partners. As we’ve previously discussed, the deal is being opposed by a number of major CC shareholders, who claim that the $37.60 per share pricetag is too low. One such shareholder is Highfields Capital Management, but Dow Jones today reports that Highfields’s opposition came only after having “briefly considered the possibility of the investment firm rolling a portion of its 5% stake into the deal, presumably in exchange for lending support.” It goes on to say that other current CC shareholders now are considering a similar offer.

Why is this disturbing? Because it implies that either: (A) LBO firms are essentially bribing CC shareholders in order to complete a deal; or (B) Institutional shareholders are essentially extorting LBO firms. Neither implication is positive for the continued governmental indifference referred to in the first item.

*** The National Venture Capital Association yesterday released its latest “Venture Impact” study (conducted by Global Insight), which claims that VC-backed company contribute 16.6% of U.S. GDP and 9% of the workforce. You can download all of the relevant data and charts here. It’s also worth pointing to a brief critique of the study by Paul Kedrosky, who suggests that much of this success is borne of VC artifacts like FedEx and Staples, which would probably have a very difficult time getting funded in today’s VC environment.

*** PwC just released a study that concludes that a majority of private equity pros expect the percentage of portfolio company dividend recaps to grow in the coming year, with most of that activity occurring in the middle-markets. I haven’t read through it all yet, but here’s one additional finding: “94% of respondents consider dividend recaps an important part of their liquidity strategies, and 52% consider recaps an alternative to an IPO, while 16% consider them an alternative to a strategic sale.” More on this at later today.

*** Not Safe for Work: A former VSP Capital pro directed me to the defunct firm’s onetime URL. Again, not safe for work – but childishly amusing considering everything that transpired:

Top Three

GI Partners has acquired Park Resorts from Close Brothers Private Equity and ABN AMro Capital for £440 million. Park Resorts was formed in May 2001, when Close Brothers 12 coastal caravan parks from Bourne Leisure for a total consideration of £46 million. It subsequently invested £20 million into redeveloping the parks, plus added four additional parks. In December 2004, Park Resorts was merged with GB Holiday Parks, which had just been acquired by ABN Amro Capital.

Glu Mobile Inc., a San Mateo, Calif.-based mobile game publisher, priced 7.3 million common shares for $11.50 per share ($10-$12 range), for an IPO take of approximately $84 million. The IPO gives Glu Mobile an initial market cap of around $327 million. It will trade on the Nasdaq under ticker symbol GLUU, while Goldman Sachs and Lehman Brothers served as co-lead underwriters. The company had raised around $57 million in VC funding since its 2001 inception as Sorrent, from firms like New Enterprise Associates, BA Venture Partners, Globespan Capital Partners, Granite Global Ventures and Sienna Ventures.

VC Deals

Legend Silicon Corp., a fabless semiconductor company that manufactures the core IC for digital broadcasting and broadband transmission, has raised $40 million in Series D funding led by Intel Capital. Legend has offices in both Silicon Valley and China, with past funding from Intel, Motorola Ventures, SUNeVision Holdings, Tsinghua Tongfang Co. and Dragon Venture.

ChemoCentryx Inc., a Mountain View, Calif.-based developer of oral drugs for autoimmune diseases, inflammatory diseases and oncology, has raised $29.84 million in Series D funding, according to a regulatory filing. Glaxo Group Ltd. was joined by return backers like Alta Partners, GIMV, HBM BioVentures and OrbiMed Advisors.

Pulmonx Inc., a Palo Alto, Calif.-based developer of medical devices for interventional pulmonology, has secured around $18.5 million of a $20.5 million Series B-1 round, according to a regulatory filing. MedVenture Associates was joined by return backers like Montreux Equity Partners.

ScanR Inc., a Palo Alto, Calif.-based company that enables camera phones and digital cameras to scan, copy and fax, has raised $8 million in Series B funding, according to a regulatory filing. Adobe Systems and JAIC American were joined by return backers Trinity Ventures and Thomvest International.

Azea Networks Ltd., a UK-based provider of optical networking solutions for submarines, has secured $6 million of a $15 million Series D round, according to a regulatory filing. TVM Capital and Lago Venture Fund were joined by return backers Accel Partners, Atlas Venture and Quester Management.

Quantcast Corp., a San Francisco-based Internet ratings startup, has raised around $5.7 million in Series A funding, according to a regulatory filing. Backers include The Founders Fund and Revolution Capital. The company is run by former SearchSpace CEO Konrad Feldman.

Teracent Inc., a Foster City, Calif.-based online advertising startup, has raised around $5 million in Series A funding led by New Enterprise Associates, according to a regulatory filing.

HipCricket, a Bellevue, Wash.-based mobile marketing firm, has raised $2 million in additional Series A funding. This brings the round total to $3 million, from Broadmark Capital and undisclosed angels.

Stromedix Inc., a Cambridge, Mass.-based tissue remodeling startup, has secured around $1 million of a $4.37 million Series A round, according to a regulatory filing. Backers include Atlas Venture and Frazier Healthcare Ventures.

Snowdon Inc., a New Brunswick, N.J.-based drug startup, has raised $500,000 from Foundation Venture Capital Group, a firm formed last year to support startups developing technology from the University of Medicine and Dentistry of New Jersey.

Kongregate, a San Francisco-based online gaming startup, has launched with an undisclosed amount of seed funding from angels like: Reid Hoffman, Joe Kraus, Jeff Clavier and Richard Wolpert.

Buyout Deals

Bertelsmann is considering a bid for Thomson Corp. subsidiary Thomson Learning, according to The Financial Times. Such a deal could be valued at up to $5 billion. Bertelsmann might partially finance the deal via a €1 billion private equity platform in announced yesterday, in partnership with Citigroup Private Equity and Morgan Stanley Principal Investments. (Thomson Corp. is the parent company of PE Week Wire publisher Thomson Financial).

CVC Capital Partners reportedly has teamed with Indian drug maker Aurobindo Pharma Ltd. in order to bid on Merck KGaA’s global generics business. Prior reports suggest that rival bids will come from Apax Partners/Bain Capital and KKR/Warburg Pincus. The sale is expected to generate between €4 billion and €5.5 billion.

Guardian Media Group reportedly will receive three bids for Trader Media, which publishes auto classified magazine Auto Trader and related online products. The deal is expected to be worth between Gbp1 billion and Gbp1.5 billion, with suitors including The Blackstone Group, Apax Partners and Cinven. Candover initially expressed interest, but dropped out earlier this year.

Deutsche Lufthansa and an unnamed U.S. private equity firm have requested financial information on Spanish airline carrier Iberia Lineas Aereas de Espana SA, according to El Pais. A separate news report suggested that TPG is searching for a Spanish partner in order to make a bid.

Riverlake Partners has acquired O’Currance Teleservices Inc., a Salt Lake City-based telemarketing company. No financial terms were disclosed, although LBO Wire reports that Riverlake committed around $6.5 million in equity while Fifth Street Capital arranged just under $10 million in senior debt.

Affiliated Computer Services Inc. (NYSE: ACS) has been hit with two shareholder lawsuits, related to its agreed-upon $6 billion buyout by Cerberus Capital Management and ACS founder and chairman Darwin Deason. The complaints argue that the company did not adequately search out the best possible price.

Black Diamond Capital Management and Brencourt Advisors have been named “stalking horse” bidders for Werner Holding Co., a bankrupt Greenville, Pa.-based manufacturer and distributor of ladders, climbing equipment and ladder accessories. The deal would provide Werner with an enterprise value of approximately $255.75 million.

NetStar-1 Inc., an IT solutions provider to government and commercial clients, has raised an undisclosed amount of private equity funding from Lake Capital.

PE-Backed IPOs

TiGenix NV, a Belgium based regenerative medicine company with a cartilage repair product in Phase III trials, priced eight million shares at €5 per share, for an IPO take of approximately €40 million. It has raised over $36 million in VC funding since its 2000 inception, from firms like Auriga Partners, Capricorn Venture Partners, Fortis Private Equity, Gemma Frisius Fonds, HSS Ventures, Partners @Venture and Societe Regtionale d’Investissement de Wallonie., a Chinese real estate website operator, is planning a $200 million IPO for later this year, according to a Dow Jones interview with company CEO Vincent Mo. The offering would be either in China or on the Nasdaq. Telstra Corp. of Australia holds a 51% ownership position in SouFun, while IDG Venture Capital holds a 14.7% stake. The remainder is held by Mo and company management.

PE-Backed M&A

NuVox Communications of Greenville, S.C. has agreed to merge with FDN Communications of Maitland, Fla., in order to form a single facilities-based communications provider. It will operate under the NuVox brand, with annual revenue expected to initially exceed $500 million. No financial terms were disclosed. NuVox has raised around $495 million since its 1997 inception, with current shareholders including Goldman Sachs, Quadrangle Group, Columbia Capital, KKR, Wachovia Capital Partners, M/C Venture Partners and J.H. Whitney & Co. FDN has raised around $144 million since 1998, with current shareholders listed as M/C Venture Partners, Columbia Capital and Centennial Ventures.

Local Insight Media LP, a portfolio company of Welsh Carson Anderson & Stowe, has acquired Cincinnati-area directories publisher CBD Media, which is backed by Spectrum Equity Partners and Wachovia Capital Partners. Leverage was provided by Wachovia Securities, Lehman Brothers Inc., Merrill Lynch & Co. and GE Capital. No specific financial terms were disclosed, except that the combined company will have annual revenue of more than $225 million, and Spectrum will retain a minority ownership position.

Firms & Funds

Axiom Asia, a Singapore-based private equity firm focused on Asia, has closed its inaugural fund with $440 million in capital commitments. Limited partners include the William and Flora Hewlett Foundation and Comprehensive Financial Management, while Probitas Partners served as placement agent. Axiom Asia was formed last April by former GIC Special Investment pros Chihtsung Lam, Yewhong Goh and Edmond Ng – with Marc Lau joining soon after.

RREEF Alternative Investments, a unit of Deutsche Bank Asset Management, has closed its inaugural secondaries fund with $775 million in capital commitments. As part of the closing, RREEF has agreed to purchase a “seed portfolio” of 97 private equity fund interests from Deutsche Bank for $415 million. Going forward, the fund will acquire secondary positions in existing partnerships and portfolios of direct investments. It also will provide co-investment capital.

Vitruvian Capital, a UK-based firm formed last year by ex-Apax pro Toby Wyles, has held a €424 million first close on its inaugural fund, according to PrivateEquityOnline.

Vulcan Capital of Seattle and Bankers’ Capital Group of Atlanta have agreed to form Vulcan Bankers Group LLC, a joint venture that will identify, acquire and manage banking sector in the Southeastern United States.

Magnum Venture Capital Fund has changed its name to Magma Venture Partners. The firm focuses on early-stage Israeli opportunities in the communications and semiconductor spaces.

AIG Global Investment Group is opening an office in Tianjin, China. It will be the group’s second China office, following a Shanghai satellite established in 2002.

Human Resources

Peter Bennett has joined private equity firm Consumer Growth Partners as a New York-based partner. He previously ran the private placement practice at Goldsmith Agio Helms.

Intel Capital has promoted Sudheer Kuppam to managing director of India, Japan, Australia and Southeast Asia. He previously was director of the firm’s Flash Memory and Semiconductor unit.

Anglo Irish Bank has named Jonathan Tuthill head of corporate treasury for the bank’s North American operations. He will be based in Boston, and previously was senior manager of corporate treasury in Dublin.

Kitty Sahin has joined The Watermill Group as a partner. She previously was head of corporate development at Charles River Labs.

Paul Capital Partners has promoted Simon Guenzl to the position of partner on the firm’s secondary team. He joined the firm as a principal in 2003, after having been with The Sprout Group.