PE Week Wire: Thurs., March 27, 2008

Very busy day here at Wire Central, due to the Clear Channel situation and my need to plan a “Congrats on getting your PhD” party for J (who defends next week, fingers crossed). So let’s do Clear Channel, since it seems unlikely that you’re too interested in the other:

In case you haven’t heard, Clear Channel and its prospective buyers – Bain Capital and Thomas H. Lee Partners – late yesterday sued six banks for refusing to fund the protracted $19.5 billion deal. The suits were filed in New York and Texas, with the primary difference being that the plaintiffs asked for the death penalty in Texas. No, wait, I’m being told that’s not correct. The primary practical difference is actually that CCU is being represented in the Texas suit by Joe Jamail, who represented Penzoil in a suit against M&A backtracker Texaco. The result was a jury award that essentially bankrupted Texaco, so the banks should be more than a bit concerned about that one.

A judge in the Texas case has already granted a temporary restraining order against the banks, which counter-intuitively means that the banks actually have to do something (i.e., fund the deal). But that’s probably just good headline fodder, as the banks can probably get around that by agreeing to erase the financing termination dates from their financing commitment letter (“See judge, there’s no rush…”).

There has been lots of speculation about motives on both sides of this case, and I’m not going to pretend that I have definitive answers. But my non-revolutionary take so far is this: The banks are calculating that they can lose less money by walking away than by funding the deal. It’s a completely logical assumption on the surface – a $550 million termination fee rather than a $3 billion market-to-market loss – but it takes a big change on potential liabilities. Not just because of Joe Jamail, but because there is not any real precedent here. I emailed last night with a PE litigation attorney who said he can’t remember a case where PE firms sued a bank to honor its financing commitment. His best analogy were the “lender liability” cases back in the late 1980’s/early 1990’s. Not quite apples-to-apples.

As for the private equity firms, I honestly believe that they want this deal to close. Yes they agreed to overpay, and I’m sure they’d like these lawsuits to result in CCU shareholders accepting a lower sale price (like, for example, the original bid). But I also sense a true-blue belief inside Bain and THL that this deal can ultimately make money, and that they’ve invested far too much time and effort to walk away now. Moreover, they could have called it a day yesterday by just suing for fees, but instead they sued for specific performance (thus the aftermarket stock spike yesterday). Call me naïve, but it is the sense I’ve gotten through hours of conversation with those in and around this transaction.

Clear Channel, of course, just wants its money.

I’ll have lots more about this today on peHUB, and already have posted the actual complaints for your downloading pleasure. also, our resident endowment manager Mike X has posted some CCU thoughts that are worth a read. Moving on…

*** Alta Communications is gearing up to raise a new fund, but will be doing so without partners Bob Emmert and Lane MacDonald. The pair is leaving over disagreements over firm strategy and fund size, although they’re both sticking around for another couple of months to manage the transition. Neither has solidified any post-Alta plans.

I spoke yesterday with MacDonald and Phil Thompson, an Alta partner who’s sticking around. They claimed to still be on good terms, and sounded pretty convincing. The strategy differences sounded like Emmert and MacDonald wanted to do something a bit different, like perhaps get involved in larger-scale deals. But Alta is staying put in the lower-middle-markets, with plans to raise a new fund that actually may be a bit smaller than the $500 million one it raised back in 2002 (due to the decreased partnership size).

Alta has been informing limited partners and portfolio companies of the departures over the past two weeks.

*** Mimi Strouse has quietly left Warburg Pincus, where she had been a managing director in the firm’s tech, media and telecom group. There does not seem to be any forwarding info, so instead we are pleased to present some tangential silliness.

*** Willis Stein called in to say that it is not “pre-marketing” its fourth fund, but rather is simply answering questions of any LP that calls in. So perhaps we should have qualified “pre-marketing” with the adjective “passively.” So, to recap, Willis Stein is passively pre-marketing its fourth fund with a $1 billion target.

*** The Blackstone Group has postponed a first close on its new buyout fund, which originally was scheduled for April 11. PE Insider first broke the news, and I’ve since confirmed it.

Blame here goes to the tortoise-slow deal environment, as Blackstone’s current fund has way more dry powder than the firm had expected to have by the end of Q1 2008. Blackstone did put more money to work in Q4 2007 than in any other quarter in the firm’s history (thanks largely to Hilton), but it’s been very slow going ever since.

It’s also worth noting that this fundraising drive is expected to mirror past Blackstone efforts – which means no definitive target or final close date. Sure there’s a $20 billion cover price, but the firm’s current fund closed on $22 billion in mid-2007 – after coming to market in 2004 with just a $10 billion target.

*** QuizTime: Speaking of postponed fund closings, can you name the New York-based buyout firm that has just pushed back an already-delayed close for its new fund? Unlike Blackstone, this firm is not sitting on very much dry powder.

*** Some of you pointed out that the dancing seal was actually a dancing sea lion. Apologies for my zoological error.

Top Three

Pieris AG, a German developer of targeted human protein therapeutics, has raised €25 million in Series B funding. OrbiMed Advisors and Novo Nordisk co-led the round, and were joined by return backers Global Life Science Ventures, Gilde Healthcare Partners and Forbion Capital Partners.

Merrill Lynch Global Private Equity has completed a full exit from UK department store chain Debenhams PLC, two years after floating the business with fellow private equity investors CVC and Texas Pacific Group. Merrill Lynch sold the shares at a discount of 16% to yesterday’s price of 71.5 pence. Merrill Lynch and co-investors CVC and Texas Pacific Group de-listed Debenhams in 2003 for £1.72 billion, and were able to recoup some money via a pre-IPO refinancing. Both CVC and TPG are retaining their positions for the time being.

Denise Strack has been named chief investment officer for The Gordon and Betty Moore Foundation, after having joined in 2002 as director of private equity and real assets. She succeeds Alice Ruth, who earlier this week left for Quadrangle Group. The Foundation’s investment portfolio is valued at around $6 billion.

VC Deals

OptiMedica Inc., a Santa Clara, Calif.-based ophthalmic device company, has raised $16 million in Series C funding. DAG Ventures was joined by return backers Kleiner Perkins Caufield & Byers and Alloy Ventures.

Breathe Technologies Inc., a Fremont, Calif.-based developer of medical devices that treat respiratory problems associated with chronic obstructive pulmonary disease, has raised $15 million in Series B funding. Kleiner Perkins Caufield & Byers led the round, and was joined by return backers Synergy Partners International, Delphi Ventures and Life Science Angels.

Iovation Inc., a Portland, Ore.-based provider of device reputation for managing online fraud, abusive behavior and multi-factor authentication, has raised $15 million in second-round funding. SAP Ventures and European Founders were joined by return backer Intel Capital.

Stretch Inc., a Sunnyvale, Calif.-based maker of software-configurable processors, has raised an additional $15 million in Series B funding. This brings the round total to $27 million, and the company’s total venture capitalization to nearly $100 million. Return backers include Worldview Technology Partners, Oak Investment Partners and Menlo Ventures.

Touchmedia, a Chinese developer of interactive touch-screen solutions, has raised around $14.2 million in Series B funding. TLC Capital led the round, and was joined by LG I Investment, Mustang Venture Capital, HSR Ventures, Jubilant Worldwide and return backer Qi Ming Ventures.

Bubble Motion Inc., a Mountain View, Calif.-based voice SMS company, has raised $14 million in Series C funding. Comcast Interactive Capital and NCD Investors were joined by return backers Sequoia Capital and Sequoia Capital.

1336 Technologies, an MIT spinout aiming to make silicon solar cells competitive with coal, has raised $12.4 million in Series A funding. North Bridge Venture Partners and Polaris Venture Partners co-led the round, with Carmichael Roberts of NBVP and Bob Metcalfe of Polaris joining the 1336 board of directors.

Gear6, a Mountain View, Calif.-based developer of storage caching solutions, has raised $10 million in new VC funding. Horizon Ventures led the round, and was joined by return backers U.S. Venture Partners and InterWest Partners.

Agentek, an Alpharetta, Ga.-based maker of solutions for deploying mobile applications, has raised $8 million from Edison Venture Fund.

Buyout Deals

Morgenthaler Partners has acquired RotoMetrics, a Eureka, Mo.-based provider of precision rotary tooling and accessories for the converting and printing industries. No financial terms were disclosed, except that leverage was provided by Madison Capital Funding and John Hancock Life Insurance Company.

Aureos Southern Africa Fund has acquired a 30% equity stake in Sandbox Holdings, a South African provider of electronic building management and security services and business software. No financial terms were disclosed.

Audax Group is in talks to buy In the Swim from AEA Investors, according to LBO Wire. In the Swim is a Chicago, Ill.-based direct marketer of swimming pool supplies.

Close Brothers Group has acquired two UK-based niche lending business — Commercial Acceptances Group and Amber Credit — for a total of £33 million.

Extrumed, a Placentia, Calif.-based provider of medical device components, has completed a recapitalization. The only disclosed financial terms was that Golub Capital provided $29.5 million in one-loan debt financing. Extrumed is owned by Inverness Graham Investments and Wedbush Capital Partners.

Mediobanca may be part of an upcoming consortium bid for Italian airline Alitalia, according to La Stampa. Other group members would include Eni and the Benetton and Ligresti families. Alitalia had originally received interest from private equity firms like TPG, but currently is in line to be acquired by Air France-KLM, which the Italian government named as its preferred bidder.

PE Exits

Spencer Trask has sold Aperture Technologies Inc., a provider of software for managing the physical infrastructure of data centers, to Emerson (NYSE: EMR). No financial terms were disclosed.

PE-Backed M&A

Expocrete Concrete Products Ltd., an Alberta, Canada-based concrete products maker owned by Tricor Pacific Capital, has acquired Weldon’s Concrete Products Ltd., a Saskatchewan-based masonry, hollow core and concrete pipe manufacturer. No financial terms were disclosed.

Lakeside Energy LLC, a Chicago-based energy company backed by American Securities, has acquired a 150 MW natural gas-fired power plant in Hazleton, Pa. from an affiliate of Williams (NYSE: WMB). No financial terms were disclosed for the deal, which included new equity provided by American Capital.

Firms & Funds

CMEA Ventures has closed its seventh fund with $400 million in capital commitments. The San Francisco-based firm’s third fund had closed on $300 million in 2003.

MBK Partners is targeting $3 billion for its second fund, according to LBO Wire. The Seoul-based buyout firm was formed in 2005 by Michael Kim, who previously was co-head of Asian buyouts for The Carlyle Group. It closed its debut fund in 2006 with $1.56 billion, from LPs like Temasek Holdings, the Ontario Teachers’ Pension Plan, Morgan Stanley, Bank of Tokyo and the National Agricultural Cooperatives Federation of South Korea.

Partners Group of Switzerland has held a $250 million final close for a fund-of-funds focused on U.S.-based venture capital and growth capital funds. The vehicle is already 75% committed, to funds managed by firms like Draper Fisher Jurvetson, TA Associates and Battery Ventures.

Human Resources

William Donaldson, former SEC chairman, has joined Renaissance Capital as a senior advisor. Donaldson also has served as chairman and CEO of the New York Stock Exchange. Get more info.

Dennis O’Brien has agreed to join Gryphon Investors as a partner, with responsibility for monitoring and helping to improve the performance of Gryphon portfolio companies. He had spent the past year as CEO of Penta Water Co., where he will remain a director.

Bruce Walicek has been named president and CEO of Pixelworks Inc. (Nasdaq: PXLLW), a provider of video and pixel processing technology. He previously served as an executive-in-resident with Sevin Rosen Funds and Worldview Technology Partners.

Jason Paru has joined turnaround advisory firm MorrisAnderson as a Chicago-based consultant. He previously was a vice president with the turnaround and restructuring practice of Mesirow Financial Consulting.

Fifth Street Management has made three promotions: Ivelin Dimitrov to principal, Brian Finkelstein to senior associate and Jennifer Yang to senior analyst.