PE Week Wire: Thurs., March 8, 2007

I few notes before taking my (wife’s) car to the shop…

*** At least two law firms yesterday warned clients that Congress is considering a move that would reclassify carried interest income as compensation for services. This could mean a tax rate of around 35%, compared to the current 15% rate charged under a “long-term capital gains” classification. Ouch.

What’s odd about the alarm bells, however, is that a spokesman for the relevant Congressional committees told Dow Jones reporter Tennille Tracy that “We don’t have a bill and we don’t plan to have a bill.” Call me a political cynic, but it’s unlikely that two law firms – Paul Weiss and Debevoise Plimpton – would go through the effort of distributing such a possibility without basis. In other words, either a proponent leaked the info to gauge response, or an opponent leaked it to foment organized dissent. This isn’t to say that the committee spokesman is either lying or being disingenuous, but rather that he might not know what’s on the proposal pile within each committee-member’s office. Definitely worth keeping an eye on, particularly as the new Private Equity Counci! l slowly ramps up…

*** Some interesting news out of Pacific Corporate Group, which today said that David Fann would serve as president and CEO of PCG Asset Management spinout. No, the announcement itself isn’t terribly interesting, but rather some background info provided by Fann himself (via a spokesman). Specifically, he addressed two issues raised previously in this space: (1) How much of PCG AM do the employees currently own? (2) Since Chris Bower still owns a significant majority stake, won’t PCG AM face the same control conflicts that led to so much personnel turnover at PCG?

For the first question, Fann says that PCG AM employees (including himself) currently hold a combined 25% stake, with the ability to vest an additional 25% over the next “few years.” So, when all is said and done, it’s likely that Bower would own half and firm employees would own half. That’s basically what we expected. But his answer to the second question is more surprising, and more hopeful for future stability. He says that while Bower is majority shareholder, he has agreed to adopt a governance standard that requires board approval on all issues related to day-to-day management, including staffing, compensation, strategy and budgeting. Bower is only one of four PCG AM board members, so apparently cannot unilaterally decide anything. If you’re thinking: “Wait, aren’t most of the other board members Bower pals?” Well, at least one or two are – but you couldn’t re! asonably expect him to bring in total strangers or enemies. I may well regret saying this later, but the PCG AM spinout might actually work without too much turbulence.

*** Pixim, a Mountain View, Calif.-based maker of chips for video security and surveillance cameras, yesterday announced that it had raised $15 million in new VC funding. It’s the company’s first round since a $12 million VC recap in 2005, which came after VCs had invested around $75 million (mostly during the bubble). The recap round included existing backers Mohr, Davidow Ventures, Newbury Ventures and Mayfield Fund – but only Mayfield came back aboard this time around (along with new backers Tallwood Venture Capital and Ridgewood Capital).

I can’t speak to what happened with Newbury, which held onto its existing shares (but not its existing board seat). As for MDV, it actually sold its entire Pixim stake just prior to the new oversubscribed round. Had it lost faith? In part, yes. But the larger factor was that Pixim no longer had a champion at MDV, following the 2005 departure of partner Rob Chaplinsky to form Bridgescale Partners. Had Pixim been going gangbusters, MDV most likely would have held on. But with neither obvious homerun prospects nor someone around the table to argue for them, the remaining MDV opted to focus their attentions on other opportunities…

*** Just a quick note of credit for my former colleague Nat Worden, who currently toils away at Nat actually was the first person to delve into Barrack Obama’s stock portfolio, including the investments in AVI BioPharma and SkyTerra. Good piece of shoe-leather reporting. Too bad yesterday’s New York Times piece on the matter declined to cite Nat or, despite putting the story on its front-page. At least the AP got it right in a follow-up…

*** Yesterday’s VC Deals section included a note that RockYou had raised $11 million in new VC funding led by Partech International, based on a TechCrunch report. Our Alex Haislip has since learned that the round is not yet closed. He also discovered that RockYou has a new shareholder – based on a lawsuit settlement.

Top Three

Phenomix Corp., a San Diego-based drug developer, has raised $55 million in Series C funding. Nomura Phase4 Ventures led the deal, and was joined by return backers JPMorgan Partners, Delphi Ventures, Baker Brothers, Alta Partners, Sofinnova Ventures, Bay City Capital, CMEA Ventures, Novartis BioVenture Fund and GBS Venture Partners. Phenomix has now raised around $125 million in total VC funding since its 2001 founding. Its most advanced programs include a Phase II inhibitor of the protease DPP4 for treatment of Type 2 diabetes, and a preclinical program inhibiting NS3 protease for treatment of hepatitis

ClearWire Corp., a Kirkland, Wash.-based WiMAX company, priced 24 million common shares at $25 per share ($23-$25 range), for an IPO take of approximately $600 million. It had originally filed to raise just $400 million, before increasing its target to $500 million in an amended filing. The extra $100 million came after Clearwire opted to up its number of offered shares from 20 million to 25 million. It will trade on the Nasdaq under ticker symbol CLWR, while Merrill Lynch, Morgan Stanley and JPMorgan served as co-lead underwriters. Seven other banks also participated. ClearWire has raised around $1.2 billion in private equity funding, including a $900 million infusion last year led by Intel Capital. Other significant shareholders include Bell Canada, Motorola and company founder Craig McCaw. www.clearwire.! com

Matt Bannick has agreed to join Omidyar Network as managing partner, effective April 16. Bannick is the former president of eBay International and general manager of PayPal.

VC Deals

CircuLite Inc., a Hackensack, N.J.-based developer of circulatory assist technology for the management of chronic heart failure, has raised $20 million in Series B funding. Foundation Medical Partners led the deal, and was joined by SB Life Science Ventures and return backers Forbion Capital Partners and Oxford Biosciences Partners.

FON, a Madrid, Spain–based company focused on developing a global network of shared WiFi connections, has raised $13 million in second-round funding. Return backers include Index Ventures, Google, Sequoia Capital and Skype – while four unnamed non-U.S. investors also participated (names to be released at later date). FON has raised around $35 million in total VC funding.

Atraverda, a South Wales, UK-based battery maker, has closed its Series A round with $12 million. Participants included Scottish Equity Partners, The Sagentia Group, Wales Fund Managers, EnerTech Capital and OnPoint Technologies. It had held an initial close in 2004.

Advanced Micro-Fabrication Equipment Inc., a Shanghai, China-based developer of plasma etching and chemical vapor deposition equipment for use in semiconductor fabs, has raised $8 million in additional Series B funding from Qualcomm and other unnamed investors. The round now totals $46 million, including a $38 million first close last October from Goldman Sachs, Bay Partners, Global Catalyst Partners, Lightspeed Venture Partners and Walden International.

Extreme DA Corp., a Palo Alto, Calif.-based developer of semiconductor design tools, has raised $7.57 million in Series B funding, according to a regulatory filing. Participants included Foundation Capital and Lanza Tech Ventures.

Napatech, a Denmark-based provider of Ethernet network interface cards, has raised $7.5 million in third-round funding. Return backers include Ferd Venture and Northzone Ventures.

Xradia Inc., a Concord, Calif.-based manufacturer of x-ray imaging systems for 3D tomography and nanotech applications, has closed its Series D round with $7 million. As previously reported, Harris & Harris Group provided $4 million of the deal, but other participants were not disclosed.

Viva Vision, a Santa Monica, Calif.-based provider of original mobile video programming, has raised $5 million in VC funding from Equal Elements.

Flurry, a San Francisco-based provider of mobile email and RSS services, has raised $3.75 million in Series A funding. Draper Fisher Jurvetson and Draper Richards were joined by seed backer Borealis Ventures.

iForem Inc., a Redwood City, Calif.-based provider of a service for online storage and financial management of a trust, has raised around $2 million in Series A funding from Gabriel Venture Partners. Gabriel entrepreneur-in-residence Stephen Peiraldi is the company CEO, while Gabriel partners Scott Chou and Rick Bolander will serve on the board of directors.

Kinamik SL, a Barcelona, Spain-based provider of data integrity software for the governance, risk management and compliance markets, has raised €1.2 million in second-round funding. Spinnaker co-led the deal alongside a group of unnamed angels.

AgInfo Global Link Inc., a Longmont, Colo.-based provider of information for the global food industry supply chain, has raised around $1.34 million in Series A funding led by Kinetic Capital, according to a regulatory filing.

Buyout Deals

Champ Private Equity, the Australian affiliate of Castle Harlan, has acquired New Zealand-based printing company Blue Star Print Group Ltd. for NZ$385 million (US$267 million). Champ acquired Blue Star from company management, but many senior managers will continue to run the company and retain a minority ownership position.

Merck KGaA is expecting at least two bids for its generic drugs business, according to The Financial Times Deutscheland. Apax Partners and Bain Capital have teamed up, while another group includes KKR and Warburg Pincus. The Carlyle Group also is considering a bid, while earlier reports indicated interest from Cinven, Permira and TPG. The final sale price is expected to be between Euro 4 billion and Euro 5.5 billion.

Palladium Equity Partners has acquired a “significant minority” interest in Sahale Snacks, a Seattle-based maker of branded and private-label, all-natural gourmet snack foods. No financial terms were disclosed.

Pfingsten Partners has acquired two custom closet organization companies: Closet Works Inc. of Elmhurst, Ill. and Crowne Enterprises LLC of Las Vegas. No financial terms for either transaction were disclosed.

Flexpoint Partners has acquired a majority interest in Norwich Group Inc., a Rosemont, Penn.-based commercial property/casualty insurance company. No financial terms were disclosed, although LBO Wire puts the price-tag at nearly $100 million.

The Audax Group has acquired Germany-based Precision Magnetics AG, which will be merged with existing Audax portfolio company Arnold Magnetic Technologies Corp. No financial terms were disclosed.

Friendly Ice Cream Corp. (AMEX: FRN) shares hit a 52-week high yesterday, after announcing that it has retained Goldman Sachs to explore strategic alternatives that could include a sale of the company. The Wilbraham, Mass.-based company’s market cap now stands at nearly $110 million.

PE-Backed IPOs

Oncogenex Technologies Inc., a Vancouver-based drug company focused on cancer therapeutics, has canceled its proposed IPO due to “current market conditions.” The company had been planning to raise up to $37.5 million based on amended terms. It originally planned to raise up to $54 million. RBC Capital Markets was serving as lead underwriter. Shareholde! rs include Ventures West, BDC Venture Capital, GrowthWorks, HIG Capital and Milestone Medica Corp.

PE-Backed M&A

Aviapartner, a European airport ground handler controlled by 3i Group, has agreed to acquire Aero Groundservices BV, the cargo-handling subsidiary of VCK Holding. No financial terms were disclosed. Aero Groundservices is the primary cargo handler at Amsterdam Schiphol airport.

Collins & Aikman Corp. has agreed to sell nine of its North American plastics facilities to Cadence Innovation, a portfolio company of Harbinger Capital Management and Yucaipa Cos. No financial terms were disclosed.

PE Exits

Patron Capital Partners has agreed to sell its 76% stake in Vectrane SA to Caisse d’Epargne, a listed French SIIC, for €23.65 per share. As of December 31, Vectrane had an existing €601m portfolio comprising of five office buildings and three leisure assets, which includes the Tour Anjou building in La Defense and two Center Parcs leased to Pierre & Vacances.

Firms & Funds

Scale Venture Partners (f.k.a. BA Venture Partners) has closed its latest fund with $400 million. It is the first fund since Scale spun out of Bank of America as an independent entity, and received limited partner commitments from such institutions as Credit Suisse, Key Capital, Lexington Partners, Liberty Mutual, Macquarie Global Private Equity Fund, Montague Newhall, Pantheon Ventures, Paul Capital Partners and Storebrand. Probitas Partners served as placement agent. Bank of America sold its initial cornerstone fund commitment as part of the transaction, but will retain its sole LP status on Scale’s $500 million predecessor fund.

Richardson Capital of Winnipeg, Canada has cosed its second private equity fund with $720 million in capital commitments. The fund is focused on providing expansion and transition capital to middle-market Canadian businesses, many of which are family owned.

Human Resources

John Moon has joined Riverstone Holdings LLC as a managing director. He previously was a managing director with Metalmark Capital.

Brendan Gallaher has joined American Capital Strategies as a managing director in the firm’s distressed Debt group. She previously was on the executive and investment committees of William E. Simon & Sons.

Philip Durden has left his principal position with Lexington Partners, in order to attend business school at the University of California, according to LBO Wire.

Goldman Sachs has named Gregg Lemkau chief operating officer for I-banking. He previously had been co-head of the firm’s healthcare I-banking group.

Steve Krameisen has joined Advanced Equities Financial Corp. as chief technology officer. He previously was with MetLife as vice president of individual business IT.

Michael Lach has resigned as president and COO of communications services company NeuStar Inc. (NYSE: NSR), in order to “pursue a new endeavor in the private equity industry.” No additional details were disclosed. Lach will be succeeded at NeuStar by Lawrence Bouman, former vice president and CTO of LCI International.