PE Week Wire: Thurs., May 22, 2008

Yesterday at peHUB, I posted an argument for why rank-and-file pensioners are not entitled to ask questions at a private equity firm’s annual LP meeting. It was prompted by a recent incident in San Diego, where a handful of SEIU members tried to gain entry to KKR’s annual LP meeting, but were turned away by building security and the police. Many of these people do invest in KKR via corporate pension funds, I wrote, but they are indirect LPs. As such, they should have their concerns relayed to firm management by their own fiduciaries.

Pragmatic argument, since there is no way KKR or any firm could properly conduct an annual LP meeting if its hundreds of thousands of indirect LPs were able to attend. Not only would the logistics be unwieldy, but confidentiality could also be sacrificed when it comes to things like portfolio company valuations and outlooks.

That said, it’s also an incredibly elitist argument. As the UK’s Walker Report correctly asserted, private equity firm impact extends far beyond investment returns. For example, what happens if CalPERS invests in a private equity infrastructure fund, which then privatizes a California facility that employs CalPERS pensioners? Do they still retain their union benefits? Do they even retain their jobs? Just one of many questions that indirect LPs deserve to ask, since it’s their money floating the boat.

So a preliminary proposal: Private equity firms could begin holding indirect LP meetings.

This would not be a clone of current LP meetings, which typically mix fine food and locale with confidential portfolio company/fundraising updates. Instead, it would be an open forum in which indirect LPs could ask questions of private equity firm management. You’d probably need some sort of impartial moderator, to whom attendees could submit queries either ahead-of-time or electronically. If GPs are concerned about getting pelted with tomatoes, this could also be done as a formalized online chat.

None of this would absolve indirect LPs of their responsibility to voice concerns via traditional representatives, but it would also recognize the reality that many such reps believe that their job begins and ends at ROI. It also could help GPs become more cognizant of indirect LP concerns, so that they don’t first hear about them via organized protest action.

I think this concept is deserving of more thought – both mine and yours. Could something like this work? Would GPs ascent? Would indirect LPs? Best practice? Interested in your thoughts, either via email (just hit reply) or in the comment section at peHUB.

*** peHUB First Read, including new news on the Twitter funding and good news for Lenovo.

Top Three

A Quebec court ruled that BCE has failed to prove that its pending C$34.8 billion buyout could be structured so as to provide satisfactory compensation for company shareholders, while simultaneously avoiding an adverse affect on its debt-holders.

Flock, a Redwood City, Calif.-based developer of a social Web browser, has raised $15 million in Series D funding. Fidelity Ventures led the round, and was joined by return backers Bessemer Venture Partners, Catamount Ventures and Shasta Ventures.

Daiichi Sankyo Co. has agreed to acquire U3 Pharma AG, a Munich-based oncology drug development company, for €150 million ($235m)in cash. U3 Pharma has raised over $61 million in VC funding from firms like Alta Partners, Atlas Venture, E. de Rothschild Investment Partners and Life Science Partners and Bio*One Capital.

VC Deals

ExteNet Systems Inc., a Lisle, Ill.-based network infrastructure company, has raised $27.5 million in new equity and debt funding. No breakout was disclosed. Palomar Ventures led the round equity, and was joined by return backers Centennial Ventures, Sevin Rosen Funds, Columbia Capital and CenterPoint Ventures. Comerica Bank is providing the revolving credit facility.

SmartSynch Inc., a Jackson, Miss.-based provider of public wireless smart metering technology, has raised $20 million in Series E funding. Credit Suisse led the round, and was joined by Southern Farm Bureau Life Insurance Co. Return backers included Battelle Ventures, Beacon Group, Endeavor Capital Management, GulfSouth Capital, Innovation Valley Partners, Kinetic Ventures, OPG Ventures and Siemens Venture Capital. The company has now raised $80 million in total VC funding since 2000.

Myconostica Ltd., a Manchester, UK-based developer of medical tests for life-threatening fungal infections, has raised $10.8 million in third-round funding. Backers include Amphion Innovations, Nexus Medical Partners, Innoven Partenaires, Medicis Ventures and UMIP Premier Fund.

Buyout Deals

ClearLight Partners has sponsored a recapitalization of The Outsource Group Inc., a St. Louis-based provider of receivables management services to the healthcare industry. No financial terms were disclosed for the deal, which included leveraged financing from Churchill Financial.

The Carlyle Group is finalizing the loan syndication for its pending buyout of Greek chemical group Neochimiki. The €749 million debt package will include participation from Dresdner Kleinwort, Emporiki Bank SA, Millennium Bank SA, Piraeus Bank SA, National Bank of Greece and Proton Bank.

Ciao Bella Gelato Co., a New York-based frozen dessert maker, has raised an undisclosed amount of growth capital from Encore Consumer Capital and Sherbrooke Capital Partners. Livingstone advised Ciao Bella on the deal.

CITIC Capital of China has agreed to acquire stakes in two food companies. The first is confectionary company Guan Sheng Yuan, with CITIC to get up to 45% in exchange for around $73 million. The second is a 100% buyout of baby formula maker AVA Dairy for around $82 million.

Expro International Group, a UK oil services company, has asked the UK Takeover Panel to compel Halliburton to clarify its takeover approach by June 2. That is the date that Expro shareholders are set to vote on a £1.6 billion cash bid from Goldman Sachs Capital Partners and Candover., a Portland, Ore.-based provider of digital curricula, has sold a 51% ownership stake to India-listed Educomp Solutions Ltd., for $24.5 million. Existing shareholder First Analysis also provided additional funding.

Providence Equity Partners has agreed to invest $640 million in Aditya Birla Telecom, a unit of India’s Idea Cellular Ltd. The deal is expected to close by August.

PE-Backed IPOs

Little Sheep, a Chinese hot pot restaurant chain, plans to raise up to $105.7 million in a Hong Kong IPO. The company has raised $25 million in VC funding from 3i Group and Prax Capital. Merrill Lynch and Deutsche Bank are serving as underwriters.

PE Exits

Intrinsyc Software International Inc. (TSX: ICS) has agreed to acquire substantially all the assets of Destinator Technologies Inc., a Toronto-based maker of navigation software that had recently filed for bankruptcy protection. The deal is valued at around C$16 million, including C$8.5 million in cash and 11 common shares of Intrinsyc stock. Destinator had raised over $16 million in VC funding, from firms like AIG, VentureLink and Pac-Link Ventures.

Visage Mobile, a San Francisco-based provider of wireless software for carriers and private label wireless operators, has sold its Subscriber Management business to Convergys Corp. (NYSE: CVG). No financial terms were disclosed. Visage has raised around $93 million in total VC funding since its 2001 formation, from firms like Nomura, Worldview Technology Partners, Mobius Venture Capital, Advanced Technology Partners, Vesbridge Partners, Emergence Capital Partners, UMC Capital, Palisades Ventures and Selby Ventures Partners.

PE-Backed M&A

nGenera Corp. (fka. BSG Alliance), an Austin, Texas-based provider of on-demand enterprise software, has acquired Talisma Corp., a Bellevue, Wash.-based provider of customer interaction management software. No financial terms were disclosed. nGenera has raised over $63 million in VC funding from Oak Investment Partners, Foundation Capital, Hummer Winblad Venture Partners and Powershift Ventures. Talisma had raised around $94 million, from Oak Investment Partners, Madrona Venture Group, Seapoint Ventures, Cedar Grove Investments, Thomas Weisel Venture Partners and Carlyle Venture Partners.

Bad News

BHM Technologies, an Ionia, Mich.–based supplier of welded assemblies and precision-machined components, has filed for Chapter 11 bankruptcy protection. The company cited declining vehicle sales and price increases of raw materials for its situation. First Atlantic Capital had acquired a majority stake in BHM back in 2006, and was joined by company management, Lehman Brothers Co-Investment Partners and John Hancock Financial Services. First Atlantic’s equity check reportedly was $100 million.

Firms & Funds

BS Private Equity of Italy has sold a 20% firm ownership stake to investment bank Gruppo Banca Leonardo. No financial terms were disclosed. In a related agreement, Gruppo Banca Leonardo will commit €20 million to BS Private Equity’s fifth fund, which has a target of €600 million.

Castle Creek Capital is pre-marketing its fourth fund with a $500 million target. The Rancho Santa Fe, Calif.-based private equity firm focuses on the banking sector.

Craton Equity Partners, a Los Angeles-based firm focused on VC and PE opportunities in the cleantech sector, has closed its debut fund with $191.5 million in capital commitments. It had held an $82 million first close last December, and had been targeting $250 million.

Water Street Healthcare Partners has held a first close on its second fund, according to LBO Wire. The close was near the Chicago-based firm’s $600 million target, with a final close expected within the next few weeks. Limited partners include Adams Street Partners, Goldman Sachs and Allianz Group. Credit Suisse is serving as placement agent.

Human Resources

Guatam Patel has joined Battery Ventures as a partner focused on investments in India. He previously served as head of European operations for iGate, a business process outsourcing and IT services company. Patel will initially be based out of Battery’s Silicon Valley office, but later this year will help open the firm’s new location in Mumbai.

Neal Shear has joined Apollo Management to launch a commodities trading group. He previously ran trading for Morgan Stanley, where he was the firm’s second highest-paid executive.

ATP Private Equity Partners has made four promotions: Nils Johannessen to director, Christian Bronden to vice president, Jesper Voss Hansen to vice president and Noman Mushtaq to vice president.

Jaime Dimon, CEO of JPMorgan Chase, said yesterday that more than 7,600 Bear Stearns employees are expected to lose their jobs as the two companies combine. That would represent around 55% of the Bear workforce.