PE Week Wire: Thurs., May 24, 2007

Who’s the big winner in Oaktree Capital Management’s sale of a 14% ownership position for approximately $800 million? Is it Goldman Sachs, which is using the deal as a pilot for its new private market? Nope. Try the John S. and James L. Knight Foundation.

Back in early 2004, the Knight Foundation led an investor group that purchased a 5% stake in Oaktree – which at the time was reported to be valued at between $500 million and $750 million. Knight only had $1.7 billion at the time, but got pole position due to its steady support of both Oaktree and Trust Company of the West (from which the Oaktree principals spun out in 1995). The group included five other buyers, including Penn State.

Knight experienced some serious turmoil over the next couple of years, including a decision to effectively can its in-house investment staff – and outsource those responsibilities to Cambridge Associates. But it maintained its close relationship to Oaktree, and last December exercised an option that increased the consortium’s ownership position to 11.81 percent. It’s unclear what triggered the option, or what Knight, et. all had to pay for the extra 6.81 percent.

Which brings us toOaktree’s recent”IPO” (initial private offering) on Goldman Sachs’ new exchange. The deal valued Oaktree at approximately $5.5 billion, which is at least a 7x multiple on the value when Knight originally bought in — and perhaps as high as 10x. I’d also assume the $5.5 billion is above whatever valuation was tied to the option trigger.

The Knight-led consortium did not sell out entirely via the offering, but instead participated pro rata alongside all other Oaktree shareholders. That means that it raked in around $95 million from the sale, and still holds a position theoretically valued at more than $550 million.

Nottoo shabby for an investment made just three years ago…

*** Fidelity Ventures has a new running mate: Fidelity Equity Partners, which will focus on growth equity and leveraged buyout opportunities in the financial services and business services sectors. The group has $500 million in debut fund capital from the parent corporation, and offices in both Boston and London. It also has a pedigreed partnership, including Boston-based Nick Martin (previously with Riverside Company) and London-based Brooke Albon (co-founder of HgCapital).

If you vaguely member Fidelity already having a small buyout group, you’re probably thinking of Fidelity Capital Investors – which was dismantled after working through just under half of its $200 million fund. FEP will continue to manage the two remaining FCI portfolio companies (Avtek and Precision Control Services), but expects to have more of a growth focus than FCI’s value-focus. Target investments will have enterprise values of between $50 million and $150 million, with organic growth of at least 10 percent. Most of its deals will be of the control variety, but it will consider select minority positions.

Albon says that he left HgCapital last May, after the firm began shifting its focus away from small high-growth deals toward larger, value-based opportunities. He began shopping a new firm around London, before Fidelity heard about it and came calling. “It was really a no-brainer, since what they wanted to do and what I wanted to do were essentially the same thing.” Martin says that he spent nine “great” years at Riverside, but that he was drawn by the ability to help manage a new firm and the ability to leverage the Fidelity family of businesses.

Do not expect the creation of FEP to prevent in Fidelity Ventures from doing the occasional growth equity deal, but rather that the two will likely work together. For example, FEP participated alongside Fidelity Ventures in last month’s acquisition of a majority interest in Asset Control, a provider of centralized data management solutions to the financial services industry. Rob Ketterson, managing partner of Fidelity Ventures, is also a partner of FEP.

Top Three

Imperium Renewables Inc., a Seattle-based biodeisel producer, has filed for a $345 million IPO. It plans to trade on the Nasdaq under ticker symbol IMPR, with Morgan Stanley and Lehman Brothers serving as co-lead underwriters. Imperium is run by former venture capitalist Martin Tobias, and has raised funding from such firms as Nth Power, Technology Partners, Vulcan Capital, BlackRock Investment Management, Capricorn Management and Silver Point Capital.

Biolex Therapeutics, a Pittsboro, N.C.-based drug company whose lead candidate focuses on hepatitis C, has raised $30 million in Series C funding. Investor Growth Capital led the deal, and was joined by JP Morgan Securities, Easton Capital and return backers Quaker BioVentures, Polaris Venture Partners, Intersouth Partners, Mitsui & Co. Venture Partners, Johnson & Johnson Development Corp. and Dow Venture Capital. Biolex has raised nearly $100 million in total VC funding since its 1997 inception, including a venture recap. In 2005, it raised a $36 million Series B round at a post-money valuation of just over $81 million.

AIG Highstar Capital is raising up to $2 billion for its third fund, according to a regulatory filing. It already has secured over $875 million in capital commitments. AIG Highstar is a private equity firm focused on the infrastructure market.

VC Deals

Arete Therapeutics Inc., a Hayward, Calif.-based drug company focused on cardiovascular, inflammatory and metabolic diseases, has raised $35 million in additional Series A funding. The round now totals $51 million. Alta Partners and Frazier Healthcare Ventures co-led the extension, and were joined by fellow return backers Three Arch Partners, Burrill & Company and Altitude Life Science Ventures.

Ultreo Inc., a Redmond, Wash.-based maker of a branded ultrasound toothbrush, has secured $5.5 million of an $11.3 million Series C round led by Polaris Venture Partners, according to a regulatory filing.

SpectraGenics Inc., a Pleasanton, Calif.-based cosmetic device company, has called down $12.3 million of a $20.31 million Series D round, according to a regulatory filing. De Novo Ventures and Technology Partners were joined by return backers like SDL Ventures, Incubic Ventures and GVC.

BaroFold Inc., a Boulder, Colo.-based developer of protein therapeutics, has raised $12 million in Series A funding. HBM BioVentures and Boulder Ventures co-led the deal, and were joined by seed backers like the Peierls Foundation.

Prolacta Bioscience, a Monrovia, Calif.-based developer of a human milk fortifier for infants neonatal intensive care units, has raised $12 million in Series C funding. Alta Partners led the deal, and was joined by DFJ Frontier, Arcturus Capital, DFJ Mercury, Funk Ventures, Phillip Capital, Gideon Hixon Fund and Draper Associates. In other Prolacta news, the company named former Baxter Bioscience president John Bacich as board chairman.

Ruckus Network Inc., a Herndon, Va.-based provider of digital entertainment services to college students, has raised $10 million in third-round funding. Anschutz Investment

Company and Columbia Capital co-led the deal, and were joined by return backers Battery Ventures, Eastward Capital, Pinnacle Ventures and Shelter Capital. Ruckus has raised around $42 million in total VC funding since 2004.

Trulia Inc., a San Francisco-based provider of online real estate services, has raised $10 million in third-round funding. Sequoia Capital led the deal, and was joined by return backer Accel Partners. Trulia has raised $17.7 million in total VC funding since its 2004 inception.

Buzznet Inc., a Los Angeles-based social media community focused on music and pop culture, has raised $6 million in Series B funding. Redpoint Ventures led the deal, and was joined by return backer Anthem Venture Partners.

Greentech Media Inc., a Cambridge, Mass.-based provider of online content about the greentech industry, has raised $1 million in Series A funding co-led by Lightspeed Venture Partners and Northport Private Equity.

Streamezzo, a Paris, France-based provider of rich media solutions for mobile communications, has raised an undisclosed amount of funding from Qualcomm Ventures. The infusion represents the second tranche of a Series B round, which held a first close in April 2006 with participation from AXA Private Equity, T Source, France Télécom Technologies Investissements, GET Valorisation, Sofinnova Partners and Sofinnova Ventures.

Buyout Deals

Golden Gate Capital and Integrity Brands have completed their take-private acquisition of military boot manufacturer Wellco Enterprises Inc. for $14 per share.

TPG has acquired a 72% stake in Indonesian bank PT Bank Tabungan Pensiunan Nasional, for approximately $200 million, according to The Wall Street Journal.

Boom LLC, a New York-based maker of beauty and skin care products, has raised an undisclosed amount of private equity funding led by Brantley Partners. Stifel Nicolaus advised Boom on the deal.

Air France-KLM chief executive Jean-Cyril Spinetta said his group is not in talks with Spanish peer Iberia. British Airways said on Tuesday it had joined with TPG, Vista Capital, Inversiones Ibersuizas and Quercus Equity to consider a possible consortium offer for Iberia. Read more.

General Motors said it is in talks with a “number of parties” about the sale of its Allison Transmission business. Read more.

PE-Backed IPOs

Duff & Phelps Corp., a New York-based provider of financial advisory and I-banking services, has filed for a $200 million IPO. It plans to trade on the NYSE under ticker symbol DUF, with Goldman Sachs and UBS serving as co-lead underwriters. Shareholders include Lovell Minnick Partners and Vestar Capital Partners. Lovell Minnick sponsored a management buyout of the company in 2004 from Webster Financial Corp., while Vestar helped finance the 2005 add-on acquisition of the Corporate Value Consulting business of Standard & Poor’s.

Vitamin Shoppe Inc., a North Bergen, N.J.-based retailer and direct marketer of vitamins, minerals, supplements and other nutritional products, has filed for a $150 million IPO. It plans to trade on the NYSE under ticker symbol VSI, with Bear Stearns, Lehman Brothers and Banc of America Securities serving as co-led underwriters. Bear Stearns Merchant Banking acquired Vitamin Shoppe in 2002, and currently holds a 79.9% pre-IPO position.

PE-Backed M&A

The Qualicaps Group, a maker of empty gelatin and non-gelatin capsules and capsule filling equipment, has acquired two companies: Pharmaphil Inc. and Technophar Equipment & Service Ltd. To finance the acquisitions, Qualicaps owner The Carlyle Group has injected additional equity and executed a debt refinancing. No specific financial terms were disclosed.

Standard Aero Inc., a Winnipeg, Canada-based provider of repair services at airport terminals, has agreed to acquire TSS Aviation Inc. for approximately $65 million. Standard Aero is a portfolio company of The Carlyle Group, but is in the process of being sold to Dubai Aerospace Enterprise for $1.03 billion.

nCircle, a San Francisco–based provider of security risk and compliance management solutions, has acquired Cambia Security Inc., an Alpharetta, Ga.–based provider of configuration auditing. nCircle has raised $52.55 million in total VC funding from firms like Menlo Ventures, BV Capital, Alta Partners, Visa International, Scotiabank, Court Square Ventures, Guide Ventures, Industry Ventures, Millennium Hanson, Tall Oaks Capital and Sands Brothers. Cambia has raised over $7.5 million in VC funding from JK&B Capital.

MedAssets Inc. of Alpharetta, Ga. has completed its acquisition of XactiMed, a Richardson, Texas-based provider of Web-based revenue cycle technologies and services to the healthcare industry. No financial terms were disclosed. MedAssets is backed by Galen Partners, Grotech Capital Group and Parthenon Capital, while XactiMed was controlled by Buena Venture Associates, a fund founded by Sid R. Bass and Lee M. Bass.

Halyard Education Partners, a platform portfolio company of Halyard Capital, has acquired GoalQuest, a provider of online programs to help colleges recruit, enroll,

retain and communicate with students, alumni and parents during the admissions and enrollment process. No financial terms were disclosed.

PE Exits

Republic Financial Corp. has sold American Identity Inc. to Staples Inc. for an undisclosed amount. American Identity is an Overland Park, Kan.–based multi-channel marketer of customized advertising, and was acquired by Republic five years ago. Republic was advised on the sale by Goldsmith Agio Helms.

TPG has sold its 18.7% stake in German broadband operator Freenet to Vatas Holding for €426 million. TPG originally acquired a 27.2% stake in Germany-based Mobilcom in 2005 for €265 million, after which Mobilecom merged with Freenet – thus leaving TPG with 18.7% of the combined company.

AEA Investors is pursuing a sale of Dutch food processing company Convenience Food Systems (CFS), according to Dow Jones.

Walgreen Co. has acquired Take Care Health Systems, a Conshohocken, Pa.-based provider of retail healthcare clinics. Take Care raised $77 million in private equity funding from Beecken Petty O’ Keefe in 2005.

Firms & Funds

Emerging Capital Partners of Washington, D.C. has closed its second EMP Africa Fund with $523 million in capital commitments. The fund will seek minority or majority equity positions in companies throughout Africa, with a focus on larger markets such as Nigeria, South Africa, Egypt, and Kenya.

The Employees Retirement System of Texas (ERS) has selected Altius Associates as its first non-discretionary private equity advisor. Altius beat out Hamilton Lane for the mandate.

Merrill Lynch has agreed to acquire a non-control stake in Sterling Stamos Capital Management, an alternative and traditional investment firm with more than $4 billion in assets under management. No financial terms were disclosed.

Human Resources

ThinkEquity Partners has hired three new technology bankers from Needham & Co. They are: Joe Dews, partner, will lead semiconductor banking; Robin Graham, partner, and Pooyan Mehdizadeh, principal, will work in the M&A department.

Jason Cohen has joined Goldsmith Agio Helms as a vice president in its distressed advisory and restructuring practice. He previously was special counsel in the financial restructuring department of law firm Cadawalader, Wickersham & Taft.

Gus Atiya has joined Fried, Frank, Harris, Shriver & Jacobson LLP as a Washington, D.C.-based corporate partner focused on private finance transactions. He previously was with Hogan & Hartson.