PE Week Wire: Thurs., Nov. 1, 2007

Limited partners usually look forward to stock distributions from their general partners. It’s not quite the liquidity of a cash distribution, but still superior to the erethral dryness of a printed IRR. But there are exceptions to any rule – and sometimes they are large enough that an LP will call me to say: “We got screwed.”

This is one of those exceptions.

Last Thursday night, Lightspeed Venture Partners distributed over $100 million in Riverbed Technology (Nasdaq: RVBD) stock. The deal was tagged with around a $42.22 per share distribution price, which was based on the five-day trading average prior to distribution. This is also the mark that Lightspeed used to determine its carried interest, as specified in its limited partnership agreements. No official harm or foul.

Unofficially, however, the distribution was a show of bad faith. Riverbed stock had mostly traded above $40 for months, even surpassing $50 in mid-day trading a few weeks ago. But that all came to a crashing halt last Wednesday, following the release of disappointing earnings. Riverbed stock last Wednesday sunk more than 28%, to close at just $34.61 per share. Things got even worse the subsequent day, with a $32.67 per share close.

It was at this point that Lightspeed decided to make its distribution, using a five-day average that included three high days and two low days. In other words, LPs were told to pay carry on over $42 per share, on the very day that the stock is trading at under $33 per share? Simply unfair.

There are plenty of times when a stock spikes or tanks after a distribution, in which case either the GP or LP is honestly chagrined. But that is not what happened here, as the tank had already occurred. Lightspeed knew that the distribution price would be significantly higher than what LPs could actually sell the stock for, which would be particularly tough for those LPs who are mandated to sell distributed shares immediately.

Lightspeed declined to comment, but perhaps would argue that the tank is precisely why it distributed on Thursday, under the premise that Riverbed would not regain its past glory. Get in those three good days… Fine, but then it should amend its LP agreements and take a lower carry. Not because it has to, but because it’s the right thing to do.

It’s also the best strategic move. Lightspeed plans to raise another fund (likely next year), and LPs tell me that they’ll remember this incident when due diligence comes back around. All it takes is a few sour LPs to sour the bunch.

It’s not too late Lightspeed. Do the right thing. Do the smart thing.

Top Three

Specific Media, an Irvine, Calif.-based online advertising network, has raised $100 million in Series B funding from Francisco Partners. Specific Media will use the new capital for acquisitions, and was advised by Piper Jaffray.

Cisco Systems has agreed to acquire Securent Inc. for approximately $100 million in cash and assumed options. Securent is a Mountain View, Calif.-based provider of entitlement management software. It raised a $6.07 million Series A round last year from Greylock Partners and Onset Ventures.

Chrysler LLC plans to pay off thousands of hourly workers in Michigan and Ohio, just months after being taken private by Cerberus Capital Management. .

VC Deals

Novalar Pharmaceuticals Inc., a San Diego-based developer of drugs that reverse the effects of local anesthesia in dental procedures, has raised $30 million in Series D funding. New Enterprise Associates led the deal, and was joined by return backers Domain Associates, Genevest, S.R. One, Montreux Equity Partners and Sears Capital Management. Novalar has now raised around $75 million since 2000. VentureWire first reported details on the new round.

Tranzyme Pharma, a Durham, N.C.-based developer of small-molecule drugs for gastrointenstinal and metabolic diseases, has raised $20 million in new VC funding. Return backers included H.I.G. Ventures, Thomas, McNerney & Partners, Quaker BioVentures and BDC Venture Capital. Tranzyme has now raised around $53 million in total VC funding since 1999.

Bluespec Inc., a Waltham, Mass.-based developer of electronic system level (ESL) synthesis for control logic and complex datapaths in chip design, has raised $4.25 million in Series C funding. Return backers include Atlas Venture and North Bridge Venture Partners. Bluespec has now raised $17.25 million in total VC funding.

Asteres Inc., a San Diego-based, has called down $4 million of an $8 million Series C-1 round, according to a regulatory filing. Return backers include Forward Ventures. Pacific Venture Group and Sanderling Venture Partners.

eXelate Media Ltd., an Israel- and New York-based online advertising startup, has raised $4 million in first-round funding from Carmel Ventures.

Galaxy Desserts, a Richmond, Calif.-based provider of single-serving gourmet desserts, has raised $2.7 million in VC funding from Pacific Community Ventures.

SezWho, a Los Altos, Calif.-based provider of ratings and reputation services for online communities, has raised $1 million in first-round funding from KPG Ventures.

Rebel Monkey, a New York-based casual gaming startup, has called down $255,000 of a $1 million Series A round from Redpoint Ventures, according to a regulatory filing. Rebel Monkey was formed by Margaret Wallace (formerly with Skunk Studios and Shockwave) and Nick Fortugno (former director of game design at Gamelab).

Buyout Deals

Bain Capital has completed its acquisition of the Bath and Kitchens products business of American Standard Companies Inc. (NYSE: ASD). The total deal was valued at just under $1.76 billion, with Bank of America and Credit Suisse providing leveraged financing. Lazard advised ASD on the sale, while Bain was being advised by Lehman Brothers.

Canada’s Public Sector Pension Investment Board has completed its acquisition of fixed satellite services provider Telesat Canada. The deal was valued at Cdn$3.25 billion, with Telesat Canada being combined with substantially all of the assets of Loral Skynet Corp.

Corporate Fuel Partners has acquired Resonetics Inc., a Nashua, N.H.-based laser micromaching company. No financial terms were disclosed.

H.I.G. Capital has completed its acquisition of Gienow Windows & Doors Income Fund (TSX: GIF.UN), a Calgary-based maker of windows and doors. The total deal was valued at approximately Cdn$183 million, with Gienow stockholders receiving Cdn$4.20 per share.

Linden LLC and The Edgewater Funds have acquired BarrierSafe Solutions International Inc. from Riverside Partners and StoneCreek Capital. No financial terms were disclosed. FirstLight Financial Corp. and CIT healthcare co-managed the senior debt, while Brown Brothers Harriman provided subordinated notes and an equity co-investment. BarrierSafe is a Reno, Nev.-based maker of disposable barrier protection and infection control products, including gloves.

Linsalata Capital Partners has acquired Transpac Imports Inc., a Vacaville, Calif.-based importer and distributor of giftware, seasonal decorations and home and garden products. No financial terms were disclosed.

Nalanda Capital of Singapore has acquired a 14.9% stake in Vaibhay Gems Ltd., a listed exporter of colored gemstones from India. The total transaction size, if warrants are exercised, will be around $35 million. Nalanda made the investment out of a $400 million India-focused fund it closed earlier this year.

Nicolet Capital Partners of Chicago has acquired Transilwrap Co., a Franklin Park, Ill.-based maker of synthetic films like the plastic coatings on ID badges. No specific terms were disclosed, although Crain’s Chicago reports that the deal was worth more than $100 million.

ReichmannHauer Capital Partners has acquired Canadian photo shop operator Black’s Photo Corp. from FujiFilm Canada Inc. No financial terms were disclosed. Black’s has a network of 116 stores.

Rand A Technology Corp. (TSX: RND) shareholders have approved a Cdn$2.10 per share buyout offer from Ampersand Ventures. The total deal will be worth approximately Cdn$43 million. Rand A Technology is an Ontario-based provider of professional services and technology to the engineering community.

Veronis Suhler Stevenson has completed its acquisition of Tranzact from Halyard Capital, for $185 million in cash. The deal represents a 12x ROI for Halyard, which helped form the company back in 2003. Tranzact is a Fort Lee, N.J.-based provider of customer acquisition marketing services for the financial services, media and telecom markets. Company management will retain an ownership position, following the VSS acquisition.

PE-Backed IPOs

Deltek Systems Inc., a Herndon, Va.–based provider of enterprise applications software for project-focused organizations, raised $162 million in its IPO. The company priced nine million common shares at $18 per share ($17-$19 range), for an initial market cap of approximately $775 million. It will trade on the Nasdaq under ticker symbol PROJ, while Credit Suisse served as lead underwriter. New Mountain Capital held a 73.7% pre-IPO position – which was reduced to 58.6% post-IPO.

Nanosphere Inc., a Northbrook, Ill.-based molecular diagnostics company with a nanotech-based platform to enable earlier disease detection and treatment, raised $98 million in its IPO. The company priced seven million common shares at $14 per share ($14-$16 range), for an initial market cap of approximately $295 million. It will trade on the Nasdaq under ticker symbol NSPH, while Lehman Brothers served as lead underwriter. Nanosphere had raised around $80 million in VC funding since 2000, including a Series D round in 2006 at a post-money valuation of just under $120 million. Shareholders include Brookside Capital Partners, Lurie Investments, Bain Capital Ventures and Allen & Company.

EnergySolutions Inc., a Salt Lake City-based provider of low-level radioactive waste disposal services, has set its IPO terms to 30 million American depository shares being offered at between $19 and $21 per share. It plans to trade on the NYSE under ticker symbol ES, with Credit Suisse, JPMorgan and Morgan Stanley serving as co-lead underwriters. The company is owned by a private equity consortium of Lindsay Goldberg & Bessemer, Peterson Partners, and Creamer Investments.

PE Exits

CACI International Inc. (NYSE: CAI) has completed its acquisition of Athena Innovative Solutions Inc. from Veritas Capital. No financial terms were disclosed. Athena is an Arlington, Va.-based provider of specialized services and solutions to the intelligence community and national security clients.

Comscore Inc. (Nasdaq: SCOR), a Reston, Va.-based provider of online consumer behavior analysis, has filed for a secondary public offering of 6.13 million common shares. The company’s stock closed trading Tuesday at $36.52 per share, which would value the deal at just over $255 million. Selling shareholders will include: Institutional Venture Partners (835,431 shares offering), JPMorgan Partners (919,731), Lehman Brothers (731,548), Adams Street Partners (714,486), Topspin Partners (250,000), Flatiron Partners (246,669) and vSpring (348,717).

Iron Mountain Inc. (NYSE: IRM) has agreed to acquire Stratify Inc. for approximately $158 million in cash. Stratify is a Mountain View, Calif.–based provider of electronic discovery services for the legal market. It has raised just over $40 million since 1999, when it was known as Purple Yogi. This includes Series C and Series D infusions in 2000 at a post-money valuation of approximately $65 million and $113 million, respectively. VC backers include Intel Capital, Mobius Venture Capital, In-Q-Tel and Infosys Technologies Ltd.

PE-Backed M&A

Aero Systems Engineering Inc., a St. Paul, Minn.-based provider of turbine engine, wind tunnel and aerodynamic testing services, has acquired Celtech Corp., a Carlsbad, N.M.-based maker and refurbisher of mobile jet turbine and turbo prop test stands for military customers. No financial terms were disclosed. ASE is a portfolio company of Tonka Bay Equity Partners.

Chemtura Corp. (NYSE: CEM) has sold its optical monomers business to Acomon AG, a Switzerland-based affiliate of German private equity firm Auctus Management. No financial terms were disclosed for the deal, which included Chemtura’s manufacturing facility in Ravenna, Italy.

Evenflo Inc., a Vandalia, Ohio-based maker of baby products like car-seats, strollers and highchairs, has acquired breast pump maker Ameda from Hollister Corp. The deal was worth approximately $50 million, according to S&P. Weston Presidio bought Evenflo earlier this year from Harvest Partners.

Kronos Inc. has acquired Deploy Solutions Inc., a Newton, Mass.-based provider of workforce management enterprise software. No financial terms were disclosed. Chelmsford, Mass.-based Kronos was taken private earlier this year by Hellman & Friedman and JMI Equity, in a $1.8 billion transaction. Deploy Solutions had raised $36 million in VC funding from backers like Stata Venture Fund.

Firms & Funds

Bank of Scotland Corporate has acquired a 19.9% stake in Pi Capital, a UK-based investment club for high-net-worth entrepreneurs. No financial terms were disclosed. Pi has co-invested with such private equity firms as Alchemy, Englefield Capital and BC Partners.

Cisco Systems announced a $16 billion expansion into China, including a venture capital investment partnership with government-owned China Development Bank.

VenturEast, an Indian firm previously known as APIDC Venture Capital, is targeting $150 million for a new fund that will focus on both early-stage and growth-stage technology opportunities. It already has secured nearly $100 million in commitments.

Warburg Pincus has held a $9 billion first close for its tenth fund, according to a regulatory filing. The New York-based firm is targeting $12 billion with a $15 billion cap, and began fundraising this past March.

Human Resources

Ethan Ayer has joined Milestone Venture Partners as a general partner, focused on opportunities in the digital media, wireless, software and interactive marketing sectors. His first deal for Milestone is Worktopia, an online direct booking engine for corporate meeting space. Ayer previously was a managing director with One Equity Partners.

David Tennenhouse has joined New Venture Partners as a partner, based in the firm’s new Silicon Valley office. Tennenhouse previously was vice president of research at Intel Corp., and before that served as chief scientist in DARPA’s information technology office. NVP now has four offices, including ones in the UK, The Netherlands and its U.S. headquarters in Murray Hill, New Jersey.

Ellen Gonda has agreed to join The Carlyle Group as director of communications for the Americas, effective December 3. She previously was with PR firm Brunswick Group, where she focused on corporate and financial communications.