PE Week Wire: Thurs., Oct. 4, 2007

Lots of things about Florida confuse me. Like its inability to manage federal elections, or why it was allowed to have two major league baseball teams. But here’s a more relevant example of eccentricity: The Florida State Board of Administration’s decision to sell a stapled portfolio on behalf of Liberty Partners.

This is the first such offering from a state pension fund on behalf of a captive private equity fund. It is also the first time I’ve ever described a private equity transaction as bordering on corporate welfare.

Some background: Florida has been Liberty’s only limited partner since the New York-based firm was founded back in 1992. In turn, Liberty was Florida’s first general partner (via an evergreen fund), and its only one for more than a decade. Florida has since diversified its private equity portfolio, but this new stapled offering reflects how tightly bonded the two entities remain.

The deal is structured as follows: Liberty has packaged six portfolio companies, which it will sell for approximately $190 million to a secondary buyer, or group of secondary buyers. This price is at-cost to Liberty, minus a small percentage ownership being retained by Florida. The portfolio companies will then be rolled into a new Liberty fund, which will be supplemented by another $190 million from the secondary buyers (i.e., the staple). Florida itself will not participate in the new fund, save for its minority ownership positions of the six cornerstone portfolio companies.

To its credit, Florida’s participation in this deal will help it further reduce to Liberty, which should free it up to invest more with other general partners. This is sorely needed, when one realizes that Florida’s current Liberty (over)exposure sits at around 30% (it was 40% at the end of 2005). That said, Florida also may be artificially restricting the number of potential buyers, as some groups might not be interested in the “blind pool” commitment. This includes not only direct secondary buyers, but also possible strategic and financial sponsor buyers.

And pay attention to my use of the term “buyers” – which is distinct from “bidders.” The stapled transaction comes with a fixed price – which means that Florida is giving up its opportunity to make a profit on these investments (save for its retained minority stake). A non-stapled sale would have at least held the possibility of a profit –albeit a faint possibility given that Liberty acquired the six portfolio companies fairly recently.

This whole thing reads like one friend’s attempt to save another, as Liberty would have been unable to raise an independent fund on its own. It’s made such overtures in the past, but gotten little traction. It is also different than a typical stapled secondary, in that the secondary buyers will become the new blind pool’s only limited partners (again, save for that small Florida piece).

For example, it differs from when Bank of America spun out Scale Venture Partners, in that the buyers knew they would be part of a large syndicate that also included the seller (i.e., a gesture of faith). This could be just a few folks, with the general partner never needing to prove itself on the open market.

So maybe Florida is simply exhibitting a noble piece of institutional loyalty, but a state pension system should only serve one master: Its pensioners. In this case, it should be doing a better job of it.

A spokesman for the Florida State Board of Administration said he’d get back to me. But that was yesterday. When he does so, I’ll be sure to let you know. Also no response from Liberty. Tripp Brower of Dallas-based Capstone Partners, which is managing the transaction, took my call, but declined to comment, citing confidentiality restrictions.

By the way — it’s worth noting that none of the above should be taken to suggest that the deal won’t get done. It most likely will, according to sources I spoke with.

Top Three

Bain Capital said it will submit for a national security review its proposed $2.2 billion buyout of networking equipment maker 3Com Corp. The voluntary move comes after certain politicians already have expressed concern about 3Com being partially owned by Chinese telecom company Huawei Technologies, which is partnering with Bain, in exchange for a minority stake. Full story here.

Braemar Energy Ventures, a New York-based firm focused on early-to-mid-stage energy tech opportunities, has closed its second fund with $250 million in capital commitments. Limited partners include MassMutual, AlpInvest Partners, Morgan Stanley Alternative Investments, Robeco, GIC Special Investments, Macquarie and the PCG Clean Energy and Technology Fund (sponsored by CalPERS).

Veronis Suhler Stevenson has agreed to acquire 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.

VC Deals

Asoka USA Corp., a Foster City, Calif.-based provider of powerline communications network solutions, has raised $7 million in Series A funding co-led by Storm Ventures and Venrock. The deal gives Asoka a post-money valuation of $15 million, according to a VentureWire interview with CFO Jeff Chase.

Mix1 Beverage Co., a Boulder, Colo.-based provider of protein & antioxidant drinks, has raised $6 million in Series B-2 funding from individual angels.

NiTech Solutions, a UK-based developer of a mixing technology to help companies reduce manufacturing costs, has raised £800,000 in second-round funding from PUK Ventures., a San Francisco-based lidecasting startup, has raised an undisclosed amount of VC funding from Alsop Louie Partners.

Denison Entertainment, a Los Angeles-based film studio, has raised $96 million in private equity funding, with hedge fund Ginepri Capital Partners providing $75 million. Denison’s first release is scheduled for next year.

Buyout Deals

Apax Partners has agreed to sponsor a management buyout of Faceo, from joint shareholders Cegelec and Thales. France-based Faceo provides various facilities management services, including property management, cleaning and security. Clients include Nestlé, Siemens and France Telecom. The deal will be financed through equity, senior debt arranged by Societe Generale and mezzanine debt from Indigo.

France Telecom and Mid Europa Partners have completed their acquisition of Austrian mobile operator One, which was originally announced in June. The deal gives One an enterprise value of approximately €1.4 billion, with Mid Europa holding a 65% stake and France Telecom holding the other 35 percent. Leveraged financing was arranged by The Royal Bank of Scotland, Societe Generale and Morgan Stanley.

Marcal Paper Mills Co., an Elmwood Park, N.J.-based maker of household paper products, said that it would seek a sale of the company by year-end, as part of an amended reorganization plan with the U.S. Bankruptcy Court in New Jersey. The move comes after Marcal originally had planned to exit bankruptcy via a $60 million investment from Apollo Capital Management.

PE-Backed IPOs

AmWINS Group Inc., a Charlotte, N.C.-based wholesale distributor of specialty insurance products and services, has withdrawn its registration for a $115 million IPO. The company did not provide an explanation for its decision.AmWINS hadplanned to trade on the NYSE under ticker symbol AGI, with Merrill Lynch and Wachovia Securities serving as co-lead underwriters. Parthenon Capital acquired a controlling interest in AmWINS in October 2005.

China Digital TV Holding Co., a Beijing-based provider of conditional access systems to China’s digital television market, has increased its IPO price range from $11-$13 per share, to $13-$15 per share. It still plans to offer 12 million American depository shares, and trade on the NYSE under ticker symbol STV. If the IPO prices at the high end of its revised range, it would give China Digital an initial market cap of approximately $832 million. Morgan Stanley and Credit Suisse are serving as co-lead underwriters. Shareholders include SAIF, with a 21.8% pre-IPO stake.

SandRidge Energy Inc. (f.k.a. Riata Energy), an Oklahoma City-based oil and gas exploration and production company, has set its IPO terms to 26 million common shares being offered at between $22 and $24 per share. It plans to trade on the NYSE under ticker symbol SD, with Lehman Brothers serving as lead underwriter. Ares Management holds a 12.3% ownership stake, based on a $250 million common stock investment it made earlier this year. SandRidge filed for a $276 million IPO last year, but later withdrew its registration.

PE Exits

Bain Capital has agreed to sell buy Dutch coatings company SigmaKalon Group to PPG Industries (NYSE: PPG) for approximately €2.2 billion, including assumed debt. SigmaKalon was created in 1999 from the merger of Total’s Kalon Group and PetroFina’s Sigma Coatings, and was acquired by Bain in 2003. Sales have increased from approximately €1.7 billion in 2003 to approximately €2 billion in 2006.

Citigroup Inc. has completed its acquisition of Automated Trading Desk LLC, a Mount Pleasant, S.C.-based developer of automated trading and customized equity execution solutions. When the deal was announced back in July, Citigroup had said that it was worth around $680 million in cash and stock ($102.6m cash, 11.17m Citigroup shares). That figure later dropped to $637 million, due to a decrease in Citigroup’s share price. ATD had raised $60 million in equity earlier this year from Technology Crossover Ventures.

EMC Corp. (NYSE: EMC) has acquired Berkeley Data Systems Inc. (a.k.a. Mozy), an American Fork, Utah-based provider of the online information backup and recovery services. No financial terms were disclosed. Berkeley has raised a small amount of VC funding from the Wasatch Venture Fund, Drew Major and Tim Draper.

MidOcean Partners has completed its sale of Palace Entertainment to Parque Reunidos for $330 million in cash. The deal also included the assumption of an unspecified amount of debt. Palace Entertainment is a Newport Beach, Calif.–based owner and operator of water parks and family entertainment centers.

NES Rentals Holdings Inc., a Chicago-based provider of aerial equipment rentals, has sold its Traffic Safety and Studio Equipment businesses to Aperion Management and Falcon Investment Advisors. No financial terms were disclosed. NES is a portfolio company of Diamond Castle Holdings.

Single Touch Interactive, a San Diego–based developer of abbreviated dialing codes, has acquired Soapbox Mobile, a San Diego-based mobile marketing agency and technology platform provider. No financial terms were disclosed for the deal, which will give Single Touch a carrier-grade campaign management and analytics platform. Soapbox Mobile raised $10 million in October 2005 from Equal Elements.

Yahoo Inc. (Nasdaq: YHOO) has received federal antitrust clearance for its $300 million cash acquisition of BlueLithium Inc. San Jose, Calif.-based online ad network. BlueLithium raised an $11.5 million VC round in 2005 from 3i Group and Walden Venture Capital.

PE-Backed M&A

AzoogleAds of New York has acquired fellow search engine marketing company Bazaar Advertising Solutions Inc. of San Francisco. No financial terms were disclosed. Azoogle has raised VC funding from TA Associates the The Sripes Group.

Focus Financial Partners, a New York-based wealth management and consulting group, has acquired five new wealth management firms with an aggregate of $8 billion in client assets. They are: GW & Wade (Mass.), Dion Money Management (Mass.), Lara, Shull & May (Washington DC), Benefit Funding Services Group (Calif.) and JFS Wealth Advisors (Penn.). No financial terms were disclosed. Focus Financial is backed by Summit Partners.

Firms & Funds

Frontier Capital, a Charlotte, N.C.-based growth equity firm, has closed its second fund with $115 million in capital commitments. Limited partners include Lockheed Martin Corp., Alpheus Group, Parish Capital, the Duke Endowment, Brooke Private Equity Advisors, Little Hawk Capital Management, Pittco Management and Keystone Private Equity.

Nordic Capital plans to raise €4 billion for its seventh buyout fund, according to an LBO Wire recounting of the firm’s recent annual meeting. The firm also told LPs that it would look more actively for opportunities outside of Scandinavia, particularly in Germany.

Human Resources

Joyce Chung and Henry Wong have joined Garage Technology Ventures as managing director and venture partner, respectively. Chung previously co-founded Cardinal Venture Capital and, before that, was a director with Adobe Ventures. Wong has served as an advisor to Garage since 2002, while also running China-focused venture fund Diamonf TechVentures.

Sebastian McKinlay has joined Fidelity Equity Partners as a partner in the firm’s new London office. He previously co-founded both Promethean Investments and Kleinwort Capital (now August Equity). Fidelity also has hired three vice presidents: Stephen Findlay (London), Paul Lipson (Boston) and John Chang (Boston).

Jeffrey Leiden, a managing director with Clarus Ventures, has joined the board of directors with Millennium Pharmaceuticals Inc. (Nasdaq: MLNM). Prior to joining Clarus, Leiden had served as president and COO of Abbott Labs’ global pharmaceuticals business.