PE Week Wire: Thurs., Sept 20, 2007

Will or won’t Carlyle Group go public? That’s the question this morning, following an announcement that the firm has agreed to sell a 7.5% position to a state-owned investment group in Abu Dhabi. My assessment is that it will, but not anytime soon.

Under terms of the ownership sale, Mubadala Development Co. will acquire its 7.5% position in exchange for $1.35 billion. For context, CalPERS paid just $155 million for a 5% stake back in 2000. Moreover, Mubadala also will commit $500 million to a new U.S. buyout fund that Carlyle is currently raising. It would be the group’s first fund investment with Carlyle, although state-owned sister group ADIA is a longtime Carlyle backer.

So back to the IPO question. On the one hand, this deal gives Carlyle a definitive value ($20b) of which to work with – similar to what Blackstone did with the Chinese government. On the other hand, Carlyle has been able to recognize some brand equity without having to go through the distasteful rigmarole of a public offering (it’s unclear if the transaction is proving Carlyle shareholders with actual liquidity).

Rubenstein seemed to tip his hand a bit yesterday at the PEA Conference in New York, by saying that all of the top firms will be public within the next five years. This is a slight semantic shift from past statements, in which he’s expressed a vaguer belief (i.e., no mention of “top” firms) in the likelihood of publicly-traded private equity. In other words, Carlyle will proceed with an IPO – but not until it’s good and ready. Until then, he’ll just kick back and watch the continued travails of Blackstone and KKR. Maybe during High Tea at The Emirates Palace…

*** Back in February, I told you that the Colorado-based team of Mobius Venture Capital had formed a new firm called Foundry Group. Now a reliable source tells me that the firm has held a $158.75 million first close on its debut fund, from limited partners like Guardian Life, Morgan Stanley, Parish Capital and UTIMCO. It had originally been targeting $175 million, but has since bumped it up to $225 million with a final close expected within the next month.

I was drinking with some Foundry guys earlier this year at VC in the Rockies, when one of them got a cell phone call with word of their first institutional commitment. Lots of excitement all around, although everyone kind of shut up once they remembered that a reporter was in their midst (they declined comment for this piece). Probably an even bigger celebration for the first close, and it really is quite impressive. Mobius doesn’t exactly have a stellar reputation for returns, as evidenced by some Silicon Valley partners who are still on the job market. But apparently Brad Feld’s track record helped Foundry make the grade, along with those of fellow Foundry partners Seth Levine, Ryan McIntyre, Jason Mendelson and Chris Wand.

*** More VC scoop: Vinit Nijhawan has left Key Venture Partners, which he had joined back in 2005 as a venture partner. KVP managing director David Dame confirmed the news yesterday (Nijhawan remains on the firm’s website), and said that it was caused by a divergence of stage focus: “Vinit decided that he has a greater interest in early-stage investing, whereas we’re more focused on growth-stage.”

I also asked Dame about a secondary explanation – that Nijhawan has no economics in the current KVP fund, and had grown weary of waiting for the next one. Dame acknowledged that Nijhawan had the possibility for economics in the next fund, but reaffirmed his original “stage” statement. He also said that KVP still has dry powder for new investments, and that marketing for the next fund is expected to begin in early 2008. There had been reports that marketing for the fund already had begun and was then postponed, but Dame says those talks were all informal, without any PPM ever being drawn up. Some of the rumors, he says, were born of secondary firm interest in some sort of stapled transaction – but those discussions died once Key Corp. said that it wouldn’t sell its existing LP position.

*** And even more VC scoop: Zink Imaging has raised $25 million in a VC funding round led by Petters Group Worldwide. Zink is one of the Boston area’s most exciting startups, and I’ve posted a write-up and some video. Get it here.

Top Three

Sun Capital Partners has offered to buy Kellwood Co. (NYSE: KWD) for $21 per share in cash. The unsolicited bid would value Kellwood at approximately $544 million, and is subject to conditions such as the completion of due diligence. Kellwood is a marketer of apparel and consumer soft goods.

Zillow Inc., a Seattle-based online provider of real estate information, has raised $30 million in Series C funding. Legg Mason Capital Management led the deal, and was joined by return backers Benchmark Capital, Technology Crossover Ventures and PAR Capital Management. The company has now raised $87 million in total VC funding since 2005. Read more here.

AthenaHealth Inc., a Watertown, Mass.-based provider of online business services for physician practices, has raised approximately $113.16 million via its IPO. The company priced around 6.29 million common shares at $18 per share ($14-$16 range), and has an initial market value of $568.81 million. It will trade on the Nasdaq under ticker symbol ATHN, while Goldman Sachs and Merrill Lynch served as co-lead underwriters. AthenaHealth had raised around $34 million in venture capital funding since its 1997 inception, from firms like Oak Investment Partners, Venrock, Draper Fisher Jurvetson and Cardinal Partners.

VC Deals

Phoenix Coal Corp., a Louisville, Ky.-based coal recovery company, has raised around $45 million in Series A funding, according to a regulatory filing. Shareholders include MHI Energy Fund, BTR Global Opportunity Trading Ltd., ABC American Value Fund and The Ospraie Portfolio. Dundee Securities served as placement agent. Phoenix Coal was founded in 2004.

Conterra Ultra Broadband Inc., a Charlotte, N.C.-based provider of broadband transport services in suburban and rural markets, has raised $41 million in private funding. The deal was led by an undisclosed “investment management firm with more than $13 billion in assets.” Also participating were DukeNet Communications LLC, a subsidiary of Duke Energy Corp., and another undisclosed existing shareholder.

Infopia Inc., a Salt Lake City–based provider of on-demand multi-channel ecommerce, has secured $9.4 million of a $17 million Series C round, according to a regulatory filing. Backers includeUV Partners, TTP Capital Advisors (Japan), Hummer Winblad Venture Partners and Trident Capital. Infopia declined to comment, except to say that it is still in “the middle of the financing agreement — it has not been finalized.”

Teneros Inc., a Mountain View, Calif.-based maker of an application continuity appliance, has raised $15 million in Series D funding, according to a regulatory filing. Return backers include Goldman Sachs, New Enterprise Associates, Star Ventures and Sevin Rosen Funds. Teneros has now raised over $53 million since 2004.

OnForce, a New York-based online marketplace for IT service professionals, has raised $6.75 million in Series A-1 funding led by Accel Partners.

Solar Notion Inc., a Sunnyvale, Calif.-based maker of solar energy panels, has raised around $10 million in Series A funding led by hedge fund Third Point, according to a regulatory filing. Inc., a Waltham, Mass.–based provider of online services for families, has raised $2 million in Series A-1 funding led by Matrix Partners, according to a regulatory filing.

Donnorwood Media Inc., a San Francisco-based online entertainment company, has raised $500,000 in convertible note funding from Battery Ventures and Transcosmos, according to a regulatory filing. Donnorwood publishes the online game Tringo, and also recently launched an avatar-building website called Meez.

Solazyme Inc., a Menlo Park, Calif.-based developer of biofuels through the use of microalgae, has raised $5 million in venture debt funding from BlueCrest Capital Finance. The company previously raised around $9 million in VC funding from The Roda Group and Harris & Harris Group.

Intalio Inc., a Woodside, Calif.-based provider of open-source business process management software, has raised an undisclosed amount of VC funding led by Partech International. This follows a $2.3 million recap earlier this year, and includes return backers 3i, Cargill Ventures, Sippl MacDonald Ventures, Woodside Fund, and XML Fund.

Buyout Deals

HgCapital has agreed to acquire talc mining company Mondo Mineralsfrom Omya. No financial terms were disclosed for the deal, which is expected to close next month. Mondo was formed in 1998 via a merger ofNorwegian, Finnish and Dutch talc mining companies.

European Capital has sponsored a recapitalization of Audika Group, a listed French distributor of hearing aids with 340 fully-owned locations. ECAS received a 39% ownership stake in Audika’s holding company, which in turn owns 53.9% of Audika. No pricing terms were disclosed for European Capital’s participation, which includes common equity, senior mezzanine notes and junior mezzanine notes.

Harvest Partners has agreed to sell U.S. Silica Co. to an affiliate of Harbinger Capital Partners. No financial terms were disclosed. U.S. Silica is a Berkeley Springs, West Va.-based maker of industrial silica sand.

United Rentals Inc. (NYSE: URI) said that the total price for its pending buyout by Cerberus has grown from $6.6 billion to $7 billion, according to a proxy statement. The $34.50 per share price remains intact. When the deal was first announced back in July, United Rentals said that it would include $2.6 billion in assumed debt.

PE Exits

First Reserve has completed its sale of Ohmstede Ltd. to Emcor Group Inc. (NYSE: EME) for approximately $455 million in cash. Ohmstede is a Beaumont, Texas-based provider of aftermarket maintenance and repair services, replacement parts and fabrication services for heat exchangers used by the refinery and petrochemical industries.

PE-Backed IPOs

RiskMetrics Group Inc., a New York-based provider of financial risk management and corporate governance products and services, has filed for a $200 million IPO. Underwriters include Credit Suisse, Goldman Sachs and Banc of America Securities. RiskMetrics spun out of JPMorgan in September 1998, and later completed a $122 million recapitalization sponsored by Spectrum Equity Investors (28% pre-IPO stake), General Atlantic (28%) and Technology Crossover Ventures (12.32%). The three firms also added new capital earlier this year.

China Pacific Life Insurance is preparing to raise a combined $4 billion through IPOs in both Shanghai and Hong Kong, according to Dow Jones. The company is 19.9%-owned by a consortium that includes The Carlyle Group and Prudential. Underwriters for the IPOs include Credit Suisse, CICC and UBS.

PE-Backed M&A

AllHeart, a Camarillo, Calif.-based ecommerce site for medical uniform and other healthcare apparel and items, has acquired Jasco Uniform, a Vernon Hills, Ill.-based direct mail marketer of uniform apparel, diagnostic instruments and other healthcare products. No financial terms were disclosed. AllHeart is a portfolio company of Friend Skoler & Co.

EQT Partners has sold deSter Holding BV, an Amsterdam-based provider of in-flight hospitality items, to Gate Gourmet for an undisclosed amount. Merrill Lynch bought Gate Gourmet earlier this year from TPG.

Kurz-Kasch Inc., a Dayton, Ohio–based maker of electromagnetic and engineered composite components, has acquired the assets of MacLean Molded Components from MacLean Vehicle Systems LLC. No financial terms were disclosed. Monomoy Capital Partners acquired Kurz-Kasch from the Dover Corp. in February.

Firms & Funds

Hatteras Investment Partners of Raleigh, N.C. is raising upwards of $500 million for its first late-stage VC fund, according to a regulatory filing.

Lehman Brothers has closed its fifth venture capital fund with $365 million in capital commitments. The fund will target mid-to-late-stage technology companies, and will be managed by a team split between Menlo Park and Boston.

Human Resources

Mark Woodward has joined The Blackstone Group as a senior advisor in the firm’s private equity group, focused on software opportunities. He will be based in the Bay Area, and previously was president and CEO of PE-backed Serena Software.

James Hart and Tad Yanagi have joined TA Associates as vice presidents. Hart will work out of TA’s Menlo Park office, and previously was an associate with both Sageview Capital and KKR. Yanagi will be based in Boston, and previously was a senior associate with J.W. Childs Associates.

Ventures West has promoted Ken Galbraith to general partner. He joined the firm five months ago as a venture partner focused on life sciences opportunities, after having served as chairman and interim CEO of AnorMED, until its $600 million cash sale to Genzyme.

Hercules Technology Growth Capital has made four promotions: Bill Allen and Steve Kuo have been promoted to the position of principal, while Roderick Purwana and Arip Tirta have been promoted to the position of senior associate.