PE Week Wire: Thurs., Sept. 27, 2007

The sun is shining, the beloved Red Sox could clinch tonight and Sallie Mae doesn’t look like it will follow Harman International down Pushover Lane. In other words, it’s time for some Thursday Throwback.

First up was yesterday’s column on Mike Richter, the hockey goalie turned private equity pro. Or, more specifically, an apparent error I made in that piece. Larry sums up what an astonishing 45 other people emailed to let me know: “Steve Young is still involved in private equity. He’s still listed as a co-founder and managing director of Sorenson Capital.” Another reader chimed in to say that Young was recently at an industry event, representing Sorenson. Apologies. The reason for my confusion is that while Young was listed as an executive director for Sorenson’s debut fund, he is not listed in similar filings for a second fund that is currently being raised. Guess he’s just scaled back a bit, but not departed.

Michael replies to last Friday’s column about AthenaHealth’s IPO underwriters, who I argued had left too much cash on the table: “Sometimes it is better to price lower and leave some money on the table and allow the stock to develop a track record than try to maximize the price out of the gate. There are lots of things to consider: how much the VC owners are going to hold post close (easier to do a follow-on in 180 days if the stock has performed like a horse out of the gate), the types of institutions that are buying in the offering, etc.”

Per usual, a bunch of carried interest comments, following my conversation with Rep. Tom Reynolds. Attorney David writes: “If the issue is a personal tax issue, residence is irrelevant isn’t it? US taxation on its citizens is based on worldwide income and if all we’re talking about is carried interest, I’d imagine that most of the players are citizens. How would off-shoring help?”

George: “You are reaching the wrong conclusion, and it will put a damper on investment activity (new) already hurt by Sarbox and new accounting rules. If innovation is to be encouraged (and it does generate most employment growth), then people who start companies (and that includes the startup investors) must be rewarded for that risk. Otherwise their money will go elsewhere. And if you think it is the LPs who find, create, and grow these companies, then you’re smoking dope.” Just to reiterate George — I’m most partial to a compromise plan that would view carried interest as a middle ground between capital gains and ordinary income.

J: “I went into this game because I loved the idea, but the carry tax was the delta. I literally would not have been a VC if I thought my carry was to be taxed as income – and there would be thousands of fewer jobs – and my tax “break” was at best a million bucks. Who is going to replace me and create thousands of tech jobs for a million bucks? If the government baits and switches me (which is what is proposed, if you cut through the garbage) I will tell my young sons to never trust the government when it comes to choosing your career. Don’t pick your highest value, because they will rob you. Just go paint. The less productive you are, the more highly you will be valued.”

Stephen: “If you keep up this trend I am not sure why anyone who disagrees with you would ever grant you an interview. This congressman took the time out of his day to give you an interview and for the effort he got a full 1.5 paragraphs halfheartedly summarizing his points immediately followed by 5 paragraphs of your own opinion systematically trying to destroy his point of view. Real objective journalism there, people on the Colbert Report have a better chance of getting their point across.”

And my favorite email of the week came this morning from the anonymous tip box: “You mentioned last week’s that you’re participating in a walk to benefit Alzheimer’s Disease research. Has the period to donate passed?” Almost, dear anonymous reader. The walk is this Sunday, and any last minute donations would be greatly appreciated. They can be made online here. And HUGE gratitude to the PE Week Wire readers who have already contributed.

Top Three

The $25 billion buyout of student lender Sallie Mae is in trouble, as its buyers have informed the company that they will not honor their $60 per share commitment. J.C. Flowers was slated to lead the deal, with Friedman Fleischer & Lowe, J.P. Morgan Chase and Bank of America also participating. Flowers told Sallie Mae that it is open to negotiating new terms, but that the current deal has been effectively voided by new federal legislation that would cut in half the interest rate on government-backed student loans. This change would be paid for by slicing $19 billion of federal subsidies given to lenders like Sallie Mae. The bill is expected to be signed into law today by President Bush, and also would cap the amount a student borrower is required to repay each year. Read more here.

Ceres Inc., a Thousand Oaks, Calif.-based developer of energy crops that can be planted as feedstocks for cellulosic ethanol production, has raised $75 million in Series F funding led by Warburg Pincus. It is unclear who else participated in the deal. Ceres has previously raised over $77 million in VC funding from Artal Luxembourg, Oxford Bioscience Partners, GIMV, H&Q, KBC, Monsanto Co., Oppenheimer Funds, QuestMark Partners and Towerbrook Capital Partners. A 2001 round came with a post-money valuation of nearly $200 million.

Google (Nasdaq: GOOG) today will have to defend its proposed $3.1 billion acquisition of DoubleClick Inc., in front of the Senate Judiciary Committee. The deal faces strong opposition from consumer privacy groups, while Microsoft has raised antitrust concerns. The Senate cannot block the deal, but could be influential with FTC regulators. Current DoubleClick owners Hellman & Friedman and JMI Equity bought DoubleClick in 2005 for $1.1 billion. Read more here.

VC Deals

Sagent Pharmaceuticals Inc., a Schaumberg, Ill.-based developer of injectable drugs, has raised $53 million in Series A funding led by Vivo Ventures. The company was founded in 2006, and says that it has more than 200 products in development.

Corium International Inc., a Menlo Park, Calif.-based transdermal drug delivery company, has raised $25.1 million in Series C funding. Essex Woodlands Health Ventures led the deal, and was joined by Quantum Technology Partners, Aphelion Capital and an undisclosed strategic investor. Corium also has set terms with Essex Woodlands on a $15.2 million Series D round to close within the next 24 months. In related news, Corium has agreed to merge with StrataGent Life Sciences Inc., an existing portfolio company of Essex Woodlands, Quantum Technology and Aphelion Capital. Seven Hills Partners acted as Corium’s exclusive financial advisor and placement agent in these transactions.

PPLive Inc., a China-based operator of a P2P video site, has raised $21 million in Series B funding. Draper Fisher Jurvetson led the deal, and was joined by affiliate DFJ Dragon and return backers BlueRun Ventures.

Quellan Inc., a Santa Clara, Calif.-based provider of analog signal processing and RF noise cancellation, has raised $20 million in Series C funding. W.L. Gore & Associates and Jafco were joined by return backers Menlo Ventures, Yamacraw Capital Seed Fund, Cordova Ventures, Samsung Ventures America, and VentureTech Alliance. Analog semiconductor industry veteran Robert Dobkin also participated in the round, and has joined the Quellan board of directors. Quellan previously had raised around $22.5 million in VC funding since 2001.

Sequel Pharmaceuticals, a San Diego-based developer of a drug candidate for the treatment of atrial fibrillation, has raised $20 million in Series A funding. Sequel recently spun out of NovaCardia, following that company’s acquisition by Merck & Co.The $20 million came from past NovaCardia backers Domain Associates, Forward Ventures, InterWest Partners, Montreux Equity Partners and Skyline Venture.

ConsumerPowerline Inc., a New York-based provider of energy demand response solutions, has raised $17 million in Series A funding. Expansion Capital Partners led the deal, and was joined by Bessemer Venture Partners, Schneider Electric Ventures, the New York City Investment Fund and Vantania Holdings. ConsumerPowerline was advised on the deal by Consensus Business Group.

Overture Networks Inc., a Morrisville, N.C.-based maker of high-speed networking equipment, has raised $12.3 million in third-round funding. Lehman Brothers Venture Partners led the deal, and was joined by return backers like Intersouth Partners. Overture will use the capital to expand marketing in Europe and to develop new products.

Four Interactive, a Bangalore-based online local information company, has raised $10 million in Series B funding, according to the VC Circle blog. Lightspeed Venture Partners led the deal, and was joined by Silicon Valley Bank and Matrix Partners India.

Octavian Inc., an Israel-based provider of wealth and investment management software, has raised $10 million in second-round funding. Vertex Venture Capital was joined by return backers Carmel Ventures and Gemini Israel Funds.

Mashery, a San Francisco-based provider of services that help companies support and manage access to web services and data via an API, has raised an undisclosed amount of second-round funding. Formative Ventures and The Accelerator Group were joined by return backer First Round Capital.

212 Resources, a Midway, Utah-based portfolio company of @Ventures, has secured a $250 million credit facility from GE Energy Financial Services. The capital will be used to finance the implementation of 212 Resources’ water treatment technology, which uses vapor compression flash evaporation systems.

Buyout Deals

Fox Paine has completed its acquisition of Icicle Seafoods Inc., a Seattle-based seafood harvesting and processing company with processing facilities throughout Alaska. No financial terms were disclosed.

Leonard Green & Partners has acquired Scitor Corp., a Herndon, Va.-based provider of engineering and management consulting services to U.S. defense and intelligence agencies. No financial terms were disclosed, although LBO Wire puts the price in excess of $500 million – including an oversubscribed $187.5 million senior note tranche.

PHH Corp. (NYSE: PHH) shareholders have approved a deal whereby the company would be taken private, and split in two. Under terms of the deal, The Blackstone Group would acquire PHH Mortgage, which originates private-label mortgages for groups like Merrill Lynch, while GE Capital Solutions would acquire PHH Arval, which provides fleet management services in North America. PHH stockholders would receive $31.50 per share, which puts the total deal value at approximately $1.69 billion. PHH is based in Mt. Laurel, N.J., and spun off from Cendant Corp. in early 2005.

PE-Backed IPOs

Mitel Networks Corp., an Ottawa-based provider of integrated communications solutions and services for business customers, has withdrawn its proposed US$150 million IPO. Mitel said its decision was “in light of the company’s recently-completed acquisition of Inter-Tel (Delaware) Inc.” Company shareholders include EdgeStone Capital Partners.

SoundBite Communications Inc., a Burlington, Mass.-based provider of on-demand automated voice messaging solutions, has set its proposed IPO terms to six million common shares being offered at between $12 and $14 per share. It would have an initial market cap of approximately $210 million, were it to price at the high end of its range. Soundbite plans to trade on the Nasdaq under ticker symbol SDBT, with Cowen & Co. and Thomas Weisel Partners serving as co-lead underwriters. The company has raised around $30.4 million in VC funding since 2000, from firms like North Bridge Venture Partners (46.1% pre-IPO stake), Mosaic Venture Partners (20.8%), Commonwealth Venture Capital (16.4%) and Venture Capital Fund of New England (9.9%).

PE Exits

Accor (FR: 12040) has acquired Prepay Technologies Ltd., a UK-based provider of stored-value card solutions, for Gbp50 million. Sellers include GE Capital, GRP Partners, Arts Alliance and Link Group.

Astra Tech AB, a Swedish med-tech subsidiary of AstraZeneca PLC, has acquired Atlantis Components Inc., a Cambridge, Mass.–based developer of dental implants. The deal is valued at $71 million in cash. Atlantis Components had raised around $36 million in VC funding since 2000, from firms like VIMAC Ventures, CID Equity Partners, Massachusetts Technology Development Corp., Sanders Morris Harris, Ironwood Capital Advisors, Signet Healthcare Partners and Herron Capital.

AEA Investors has hired Goldman Sachs to explore a sale of portfolio company Burt’s Bees Inc., a Durham, N.C.-based maker of personal care products like lip balm. The news was first reported by The Deal, which said buyers may pay up to $1 billion.

Sentinel Capital Partners has completed its sale of MetroCare Dental to American Dental Partners Inc. (Nasdaq: ADPI) for $85 million in cash. MetroCare Dental is a multi-specialty dental group with 34 dental facilities in the Minneapolis-St. Paul area.

PE-Backed M&A

Sugar Inc., a San Francisco-based blog publisher, has acquired ShopStyle Inc., a Los Altos, Calif.-based social shopping website. Sugar has raised more than $5 million in VC funding from Sequoia Capital and NBC Universal Digital Media.

TMP Worldwide Advertising & Communications LLC, a New York–based recruitment advertising agency, has acquired People in Business Ltd., a UK-based employer brand consultancy. No financial terms were disclosed. Veronis Suhler Stevenson is TMP’s majority owner.

Firms & Funds

Ignition Partners is planning to raise $200 million for its first late-stage VC fund, according to VentureWire. The effort follows on the heels of Ignition raising its fourth early-stage fund, which was scheduled to close last week on between $350 million and $400 million.

Dewey Ballantine LLP and LeBoeuf, Lamb, Greene & MacRae LLP announced that both partnerships have approved a merger of the two law firms, which will take effect on October 1. The combined organization will operate as Dewey & LeBoeuf LLP, and will feature more than 1,300 attorneys in 12 countries.

Human Resources

Rohini Chakravarthy has joined New Enterprise Associates as a principal. She will be based in Menlo Park, and focus primarily on IT opportunities. Chakravarthy previously was with Cisco Systems, as head of wireless corporate business development.

Scott Lang has joined City Capital Advisors, a Chicago-based middle-market I-bank formed last year, as a managing director. Lang is the former co-founder and CEO of Brown Gibbons Lang & Company.

Carlos Ferrer has joined Nauta Capital of Spain as a partner. He previously had run the VC division of Riva y Garcia.

Golub Capital has promoted Sean Coleman and Stefano Robertson to the position of principal. Coleman is based in New York, and originally joined Golub as a vice president after having founded niche merchant bank Commonwealth Principals. Robertson is based in Chicago, and had joined Golub after eight years with Antares Capital Corp.