PE Week Wire: Thursday, August 21, 2008

The sun is shining, the presumptive presidents are picking and Lehman is still living. In other words, it’s time for some Thursday Throwback.

First up were some emails on yesterday’s item about the differences between cleantech and nanotech VC funding booms. Chris: “Your commentary on cleantech investments and pipedreams is pretty much spot on.There’s also another point, in that the successful cleantech deals are simply baby-step iterations or improvements on what a conventional energy solution already provides in the marketplace. Take EnerNOC for example. It’s a great concept, but its simplicity is also overwhelming – just use power at cheaper times or use less of it when its not necessary. A123 Systems – building the better battery.These and a few others have pretty clear value propositions in which the low hanging fruit of the energy spectrumis targeted.More importantly, this is fruit that can be harvested within the time horizon of the venture capital model.”

Robert: “The nanotech sector has historically been full of a lot of interesting science projects that were way too far from commercialization. I’m not sure that’s changed much. Cleantech has more obvious near term market apps as the world always needs energy. But the big problem for many cleantech plays, particularly energy production related deals, is that a huge amount of capital is needed to scale these deals up. There are a handful of VCs who have recognized this and have focused on building an expertise in project finance (VantagePoint comes to mind). But many VCs, it appears, have invested in cleantech plays without thinking through the longer term problem of how the technology they’re funding will scale up. Many deals will likely face a ‘getting to market’ problem. Funding a proof of concept is expensive and will probably be funded by initial investors. But will mainstream project finance sources then be able to take the idea and run with it? That ! transition is difficult and not well understood by many VCs. The key problem is that project finance doesn’t do technology risk and one prototype probably won’t be enough to address that risk. Which actually makes for an interesting fund opportunity there…”

Aaron: “Seems to me that a smart VC right now would eschew cleantech and focus back on nanotech. Rather have my pick of a weak litter than compete with dozens of other investors for overvalued cleantech deals.”

Cameron: “I get your point with nanotech companies not focusing enough on products, but you’d have to admit that a whole lot of cleantech companies also look like science projects. I’m thinking anything with the word hydrogen.”

Anonymous: “What’s great about you is that you think because you write a rag sheet keeping track of deals you have knowledge, insight to weigh in on things like is cleantech a viable investment opportunity. Go back to commenting about your old cars… Or maybe it’s time again to comment on why a marginal tax rate increase is so good. Oh yea, you’re from Massachusetts.”

*** Jordan writes to say he’s found a private equity firm with an office in Georgia (the country, not the state). It’s called Salford Capital – www.salfordcapital.com – and its portfolio includes Georgia-based Agro Business Bank.

*** Annie asks: “What’s the over-under on Greg Brenneman staying at CCMP Capital for more than two years? You really need to develop a way for us to vote on such things.” Well, if Rob Day can create a cleantech IPO futures market and there’s that website where you can bet on the likelihood of celebrity divorces… Ok, I’m on it.

*** Eric on Tuesday’s lack of column: “So what are you working on that caused you to just pimp out your website today? More shindigs? If so, I hope you’re not going to ignore us in San Francisco again.”

I’m actually working on two different things Eric, and you’re barking up the right tree on the first one. Details Monday. As for the second thing, details in another couple of Mondays…

Top Three

Morgan Stanley Private Equity has pulled out of a deal to buy South Korea’s ailing Daewoo Electronics.

Turn Inc., a San Mateo, Calif.-based online automatic-targeting advertising network, has raised $15 million in Series C funding. Focus Ventures was joined by return backers Norwest Venture Partners, Trident Capital and Shasta Ventures. The company had previously raised around $26 million.

Waterland Private Equity Investments has re-acquired Dutch slot machine operator JVH Gaming. Waterland had lost its ownership earlier this month, after new tax regulations on slot machines caused the company to end up in the hands of its creditors.

VC Deals

Denham Capital has agreed to invest up to $50 million in CariSal Investment Holdings Ltd., a maker of ice-melt products.

Attero, a Noida, India-based developer of an e-waste recycling facility, has raised $6.3 million in Series A funding from NEA-IndoUS Ventures and Draper Fisher Jurvetson.

Xoova Inc. (f.k.a. DoctorsDirect.com), a Santa Monica, Calif.-based social networking site that let consumers research physicians and book appointments, has shut down, according to VentureWire. The company had raised a $2.5 million Series A round in late 2006 led by Spark Capital.

Buyout Deals

Bain Capital Partners has completed its acquisition of Contec Holdings Ltd. from American Capital for around $525 million. Contec provides consumer-premise equipment repair services for broadband companies.

Bay Harbour Management acquired bankrupt U.S. apparel retailer Steve & Barry’s for $168 million, following an auction.

BlackEagle Partners has acquired InStar Services Group LP from The ServiceMaster Co., which is owned by Clayton, Dubilier, & Rice. No financial terms were disclosed. InStar is a Fort Worth, Texas-based provider of disaster response, insurance restoration and reconstruction services on the East Coast, Southeast and Texas. Morgan Keegan & Co. served as sell-side advisor.

Cowen Healthcare Royalty Partners has acquired the North American royalty stream of Fenoglide from Lifecycle Pharma AS (OMX: LCP). The deal includes a $29 million up-front cash payment, and up to $76 million in milestone earnouts. Fenoglide is a cholesterol-lowering drug for the treatment of hyperlipidemia and hypertriglyceridemia.

Gruner & Jahr, a German publishing group, is interested in bidding on the magazine unit of Reed Elsevier, which includes such titles as Variety and Farmers Weekly. The process already includes Bain Capital, TPG Capital, Providence Equity Partners, Candover/Cinven and Advent International/Quadrangle Group/McGraw Hill. First-round bids came in at between £1 billion and £1.25 billion.

Intervale Capital has sponsored a recapitalization of Tejas Research & Engineering LP, a provider of design, engineering and testing services to the completions segment of the oilfield services market. No financial terms were disclosed.

Vector Capital has made an unsolicited offer to buy Israel-based Aladdin Knowledge Systems Ltd. (Nasdaq: ALDN), in which Vector already holds a 10.2% stake. Vector also proposed an alternative deal whereby it would buy Aladdin’s digital rights management software unit, with Aladdin receiving the authentication business of Vector portfolio company SafeNet.

Water Street Healthcare Partners has agreed to acquire a 69% stake in CareCentrix, a ancillary care benefit management business of Gentiva Health Services Inc. (Nasdaq: GTIV). The transaction is valued at approximately $147 million.

X-Rite Inc. (Nasdaq: XRIT) has raised $100 million in PIPE funding from One Equity Partners. It also has raised another $55 million from existing shareholders Tinicum Capital Partners and Sagard Capital Partners.

PE Exits

Compunetix Inc., a Monroeville, Penn.-based provider of Web collaboration software and equipment, has agreed to acquire the assets of Sonexis Inc., a Tewksbury, Mass.-based provider of an in-house audio conferencing bridge. No financial terms were disclosed. Sonexis had raised around $75 million in VC funding beginning in 1999, but then did a Series A recap round in 2004 with participation from Tudor Ventures and Velocity Equity Partners.

Gemini Air Cargo, a Dulles, Va.-based air cargo provider backed by Bayside Capital, is shutting down and selling its four freighters, after failing to work its way out of chapter 11 bankruptcy protection.

Genesis Park, a Houston-based private equity firm, has sold mobile workforce management software maker SAT Corp. to the Wonderware division of Inventys for $52 million. Pharus Advisors advised SAT on the deal.

Nuance Communications Inc. (Nasdaq: NUAN) has agreed to buy SNAPin Software Inc., a Bellevue, Wash.-based provider of mobile device and server self-service technology. The deal is valued at approximately $180 million worth of Nuance common stock, and is expected to close in October. SNAPin has raised around $30 million in VC funding since 2004, from firms like Frazier Technology Ventures, Oak Investment Partners, Hunt Ventures, Seapoint Ventures and Trilogy Equity Partners.

Spherics Inc., a Mansfield, Mass.-based developer of oral drugs for neurological disorders, will put its intellectual property up for auction on October 10, according to an accountant in charge of the sale. The company has raised over $43 million since spinning out of Brown University in 2007, from firms like CB Health Ventures, Advent International, Brooke Private Equity, Mitsubishi Corp., Pappas Ventures, POD Venture Partners, Oakwood Medical Investors and Zero Stage Capital.

PE-Backed M&A

CompuCom Systems Inc., a Dallas-based IT outsourcing company, has completed its acquisition of the North American operations of Getronics. No financial terms were disclosed, except that the combined entitywill have pro-forma 2007 revenue of around $2.1 billion. Court Square Capital Partners, which last year acquired CompuCom from Platinum Equity for $504 million, invested additional equity to help finance the transaction. In addition, AlpInvestprovided mezzanine funding in exchange for a minority ownership stake, while Getronics received CompuCom shares.

Questex Media Group Inc., a Newton, Mass.-based B2B media company owned by Audax Group, has acquired SpaTrade, which produces spa industry content portals and trade shows. No financial terms were disclosed.

Stabilus GmbH, a German manufacturer of gas springs, has acquired LinRot Holding, a German maker of linear and rotational drive units. No financial terms were disclosed. Paine & Partners acquired Stabilus from Montagu Private Equity earlier this year.

Firms & Funds

Evercore Partners (NYSE: EVR) has agreed to a $120 million investment from Mizuho Corporate Bank, via a sale of debt and warrants.

Goldman Sachs cut its earnings outlooks on five investment banking rivals: Citi, JPMorgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley.