PE Week Wire: Thursday, December 11, 2008

I (Erin) am filling in for Dan while he’s moderating panels at Buyouts Texas. Direct comments, etc to me here.

***BCE Is Bust

And BCE makes one. With the official termination of Ontario Teachers’ deal to buy BCE, we are down to one remaining unresolved boom-era deal: Apollo’s Hexion/Huntsman debacle. Both deals struggled with post-close solvency issues hindering their closes.

The BCE deal expired at midnight last night, after KPMG concluded the company would not be solvent after the deal’s close. Had it come to fruition, BCE would have been the biggest buyout of all time, closing in the worst period for mega-buyouts and debt syndications of the decade. Now it’s relegated to the very un-exclusive PE Rejects club, where it’ll have the company of a whole slew of busted mega-buyouts to keep it company. Sallie Mae, Penn National, SLM Corp, United Rentals and Harman International come to mind. It’s hard to know if those companies are bitter or just relieved they won’t be looking like Freescale Semiconductor and Harrah’s in another year or two.

But I wouldn’t call it over yet. A spurned BCE, now damaged goods and probably in the bitter category this morning, is expected to sue its buyers, at least for the $1 billion-plus break-up fee. Unfortunately, the company didn’t do itself any favors when it tried to cover its own ass with that solvency certificate, an unusual thing for sellers to insist upon. And that’s the main difference between this situation and Hexion/Huntsman’s court order to close despite its certain insolvency…

View Thomson Reuters’ updated post-BCE deal charts here.

***The Argument Against American Capital As a BDC

Is American Capital best served as a BDC? There are some indications that CEO Malon Wilkus could be leaning in a different direction. He’s discussed it at a number of investor meetings and regularly compared American Capital to Danaher Corporation (DHR), which is a C-corp.

American Capital would probably prefer to stay a BDC, as it has been for the last ten years. But if the environment stays this volatile, it could find shelter in a different structure. Out of all of the BDCs that are hurting right now, this option is really only open to American Capital. It’s the only one with enough control investments to make the switch and maintain the required 55% control investment minimum. American Capital has control stakes in around 50% of its investments. A simple sell-off of some loans could tip the scales.

The benefits of American Capital making the switch are as follows: As it is, BDCs must maintain a 1:1 debt to equity ratio, counting preferred equity on the debt site of that equation. Likewise, they have to mark to market. Those stipulations wouldn’t be a problem in an up market, but as American Capital’s stock price has shrunk, the firm has had trouble maintaining that ratio. Last week the firm laid off 110 individuals and closed two offices.

Furthermore, the firm could raise new equity. By current laws, BDCs cannot issue new stock at a below book value trading price; as a C-corp, the firm could do that to protect its balance sheet.

The biggest roadblock would be the accounting issue of consolidating American Capital’s balance sheet.

There’s one famous investment firm with the C-corp structure (aside from Danaher), and that’s Berkshire Hathaway. My source noted that Berkshire is verrrry careful that its non-control investments walk the 45% line without going over.

By the way: Regarding those layoffs, American Capital’s Web site has been updated to reflect, by one diligent person’s count, that six managing directors, eight principals and 15 VPs who were previously listed on the site are no longer there.

: Post Mortem: A Geographic Breakdown Of American Capital Layoffs, Layoffs and Offices Closures at American Capital, A! bout Those 14 American Capital Auctions, “Public” PE Plague Hits American Capital

Top Three

Ontario Teachers Pension Plan, Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity’s deal to buy Canadian telecom company BCE Inc for C$34.8 billion has officially collapsed because the company’s solvency-certificate was not upheld, its accountants said. The buyout, with a planned $34.35 billion in debt, would have been the largest buyout of all time.

Tumblr, a New York-based social networking and online publishing platform, has raised $4.5 million in Series B Financing. The round was led by Union Square Ventures and Spark Capital.

Accel Partners, a venture firm based in Palo Alto, has announced the closing of Accel Growth Fund, an extension of its core venture fund, with $480 million in commitments, and the closing of Accel London III, its Europe and Israel investment fund, with $525 million in commitments. .

VC Deals

2080 Media Inc., an Atlanta-based company that helps customers produce and distribute untelevised live sporting events, has raised $3 million in Series A funding. Imlay Investments led the round, and was joined by Buckhead Investment Partners and Noro-Moseley Partners. The company also announced that it has acquired the assets of digital media company PlayON Sports from Turner Sports International Enterprises.

Embotics Corporation, a “virtual sprawl” cost managing company based in Ottawa, Canada, raised $4 million in Series B financing led by Covington Capital Corporation. The round will advance product development for server virtualization technology.

JAB Wireless secured from private equity firm ABRY Partners $14 million in equity and $17.5 million in debt financing from Hercules Technology Growth Capital Inc.

SnapMyLife, a photo sharing site based in Needham, Mass., has raised $5 million led by current investors North Bridge Venture Partners and Carmel Ventures. The company is owneed by Mobicious, Inc.

World Sports Network, a sports web site operator based in Shanghai, has raised its first round of institutional funding led by Valhalla Investments.

Healionics Corporation, a Redmond, Wash.-based tissue re-generation device developer, has riased $2.6 million in a Series B funding. The financing includes commitments from angel networks including Bellingham Angels, Alliance of Angels, Keiretsu, Tacoma Angel Network and Zino Society.

Bivio Networks, a networking systems maker based in Pleasanton, Calif., has secured $15.8 million in funding, in a round led by Silver Creek Ventures. ITOCHU Corporation, ITOCHU Techno-Solutions Corporation (CTC), and Cross Technology Partners join existing investors, including InterWest Partners, Storm Ventures, Venrock Associates and Goldman S! achs, that have reinvested in the current round.

Reactrix Systems, an advertising technology company with more $75 million in venture backing from investors such as D.E. Shaw, Menlo Ventures, Mobius, Thomas Weisel and Worldview Technology, has closed operations, VentureWire reported.

Buyout Deals

Simmons Bedding, a mattress company owned by Thomas H. Lee Partners, has extended a forbearance agreement due to expire today until March, and is required to restructure its debt by then. The firm purchased Simmons in 2003 for $1.1 billion.

Equity Media Holdings has asked the judge to dismiss its Chapter 11 case in lieu of a Chapter 7 liquidation. The company was financed by Silver Point Finance.

Reed Elsevier, a publishing house based in Britian, has abandoned its sale process and will issue debt to refinance a recent acquisition. Bain Capital was said to have shown interest in the assets.

Green Courte Partners, a private equity firm based in Chicago, has paid $438 million to acquire American Land Lease Partners, a publicly traded REIT based in Clearwater, Fla. The deal represents a 246% premium to the company’s current trading price. Wachovia Capital Markets advised American Land Lease on the deal.

Mid Europa Partners, a Central and Eastern European private equity firm, has closed its purchase of an additional stake in Falcon Group. The stake, which now totals 74.6%, was purchased from Lehman Brothers.

Acorn Growth Companies, a private equity co-investor in the aerospace and defense industries, and Cherokee Nation Businesses have purchased Alabama-based Aerospace Products, an aerospace parts and logistics firm, Deal terms were not disclosed.

PE Exit

ABS Capital, has exited its remaining holdings in American Public Education, a West Virginia-based online learning provider, through a public offering. ABS has earned a total of $307.1 million on its $18.0 million investment in the company, representing a return multiple of 17.1x.

Mekong Capital, a private equity firm based in Vietnam, has sold its stake in Saigon Gas Holdings Corporation, a Vietnamese LPG distribution company, to Total Oil. No deal terms were disclosed.

PE-Backed M&A

American Education Group, a private college prep school platform backed by Winona Capital Management, has acquired Fusion Academy, an accredited California-based accredited school for students in grades 6-12. Winona established American Education in 2007 with $40 million in backing.

Firms & Funds

The Carlyle Group is raising a financial services fund called Carlyle Global Financial Services Partners LP. According to an October regulatory filing, the fund has a maximum offering amount of $5 billion, although a CalPERS report ! puts the target at $1 billion with $600 million raised to date.

Guggenheim Partners has expanded into India by acquiring the India-focused private equity fund of funds operated by Thomas Weisel Partners. The funds, called Thomas Weisel India Opportunity Fund, will retain their managers.

Kensington Capital Partners Limited, a Canadian private equity fund, has invested $500,000 in Bedford Capital IVC LP, a fund operated by Toronto-based Bedford Capital.

ECI Partners, a middle market buyout firm based in the UK, has topped the fundraising target on a new fund. It secured $641 million (£430 million) for the effort, which is called ECI 9.

Human Resources

Alan Waxman, head of Special Situations Group for Americas at Goldman Sachs, has joined TPG Capital, according to The Deal.

Andrew Lutz has joined Vision Capital Advisors as a managing director, with a focus on fixed-income initiatives. He previously was with Susquehanna International Group.

Greenpark Capital, a secondaries buyer based in the UK, has hired Matthew Arkinstall as an investment director. Previously Arkinsall worked as MLC in Australia.

Dipchand Nishar will leave Google to join LinkedIn as VP of products for the company. At Google, Nishar was Google’s senior director of products.

Michael Ranson has joined New York private equity firm Blue Wolf Capital as a Partner and Haran Narulla, a Senior Associate at the firm, has been promoted to Vice President. Prior to joining Blue Wolf, Ranson was a Portfolio Manager with GoldenTree Asset Management.