PE Week Wire: Thursday, January 29, 2009

Last night I had drinks with a middle-market lender, from one of those firms that still seems to be lending (albeit selectively… very selectively). It was a wide-ranging conversation, but we kept coming back to the paucity of new leveraged buyouts. The conventional culprit here is a lack of credit, but my conversant put forth an alternate theory (at least for the middle markets): Buyers are on strike.

There clearly are fewer active lenders than in years past, he said, but there are still enough to handle far more deals than are currently flowing. The real problem is at the buyout firms themselves, which have lost confidence in their own ability to appropriately price and structure transactions.

There was obviously some self-service in this allegation, although it’s not without merit. Just two months ago, I remember hearing that a well-known secondary shop had put a moratorium on new acquisitions of LBO fund positions, because it did not believe it could adequately value the underlying debt levels. Most other firms haven’t been nearly so blanket, but the notion of a buyer’s strike intrigues me… What say you, dear reader?

*** Atlas Venture is in the midst of some personnel “restructuring,” after closing its eighth fund well below target. Leaving will be Boston-based IT partner Ahmet Ozalp and London-based IT partner Martin Gibson, while Boston-based IT partners Eric Hjerpe and Barry Fidelman are transitioning into venture partner roles. The firm also is promoting life sciences pros Bruce Booth to partner, while chief operating officer Jeanne Henry has retired.

All of this is occurring after Atlas closed Fund VIII with $283 million in capital commitments. Its original PPM had a $500 million cover, but within weeks Atlas had recalibrated the target to $400 million. In the end, though, it couldn’t get close to its target, or the $385 million it had raised for Fund VII back in 2006.

I spoke last night with Atlas partner Jeff Fagnan, who said that the firm opted against continuing fund-raising into Q1 (it closed last quarter), because most of the air had been sucked out of the LP market. “I know the number isn’t what we originally wanted, but I’m really proud that we closed a VC fund in this environment,” he said. Fagnan also acknowledged that the Atlas partnership is particularly large – 10 active partners – but that such a strategy works for the firm’s seed/early-stage strategy.

Kind of surprising that Atlas came in low, given that its seventh fund is considered far stronger than its earlier ones. An LP who did not invest, said that Fund VII was top-quartile, whereas Atlas’ previous four efforts had ranked third-quartile.

Atlas’ recent investment in CloudSwitch was its first investment out of Fund VIII. The firm opted to keep extra dry powder available in the predecessor fund, given the macro dearth of exit opportunities.

*** Just passing it on: Velocity Interactive Group will probably have a new name within a few months.

*** While live-blogging yesterday morning, I looked up an noticed that Bill Frist – former Senate majority leader and current PE pro with Cressey & Co. – was standing next to me. So I asked readers for a question to ask him. One came in about HCA, so I stood up, introduced myself and showed him the screen. He graciously answered the questioner’s query, and then got the hell away from me. Can’t blame him…

*** Erin will be pinch-hitting for me tomorrow, as I’ll be moderating a panel discussion at Columbia PE/VC Conference. Talk to you again on Monday… Have a happy Super Bowl weekend…

Top Three

The Blackstone Group and Hicks Acquisition Co. have amended an agreement whereby Graham Packaging Holdings Co. would go public through a transaction with Hicks, existing Graham owner Blackstone Group and Graham management. The transaction is valued at approximately $3.2 billion, and is believed to be the largest ever between a SPAC and an industrial company. Un! der terms of the amendment, both Hicks and Blackstone now have the right to terminate the agreement by giving written notice to the other, and each party is released from the agreement’s exclusivity provisions and will be permitted to consider other possible transactions.

VirtuOz, a Redwood City, Calif.-based provider of multilingual virtual support and sales agent solutions, has raised $11.4 million in Series B funding. Mohr Davidow Ventures led the round, and was joined by Eric Hahn (Inventures Group) and return backer Galileo Partners.

Glam Media, a female-focused online advertising network, has acquired AdaptiveAds, a provider of display ad targeting and optimization solutions. No financial terms were disclosed. Glam has raised over $87 million in VC funding from firms like Draper Fisher Jurvetson, Accel Partners, DAG Ventures and Walden Venture Capital. AdaptiveAds has raised over $3 million in VC funding led by Draper Fisher Jurvetson.

VC Deals

Garnet Biotherapeutics has raised $10.4 million in Series A funding. SCP Vitalife Partners led the round, and was joined by Safeguard Scientifics and Alliance Technology Ventures. The Malvern, Penn.-based company regenerative medicine company is focused on acclerating the healing and reducing the scarring associated with surgical procedures and other dermatologic conditions., a Chicago-based online care-giving network, has raised $7.5 million in new VC funding. Point Judith Capital and Apex Venture Partners co-led the round, and were joined by company management and returning angel investors.

Enriam Ltd., a Finnish provider of decision support systems for the shipping industry, has raised €5 million in Series B funding. Ferd Venture led the round, and was joined by Finnish Industry Investment Ltd. and return backer Conor Venture Partners.

Vocalocity, an Atlanta-based provider of hosted VoIP services to micro enterprises, has raised $4.1 million in Series B funding. Return backers include Noro-Moseley Partners, Pittco Capital Partners, Imlay Partners and company management. Vocalocity previously raised $8 million.

Buyout Deals

Genii Capital, a Luxembourg-based private equity firm, is in talks to acquire the assets of Polaroid Holding Co., including the Polaroid name and brand. Polaroid filed for Chapter 11 bankruptcy protection last year.

The Reader’s Digest Association Inc. said that it is cutting 8% of its staff, or around 280 jobs, and that it will stop making matching contributions to U.S. employees’ 401(k) retirement plans. The company was taken private last year in a $2.6 billion buyout led by Ripplewood Holdings.

Talon Merchant Capital has agreed to acquire a minority equity stake in Canadian retailer Liquidation World Inc. (TSX: LQW). As part of the deal, Liquidation World will acquire Talon’s U.S. Wholesale Business.

PE Exits

Helsinn, a Swiss pharma group, has acquired Sapphire Therapeutics Inc., a Bridgewater, N.J.-based developer of drugs for a variety of cancer, gastrointestinal and metabolic conditions. No financial terms were disclosed, although VentureWire reports an up-front cash payment of approximately $45 million. The deal also is believed to include earn-outs. Sapphire had raised nearly $50 million in VC funding since 2001, from firms like BCM Technologies, Burrill & Co., BankInvest, Boston Millennia Partners, Cogene Ventures, Prospect Venture Partners, Novo AS and SV Life Sciences.

PE-Backed M&A

The HealthCentral Network, an Arlington, Va.-based provider of online health and wellness information, has acquired Wellsphere, a San Mateo, Calif.-based provider of a free consumer health website and online health platform for large organizations. No financial terms were disclosed. HealthCentral has raised over $80 million in VC funding from firms like IAC, Sequoia Capital, Carlyle Venture Partners and Polaris Venture Partners.

Live Cargo Inc. has acquired CMWare Inc., a Plainsboro, N.J.-based provider of mobile marketing technology. No pricing terms of the equity and cash sale were disclosed. Progress Partners managed the process for CMWare, which had raised an undisclosed amount of VC funding from Updata Partners.

Regis Corp. (NYSE: RGS) has agreed to sell its Trade Secret retail products division to Premier Salons Beauty Inc., a Canadian portfolio company of Falconhead Capital.

Firms & Funds

Blackstreet Capital Management has held a $91 million first close for its second fund, which is targeting $125 million. The Bethesda, Md.-based firm focuses on turnarounds and distressed opportunities in the small and middle-markets.

Saw Mill Capital has formed a strategic alliance with The Spectrum Capital Group, to identity control investment opportunities in underperforming manufacturing and services businesses.

Human Resources

Erik Engelson and Jeffry Grainger have joined medical device incubator The Foundry LLC as managing partners. Engleson previously was president and CEO of Cierra. He also has served in roles with both Versant Ventures and IVP. Grainger previously was VP of corporate affairs and general council with Xtent Inc.

John Barber has resigned as head of Citi Private Equity, according to LBO Wire. He had been with the firm for the past 14 years.

Randy Dobbs has joined Welsh Carson Anderson & Stowe as a senior operating executive. He is the former CEO of US Investigations Services.

Brody Stout has been named chief operating officer of CitizenHawk Inc., an Aliso Viejo, Calif.-based provider of technology that helps protect brands from cyber-squatters. He previously was a senior associate with CitizenHawk investor Maveron.