PE Week Wire: Thursday, June 26, 2008

John McCain this week announced that, if elected, he would offer a $300 million prize for “the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.”

I was interested in the reaction from cleantech-focused VCs, including those who invest in battery technology. A longer piece will appear later today at peHUB, but here is the general consensus:

• McCain’s announcement illustrates that we are about to see a sea change in federal policy toward clean energy. No matter which candidate is elected, the White House will be home to someone who believes that petroleum is not the be all and end all – content to simply chuck a few empty bones toward those who disagree.

• The actual proposal is silly. First, anyone who develops such a battery is looking at a multi-billion dollar market opportunity, so $300 million is just a drop in the bucket. Second, these types of prizes usually get created for technologies that aren’t already being funded, perhaps due to a lack of adequate commercial scaling opportunity. That obviously doesn’t apply here, due to both current VC investment in the space and the aforementioned multi-billion dollar market opportunity. Third, the current plan is way too thin and gimmicky. Where is a white paper or additional info (I’ve been promised a call back from someone knowledgeable in the McCain campaign, but nothing yet). For example, what if I create the battery out of a metal so precious that mass production would be unworkable?

• Battery projects are particularly difficult because of the advanced chemistry involved. For example, I’ve repeatedly heard things from new battery CEOs like: “We only incorporated last year, but our founder began the research a decade ago.” Most VCs say they would support taking that $300 million and putting it into some sort of federal R&D program focused at the university level, like what has been done with solar and biofuel.

*** The U.S. House of Reps yesterday passed an AMT relief bill, which would partially be “paid” for by changing the tax treatment of carried interest from capital gains to ordinary income. Unclear if it can pass the Senate, and President Bush has promised a veto. So why are Charlie Rangel et. all going through the charade? My theory is twofold: (1) Carried interest is going to become a bargaining chip this year. Most everyone acknowledges that AMT must be dealt with at least on a temporary basis, so Rangel has preemptively created a sacrificial lamb. (2) There is now a legislative framework in place for 2009, when it’s expected that Democrats will have a few more Senators and a President Obama. With that, this change passes like taxis on a freeway.

*** Related note: This is another example of where the vast majority of PE firms could use official representation on Capitol Hill. I know that the PE Council has begun reaching out to non-member firms, in order to convey relevant information and to encourage activism. Still, nothing conveys strength like numbers.

For context, the entire domestic PE industry – excluding VC and real estate – currently has just under $1 trillion in assets under management. Of that, the PE Council members represent just over $300 billion (excluding Apax and Permira, which are UK-based and therefore not represented in either figure).

I was recently approached by someone considering the formation of a broad-based PE trade group. Hope it happens. Better late than never.

*** Another related note: If said trade group is created, I will continue to oppose its position on carried interest tax. I don’t think yesterday’s House initiative is pragmatic, but I applaud its philosophy.

*** The Grizzly Adams folks emailed again yesterday, asking why they have not heard from me about purchasing their franchise. Clearly I am the targeted acquirer.

Top Three

Diamond Castle Holdings has agreed to sell wind power company Catamount Energy Corp. to Duke Energy Corp. (NYSE: DUK) for approximately $240 million.

BlogTalkRadio, a New York-based online talk radio broadcasting network, has raised $4.6 million in Series A funding. The Kraft Group led the deal, and was joined by individual angels like ex-hedge fund manager Scott Sipprelle.

JHT Holdings, a Kenosha, Wis.-based transporter of medium- and heavy-duty trucks to retailers from their OEMs, has filed for Chapter 11 bankruptcy protection. Shareholders include Stonhouse Capital, DB Zwirn, Spectrum Investment Partners and an affiliate of Goldman Sachs.

VC Deals

SodaHead, a Los Angeles-based online opinion community, has raised $8.4 million in Series B funding. Mission Ventures led the round, and was joined by return backer Mohr Davidow Ventures. The company previously raised $4.3 million from MDV, Tech Coast Angels and Ron Conway.

Miyowa, a Paris-based provider of IM and other mobile software, has raised $8 million in Series B funding. Crédit Agricole Private Equity was joined on the deal by return backer Techfund.

Fotech, a UK-based developer of monitoring and surveillance solutions for oil and gas wells and pipelines, has raised £6.5 million in VC funding. Participants include Scottish Equity Partners, Energy Ventures and Shoaibi Group (Saudi Arabia).

BlueRoads, a San Mateo, Calif.-based provider of partner opportunity management solutions, has raised $6 million in Series E funding. ZenShin Capital led the round, and was joined by return backers ArrowPath Venture Capital, Cardinal Venture Capital and El Dorado Ventures. It had previously raised around $25 million.

Instinctiv, an Ithaca, N.Y.-based provider of an iPhone application for streamlining music libraries, has raised $750 million in seed funding. Backers include Cayuga Venture Fund, Rosetech Ventures and individual angels. The company plans to begin raising a Series A round this fall, with a target of around $5 million.

Buyout Deals

Bayside Capital has acquired a majority stake in Pendum LLC, a Denver–based provider of cash automation and armored transport solutions. No financial terms were disclosed, including if the deal provides any liquidity for existing Pendum minority shareholder Edgewater Funds.

Carousel Capital has agreed to acquire Mergent Inc. and Kinetic Information System Services Ltd. from Xinhua Finance Ltd. The total deal is valued at $93.5 million in cash, and is expected to close next month. Mergent is a U.S.-based financial data company, while Kinetic is a UK-based index calculation company.

Morgan Stanley Private Equity has completed its acquisition of a 60% stake in Learning Care Group, the U.S. subsidiary of listed Australian child care company ABC Learning Centres Ltd. The deal values Learning Care at $700 million, which is lower than the $775 million enterprise value reported when the deal was first announced in April.

TynTec, a mobile messaging operator, has raised an undisclosed amount of private equity funding from HarbourVest Partners. The company was represented on the deal by Corporate Finance Partners, and has offices in the UK, Germany and Singapore.

Baker Capital has sold its 40% stake in IQNavigator, a Denver-based provider of services procurement software and managed service programs, to GTCR Golder Rauner and company management. Also selling out were IQNavigator shareholders The Hillman Company, Sequel Venture Partners and Raeder Venture Fund. No financial terms were disclosed. GTCR originally announced its investment earlier this month, but did not say i! f it bought out any existing backers.

Energy Investors Funds has raised $985 million in construction financing for a new Middletown, Conn. power plant. The financing includes senior secured bank loans and a revolving credit facility. EIF is the project’s majority owner.

PE-Backed IPOs

Initiate Systems Inc., a Chicago-based provider of master data management software, has withdrawn registration for a $75 million IPO, citing unfavorable market conditions. The company had planned to trade on the Nasdaq, with Goldman Sachs serving as lead underwriter. Shareholders include Sigma Partners (29.6% pre-IPO stake) and Apex Venture Partners (11.8%).

PE-Backed M&A

Vitrue Inc., an Atlanta-based video-centric social media company, has acquired UGENmedia, a New York-based social media marketer. No financial terms were disclosed. Vitrue has raised $15.2 million in VC funding from Comcast Interactive Capital, Dace Ventures General Catalyst Partners and Turner Broadcasting.

Human Resources

General Atlantic has added two special advisors: Robert Callahan, former president of ABC and former CEO of Ziff David Media; and Dinvar Devitre, former CFO of Altria Group and a former executive vice president with Citigroup in Europe.