PE Week Wire: Thursday, June 5, 2008

“Capital gains taxes are going up no matter who gets elected president, or what party they’re from. That’s just how it’s going to be.”

Those were the words back in January of one of this space’s better sources – an ardent Republican who had not yet decided who to support in his state’s GOP primary. Our conversation was more about politics than business, but his point is beginning to significantly impact the private equity markets. Specifically, lots of people are looking to sell their businesses now rather than in 2008 or 2009, in order to avoid paying what they believe will be higher capital gains rates.

This philosophy is most prominently felt in the small-cap and mid-cap buyouts spaces, particularly when it comes to buying family-owned businesses. It’s also having an impact among VC-backed entrepreneurs.

It seems to be counterintuitive, given that company values are depressed across the board. Apparently the calculation is that the value lost by selling today is less than the return lost by paying on a higher capital gains rate in 2009 or 2010. This is particularly true among those who aren’t expecting an economic rebound anytime soon.

Interest argument to watch develop, particularly as investment bankers promote it to attract new clients…

*** Lots of press excitement this morning over news that Bear Stearns Merchant Banking will become an “unaffiliated independent company.” The chatter is kind of amusing, given that BSMB has spent the past two months telling anyone and everyone about how it’s already an independent company. The only change here will be a new name (‘duh) and new office shake (double ‘duh). Only around 18% of BSMB’s latest $2.7 billion fund came from the parent bank, and it appears that the commitment will be maintained. I’m supposed to talk to someone from BSMB later today to see if I’m missing something here, but I don’t think I am…

*** peHUB First Read, including why we should welcome a private equity shakeout.

*** Connie on Alvaro Fernandez, the Brain Fitness Guru.

*** Buyout firms are acquiring more VC-backed companies than they used to. Kevin Landry of TA Associates has an explanation.

*** Beat L.A.

Top Three

Verizon Wireless said that it has agreed to acquire Alltel, the U.S. rural mobile service provider that was taken private just seven months ago by TPG Capital and Goldman Sachs Capital Partners. The deal is valued at $28.1 billion, including $22.2 billion in debt. The buyout had been valued at $27.5 billion.

Sixth Gear Solutions Corp., an independent auto finance company for U.S. car dealerships, has been formed with over $250 million in equity commitments from a private equity consortium led by Warburg Pincus. The company also secured $750 million in long-term debt facilities.

RockPort Capital Partners, a Boston-based venture capital firm focused on the cleantech sector, has raised $450 million for its third fund.

VC Deals

Yodlee Inc., a Redwood City, Calif.-based provider of an online financial services portal, announced that it has raised $35 million. Bank of America led the round, which our records indicate closed in June 2007. Return backers include Warburg Pincus, Accel Partners and Institutional Venture Partners.

DFine Inc., a San Jose, Calif.-based developer of electrosurgical systems for treating vertebral compression fractures, has called down $20 million of a $30 million Series D round, according to a regulatory filing. Backers include BBT Fund, Prospect Venture Partners and Vanguard Ventures. The company had previously raised over $18 million.

Sinexus Inc. a Palo Alto, Calif.-based developer of medical devices for the treatment of chronic sinusitis, has raised $20 million in Series B funding. PTV Sciences led the round, and was joined by return backers Kleiner Perkins Caufield & Buyers and U.S. Venture Partners. The company also named Lisa Earnhardt as CEO. She previously was president of Boston Scientific’s cardiac surgery unit.

LiveU Inc., a Fair Lawn, N.J.-based enabler of live video transmission over wireless networks, has raised $9 million in Series B funding. Carmel Ventures and return backer Canaan Partners co-led the round.

Bradford Networks, a Concord, N.H.-based provider of network access control solutions, has raised $8 million in Series B funding. Updata Partners led the round, and was joined by return backer Windspeed Ventures.

ChipIn Inc., a Honolulu-based provider of software for raising and collecting money online, has raised $5.1 million in Series B funding, according to a regulatory filing. Backers include Polaris Venture Capital and Japan’s GVC.

Sutus Inc., a Vancouver-based maker of an integrated communications device for small businesses, has raised C$5 million in new VC funding from existing backers BDC Venture Capital and GrowthWorks Capital.

Kiptronic Inc., a San Francisco-based company focused on ad insertion into audio and video podcasts, has raised $3 million in Series B funding, according to VentureWire. The report did not identify investors. The company previously raised a $4 million Series A round co-led by Blueprint Ventures and Prism VentureWorks.

China LiNong International Ltd., a Chinese producer of high-end green vegetables, has raised an undisclosed amount of VC funding. SIG China Investment led the round, and was joined by Walden International, Sequoia Capital China and PreIPO Capital Partners.

Buyout Deals

The Carlyle Group is in advanced talks to buy the cash systems unit of banknote printer De La Rue, according to The Telegraph. The deal would be worth between £350 million and £400 million, with Carlyle besting rival offers from KKR, Bain Capital and Wincor Nixdorf. NM Rothschild is managing the process.

Chamberlin Edmonds & Associates Inc., a provider of specialized eligibility determination services to America’s hospitals, has been acquired by Charterhouse Group, Highlander Partners and MTS Health Investors. Selling shareholders include Galen Partners and Trident Capital. No financial terms were disclosed. R.W. Baird & Co. advised the sellers, while GE Healthcare Financial Services served as debt arranger and CIT Healthcare provided the senior notes.

LLR Partners has acquired Singer Equities Inc., a Glen Burnie, Md.-based distributor of industrial rubber products. No financial terms were disclosed for the deal, which was done in partnership with company management. Sovereign Bank and Commerce Bank provided debt financing. The sellers were Paul Singer and his family.

PE-Backed IPOs

Xtep International Holdings Ltd., a Chinese maker of fashion sportswear, has raised HK$2.23 billion (US $286m) in an IPO on the Hong Kong Exchange. Company shareholders include The Carlyle Group.

PE Exits

VF Corp. (NYSE: VF) has acquired one-third the capital stock of Los Angeles-based women’s sportswear company Mo Industries, from Summit Partners. The deal includes an option whereby VF Corp. can acquire the remaining stock in early 2009. No financial terms were disclosed.

Novartis has agreed to buy Protez Pharmaceuticals, a Malvern, Pa.-based developer of antibiotics to combat drug-resistant and life-threatening infections. The deal is valued at up to $400 million in cash, including a $100 million up-front payment and up to $300 million in potential earn-outs based on clinical milestones. Protez has raised nearly $30 million in VC funding since late 2003, from firms like BTG International, S.R. One, Easton Hunt Capital Partners, Birchmere Ventures, Quaker BioVentures, Robin Hood Ventures, BioAdvance and L Capital Partners. has acquired SnapVine Inc., a Seattle-based provider of mobile voice solutions for social networking sites. No financial terms were disclosed. SnapVine has raised around $20 million in VC funding since mid-2006, from firms like Bridgescale Partners, Draper Fisher Jurvetson and First Round Capital.

PE-Backed M&A

Citadel Plastics, a portfolio company of Wind Point Partners, has acquired Bulk Molding Compounds Inc., a producer of thermoset bulk molding compounds with around $110 million in annual revenue. No pricing terms were disclosed. Leveraged financing was provided by Dymas Capital, JPMorgan Chase, MCG Capital Corp. and PNC Mezzanine Capital.

NetQoS Inc., an Austin, Texas-based provider of enterprise network performance analysis products and services, has acquired Helium Systems, a Valencia, Calif.-based provider of financial trade monitoring software. No financial terms were disclosed. NetQoS is a portfolio company of Liberty Partners.

Water Street Healthcare Partners has sponsored a merger of healthcare product distributors Tri-anim and Bound Tree Medical. Tri-anim distributes respiratory and EMS products, while Bound Tree supplies EMS products. Water Street has committed $75 million in equity financing to grow the combined company, which is expected to generate more than $400 million in revenue.

Firms & Funds

Brown Rudnick LLP has formed a cleantech team for companies and investors involved in “renewable, sustainable, and environmentally safe technologies.”

Carl Marks & Co. has formed a new business unit called Carl Marks Healthcare Partners. It will provide operational and financial performance improvement and turnaround management to the healthcare industry.

Human Resources

Ian Blasco has joined Fidelity Equity Partners as a partner. He previously was a principal with Bain Capital.

Kevin Laracey has joined Sigma Partners as a Boston-based venture partner. He is the founder and former CEO of eDocs, and most recently was vice president and GM of Siebel System’s Customer Self Service Group.

Daniel Celentano has joined Evercore Partners as a senior managing director in the firm’s restructuring advisory practice. He previously was head of Bear Stearns’ financial restructuring group.

Ken Viellieu has joined Moelis & Co. as a managing director and head of the firm’s new Chicago office. He previously was a senior managing director and head of Midwest I-banking with Bear Stearns.