PE Week Wire: Tues., April 1, 2008

The newdeal pipeline is nearly dry, and most of the exits are blocked. So let’s move on to what may become the buyout market story of 2008: Defaults.

It can be tough to predict which companies will and won’t be able to service their debt, but S&P provides guidance each month with a list of companies that are most likely to find themselves in such a predicament. My colleague Eamon Beltran has scoured the results, and found that at least 42 of the 114 “weakest links” are buyout-backed. I’ve posted his analysis here, along with a downloadable copy of the original S&P report.

One of the two “weakest” ratings belongs to IAP Worldwide Services, a provider of military support services that’s majority-owned by Cerberus Capital Management. Apparently it violated its financial covenants twice last year (if only they’d done the deal in covenant-lite 2007 or 2008).

The other weakest link is hung around the neck of tomato grower Eurofresh Inc., which is backed by Bruckmann Rosser Sherrill & Co. But there is some upside here, as this investment was made just three months ago, andEurofresh’s ‘CC’ rating is actually a February 1 upgrade from ‘D.’

The largestcompany on the list is Univision, which received a ‘B-’ ratingon $10.2 billion of affected debt. It had a ‘B’ going into March, but got downgraded due, in part, to a lower-than-expected sale price for its music division.

Between 1981 and 2007, 10% of all companies rated ‘B-’ have ended up in default within a year of receiving that rating, while the same can be said for more than 25% of companies rated ‘CCC+’ or lower. Again, go here for the original documents.

*** I was wondering if the NVCA and Daddy Thomson would even bother sending out their quarterly press release on VC exits, given how little IPO and M&A activity there was between January and March. But apparently it’s a “for better of for worse” sort of arrangement, and the doc showed up this morning as unexpected (download here).

Only five VC-backed companies went public on U.S. exchanges last quarter, raising $282.73 million. That’s the lowest offering and raise figures since Q2 2003, and way off from the 31 VC-backed IPOs that raised over $3.04 billion in Q4 2007.

VC-backed exits via M&A was even worse, by comparison to other quarters. Only 56 VC-backed companies were acquired in Q1, which is slower than any other quarter since Q1 1999. The largest M&A exit was Dell’s $1.4 billion acquisition of EqualLogic.

*** The Clear Channel banks have responded to the lawsuit brought by the company and its prospective buyers. I haven’t had a chance to read it yet, but Heidi Moore posts some snippets over at Deal Journal. Funny reading the comments on her post, which basically accuse Heidi of being in the bag for Citi, et. all. I’ve been hit with similar accusations on the opposite side (“Since when did you begin carrying Bain and THL’s water?”).

So let me speak out of turn: (A) Initial reports on a legal complaint or response are always going to appear skewed toward the complainant /defendant, as such documents are soliloquies. (B) It does neither me nor Heidi any good to take sides unfairly, as our jobs depend on having strong sources at both banks and private equity firms. You’ll lose those sources if your reporting is deemed unfairly one-sided, but not if you stake out a contradictory opinion based on a reasonable assessment of the facts.

*** A team from Brazil’s Labor Ministry found “degrading” living conditions for 133 sugarcane workers employed by an Brazilian ethanol company whose minority investors include Yucapia Cos., Vinod Khosla, Steve Case and former World Bank president James Wolfensohn.

This is pretty rough stuff, and so far the response from investors has been inadequate. A Yucaipa spokesman told the AP: “Newspapers report that Brenco has taken immediate action to remedy the situation… If that is not the case we will sell our shares in the company.” Well, will you do your own independent investigation, or just rely on newspapers? As for Khosla, emails sent to him and his assistant for comment went unanswered.

*** Alex Haislip asks if VCs pay too much attention to an entrepreneur’s technology, and too little to his/her actual business.

*** Yesterday’s top news item was a $65 million “Series A” funding for TriVascular2, which is anything but a startup. It was a VC-backed company that Boston Scientific bought at a premium in 2005, but was shut down just one year later. This new funding is to buy the IP and capital equipment back from Boston Scientific, and to repopulate the company. Very interesting situation, so I felt it deserved some extra ink.

*** Lots of venture capital has flowed into personalized gene analysis companies, but not all investors are convinced it’s a viable market.

Top Three

Post Danmark, a portfolio company of CVC Capital Partners, has agreed to merge with Sweden’s Posten, in order to form a $7.5 billion Nordic postal company.

Transave Inc., a Monmouth Junction, N.J.-based developer of inhaled drugs for site-specific treatment of serious lung diseases, has raised $35 million in Series D funding. Quaker BioVentures and Bessemer Venture Partners co-led the round, and were joined by return backers TVM Capital, Prospect Venture Partners, Fidelity Biosciences, Forbion Capital Partners and Easton Capital.

Cadent Energy Partners, a Rye Brook, N.Y.-based private equity firm focused on energy opportunities, has closed its second fund with $473.3 million. Lazard served as placement agent, while limited partners include CommonFund, University of Chicago and the Andrew W. Mellon Foundation.

VC Deals

Goliath Solutions, a Deerfield, Ill.–based company that measures consumer response to in-store promotions, has raised $27 million in private equity and debt financing. Cordjia led the equity tranche, with The Walnut Group also participating. Debt was provided by CapX Partners, Trinity Capital Investments and Comerica Bank.

Fusion-io, a Salt Lake City-based developer of enterprise solid-state architecture and high performance I/O solutions, has raised $19 million in Series A funding led by New Enterprise Associates.

Tryton Medical Inc., a Newton, Mass.–based maker of stents for the treatment of bifurcation lesions, has raised $14 million in Series C funding. PTV Sciences and RiverVest Venture Partners were joined by return backer Spray Venture Partners.

Oxford NanoLabs, a UK-based developer of technology to reduce the cost and time of human genome analysis, has raised £10 million in new VC funding. Top Technology Ventures and return backer IP Group were joined by a group of undisclosed institutions and individuals.

ScaleMP, a Cupertino, Calif.-based provider of virtualization solutions for high-end computing, has raised $8 million in new VC funding. Return backers include Sequoia Capital, Lightspeed Venture Partners, TL Ventures and ABS Ventures. The company has now raised a total of $26 million.

Clean Mobile AG, a Munich–based maker of fuel cell-powered drives for small vehicles like scooters, has raised €3.3 million in first-round funding. Earlybird Venture Capital and Silicon Valley Technology Group co-led the round, while High Tech Gründer Fonds also participated.

Reality Digital Inc., a San Francisco-based provider of social media solutions for businesses, has raised $6.3 million in Series B funding from OpenView Venture Partners.

Mobango Ltd., a London-based mobile social network, has raised $5.7 million in second-round funding. Innogest Capital led the round, and was joined by Innogest SGR and return backer Doughty Hanson Technology Ventures.

Onzo, a UK-based energy management and carbon monitoring company, has raised £2 million. Scottish & Southern Energy and Sigma Capital Group co-led the round.

Provigent, a Santa Clara, Calif.-based provider of system-on-a-chip solutions for the broadband wireless transmission market, has raised $4 million in additional fourth-round funding. It had held a $16 million first close in 2006. Stata Venture Partners led the expansion with a $3 million investment. Other company shareholders include Sequoia Capital, Pitango Venture Capital, Magnum Communications Fund, Ascend Technology Ventures, Delta Ventures and Qualcomm co-founder Andrew Viterbi.

Metaversum GmbH, a German developer of an upcoming 3D virtual world called Twinty, has raised an undisclosed amount of VC funding from Balderton Capital. It had previously raised venture capital from Grazia Equity.

Buyout Deals

3i Group is among several private equity firms in talks to acquire Italian luxury fashion group Mariella Burani, and its leather accessories subsidiary Antichi Pellettieri. The company had 2007 revenue of €701 million.

GB Merchant Partners and Crystal Capital have acquired Como Fred David, a maker of private label and branded women’s tops. No pricing terms were disclosed for the deal, which included leveraged financing from CIT Commercial Services.

Kohlberg & Co. has completed its $85 million acquisition of SM&P Utility Resources Inc. from The Laclede Group (NYSE: LG). SM&P provides underground facility locating and marking services.

Lone Star has agreed to acquire 1,300 real estate properties from German logistics company Deutsche Post World Net, for approximately €1 billion. Deutsche Post will lease back the main properties from Lone Star, once the assets change hands on July 1.

Numonyx BV was launched as a flash memory joint venture between Intel Corp., STMicroelectronics and Francisco Partners. Intel contributed its NOR assets for a 45.1% stake, STM contributed its NOR and NAND assets for a 48.6% stake and Francisco invested $150 million for a 6.3% stake.

Parthenon Capital has made a “significant investment” in Captive Media Holdings, a provider of advertising and marketing opportunities to national brands through US health clubs. Captive Media’s management team and employees will remain with the company.

The Riverside Co. has acquired a majority interest in Advanced Education Systems (a.k.a. TrainingPro), a Hunt Valley, Md.–based provider of education and compliance solutions for the mortgage sector. No financial terms were disclosed. Citi Capital Strategies advised AES on the deal.

Stone Point Capital has acquired a minority stake in Cyprexx Services LLC, a provider of property preservation, inspection and repair services nationwide to residential mortgage lenders and real estate asset management firms. No financial terms were disclosed.

Superior Capital Partners has acquired Laurinburg, N.C.-based Rostra Precision Controls, and also sponsored recaps of Wixom, Mich.-based OEM Components and USA Switch. No pricing terms were disclosed for the deals, which included leveraged financing arranged by Bank of Montreal.

PE-Backed IPOs

BioTrove Inc. has filed for a $75 million IPO. The Woburn, Mass.-based company makes instruments and consumables for genomic analysis, high-throughput screening and molecular diagnostics. It plans to trade on the Nasdaq under ticker symbol BTRV, with Piper Jaffray and Lazard Capital Markets serving as co-lead underwriters. BioTrove has raised over $43 million in VC funding since 2002, from firms like Catalyst Health & Technology Partners (35.1% pre-IPO stake), CB Health Ventures (17.1%), Vox Equity Partners (14.3%), Biofrontier Partners (6.1%), Fletcher Spaght Associates (6.2%) and Pfizer.

PE Exits

Arcapita has completed its sale of TLC Health Care Services Inc. to Amerdisys Inc. (AMED), for an enterprise value of $395 million. TLC is a Lake Success, N.Y.-based provider of home healthcare services in 22 states. Navigant Capital Advisors advised TLC on the deal.

HP has agreed to acquire Tower Software, an Australian developer of document and records management software, from shareholders like Quadrant Private Equity. No financial terms were disclosed.

PE-Backed M&A

TouchPoint Print Solutions Corp., a printing company acquisition platform sponsored by Huron Capital Partners, has acquired Berman Printing. No financial terms were disclosed. Berman is a Cincinnati-based provider of sheet-fed commercial printing, dimensional packaging and fulfillment services for clients ranging in size from small businesses.

Firms & Funds

Banco Popular Espanol has entered talks to sell its French arm, Banco Popular France, to France’s Credit Mutuel CIC. The proposed terms include a mutual commercial agreement in which both CM-CIC and Popular’s clients will be able to access services throughout Spain, Portugal and France.

The Iowa Public Employees’ Retirement System (IPERS) last week decided to issue RFPs for new general and real estate investment consultants. Its current contracts with Wilshire Associates (general) and The Townsend Group (real estate) expire in September. The $23.8 billion plan as an 8% allocation to private equity.

Maveron LLC, a Seattle-based venture firm focused on the consumer sector, has closed its fourth fund with $240 million, according to VentureWire. Limited partners include Yale University, MIT, Princeton University, MacArthur Foundation, Mayo Foundation, Carnegie Corp., Knightsbridge Advisors and Legacy Venture.

Tano Capital is raising its second India-focused middle-market private equity fund with a $300 million target, according to LBO Wire.

Human Resources

Jukka Ruuska, president of the OMX Nordic Exchanges and the Stockholm Stock Exchange, has agreed to join private equity firm CapMan. The move will become effective no later than September, at which point he will help establish a new equity fund that will invest in Nordic companies listed on public markets.

Marcel Ospel will not seek reelection as chairman of Swiss bank UBS, after another $19 billion of subprime mortgage-related losses.

Todd Golditch today joined Ranch Capital as a senior vice president. He previously was a vice president with Platinum Equity.

Darren Wallis has joined Permit Capital as a partner and portfolio manager. He had spent the past three years with Osage Ventures.

Barbara Kux and Hubertus Erlen have joined the European Advisory Committee of private equity firm Bridgepoint.Kux is a member of the group management committee of Royal Philips Electronics, while Erlen is vice chairman of the supervisory board of Bayer Schering Pharma AG. …

Brent Grover has joined the advisory board of Supply Chain Equity Partners. He is the founder and managing partner of Evergreen Consulting.

Michael Keaveney has joined Atlantic-Pacific Capital as an associate. He previously was with Performance Equity Management.