PE Week Wire: Tues., April 8, 2008

As the markets began to turn last year, I offered the following prediction: Public perceptions of private equity would only get worse, as economic pressured force firms to enact portfolio company layoffs and other cost-cutting measures. In other words, rampant accusations of “bad acts” would finally have a basis in modern reality.

Some of this has already happened, thanks largely to a recent spike in portfolio company shutdowns and bankruptcies. But there also has been a twist I did not anticipate, whereby some of the presumptive black hats are transforming into white knights.

The prime example of this phenomenon is TPG Capital’s offer to lead a $5 billion investment into Seattle-based mortgage lender Washington Mutual (WaMu). Now we can certainly question the ROI value of PE firms making big bets in public equities – as Andrew Sorkin does in today’s NY Times – but the headline here is that a PE firm is voluntarily taking a possible bailout burden off of taxpayers. I know, I know – it isn’t taxpayers’ responsibility to help a struggling financial institution, but try telling that to the Fed.

There may be some public backlash to this deal by diluted WaMu shareholders, but that’s of minor concern from a PR perspective. And, as both myself and Sorkin have repeated ad nauseum – public perception must matter to private equity. It can affect regulatory rulings, tax decisions and the ability of public pension funds to invest unfettered in the asset class. So if this deal goes through, the PE industry has to send a second Thank You note to David Bonderman.

The first was for holding his extravagant birthday party in Vegas, where no one notices extravagant birthday parties. The second is for helping the industry’s image rise up when it has every reason to be sinking.

*** Speaking of public perception issues, I recently neglected to note the pending retirement of Congressman Tom Reynolds (R-NY), who led the legislative fight against a change to carried interest tax treatment. His office also maintains the From Wall Street to Main Street blog. I obviously disagreed with Reynolds on the tax issue, but found him to have an outstanding understanding of the issues. That’s a pretty rare trait in Washington.

*** I’ll be heading to Orlando later this afternoon for the ACG Intergrowth conference, where I’m on a panel tomorrow. A reader recently suggested that ACG would be a great middle-market buyout opportunity. Just something to consider while walking the halls…

*** My trip down south means that I can’t attend the Venture Summit East being hosted here in Boston by Always On. Too bad, as the program looks strong. And now two tweaks: Always On, in preparation for the conference, had named its Top 100 promising companies in the Northeast. But, as Scott Kirsner correctly notes, they use “Northeast” and “New England” interchangeably. We actual New Englanders don’t do such a thing. I might also point out that we Bostonians wouldn’t begin a conference the same day that the Red Sox get their rings at Fenway… Seems half the local VCs I know have season tickets.

*** peHUB First Read. Now with even more links.

*** Joanna Glasner on the rise of foreign strategic involvement in U.S. venture deals.

*** 5 Questions for Dave McKenna, a managing partner with Advent International. First question is if raising a $10.4 billion middle-market fund is an inherent contradiction.

*** If you missed 60 Minutes on Sunday, this interview with China Investment Corp. chief Gao Xiqing is worth a watch. The big news is that he’s promising that CIC will provide as much information about itself as the “best” sovereign wealth funds. In other words, he’s going to call the bluff of selective xenophobes who claim their concerns are just ones of transparency.

*** Three more days to send me your Desperate Intern openings. Postings go up Monday.

*** Finally, I’d like to announce that we have a March Madness Extravaganza winner: It’s the mysterious Adam V, who it turns out is a Canadian university student named Adam Vaughn. You’ll be hearing from Adam at some point soon, as one of his rewards is the opportunity to take over this space for a morning. Thanks to everyone who played…

Top Three

TPG Capital has agreed to acquire a 50% stake in Russian pharmaceutical distributor SIA International Ltd. The all-equity deal is valued at approximately $800 million, which is believed to be the largest private equity deal ever transacted in Russia.

DeepFlex Inc., a Houston-based maker of composite pipe for use in deepwater and ultra deepwater oil and gas production, has raised $33 million in Series C funding. Nomura Private Equity led the round, and was joined by Heico Acquisitions, Promon International and return backers Altira Group, Energy Ventures and CTTV Investments.

The Nielson Co. has agreed to acquire IAG Research, a New York-based provider of analytics for television ad effectiveness. The deal is valued at $225 million, and is expected to close later this quarter. IAG had raised over $71 million in VC funding since 2001, including a $47.5 million Series E round in 2006 from Insight Venture Partners and Bessemer Venture Partners.

VC Deals

Bridgelux Inc., a Sunnyvale, Calif.-based provider of LED technology for the solid-stage lighting market, has raised $40 million in Series D funding. The round includes $30 million of equity and a $10 million line of credit. VentureTech Alliance led the deal, and was joined by return backers DCM, El Dorado Ventures, VantagePoint Venture Partners, Chrysalix Energy Venture Capital and Harris & Harris Group.

Zhejiang C.Straits Food Chain Co. Ltd., a Western cuisine restaurant chain in China, has raised $30 million from Goldman Sachs and Whitesun Equity Partners. The company plans to go public “in the near future.”

Quark Pharmaceuticals Inc., a Fremont, Calif.-based developer of RNA interference-based therapeutics, has raised $27 million in new VC funding led by affiliates of SBI Holding Inc. The company last year withdrew registration for an $80 million IPO, citing unfavorable market conditions.

Tideway, a London-based provider of IT automation software, has raised $27 million in Series C funding. Scottish Equity Partners led the round, and was joined by return backer Apax Partners and company management. Tideway has now raised $37.5 million in total VC funding.

eMeter Corp., a San Mateo, Calif.-based provider of advanced metering and smart grid software, has raised $12.5 million in new VC funding. Siemens Corp. led the round, and was joined by return backers Foundation Capital and DBL Investors. The company had previously raised around $14 million.

TargetRx Inc., a Horsham, Penn.-based provider of sales and marketing analytics for pharma companies, has raised $9.6 million in new VC funding. Return backers include Quaker BioVentures, New Enterprise Associates and Domain Associates.

Marin Software, a San Francisco-based provider of paid search management applications for advertisers and agencies, has raised $7.25 million in Series B funding led by Benchmark Capital.

Covestor, a social networking company focused on personal investing, has raised $6.5 million in Series A funding. Backers include Spark Capital, Union Square Ventures, Amadeus Capital, Howard Lindzon and John Borthwick.

Better World Books, a Mishawaka, Ind.-based online bookseller that uses some of its profits to help fund global literacy initiatives, has raised $4.5 million in Series A funding. Good Capital LLC led the round with a $2.5 million investment, while angels provided the remainder.

PowerSteering, a Cambridge, Mass.-based provider of project portfolio management software, has raised $3.5 million in new funding. MMV Financial provided $2 million in venture debt, while existing shareholders Advent International and Hudson Ventures provided $1.5 million in new equity.

Buyout Deals

Exponent Private Equity has sponsored a management buyout of Lowell Holdings Ltd., a British debt purchasing company, from Cabot Square Capital. No financial terms were disclosed, although sources indicate a price of between £150 million and £200 million.

Graham Partners has acquired B&B Electronics Manufacturing Co., an Ottawa, Ill.-based maker of industrial Ethernet switches, from Fidelity Equity Partners.No financial terms were disclosed, except that Golub Capital provided $13.3 million in subordinated debt. Madison Capital led the senior debt tranche, while Lazard Middle Market advised B&B.

JC Flowers confirmed reports that it has made a150 pence per share offer for Friends Provident, which would value the UK insurer at £3.5 billion. Most of the deal would be financed via equity, but debt would be underwritten by RBS, Morgan Stanley and Citigroup.

Seguin Partners has acquired Genesis Technology Solutions Inc., a Ridgefield, Conn.-based engineering consultant focused on engineering consulting focused on manufacturing maintenance systems. No financial terms were disclosed, except that leveraged financing was provided by TDBanknorth and Ironwood Capital.

Steelpoint Capital Partners has completed its acquisition of prAna from Liz Claiborne Inc. (NYSE: LIZ). The deal included a $36.5 million cash payment at closing, and up to $4 million in financial milestone-based earnouts. PrAna is a Vista, Calif.-based maker of yoga and active lifestyle apparel and accessories.

3i Group is planning a $160 million buyout of a Singapore-based manufacturer, according to an interview with Bloomberg. It would be the firm’s first Asia-Pacific control deal in more than a decade, but no additional details were disclosed.

PE-Backed IPOs

Digital Domain Inc., a Venice, Calif.-based visual effects and animation company, has set its IPO terms to six million common shares being offered at between $12 and $14 per share. The company would have an initial market cap of approximately $268 million, were it to price at the high end of its offering range.Digital Domainplans to trade on the Nasdaq under ticker symbol DTWO, with Thomas Weisel Partners and CIBC World Markets serving as co-lead underwriters. Shareholders include Falcon Mezzanine Partners and GunnAllen Venture Partners.

PE Exits

3i Group has sold its stake in German cleantech company HTE AG to BASF for an undisclosed amount.

MeeVee Inc., a Burlingame, Calif.-based provider of online video entertainment search solutions, has put itself up for sale. In a press release, the company that the the “accelerated development of the online entertainment market” has led the company to determine that “combining with an established player will maximize the potential for the community, technology and content relationships [MeeVee] has built.” MeeVee has raised around $27 million in VC funding, from firms like Bay Area Equity Fund, Defta Partners, FCPR Israel Discovery Fund, Labrador Ventures, Rothschild Ventures and WaldenVC.

PE-Backed M&A

BPL Global Ltd., a Sewickley, Penn.–based smart grid technology company, has acquired Plan B Solutions, a Nova Scotia–based provider of substation automation technology to electric utilities. BPL has raised over $66 million in VC funding from firms like Morgan Stanley Private Equity, GIMV, PA Early Stage, Al-Deera International Communication Co., Novitas Capital and Perseus.

Icera Inc., a UK-based developer of wireless chipsets, has acquired Sirific Wireless Ltd., a Richardson, Texas-based fabless provider of single-chip, multi-band CMOS RF transceivers for the 3.5G market. No financial terms were disclosed. Icera has raised over $140 million in total VC funding since 2002, including a recently-announced 440 million Series D round that technically closed last September. Tudor Investment Corp. led that round, and was joined by return backers Accel Partners, Atlas Venture, Amadeus Capital Partners, Balderton Capital and 3i Group. Sirific had raised over $56 million, from firms like Hunt Ventures, BDC Venture Capital, Celtic House, GrowthWorks, Intel Capital, TD Capital Ventures and Tech Capital Partners.

Imeem Inc., a Palo Alto, Calif.-based social media network, has acquired Snocap, a Palo Alto–based provider of digital rights and content management solutions. No financial terms were disclosed. Imeem has raised over $5 million led by Morgenthaler Ventures and Sequoia Capital, while Snocap has raised over $25 million from Morgenthaler, Walden Venture Capital and Court Square Ventures.

Nimsoft, a Redwood City, Calif.-based provider of IT service-level management solutions, has acquired Fort Collins, Colo.-based competitor Indicative Software for an undisclosed amount. Nimsoft last year raised $10.3 million from JMI Equity and Northzone Ventures. Indicative has raised $17.3 million from firms like Sequel Venture Partners, Sutter Hill Ventures and Vista Ventures.

Xafinity, a UK-based maker of pension administration software, has acquired rival Hazell Carr. No financial terms were disclosed. This is Xafinity’s first acquisition since being acquired in 2005 by Duke Street Capital.

Xtera Communications, an Allen, Texas-based provider of optical networking and services, has acquired Meriton Networks Inc., an Ottawa-based metro optical networking company. No financial terms were disclosed. Xtera has raised over $218 million in total VC funding, from firms like The Wellcome Trust, New Enterprise Associates and Arch Venture Partners. Meriton had raised over $116 million from firms like Sierra Ventures, Primaxis Technology Ventures, Oak Investment Partners, VenGrowth, RBC Capital Partners, Investissement Desjardins, Newbury Ventures, VantagePoint Venture Partners, JVP, Nomura International and Skypoint Capital Corp.

Firms & Funds

Intel Capital has created a $500 million fund dedicated to Chinese technology startups. The firm had previously llocated $200 million to its first dedicated China fund in June 2005.

Permira, a UK-based buyout firm, has disclosed plans to open a Bay Area office later this year. It will be run by partner Richard Sanders, who is relocating from London. Permira already has a U.S. presence in New York, which was buttressed last week by the hiring of JPMorgan financial sponsors chief John Coyle.

Squadron Capital of Hong Kong next month plans to begin raising a $400 million fund-of-funds focused on Asian markets like China and India, according to Reuters. It closed a $300 million Asian fund-of-funds just two months ago, but has already committed approximately 70% of it via 14 fund investments.

Human Resources

Marvin Barth has joined Tennenbaum Capital Partners as chief investment strategist. He previously was chief economist for international affairs with the U.S. Treasury Department.

Michael Gutch has joined H.I.G. Ventures as a member of its life sciences team. He previously was a venture partner with Lilly Ventures.

Michael Moran has joined Cleveland-basedLinsalata Capital Partners as a vice president. He previously was director of M&A with KeyBank Capital Markets.

Jerry Rao and Amit Sharma have joined the Indian affiliate of New Enterprise Associates as venture advisors. Rao previously was chairman and CEO of MphasiS, and previously helped build Citibank’s consumer business in India. Sharma currently is with American Tower Corp. as an executive VP and president of Asian operations.