PE Week Wire: Tues., Dec. 11, 2007

Should private equity firms accept capital from, or sell ownership positions to, sovereign wealth funds of countries that have poor human rights records? It’s an extremely thorny question, so let’s take some time to work it out.

The reason we do such work today is that the Service Employees International Union (SEIU) is using the issue of human rights to further bash The Carlyle Group, which recently sold a 7.5% firm ownership to a sovereign wealth fund of Abu Dhabi. SEIU argues that Carlyle is employing a “see no evil” approach toward its new (minority, non-voting) owner, which is documented to have mistreated immigrant workers and homosexuals.

“Carlyle is undermining efforts to improve human rights by publicly embracing the government of Abu Dhabi in this way,” argues SEIU spokesman Andy McDonald.

Carlyle spokesman Chris Ullman responded with: “We are pleased to be affiliated with [sovereign wealth fund] Mubadala, which is a sophisticated institutional investor that has become a long-term partner with Carlyle.”

Before continuing, it should be noted that only Carlyle seems to be in SEIU’s sights. Blackstone selling an ownership piece to China? That huge infusion of Abu Dhabi cash into Citi? Not a peep. The reason, of course, is that Carlyle is buying nursing homes operator ManorCare, which SEIU wants to unionize. So what we have here is a bit of PR hardball, but don’t let it cloud the underlying issue. If SEIU’s cause is just, its motives don’t much matter.

A private equity firm’s primary responsibility – both legally and morally – is to its investors. Its second responsibility is to the portfolio company employees it takes into its charge, and its third is to the social/legal infrastructure that enables it to do its work and make its profits.

The SEIU argument rests of the stool’s third leg, and it is about social responsibility rather than legal mandate. After all, Abu Dhabi is an official ally of the United States. SEIU also makes a case about transparency, in that Abu Dhabi’s sovereign wealth funds are considered among the world’s most opaque, but I think that’s adequately counteracted by Carlyle also counting plastic wrap-clear CalPERS among its owners.

Carlyle obviously made a choice to accept Abu Dhabi’s money. This isn’t a listed security that anyone could buy, and PE firms have shown prior discretion in turning down LP commitments from state pension funds that publicly-disclose fund performance data (although Carlyle has not done so).

I ultimately don’t object to its decision to take the money. To make such decisions based on human rights would handcuff Carlyle, as it’s hard to find a major country without questionable human rights records. China? Russia? Saudi Arabia? The United States?

But that is not where this should end. If Carlyle agrees to accept Abu Dhabi as a partner, it should use its newfound partnership as leverage to push for change. Not because it’s legally mandated, but because it is a unique position to effect change. Carlyle’s David Rubenstein often says that capital is the United States’ greatest export. My hope is that he and his peers will also remember that currency can have multiple meanings.

*** Yesterday I asked you to name the Highland Capital Partners VC who quit last week, and where he went. As first reported at peHUB yesterday, the answer was Jon Auerbach, who has joined Charles River Ventures. More here.

*** Private equity is all over the best and worst deals of 2007, as compiled by Time.

Top Three

MBIA Inc. (NYSE: MBI), an Armonk, N.Y.-based bond insurer, has agreed to receive a cash infusion of up to $1 billion from Warburg Pincus. The deal includes an up-front investment of $500 million, which represents around 16.1 million shares being purchased at $31 per share. Warburg Pincus also will cover unsubscribed shares worth up to $500 million as part of a shareholder rights offering MBIA is planning for Q1 2008, and will receive two MBIA board seats. Finally, Warburg Pincus also will receive warrants that would let it purchase another 16.1 million shares at $40 per share over the next seven years.

Metalmark Capital has agreed to become an “investment center” within Citi Alternative Investments. The move comes just three years after gaining its independence from Morgan Stanley, where it was known as Morgan Stanley Capital Partners.

ChinaEdu Corp., a Beijing-based provider of various services to the online degree programs of Chinese universities, raised $68.2 million in its IPO. The company priced 6.82 million American depository shares at $10 per share ($10-$12 range), and will trade on the Nasdaq under ticker symbol CEDU. Bear Stearns & Co. served as lead underwriter. Shareholders include Tiger Global (19.82% pre-IPO stake), McGraw-Hill Cos. (6.61%), IDG Technology Ventures (4.5%), UOB Venture Technology Investments (2.68%) and EcoChina Investments (1.47%).

VC Deals

Inside Contactless, a French maker of “contactless” payment chips and NFC technologies for mobile devices, has raised €25 million in new VC funding. Nokia Growth Partners led the round, and was joined by return backers Sofinnova Partners, Vertex Management, Vertex Ventures, Siparex, GIMV, EuroUS Venture, Granite Global Ventures and Visa Ventures.

REVShare, a Temecula, Calif.-based exchange that allows advertisers to bid for television time on a cost-per-action basis, has raised $20 million in a funding round co-led by Carlyle Venture Partners and H.I.G. Ventures. RBC Daniels advised REVShare on the transaction.

E-Band Communications Corp., a San Diego-based developer of ultra-high capacity wireless communications systems for the 70/80 GHz E-band spectrum, has raised $10 million in Series B funding led by Reliance Technology Ventures, the corporate VC arm of the Reliance ADA Group. Other participants included ADC Telecommunications, Express Ventures, Hercules Technology Growth Capital, Investec and a “major wireless carrier.”

Kosmix, a Mountain View, Calif.-based developer of vertical search engines based on specific topics, has raised $10 million in Series C funding. DAG Ventures led the round, and was joined by return backers Accel Partners and Lightspeed Venture Partners.

Smilebox Inc., a Redmond, Wash.-based provider of multimedia expressions technology, has raised $7 million in Series B funding. Bessemer Venture Partners led the round, and was joined by return backer Frazier Technology Ventures. Smilebox raised a $5 million Series A round in early 2006.

Twenga SA, a Paris, France-based shopping search engine, has raised €2.6 million in VC funding from 3i Group.

iViZ, a Kolkata, India-based network security startup, has raised $2.5 million from IDG Ventures India.

Carigent Therapeutics Inc., a New Haven, Conn.-based drug delivery startup, has raised $2 million in first-round funding from Saint Simeon Marketing and Investments.

Bahu, a Paris-based private social network for high-school students in Europe, has raised an undisclosed amount of first-round funding led by the Lightspeed-Gemini Internet Lab.

Kenshoo, an Israel-based provider of search marketing automated solutions, has raised an undisclosed amount of first-round funding from Sequoia Capital.

TechForward Inc., a Fort Wayne, Ind.-based provider of financial services for consumer electronics, has raised an undisclosed amount of second-round funding. New Enterprise Associates led the deal, and was joined by return backer First Round Capital.

Buyout Deals

Apollo Management has agreed to acquire the Ft. Lauderdale, Fla.-based Regent Seven Seas Cruises operations of Minneapolis-based Carlson. No financial terms were disclosed for the deal, which will not result in a change in branding. Lehman Brothers advised Apollo on the deal, while Goldman Sachs advised Carlson. Get more info.

Bain Capital has received European Union approval to sell buy Dutch coatings company SigmaKalon Group to PPG Industries (NYSE: PPG) for approximately €2.2 billion, including assumed debt. SigmaKalon was created in 1999 from the merger of Total’s Kalon Group and PetroFina’s Sigma Coatings, and was acquired by Bain in 2003. Sales have increased from approximately €1.7 billion in 2003 to approximately €2 billion in 2006.

Bolder Capital has acquired The Horsburgh & Scott Co., a Cleveland-based manufacturer of industrial gears and gear drives, for $43.5 million. Allegiance Capital Corp. represented Bolder on the deal.

Boston Ventures has completed its acquisition of SJI LLC, a telecom and broadband services provider for residential and commercial customers in southern Louisiana. No financial terms were disclosed. The seller was the Brady family, which has owned SJI since 1945. RBC Daniels advised SJI on the transaction.

The Carlyle Group and Riverstone Holdings have acquired Permian Tank & Manufacturing Inc., an Odessa, Texas-based maker of steel and fiberglass storage tanks, treaters, separators and vessels for the oil and gas industry. No financial terms were disclosed.

VMG Partners has acquired Waggin’ Train LLC, a provider of branded all-natural, all-meat pet treats. No financial terms were disclosed. BMO Capital Markets served as exclusive financial advisor to VMG, and also as lead arranger for the senior debt financing. Churchill Financial and Babson Capital provided senior debt and mezzanine debt, respectively.
Wind Point Partners has acquired Vertellus Specialties, an Indianapolis-based specialty chemical maker, from Arsenal Capital Partners for an undisclosed amount. Arsenal formed Vertellus in 2006 via the merger of portfolio companies Reilly Industries and Rutherford Chemicals.

PE-Backed IPOs

Cardtronics Inc., a Houston, Texas-based operator and distributor of ATM machines, has cut its IPO terms from 16.67 million common shares being offered at between $14 and $16 per share, to12 million shares being offered at between $10 and $11 per share. The company plans totrade on the Nasdaq under ticker symbol CATM. Deutsche Bank Securities, William Blair & Co. and Banc of America Securities are serving as co-lead underwriters. CardTronics previously filed for an IPO in 2004, but later withdrew the offering. Soon after, it raised $75 million in new funding from TA Associates, which was used for both working capital and to provide some liquidity to majority shareholder CapStreet Group LLC. The new IPO filing lists CapStreet as having a 37.5% ownership position, with TA holding a 29.5% position.

PE Exits

Exactech Inc. (Nasdaq: EXAC) has agreed to acquire Altiva Corp., a Charlotte, N.C.-based maker of spinal implant devices and related products. The deal represents Exactech’s decision to exercise a buyout options that was included in a 2003 investment agreement. The pre-determined purchase price is $25 million in cash and stock. Altiva had raised around $18 million in VC funding from Exatech, Frazier Healthcare Ventures, Pequot Capital and SightLine Partners.

Gresham Private Equity has sold Warings, a UK-based regional building contractor, to Bouygues Construction. No financial terms were disclosed, although Gresham reports that the deal generated a 4x return on its original investment. Warings has over 240 employees and annual revenue in excess of £100 million.

Firms & Funds

ARCH Venture Partners has closed its seventh fund with $400 million in capital commitments. It will continue to focus on seed-stage and early-stage tech and life sciences companies.

Venture Investment Associates has closed its sixth fund-of-funds with $225 million in capital commitments. The vehicle will be used to invest in between 20 and 25 venture capital, growth equity and buyout funds.

Human Resources

Industri Kapital has made ten promotions: Dan Soudry and Helena Stjernholm to partner; Remi Buttiaux, Remko Hilhorst, Kristian Kemppinen, Anders Petersson and Klaus de Vibe to deputy director; and Bart Borms, Benoit Leblanc and Matts Rosenberg to associate director.

Jeremy Lytle has joined ECI Partners as investor relations manager. He previously was with FM Capital Management, as chief operating officer and head of investor relations.

Paul Stern has joined Golub Capital as a vice president. He previously was with New York Life Capital Partners, where he focused on private equity and debt investments. Before that, he was a member of the financial buyers group at Bear Stearns.

NGP Energy Technology Partners has promoted Jason Hicks to principal. He had joined the firm in early 2006 as a vice president, after having spent nine years in M&A and leveraged finance with Citigroup.