PE Week Wire: Tues., Feb. 5, 2008

Next Wednesday, Steve Schwarzman turns 61 years old. That means it’s been nearly a year since his sixtieth birthday celebration became the symbol for private equity industry excess, and Schwarzman its human face.

There were basically two groups of critics: Those who considered a $5 million party to be obscene under all circumstances, and those who felt the obscenity was specific to a particular time and place. I was among the latter. In a February 12 column, I argued that the booming buyout business was at a precarious point, with activist shareholders beginning to believe that they could keep holding up take-private deals for higher and higher ransoms. An ostentatious display of wealth like Schwarzman’s party would only feed that beast, which would ultimately help lower private equity returns (including at Blackstone).

Several months later, the party also would be cited as a prompt for Congressional interest in changing the tax treatment of carried interest. While it’s unfair to suggest that Schwarzman should have – or could have – considered that specific point, the general message from my column still applied: Don’t draw attention to yourself.

This message also seems to have been imparted to Schwarzman by Blackstone co-founder Pete Peterson, according to a new Schwarzman profile in The New Yorker. He didn’t listen, but does provide a more sympathetic explanation for his extravagance. Seems he has a rare blood-protein deficiency, which requires regular checkups and medication. The party, he said, was a reflection of his joy at making it to 60. Fine, but he still could have used better judgment – perhaps going the Bonderman in Vegas route, where nobody notices a massive party.

But here’s the thing, and it really is unavoidable: Shareholder activism did not end up playing an enormous role in inflated deal values between February and June. There were certainly a couple of transactions in which that was the case, but the biggest ones actually occurred before Rod Stewart began crooning Happy Birthday. Yes deal prices were inflated, but that was mostly due to: (A) A bull public market driven by the belief that PE firms planned to buy up everything; and (B) Competition between private equity firms. Perception of wealth did help duel A, but the larger driver was actual PE deal activity and bank leaks about companies on the auction block.

Increased PE visibility did indeed drive Congressional interest in changing carried interest tax treatment but, as of now, no such action has been taken. The Baucus-Grassley Bill also did not receive a vote. Maybe in 2009 if we get a Democratic president and Congress, but this is a reflection column, not a prediction column. There also has been the SEIU scrutiny, but so far it’s been more sideshow than substance.

Finally, increased PE visibility did not help cause the credit crunch that seems to be leading us down a recessionary path. PE firms were certainly part of the problem, but lenders deserve the bag they’re holding.

So no party-planning advice this year. I still don’t believe Schwarzman gave more than a moment’s thought to any of the above issues, but perhaps that would have been time wasted.

*** Leveraged buyout pros may favor Mitt Romney for president, but venture capitalists are strongly supporting Barack Obama. You can get the data and my analysis here.

*** French bank Natixis is suing UK private equity firm Terra Firma. Says the FT: “The pressure-cooker working environment of Guy Hands’ Terra Firma may have driven two executives to conceal a critical error in the cash flow projections for the collapsed television rentals business Boxclever.”

*** Marc Andreesen goes contrarian on what MicroHoo would mean for VC-backed startups.

*** Moody’s says activist shareholders are fueling high debt loads at public tech companies.

*** Hey Huckabee: Bain doesn’t own Clear Channel yet.

Top Three

BC Partners and Silver Lake Partners have completed their $16.5 billion buyout of fixed satellite services provider Intelsat Ltd., from Apax Partners, Apollo Management, Madison Dearborn Partners and Permira. Credit Suisse served as financial advisor to Intelsat on the deal.

Odersun AG, a Frankfurt, Germany-based maker of thin-film solar products for power plants and building integrated solutions, has raised €40 million ($59m) in Series B funding. Virgin Green Fund and AGF Private Equity co-led the round, and were joined by return backers Doughty Hanson Technology Ventures and China’s Advanced Technology & Materials. Odersun also raised an additional €21 million in grants from the federal state of Brandenburg, to build its second factory.

The Jordan Company, a New York-based middle-market buyout firm, has closed its second fund with $3.6 billion in capital commitments. It already has invested around 15% of the fund in four companies, including one in China. Limited partners include CalSTRS, CPP Investment Board, New Jersey Investment Board, Irish National Pensions Reserves Fund, Illinois State Board of Investment, New York State Teachers Retirement System and TIAA-CREF.

VC Deals

Suniva, an Atlanta-based solar cell manufacturer, has raised $50 million in second-round funding. Advanced Equities and return backer New Enterprise Associates co-led the round, and were joined by Goldman Sachs (via Cogentrix Energy), H.I.G. Ventures and Quercus Investments.

PEAK Surgical Inc., a Palo Alto, Calif.-based developer of tissue detection systems, has raised $21 million in Series C funding. Signet Healthcare Partners led the round (which closed in December), and was joined by return backers Lehman Brothers and Venrock. Inc., a San Mateo, Calif.-based provider of real-time 1-to-1 marketing solutions for sales and marketing professionals, has raised $19 million in Series C funding. Accel Partners led the round, and was joined by return backers Mohr Davidow Ventures, Emergence Capital and Walden International., an Amsterdam-based provider of mobile instant messaging solutions, has raised €6.5 million in second-round funding. Prime Technology Ventures led the round. It’s unclear is existing shareholder Lowland Capital Partners also participated.

Keen High Technologies Ltd., a Chinese maker of portable audio/visual products, has raised $10 million from CIVC PE Fund. Get more info.

Enkata Technologies Inc., a San Mateo, Calif.-based provider of on-demand performance and talent management software, has raised $8 million in new VC funding from return backers Sigma Partners and Apex Ventures. It has now raised around $34 million in total VC funding since 2001.

VoIPshield Systems, an Ottawa-based maker of products to secure VoIP communications, has raised Cnd$6 million in second-round funding. NOAR Group Ltd. led the round, and was joined by return backer Brightspark Ventures.

Centrifuge Systems Inc., a McLean, Va.-based provider of business intelligence software, has raised $4.5 million in first-round funding from Novak Biddle Venture Partners.

Traversa Therapeutics Inc., a La Jolla, Calif.-based provider of RNAi delivery technologies, has raised $2 million in Series A funding. San Diego Tech Coast Angels led the round, and were joined by Mesa Verde Venture Partners and Morningside Group.

Nexopia, a social networking platform focused on Canadian youths, has raised an undisclosed amount of VC funding from Burda Digital Ventures. The company also named Boris Wertz, former COO of, as its new CEO. 23-year-old founder and former CEO Timo Ewalds will serve as chief product strategist.

Archus Orthopedics Inc., a Redmond, Wash.-based developer of reconstructive spinal implants, has secured a $10 million in venture debt from GE Healthcare Financial Services. Archus previously had raised nearly $65 million in VC funding from Polaris Venture Partners, MPM Capital, InterWest Partners and Johnson & Johnson Development Corporation.

Buyout Deals

The Carlyle Group and Riverstone Holdings have committed $450 million for investment in Dynamic Offshore Resources LLC, a Houston-based oil and gas startup that will acquire and develop producing properties in the Gulf of Mexico. Dynamic’s founders and managers have committed an additional $50 million.

Pacific Crest Securities, a technology I-bank based in Los Angeles, has raised $30 million in growth financing from CIVC Partners and Caltius Partners, in exchange for a minority ownership position.

Olivant pulled out of the Northern Rock process yesterday, leaving just Virgin Group and an in-house management team in the running.

Sun-Times Media Group Inc. has put The Chicago Sun-Times newspaper up for auction.

PE Exits

Ecolab Inc. (NYSE: ECL) has agreed to acquire Ecovation Inc., a Victor, N.Y.-based provider of renewable energy solutions and effluent management systems for the U.S. food and beverage market. Ecolab will pay $210 million, but the net purchase price will be $170 million after the sale of approximately $40 million in long-term lease receivables. Ecovation has raised around $19.7 million in VC funding from firms like Roser Ventures, Sterling Partners, Cordova Ventures and Cayuga Venture Fund.

Nvidia (Nasdaq: NVDA) has agreed to acquire Ageia Technologies Inc., a Mountain View, Calif.-based developer of gaming physics technology. No financial terms were disclosed. Ageia has raised around $55 million in VC funding since 2003, from firms like Apex Venture Partners, CID equity Partners, HIG Ventures, Granite Global Ventures, Scale Venture Partners and WK Associates.

Progen Pharmaceuticals Ltd. (Nasdaq: PGLA) has agreed to buy CellGate Inc., a Redwood City, Calif.-based oncology drug developer. The deal is worth up to $1.5 million in Progen stock, plus up to another $19.5 million in cash or shares if CellGate meets certain milestones. CellGate raised around $85 million in VC funding between 1998 and 2003, with the latest round using a post-money valuation of around $70 million. Backers include Johnson & Johnson Development Corp., New Enterprise Associates, HealthCare Ventures, Sprout Group, SVB Capital Partners and Ontario Teachers Pension Plan.

PE-Backed M&A

Advanstar Communications Inc., a portfolio company of Veronis Suhler Stevenson, has acquired CBI Research Inc., a provider of live and electronic conferences for pharma and biotech executives. No financial terms were disclosed.

Freescale Semiconductor, a maker of embedded chips, has agreed to acquire SigmaTel Inc. (Nasdaq: SGTL), a maker of mixed-signal ICs for the consumer electronics market. The deal is valued at approximately $110 million in cash, with SigmaTel stockholders to receive $3 per share (67% premium over Friday’s closing price). Freescale was taken private in late 2006 for $17.6 billion, by The Blackstone Group, The Carlyle Group, Permira and Texas Pacific Group.

Local Insight Media LP, a publishing portfolio company of Welsh Carson Anderson & Stowe, has agreed to acquire a collection of online directories from L.M. Berry & Co., a subsidiary of AT&T. No financial terms were disclosed.

Marlin Equity Partners has completed the take-private acquisition of VantagePoint Systems Inc., a provider of enterprise resource planning (ERP) software solutions to the worldwide packaging industry.VantagePoint will operate as a subsidiary of Solarsoft Business Systems, a Marlin portfolio company and provider of ERP solutions to wide array of vertical markets. Marlin continues to actively seek acquisitions in adjacent vertical ERP markets.

Bad News

Blue Frog Mobile Inc., a Seattle-based mobile media and entertainment provider, has filed for Chapter 7 bankruptcy protection. The company raised a $16 million Series A round in late 2005 from Canaan Partners and MK Capital.

Wickes Furniture, a furniture retailer acquired by Sun Capital Partners in 2004, has filed for Chapter 11 bankruptcy protection. It lists $190 million in assets and $208 million in liabilities, and has reached a $30 million DIP financing arrangement with Wells Fargo Retail Finance.

Firms & Funds

Carmel Ventures, an Israeli venture capital firm, has closed its third fund with $235 million in capital commitments. Limited partners included J.P. Morgan, Horsley Bridge, Calpers, the Oregon Public Employees Retirement Fund, The Partners Group, LGT Capital Partners, VPartners, NY State/Hamilton Lane, Goldman Sachs, Pomona Capital, Vintage Venture Partners, Wilshire, HRJ Capital, Bonora, SiemensVenture Capital, HarbourVest, FLAG, Portfolio Advisors and Knightsbridge.

Duff & Phelps Corp. has formed a special situations M&A practice, focused on middle-market companies.

Human Resources

Arnie Chavkin has joined Pine Brook Road Partners as a managing director, with a focus on the energy and financial services sectors. He served as chief investment officer for JPMorgan Partners, until his retirement in August 2006.

Kevin Malover has joined Chicago-based private equity firm GTCR as chief information officer. He most recently served as chief technology officer for Barack Obama’s presidential campaign, and was recruited to GTCR by TillmanCarlson.

Valhalla Partners, a Vienna, Va.-based venture capital firm, has promoted Kiran Hebbar to partner and hired Danielle Brogan as controller. Hebbar joined the firm as a principal in 2006, and focuses on the Internet marketing and digital media sectors. Brogan previously was assistant controller at CapitalSource.

Leeds Equity Partners has made four promotions: Brad Whitman and Peter Lyons from principal to managing director (Lyonds remains CFO), Atif Gilani from vice president to principal and Jesse Serventi from associate to senior associate.

VenGrowth Private Equity Partners has named three new members to its Traditional Industies Advisory Board: Doug Berchtold, former president and CEO of Brick Brewing Co., Donald McCreesh, president of The Garnet Group; and Leonard Simak, former president and CEO of Footmaxx Holdings Inc.