PE Week Wire: Tues., Jan. 15, 2008

Readers often ask why this publication covers two asset classes that seem to have little in common: Leveraged buyouts and venture capital.

Part of it is publishing legacy — using the (then) flexible term “private equity” as a way to play market cycles. When buyouts were hot, we would cover buyouts. When VC was hot, we would cover VC. And vice versa.

But there is also something much less cynical: Each asset class is funded by the same group of investors. Not just the same institutions (public pensions, universities, etc.), but also the same individual investment managers. Sometimes they are “private equity officers” and sometimes they’re “alternative asset officers.” At smaller shops they’re the CIOs.

What this means is that there buyout and VC firms are engaged in an ongoing competition for dollars and LP attention, even if neither side consciously realizes it. Buyout firms have obviously won the battle in recent years, with consecutive years of record hauls. Venture has risen steadily too, but not at nearly the same rate. In fact, it could be argued that venture fundraising has increased at a lower rate than have average LP allocations to venture. After all, why listen to pitches from a dozen VC firms looking for $20 million, when you can just plug the same $240 million into a mega-buyout fund?

What I’m hearing from LPs and placement agents now, however, is that 2008 could finally be the year in which VCs begin to even up this tug-of-war. Not in terms of total dollars, of course, but in terms of percentage change over the preceding year. The explanation for this (possible) shift is that the credit crunch has scared LPs silly, and they are worried that those giant checks could soon come back to haunt them. Venture, on the other hand, is being viewed as overlooked, and possibly offering more reward with less risk. Feel free to laugh at that last part – particularly if you’ve seen median VC returns since the Internet bubble – but it’s no sillier than stocking up on mega-funds that club up and charge outrageous transaction fees…

Btw: U.S.-based buyout firms raised $276.7 billion in fund capital last year, compared to $225.6 billion raised in 2006 (itself a record). Of this, $135.1 billion went to funds of $5 billion or more. U.S.-based venture capital firms raised $34.67 billion in 2007, compared to $31.7 billion in 2006.

*** Quad-C Management may need to rename itself Triple-C, as partner Gary Binning has left. Bob Haswell is also gone, although both men remain on the firm’s website. They both were part of the Heartland Automotive (Jiffy Lube franchisor) deal that recently went sour, but Quad-C says that they “are both leaving of their own volition to pursue their own separate opportunities.”

*** Another partner departure, but this time from the venture world: Robert McIntyre has left CMEA Ventures, where he had been a tech-focused partner for the past three years. McIntyre sent around an email yesterday saying only that the move was “effective immediately,” and that he plans to “pursue other opportunities.”

*** A correction from yesterday’s column: Jennifer Gill Roberts writes in to report that Maven Venture Partners is still alive: “We closed a modest fund, made a couple seed investments last year and will make a few more substantial investments in Q1… We opened a permanent Houston office based on our LP base. We will announce a permanent Silicon Valley office in early February.”

*** Not sure the public markets are quite convinced that Bain will be able to pull off the $1.3 billion Bright Horizons buyout, which it announced yesterday. The stock shot up over $12 per share, but still stopped more than $3 shy of the $48.25 buyout price. Big difference from this time last year, when such an announcement would have sent the stock price beyond the offering price, based on the assumption that shareholders could squeeze a few more bucks out of the equity sponsor.

*** Who boos a 14-year-old girl? You stay classy Indianapolis.

*** Since BET founder Bob Johnson is now (sort of) a private equity pro, let’s not only condemn his scummy comments, but also his absurd explanation. It’s one thing to insult a presidential candidate, but quite another to insult everyone else’s intelligence.

*** peHUB First Read

Top Three

Legg Mason Inc. (NYSE: LM) has sold $1.25 billion of convertible notes to Kohlberg Kravis Roberts & Co. The deal is expected to close by February fifth. The 2.5% notes are convertible at $88 per share, and expire in 2015. Legg Mason stock closed today at $72.36 per share.

ProQuo Inc., a La Jolla, Calif.-based company that helps users stop junk mail and prevent identity theft, has raised $8 million in Series B funding, peHUB has learned. Mission Ventures was joined by return backer Draper Fisher Jurvetson. The company had previously raised a $5 million Series A round in September 2006.

Arasor International Ltd. has acquired Novalux Inc., a Sunnyvale, Calif.-based maker of a vertical external cavity-surface emitting laser technology. The deal is valued at just $7 million in Arasor stock, plus the assumption of $13 million in debt. Novalux had raised nearly $200 million in VC funding since 1998, including a $108 million Series C round in 2000 at a $509 million post-money valuation. A bridge loan in the middle of last year valued Novalux at around $28 million. Company backers at the time of sale included Crescendo Ventures, DynaFund, Morgan Stanley Venture Partners, Tredegar Investments and Unaxis.

VC Deals

NanoGram Corp., a Milpitas, Calif.-based maker of core process technology for the manufacture of nanostructured materials for optical, electronic and energy applications, has raised $32 million in Series D funding. Return backers include ATA Ventures, Bay Partners, Harris & Harris, Institutional Venture Partners, Nth Power, Rockport Capital Partners, SBV Venture Partners, and Technology Partners . New participants were Global Cleantech Capital, Masdar Clean Tech Fund, Mitsui Ventures, Nagase & Co., Nanostart AG, TEL Venture Capital and Yasuda Enterprise Development.

Knight & Carver Wind Group Inc., a National City, Calif.-based repairer and manufacturer of wind turbine blades, has raised $12 million in private equity from Global Environment Fund.

Centric Software, a San Jose, Calif.-based provider of PLM for apparel and other consumer industries, has raised $14.3 million in Series B funding. Oak Investment Partners led the round, and was joined by return backers Bancboston Ventures and Masthead Venture Partners.

Pervasis Therapeutics Inc., a Cambridge, Mass.-based developer of regenerative cell-based therapies and devices, has raised $9.75 million in Series B-1 funding. Return backers include Flagship Venture Partners, Polaris Venture Partners, Highland Capital Partners, and Musket Research Associates.

Novacta Biosystems, a UK-based developer of anti-infective therapeutics, has raised £3.5 from the Wellcome Trust. VentureWire reports that it plans to seek another £5 million to close out the round.

Business Only Broadband, a Westmont, Ill.-based provider of wireless broadband services to the financial sector and other large enterprise clients, has raised an undisclosed amount of Series B funding from Focus Equity Partners.

Data Connection Ltd., a London-based telecom networking company, has raised a “significant investment round” led by Francisco Partners. Sequoia Capital also participated.

Fisker Automotive Inc., an Irvine, Calif.-based maker of “green” sports cars, has raised an undisclosed amount of second-round funding from Kleiner Perkins Caufield & Byers. The company previously raised a $5.5 million first round led by Palo Alto Investors. Both rounds were placed by ThomasLloyd Capital. Fisker plans to roll out its first cars in Q4 2009.

Buyout Deals

Thoma Cressey Bravo has agreed to acquire Manatron Inc. (Nasdaq: MANA), a Portage, Mich.–based provider of property tax solutions for state and local governments. The total deal is valued at approximately $66 million, with Manatron stockholders to receive $12 per share (36.4% premium to yesterday’s closing price). Wells Fargo Foothill has committed leveraged financing. .

Warburg Pincus has agreed to acquire LifeCore Biomedical Inc. (Nasdaq: LCBM), a Chaska, Minn.-based maker of dental and medical devices. The deal is valued at approximately $239 million, with LifeCore stockholders to receive $17 per share (32.4% premium to yesterday’s closing price).

Genstar Capital has formed Confie Seguros, an acquisition platform focused on insurance brokerages, primarily focused on the Hispanic consumer. It has $75 million in committed capital from Genstar, platform management and a bank facility. The future capacity is expected to exceed $200 million. In related news, Confie Seguros has made its first acquisition: Westline Corp., an insurance brokerage firm serving California.

LNK Partners is nearing a deal to acquire sandwich chain Au Bon Pan from company management and Compass Group for approximately $250 million, according to LBO Wire. Brockwood Associates is running the process.

Cerberus Capital Management has completed its acquisition of seven television stations from CBS Corp. (NYSE: CBS) for $185 million. The deal includes stations in Austin, Salt Lake City, Providence and West Palm Beach, and is subject to FCC approval. Cerberus was advised on the deal by CobbCorp and Wachovia Capital Markets.

Harrah’s Entertainment Inc. said that its buyout by Apollo Management and TPG will close on January 28. It would be the largest-ever buyout of a casino company.

Segulah has completed a $317 million recap of portfolio company Dacke PMC, a provider of hydraulic solutions to the Nordic region. HSH Nordbank, Nordea, FIH, Nykredit and Straumur provided senior debt financing, while HSH and Straumur together provided second-lien financing.

Marlin Equity Partners has acquired scrapbooking supply maker Chatterbox International, and merged it with existing portfolio company Ultra*Pro. No financial terms were disclosed.

Argos Soditic has sponsored a management buyout of ORSYP, a France–based provider of enterprise job scheduling solutions and IT Services. No financial terms were disclosed.

PE Exits

Ticketmaster, a unit of IAC/Interactive Corp., has agreed to buy TicketsNow Inc. for approximately $265 million. TicketsNow is a Crystal Lake, Ill.-based online ticket reseller that has raised around $76 million in VC funding from firms like Draper Fisher Jurvetson, Adams Street Partners, Portage Venture Partners, C&B Capital and New World Ventures.

Ticketmaster, a unit of IAC/Interactive Corp., has completed its acquisition of Paciolan Inc., an Irvine, Calif.-based provider of online ticketing software for live entertainment venues. No financial terms were disclosed. Paciolan had raised over $35 million in VC funding from firms like Marwit Capital, Argentum Group, Technology Crossover Ventures and Far West Capital Group.

PE Exits

Invitrogen Corp. (Nasdaq: IVGN) has agreed to acquire CellzDirect Inc., a Durham, N.C.-based provider of hepatocyte-based cell products and related services used in the testing of new drugs. The deal is valued at $57 million in cash, and is expected to close later this quarter. CellzDirect generated around $18 million in 2007 revenue, and has raised around $13 million in VC funding since 2002 from firms like Technology Funding, Solstice Capital, Valley Ventures, Village Ventures and Grayhawk Venture Partners.

PE-Backed M&A

Language Line Services, a portfolio company of ABRY Partners, has acquired Teleinterpreters, a provider of language services to “limited-English speakers” and the organizations who serve them. No financial terms were disclosed.

Perimeter eSecurity, a Milford, Conn.-based provider of managed network security services, has acquired Seccas LLC, a provider of e-messaging compliance solutions to public and private financial services companies. No financial terms were disclosed. Perimeter eSecurity has raised over $100 million in VC funding from Goldman Sachs, Bessemer Venture Partners and the Stripes Group.

Firms & Funds

Gryphon Investors, a San Francisco-based middle-market private equity firm, has raised $100 million for an annex fund to Gryphon Partners III, which closed in 2006 with $415 million. The move will help Gryphon delay its next fundraising drive until late 2008 or early 2009.

New Atlantic Venture Partners has held a first close of over $70 million for its first fund since forming last year, as a merger between the partners of Draper Atlantic and DFJ New England. The firm is targeting $175 million, with a $200 million cap. Prevail Capital is serving as placement agent.

Oaktree Capital Management has acquired a minority stake in MTS Health Partners, a New York-based healthcare merchant bank. No financial terms were disclosed.

Human Resources

Castanea Partners has promoted Troy Stanfield to partner, and hired Drew Collina as principal of marketing and development. Stanfield joined the firm in 2002 from Bain & Co., while Collina previously as a director of new business development for EMC Corporation.

Harish Gandhi has joined Canaan Partners as an executive director in the firm’s India office. He previously ran the new product development team at Indian mobile operator Bharti Airtel.