PE Week Wire: Tues., March 11, 2008

Last October, we discussed how the North American investment team of Standard Life Investments had quit en masse, after being shut out of the partnership’s economics. It was an ugly scene – with SLI initially pretending the departures didn’t happen, and then falsely stating that the team had not assumed deal-making, marketing or fundraising functions.

My assumption at the time had been that the team would likely reconstitute itself, although it might take a while due to non-compete clauses and the like. After all, most of them had worked together at State Street before even joining SLI.

Well, any restrictions have apparently been lifted, as the team recently formed a new Andover, Mass.-based firm named Constitution Capital Partners. They plan to follow the same investment strategy used at both SLI and State Street, which means making both fund commitments and co-investments in the small-to-large buyouts space (with a particular focus on the middle-markets). Constitution is currently raising its debut fund, with a first close slated for early summer. No word yet on the target.

In the past, Constitution’s team has invested in funds from such firms as Sun Capital Partners, New Mountain Capital, Avista Capital Partners, Eos Partners, The Sterling Group, Sterling Investments Partners, Sterling Partners and Towerbrook Capital Partners.

*** Speaking of fund-of-funds strategies: A lot of people have commented lately that the 2006-2007 barbell may prove disastrous. Thoughts?

*** The National Venture Capital Association has released data on the fastest growing regions for VC funding, between 1997 and 2007. Leading the list is New Mexico, followed by Pittsburgh and Seattle. You can download the chart over in peHUB First Read.

*** Just one comment on Spitzer: I think a bunch of PE pros are breathing easier now that the watchdog has lost his teeth. I know he’s the governor (for now) rather than the AG, but there were still lingering fears that he’d launch some sort of PE-related probe as the economy continues to tank. But not anymore.

*** I’ve uploaded some additional videos from Buyouts East. These include our panel on turnaround/distressed investing, a keynote interview with Highland Capital Management president James Dondero and a keynote interview with Riverside Company co-CEOs Bela Szigethy and Stewart Kohl. Watch them all here.

*** A reminder that Buyouts Madness is taking place on week from Thursday. The event is for up-and-coming buyout pros, and we’ll discuss everything from sourcing your first deal to career management. There also will be a keynote from Bain Capital’s Steve Pagliuca, who will discuss the parallels of doing mega-deals and owning the Boston Celtics. That’s all in the morning, after which we’ll all kick back with beers and flat-screen TVs to watch the first afternoon of NCAA Tourney play (i.e., “networking,” if your boss asks).

Go here to register. Tickets cost just $195 each.

*** In related news, we will be doing our annual March Madness pool again. Full details on Monday, after the brackets have been announced.

Top Three

MoneyGram International Inc. (NYSE:MGI) has amended the terms of its recapitalization plan with Thomas H. Lee Partners and Goldman Sachs, after failing to meet certain closing conditions of the prior agreement. The revised deal includes a $760 million investment in exchange for a 79% stake, compared to the original $775 million investment for a 63% stake. It also halves the stock conversion price from $5 to $2.50 per share, raises the dividends under certain conditions and allows MoneyGram to solicit alternative offers (the original “go shop” had ended earlier this month).

EUSA Pharma Inc., a specialty pharma company focused on the hospital market, has agreed to acquire oncology drug company Cytogen Corp. (Nasdaq: CYTO) for $22.6 million. EUSA also announced that it has raised $50 million in new VC funding led by TVM Capital. The company had previously raised $228 million from firms like Essex Woodlands Health Ventures, 3i Group, Goldman Sachs, Advent Venture Partners, NeoMed and NovaQuest. Much of that capital was used for acquisitions, including Talisker Pharma and OPi SA.

Leiner Health Products, a This Carson, Calif.-based maker of vitamins and nutritional supplements, has filed for Chapter 11 bankruptcy protection. The company also said that it has secured $74 million in DIP financing. North Castle Partners and Golden Gate Capital co-led a $650 million recap of Leiner Health back in 2004, before which North Castle had been the sole sponsor. That deal included around $131 million in equity from each firm, and have North Castle a 3x return on its initial investment.

VC Deals

Highwinds Network Group, a Winter Park, Fla.-based provider of multi-platform IP services and content distribution solutions, has raised $55 million in first-round funding. General Catalyst Partners and Alta Communications co-led the round.

Calderome Inc., a Menlo Park, Calif.-based cancer diagnostics startup, has called down $11.9 million of a $23 million Series A round, according to a regulatory filing. Backers include Kleiner Perkins Caufield & Byers, TPG Biotechnology Partners and Versant Ventures. The company does not yet have a website.

Coskata Inc., a Warrenville, Ill.-based developer of technologies for processing biorefuse into ethanol, has raised $19.5 million in Series B funding, according to a regulatory filing. Backers include Globespan Capital Partners, General Motors, Khosla Ventures, GreatPoint Ventures and Advanced Technology Ventures. It is unclear if this round is inclusive of a General Motors infusion announced earler this year. Globespan had not previously been a disclosed Coskata investor.

Universal Ad Inc., an Israel-based provider of retail advertising and marketing solutions, has raised $8.5 million in Series B funding. Vertex Venture Capital led the round, and was joined by Western Technology Investment and return backer Walden Israel.

Fluid Entertainment, an online gaming company for children between 6 and 11 years-old, has raised $3.2 million in first-round funding. Trinity Ventures led the round, while followed a seed round from Band of Angels., a New York-based online content sharing platform, has raised $2.7 million in Series A-1 funding. Backers include DFJ Gotham and RRE Ventures.

TeachStreet Inc., a Seattle-based online marketplace for teaching and coaching services, has raised $2.25 million in Series A funding led by Madrona Venture Group, according to a regulatory filing.

LogLogic, a San Jose, Calif.–based developer of log lifecycle management appliance, has raised $1.5 million in additional Series D funding from SAP Ventures. It had previously held a $13.5 million first close from Focus Ventures, Sequoia Capital, Telesoft Partners, Worldview Technology Partners and Invesco Private Capital. Log Logic has now raised $36 million in total VC funding.

Big Bear Entertainment Inc., a Tiburon, Calif.-based creator of animated music videos (“video mods”), has closed its $550,000 Series A round, according to a regulatory filing. Backers include El Dorado Ventures and Optix Pty Ltd. (listed address is fox Studios Australia).

Quantum SpA, a Milan, Italy-based provider of portable media mobility players, has raised an undisclosed amount of strategic funding from Motorola Ventures, the VC unit of Motorola (MOT).

Buyout Deals

The Blackstone Group, Manitoba Telecom Services and the Canada Pension Plan Investment Board have teamed up to bid on an upcoming wireless spectrum auction in Canada. The group made a Cnd$340 million deposit in the form of credit letters to Industry Canada, which is conducting the auction. Get more info.

The Blackstone Group has retained Credit Suisse to advise it on a possible bid for UK engineering group FKI, according to The Sunday Telegram. FKI already has received an 85 pence per share bid from specialist engineering company Melrose, which would value FKI at around £500 million. Blackstone reportedly held talks with FKI last year, but did not make a formal offer.

First Reserve Corp. has completed its $1.8 billion take-private acquisition of Abbot Group PLC, a UK oilfield services company. Syndication of the related debt package is expected to begin this week.

Mid Europa Partners has agreed to acquire DISA from Procuritas Capital Investors. No financial terms were disclosed for the deal, which is expected to close by the end of next quarter. DISA provides molding and metal surface preparation equipment and technology solutions in the Czech Republic, Denmark, India and China.

The Riverside Company has acquired EM Test Group, a Switzerland-based manufacturer of electromagnetic compatibility test and measurement instrumentation. No financial terms were disclosed.

Stonehenge Capital has acquired Dixie-Southern Constructors Inc., a Duette, Fla.-based steel fabricator specializing in pressure vessels, tanks, piping and plate work. No financial terms were disclosed. Two employee investors also participated on the buyside.

PE-Backed IPOs

Eyeblaster Inc., a New York-based provider of digital marketing services and technology, has filed for a $115 million IPO. It plans to trade on the Nasdaq under ticker symbol EYEB, with Lehman Brothers and Deutsche Bank serving as co-lead underwriters. The company raised $30 million in second-round funding last year from individuals Eli Barkat (managing director of BRM Capital), Jonathan Kolber and board member Guy Gamzu. Insight Venture Partners had led the company’s Series A round in 2003, but did not participate on the Series B. It retained a minority position. Sycamore Technology Ventures is also listed as a shareholder.

PE Exits

Qualcomm has acquired Xiam Technologies Ltd., an Ireland-based provider of wireless content targeting solutions. The deal is valued at $32 million. Xiam has raised over $9 million in VC funding since 1999, from firms like Delta Partners, Vertex Management, Add Partners and Enterprise Ireland.

PE-Backed M&A

Graphic Packaging Holding Co. (NYSE: GPK) has completed its previously-announced merger with Altivity Packaging LLC, a portfolio company of TPG Capital. The combined company had 2007 pro-forma revenue of approximately $4.4 billion, and provides paperboard packaging solutions to the food, beverage and consumer products industries. Altivity shareholders will hold a 40% stake in the combined company.

SunGard has acquired the corporate payments unit of Payformance Corp., a Jacksonville, Fla.-based provider of payment processing solutions for corporations and health care organizations. No financial terms were disclosed. SunGard was acquired in 2005 by seven private equity firms, while Payformance has raised over $26 million in VC funding from firms like ABS Capital Partners, Wachovia Capital Associates and Stonehenge Capital.

Totes-Isotoner Corp., a maker of cold-weather accessories like gloves and footwear, has acquired Northern Cap Holdings Inc., a Minneapolis-based maker of branded and private label headwear and gloves. No financial terms were disclosed. Toes-Isotoner is a portfolio company of MidOcean Partners, with Bruckmann, Rosser, Sherrill & Co. holding a minority position.

Firms & Funds

Union Square Ventures has closed its second fund with $156 million in capital commitments, according to a blog post on the firm’s website. The New York-based firm had closed its debut fund in 2004 with $125 million, and focuses on early-stage Web services companies. In other USV news, the firm has formally promoted Albert Wegner from venture partner to partner. It also is keeping analyst Andrew Parker on as an associate.

Helion Venture Partners, an India-focused VC firm, has closed its second fund with $210 million in capital commitments. It had closed its debut fund in late 2006 with $140 million. Helion plans to follow a similar investment strategy, save for an expansion into the consumer services sector.

Horizon Technology Finance Management, a Farmington, Conn.-based venture debt provider, has secured $200 million in new capital. Compass Group Investments provided $50 million in equity, while WestLB provided a $150 million credit facility.

Levine Leichtman Capital Partners is targeting $1 billion for its fourth fund, according to LBO Wire. The Beverley Hills, Calif.-based firm focuses on non-control investments in the lower and middle-markets. Its current fund closed on $500 million in 2003, which was well below its $800 million target.

Dubai Techno Park, a Dubai government-sponsored tech initiative managed by DP World, has launched a $300 million venture capital fund. The goal is to invest in between 10 and 15 Asian and European technology companies that would establish R&D and commercial operations in Dubai over the next two years.

Human Resources

Craig Cooper has joined Saban Capital Group as a managing director and head of the firm’s new digital media investment practice. He previously was a venture partner with VantagePoint Venture Partners, and before that was a founding partner of Softbank Capital Technology Fund. He also was a co-founder of Boost Mobile.

Anthony Wedo has agreed to serve as a consultant to TowerBrook Capital Partners, with a focus on opportunities in the restaurant sector. Wedo is a former PepsiCo executive who subsequently founded Mid-Atlantic Restaurant Systems. He has spent the past four years as CEO of Mainline Management and Capital Advisors LLC.

The Riverside Company has promoted Anne Hayes, Kristin Newhall and Volker Schmidt to the position of partner. Hayes and Newhall work with the Riverside Capital Appreciation Fund out of New York, while Schmidt is part of the Riverside Europe Fund team and is based in Munich.