PE Week Wire: Tues., March 6, 2007

Yesterday’s top news item was that federal regulators had charged several unnamed individuals with insider trading related to the $45 billion buyout offer for energy company TXU. Specifically, it alleged that the culprits stood to gain $5.3 million after having used inside knowledge to trade TXU stock options just days before the deal was publicly announced.

Why are the defendants unnamed? Because they purchased the options via foreign brokerages, so it’s taking the SEC a bit of time to work through the diplomatic paperwork – but they are expected to be identified shortly. They also might identify themselves – per a court order – but I might consider shorting that option.

Anyway, a number of you took offense at this story being yesterday’s top item, because “it is inconceivable that the illegal trades were made by private equity professionals at [TXU bidders] KKR, TPG or Goldman Sachs.” The general explanation here is that such folks get paid way too much to risk it all on a few million dollars (i.e., lunch money at Goldman Sachs). This ignores the unfortunate reality that smart people do dumb things – particularly when greed is at work – but I certainly agree that the web of potential bad actors should be expanded to include: Bankers, attorneys, accountants, private equiteers at other firms, financial printers, environmental group staffers and assorted lackeys at all of the above. We’ll know soon enough.

In the meantime, there are two reasons I put this story up top. First, belated kudos to the SEC for finally filing charges related to unusual options trading in advance of an LBO announcement. Such volatility has become commonplace, and commonsense dictates that some of this must be promoted by inside information. In other words, this particular situation is not an anomaly because there was insider trading – it’s an anomaly because the traders got caught.

Second, and more importantly, it should serve as a wakeup call to private equity firms that they must dust off – and perhaps strengthen — their internal controls. Again, I have no idea if any of the defendants work for PE firms, but there also is no credible reason to assume they don’t.

I spoke yesterday with a variety of PE attorneys and firm CFO/CAO types, and learned that there are not standard industry controls to protect against insider trading by employees. The largest firms are likely registered investment advisors, which means they are legally required to follow formal SEC procedures – but most firms can bypass such restrictions if they have fewer than 15 funds under management. Some firms nonetheless follow the stringent regs, but far more seem to play such scenarios by ear. Sure they all have official policies, but more than one PE pro I spoke with yesterday admitted that he/she was unaware as to how their firm guards against insider trading.

This might have been (sorta) acceptable a few years back when most buyouts were of private companies, but no longer. Attorneys recommend that firm compliance officers (usually the CFO or controller) dust off the old regs and consult counsel as to whether or not they should be updated. Then, there should be training sessions with all firm employees – but just investment pros. Both partners and their EAs need to be reminded that casual shoptalk outside the shop can lead to dire consequences. One attorney also recommended that individual equity portfolios should be made transparent to firm compliance officers, in order to help prevent malfeasance. He admitted that it would be an administrative nightmare, but that not doing do could be far worse…

New at

• I was on CNBC this morning to discuss how the recent market slump/correction will affect public-to-private buyouts and the overall M&A market. My initial thoughts and a link to the video here.

• Cartilage repair startup Carticept has quietly raised $23 million in new VC funding. Turns out that there are a number of VC-backed companies involved in the space.

• Alastair is thrilled that a fellow San Jose State grad got noticed by VCs

• Texas Pacific Group is dead. Long live TPG.

• Alex on the evolution of

And, as always, plenty of news and analysis throughout the day…

Top Three

Madison Dearborn Partners and Michael Eisner’s The Tornante Co. have agreed to acquire sports card and bubble gum maker The Topps Company Inc. (Nasdaq: TOPP) for $9.75 per share. The total transaction would be valued at approximately $385.4 million.

Internet REIT Inc., a Houston, Texas-based acquirer and developer of domain names and websites, has raised nearly $38 million in Series B funding, according to a regulatory filing. Shareholders include Maveron and Perot Investments.

Lightyear Capital of New York has closed its second buyout fund focused on the financial services market, with over $850 million in capital commitments. The fund already includes two portfolio companies: Flagstone Reinsurance Ho! lding Co. and Delos Insurance Group.

VC Deals

DayJet, a Delray Beach, Fla.-based provider of custom jet service, has raised $50 million in Series C funding. No investor details were disclosed, except for certain affiliates of deal placement agent Raymond James & Associates.

TicketsNow, a Chicago-based online event ticket marketplace, has raised $34 million in first-round funding. Adams Street Partners led the deal, and was joined by DFJ Portage Venture Partners and New World Ventures.

Market Force Information Inc., a Boulder, Colo.-based customer experience information company, has raised $32 million in Series B funding. Monitor Clipper Partners led the deal, and was joined by return backers Centennial Ventures, Boulder Ventures, Vista Ventures and Hercules Technology Growth Capital.

PneumRx Inc., a Mountain View, Calif.-based developer of medical devices to diagnose and treat lung cancer and emphysema, has raised $27 million in Series B funding. Adams Street Partners and Telegraph Hill Partners co-led the deal, and were joined by Sage Venture Partners and return backers Alta Partners, KBL Healthcare Ventures and Spray Venture Partners.

Vette Corp., a Manchester, N.H.-based provider of thermal management solutions, has raised $27 million in Series C funding. AllianceBernstein and Wise Strategy Group Limited were joined by return backers 3i Group, General Catalyst Partners and Kodiak Venture Partners.

Eons Inc., a Charlestown, Mass.-based media company focused on the 50+ population, has raised $22 million in Series B funding. Charles River Ventures led the deal, and was joined by Intel Capital, Humana Inc. and return backers General Catalyst Partners and Sequoia Capital.

Calistoga Pharmaceuticals, a Seattle-based drug development startup focused on oncology and inflammation, has raised $21 million in Series A funding. Frazier Healthcare Ventures led the deal, and had originally helped the company spin out of a drug development program within ICOS Corp. Other deal participants included Alta Partners, Three Arch Partners and Amgen Ventures.

Rivulet Communications Inc., a Portsmouth, N.H.-based provider of IP network technology, has raised nearly $20 million in Series B funding, according to a regulatory filing. Backers include ATA Ventures, Performance Equity Management, Menlo Ventures and TMG Capital.

RingCube Technologies Inc., a Mountain View, Calif.-based provider of portable personal computing solutions, has raised $12 million in Series B funding from Mohr Davidow Ventures and return backer New Enterprise Associates.

Antenova Ltd., a Cambridge, UK-based provider of antennas andRF antenna modules, has raised $10 million. Artemis, CLS, Invesco and Panmure Capital were joined by return backers Quester, Cambridge Gateway Fund and FNI Venture Capital. The company has raised around $35 million in total VC funding since its 1999 inception.

SpeechCycle Inc., a New York-based provider of on-demand automated agents for the cable and telecom industry, has raised $10 million in new venture funding led by M/C Venture Partners.

SEMDirector, a San Diego-based maker of search marketing automation software, has secured $5.95 million of a $6.65 million Series A round from Voyager Capital. The deal had been announced in January, but without a dollar amount.

Clearspring Technologies Inc., an Arlington, Va.-based provider of widget syndication services, has raised $5.5 million in Series B funding. Novak Biddle Venture Partners and ZG Ventures co-led the deal, and were joined by angels like Mark Jung, Steve Case and Ted Leonsis.

Agility Healthcare Solutions Inc., a Glen Allen, Va.-based provider of RFID-enabled workflow management solutions to the healthcare market, has raised $5.25 million in Series A funding, according to a regulatory filing. Backers include The Aurora Funds and Harbert Venture Partners.

Earthanol Inc., a Newport Beach, Calif.-based company focused on converting waste into ethanol, has raised $3.44 million in Series A funding. Backers include @Ventures, Nth Power, Sail Venture Partners and Odyssey Investment Partners.

VasoNova Inc., a Sunnyvale, Calif.-based medical device startup, has secured $1.25 million of a $4.7 million Series A round, according to a regulatory filing. Backers include Life Science Angels, Aphelion Medical Fund and Coronis Medical Ventures.

Buyout Deals

Vector Capital has agreed to acquire information security company SafeNet Inc. (Nasdaq: SFNT) for $28.75 per share. The total deal is valued at approximately $634 million. Merrill Lynch is acting as financial advisor to SafeNet on the transaction.

H.I.G. Capital has acquired Wexler Video LLC, a Burbank, Calif.-based provider of video production and postproduction equipment and related services to the television industry. No financial terms were disclosed. H.I.G. partnered on the deal with Wexler management and Telecorps Communications, a group comprised of: Rob McConnell, former CEO of Enterprise Software; David Carfolite, former VP and general manager of a group of television stations in the Carolinas; and James Rosenfield, former president of CBS Television Network.

KPS Capital Partners has acquired the assets of Bristol Compressors Inc. from Johnson Controls Inc. (NYSE: JCI). No financial terms were disclosed. Bristol Compressors is a Bristol, Va.-based manufacturer and designer of compression technology used in residential and commercial air conditioning and heat pump applications.

ABB Asea Brown Boveri Ltd. (NYSE: ABB) has sold its Power Lines Components manufacturing businesses in Monterrey, Mexico and Belo Horizonte, Brazil to ACON Investments and former business managers. No financial terms were disclosed. Under ACON´s ownership, these businesses will be integrated into a single, independent company renamed SAE Towers, which will be headquartered in Houston, Texas.

PE-Backed M&A

Capella Healthcare Inc., a Brentwood, Tenn.-based acute care hospital platform formed by GTCR Golder-Rauner, has agreed to buy Muskogee Regional Medical Center for approximately $120 million, according to Moody’s Investor Services. GTCR will provide part of the equity.

Firms & Funds

Ivy Capital Partners, a Montvale, N.J.-based private equity firm focused on the musculoskeletal sector of the healthcare industry, is raising up to $100 million for its second fund, according to a regulatory filing. It already has secured over $21 million.

Stage2Capital, an early-stage affiliate of Ben Franklin Technology Partners, is raising up to $40 million for its inaugural fund, according to a regulatory filing.

American Capital Strategies has formed a second-lien group. It will be led by new managing director John Capperella, who previously was a senior vice president with GE Capital Markets. Also joining the group will be vice presidents Steven Devloo and Ryan Brauns, and associates Dipalee Rathod, Matt Crumrine and Kathy Grabenstatter.

Tri-Artisan Partners LLC, a New York-based merchant bank, has opened an office in London and formed a European affiliate called Tri-Artisan Partners Europe. Julian Hirst, former head of corporate finance at Panmure Gordon & Co., and Simon Hirst, former executive vice chairman of Panmure Gordon & Co., have become the joint managing partners of Tri-Artisan Partners Europe. Benoit de Biolley, previously a senior managing director of Deutsche Bank, and Jason Bentley Moran, former deputy head of M&A at Commerzbank, have joined the European team as partners.

Human Resources

Dana Pawlicki has joined Lehman Brothers Private Equity as a senior vice president and project manager within the fund marketing group. He previously was director of global product development with Citigroup Alternative Investments.

John Shearburn has agreed to join the IR team of Warburg Pincus, according to LBO Wire. He previously was a fund placement agent with Goldman Sachs.

Atlantic-Pacific Capital, a Greenwich, Conn.-based private equity placement agent, has made three hires: Paul Arena joins as a principal focused on raising capital for real estate transactions, after having previously been a senior vice president in the Advisory Services division of the Carlton Group; Rebecca Chia and Margaret Ware join as analysts focused on project management, deal execution and client servicing. Chia previously was an I-banking analyst in Lehman Brothers’ Global Communications & Media Group, while Ware was an I-banking analyst for the Alternative Capital Markets Group at UBS.

Norwest Equity Partners has promoted Timothy Kuehl to partner and Todd Solow to principal.

Jason Donnell has joined Communications Equity Associates as a director in the firm’s I-banking and corporate finance department. He previously was a principal with Platform Equity.


Correction: The new fund from Union Square Partners (f.k.a. Cap Z) will focus on the financial services market. Yesterday’s edition incorrectly reported that it would not.