The Pennsylvania Turnpike is about to get privatized, in a $12.8 billion deal co-led by Citigroup and Spain’s Abertis Infraestructuras. I wonder if that sum includes any rights to the abandoned World of Pigeons barn, which used to be the PA Pike’s version of South of the Border (just as depressing, but with the pungent smell of bird feces)
Ok, maybe a more pertinent question is if this deal will prove a watershed. If approved by the PA legislature, if would be the largest toll-road privatization in U.S. history. It also would come amid a record amount of capital raised for private equity infrastructure funds (and more on the way).
So all the stars seem to be lined up, but sources tell me that the PA Turnpike transaction is more an indicator of market health than an actual market driver.
“State governments built a lot of very good infrastructure in the 1950s and 1960s,” explains a senior infrastructure investor in New York. “But now they need to maintain that infrastructure, and they don’t have the money to do it… They can privatize the existing assets, and then use the extra money to build new projects. The U.S. has a very good municipal finance system – probably the best in the world – but there are limits to it.”
I also suggested that press attention to the PA Turnpike deal could prompt other state governments to examine their own infrastructure assets. This too was shot down as being too late.
“I don’t think there is a governor or state legislature out there that either hasn’t done a privatization, or hasn’t seriously considered one,” says one member of a Wall Street infrastructure team.
He and others add that the real watershed moment for U.S. infrastructure privatization may have come last year, in the form of the sub-prime meltdown. The resulting loss of property tax revenue has exacerbated state budget shortfalls, which in turn have generated more interest in alternative financing solutions.
*** PE-backed bankruptcies are on the rise, which means that firms should pay particular attention to a preliminary ruling handed down last week in Delaware. It related to the manner in which McCown De Leeuw & Co handled the wind-down of portfolio company The Brown Schools. Specifically, certain Brown Schools creditors believed that McCown De Leeuw had engaged in self-serving transactions via its control of the company’s board of directors.
The court found that McCown De Leeuw could indeed be held liable for a legal term called “deepening insolvency.” This means that the firm, if found guilty, not only could need to pay out for damages related to a breach of fiduciary duty, but also for the entire amount the Brown Schools balance sheet deteriorated under McCown De Leeuw’s watch.
Mark Bane, an attorney at Ropes & Gray, says that this state ruling stands in contrast to past Delaware rulings that deepening insolvency would not apply in such situations. He also has a couple of suggestions for PE firms, so that they don’t wind up facing such potential liabilities:
1. Take particular care in deciding to wind down a portfolio company outside of court supervision. Firms often reflexively want to go this route, in order to both secure the firm’s reputation and the portfolio company’s customer and vendor contracts. Such a move, however, can open you up to deepening insolvency claims. If you instead operate under court supervision, such claims cannot apply – even if you follow the exact same set of liquidation transactions.
2. If you do choose to go the out-of-court route, make sure that the board is constantly aware of the fiduciary duty owned the company’s other creditors. This is particular true of equity sponsor representatives on the board. If it comes time to vote on a transaction that could affect the PE firm as a credit, have the firm’s representatives abstain from the vote (i.e., let independent directors handle it).
*** peHUB First Read, including Steve Ballmer getting egged (no, not by Jerry Yang).
Top Three
Tygris Commercial Finance Group, a new mid-market lender, has been formed with over $1.75 billion in equity commitments. Leading the deal were Aquiline Capital Partners, New Mountain Capital and TPG Capital. Diamond Castle Holdings and Hamilton Lane also participated. In related news, Tygris has agreed to acquire equipment finance company US Express Leasing Inc. from DLJ Merchant Banking Partners, and mid-market healthcare equipment finance company MarCap LLC. No financial terms for either acquisition were disclosed.
EPAM Systems, a provider of software development outsourcing in Eastern Europe and Russia, has raised $50 million in new VC funding. Participants include Renaissance Investment Management and Da Vinci Capital co-led the round, and were joined by Euroventures Capital. EPAM had raised $25 million in funding from Siguler Guff & Co. in 2006.
MF Global Ltd. (NYSE: MF), a Bermuda-based futures and options broker, has received a $300 million financing commitment from J.C. Flowers & Co.
VC Deals
Row 44, a Westlake Village, Calif.-based provider of airborne broadband systems for commercial aviation, has raised $21 million in new funding led by PAR Capital Management.
Mimosa Systems Inc., a Santa Clara, Calif.-based provider of live-content archiving solutions, has raised $17 million in Series D funding. Focus Ventures led the round, and was joined by return backers August Capital, Clearstone Venture Partners, JAFCO Ventures and Mayfield Fund. The company has now raised around $51 million since 2004.
Intel Capital has invested RM50 million ($15.5m) in Malaysia-based Green Packet Berhad, a publicly-traded provider ofbroadband network solutions and services. The two companies also will work together to deploy Malaysia’s first nationwide 802.16e WiMAX network.
Innovative Biosensors Inc., a Rockville, Md.-based developer of tests to identify harmful pathogensm has raised $9.5 million in Series B equity funding. Life Sciences Partners led the round, and was joined by return backers Harbert Venture Partners, Chart Venture Partners, New Markets Growth Fund and CNF Investments LLC. The company also secured a $2 million increase to its debt facility from Silicon Valley Bank.
Razorsight Corp., a Fairfax, Va.-based provider of on-demand financial business intelligence for communications, media and entertainment companies, has raised $9 million in additional VC funding from Sierra Ventures.
CamSemi, a UK-based fabless semiconductor company focused on reducing energy consumption of consumer electronics, has raised $8 million in additional Series C funding from BankInvest Group, through its New Energy Solutions VC fund. It had previously held a $26 million first close, from 3i, Scottish Equity Partners and Carbon Trust Investments. www.camsemi.com
Miragen Therapeutics Inc., a Boulder, Colo.-based developer of cardiovascular and muscle disease therapeutics based on microRNA biology, has raised $8 million in Series A funding. Atlas Venture and Boulder Ventures co-led the round.
Outside.in, a Brooklyn, N.Y.-based developer of local news/blog websites, has raised $3 million in new VC funding. New York City Investment Fund was joined by return backers Union Square Ventures, Milestone Venture Partners, Betaworks and individual angels.
CrystalIQ Group BV, a Dutch provider of sapphire substrates for the production of white LEDs, has raised an undisclosed amount of venture capital from Sustainable Energy Technology Fund (SET Fund), EPT / Benno Wiersma and E2 Cleantech.
Buyout Deals
American Capital Strategies has committed $300 million to help form Core Business Credit, a commercial finance company that will provide asset-based financing to middle market companies in the U.S. Core Business Credit also has secured a $125 million senior credit facility from Autobahn Funding Co.
The Carlyle Group has acquired a majority interest in ITS Technologies & Logistics LLC from Lanigan Holdings LLC. No financial terms were disclosed for the deal, which includes the Lanigan family retaining a minority position. ITS is an operator of intermodal facilities in North America.
Expro International, a listed UK oil services company, said that its U.S. rival Halliburton is still looking at its books for a possible takeover offer. Expro last month accepted a £1.6 billion bid from Candover, Goldman Sachs and AlpInvest Partners.
Evercore Capital Partners has acquired a majority stake in commercial insurance broker Bollinger, according to The Deal. The transaction was valued at $250 million, with Madison Capital Funding providing senior debt and AEA Investors providing mezzanine notes.
Stirling Square Capital Partners and Sirius Equity have agreed to acquire Jeckerson, an Italian premium sportswear brand, from Blue Fashion Group. The deal values Jeckerson’s enterprise and equity at €140 million and €125 million, respectively.
TietoEnator repeated today that it is in talks with firms other than Nordic Capital, which so far has been rebuffed in its efforts to buy the Nordic IT services provider. Some analyst reports also suggest that Nordic Capital might be retreating.
PE Exits
AIG Highstar Capital is looking to sell its stake on global power plant operator InterGen NV, according to LBO Wire. The position is reported to be worth between $1 billion and $1.5 billion. www.intergen.com
IAC Consumer Applications & Portals, a unit of IAC/InterActive Corp., has acquired StarNet Interactive, an Israel-based maker of a fashion-centric social network for teen girls (GirldSense.com). No financial terms were disclosed. StarNet was spun out of Gteko as an independent company in late 2006, with $2.7 million in funding from firms like Leo Capital Holdings and Pitango Venture Capital.
PE-Backed M&A
Ascension Insurance Inc., a Kansas City-based insurance and employee benefits agency focused on mid-market companies nationwide, has acquired Employers Mutual of Stuart, Florida. No financial terms were disclosed. Ascension Insurance is a portfolio company of Parthenon Capital and Century Capital Management.
Mindjet Corp., a San Francisco-based provider of software that lets people organize and express their ideas visually, has acquired a project management software application from Gantt Solution. No financial terms were disclosed. Mindjet has raised over $20 million from 3i and Investor Growth Capital.
Firms & Funds
Apollo Management is planning to raise a $1 billion European real estate debt fund, after hiring a team of debt specialists from Stoneleigh Capital.
Bahrain Mumtalakat Holdings announced plans to diversify its holdings by selling off certain existing local assets and making new investments in foreign companies, including in the North American service sectors.
Human Resources
Franklin Harris has joined Lincoln International as a New York-based managing director. He previously was with Miller Buckfire & Co. as a managing director and head of financial sponsors.
Kathi Rawnsley has joined Lowenstein Sandler as head of the law firm’s new Silicon Valley office. She previously was with Intel Capital.
Gretchen Perkins has joined Huron Capital Partners as vice president of business development. She previously served in a similar role for Long Point Capital. www.huroncapital.com
Andrew Paff has joined Headwaters MB as a managing director focused on IP media subsystem telecom technology. He is the former president and CEO of Cedar Point Communications.
Jeffrey Sangalis, founder and managing partner of Capital Point Partners, has been named president of ACG Houston. He succeeds Jeffrey Henningsen, whose one-year term expires on June 1.
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