PE Week Wire: Tues., May 6, 2008

Mid-market private equity firms may have a new source of leveraged financing: Their own limited partners.

Erin Griffith reports for Buyouts (sub req) that San Francisco-based Gryphon Investors recently closed a series of transactions with debt provided by its own fund LPs. The first was a purchase and merger of Accelerated Rehabilitation Centers and Occusport Physical Therapy, which included mezzanine notes from Gyphon investors New York Life and Thrivent Financial (Orix led the senior facility). The second was also a mezzanine play, with New York Life and Northwestern Mutual Life helping to finance an add-on acquisition for Gryphon post-secondary education platform Delta Career Education Corp.

This sort of thing can technically happen whenever a buyout firm has financial institutions as LPs, but that’s usually a case of Chinese-walled coincidence. Gryphon, however, specifically went to its LPs and asked them to contact their leveraged finance arms, which is unusual. We’ve seen it before in terms of equity co-invests, but not often with debt.

Maybe a preview of things to come, particularly if leverage continues to be hard to come by in the middle-markets…

*** Quiz Time: Can you name the venture capital firm that recently asked its limited partners to help arbitrate a spat amongst the general partners? Hint: Some of its partners need a passport to visit each other face-to-face. Same goes for its LPs.

*** Today in Clear Channel: The New York trial was set to begin today, but has now been pushed back to next week. In Texas, the banks are asking a judge to dismiss the case. They’re arguing that the deal would have closed just fine had Bain and THL accepted arbitration. And, again they miss the central point: The sponsors shouldn’t have to accept revised terms.

*** peHUB First Read, including club deal discounts and how to get a job in venture capital (revisited).

*** Help Wanted: It’s taken some time post-merger, but we’re finally ready to begin hiring for peHUB (and to be my permanent sub here). So if you’re a reporter looking for a new gig — or know someone who is — please drop me an email. Confidentiality assured. Also would be open to adding a PE/finance pro who’s interested in switching careers. Location not an issue (particularly since I work from home most days), although Boston, NYC or SF is preferred.

Top Three

Rearden Commerce Inc., a Foster City, Calif.–based provider of an on-demand personal assistant for business spend management, has raised $100 million in fifth-round funding. JPMorgan Chase was joined by return backers American Express, Oak Investment Partners and Foundation Capital. The company has now raised around $183 million since its 1999 founding as Talaris Corp. Read more…

First Reserve Corp. and Schlumberger Ltd. have agreed to acquire Saxon Energy Services Inc. (TSX: SES), a Canadian oilfield services company. The deal is valued at approximately C$596 million, or C$7 per share.

PAI Partners has closed its fifth fund with €5.4 billion. The European buyout firm has offices in Paris, London, Madrid, Milan, Munich and Luxembourg.

VC Deals

GodTube, a Christian online video sharing and social networking site, has raised $30 million in funding from hedge fund GLG Partners, according to PaidContent. The deal gives GodTube a $150 million valuation, and follows $2.5 million in seed funding from individuals like Norm Miller of Interstate Batteries.

Apoptos Inc., a San Diego-based developer of small-molecule drugs to directly induce tumor cell apoptosis, has raised $28 million in Series A funding. The round is double-tranched, based on milestones. Backers include Venrock, ARCH Venture Partners, OrbiMed Advisors and Advanced Technology Ventures. Read more…

Prime Sense, a Tel Aviv, Israel-based developer of technology that can enable digital devices with 3D vision, has raised $20.4 million in second-round funding. Canaan Partners led the round, and was joined by return backers Gemini Israel Funds and Genesis Partners.

CHiL Semiconductor, a Tewksbury, Mass.-based developer of mixed-signal ICs, has raised $16.68 million in Series C funding. Panorama Capital led the round, and was joined by return backers Flybridge Capital Partners, Highland Capital Partners and iD Ventures.

Cardiva Medical Inc., a Mountain View, Calif.–based developer of vascular closure devices, has raised $15.5 million in Series D funding. PTV Sciences led the round, and was joined by return backers Galen Partners, Sycamore Ventures, Amkey Ventures, Lexli Investment and Eminent Venture Capital. The company has now raised around $49 million in total VC funding since 2002.

iCrossing Inc., a Scottsdale, Ariz.-based digital marketing company, has raised $15 million in Series F funding, according to a regulatory filing. Most of the money is being used for working capital, although $1.4 million was for an acquisition. No details were disclosed, although iCrossing last month did buy German competitor 3GNet. No financial terms were disclosed for that deal. iCrossing has raised over $155 million in total VC funding, from firms like Goldman Sachs, Oak Investment Partners, RRE Ventures, Generation Capital Partners and StarVest Partners.

Auspex Pharmaceuticals, a Vista, Calif.-based biotech startup focused on targeted deuteration of clinically validated drugs, has raised $13.88 million in Series B funding. Thomas, McNerney & Partners led the round, and was joined by return backers CMEA Ventures and Costa Verde Capital.

Auspex Pharmaceuticals, a Vista, Calif.-based, has raised $13.88 million in Series B funding. Thomas, McNerney & Partners led the round, and was joined by return backers CMEA Ventures and Costa Verde Capital.

RegImmune Corp., a Tokyo-based developer of immune regulatory therapeutics, has raised $8 million in Series B funding. Backers include NIF SMBC Ventures, CSK Venture Capital Co., Japan Asia Investment Co. and Yasuda Enterprise Development Co.

Iamba Networks, a Cupertino, Calif.-based provider of gigabit passive optical networking solutions, has raised $7 million in new VC funding. Return backers include Pitango Venture Capital, Cedar Fund, Giza Venture Fund and Kreos Capital. The company has now raised over $23 million since 2001.

BioBlend Renewable Resources, a Houston, Texas–based maker of bio-based lubricants, has raised an undisclosed amount of second round funding from Archer Daniels Midland Co. The company last year raised seed funding from Quest Technology Ventures.

PurePlay, a U.S. compliant play-for-cash online poker site, has raised an undisclosed amount of Series C funding led by Bay Partners. The company has now raised a total of $15 million, including investments from individual angels like Ron Conway and James Joaquin.

Buyout Deals

EQT Partners has agreed to acquire a majority stake in Strauss Innovation, a German private-label retail chain that focuses on interior decoration and men’s and women’s apparel. No financial terms were disclosed. EQT is buying the company from the Geringhoff family, which will retain a minority ownership position. Strauss reported 2007 revenue of approximately €250 million.

FGIC Corp. said yesterday that it has received capital infusion proposals from a variety of strategic partners, reinsurance firms and private equity firms. The bond insurer’s current owners include PMI Group, Blackstone Group, Cypress Group and CIVC Partners.

Group Menatep Ltd. has sold its GTS Central Europe, a provider of telecom services to the business and wholesale markets in Central Europe, to a consortium that includes Columbia Capital, M/C Venture Partners, Innova Capital, HarbourVest Partners, Oak Investment Partners and Bessemer Venture Partners. No financial terms were disclosed, except that GTS CE generated around €400 million in 2007 revenue, and €70 million of EBITDA.

Energy Capital Partners and Martin Resource Management Corp. have formed Cardinal Gas Storage Partners LLC, a 50/50 joint venture to build and operate natural gas storage facilities throughout North America. No financial terms were disclosed.

PE-Backed IPOs

NewPage Group Inc., a Miamisburg, Ohio-based coated paper manufacturer, has filed for an $805 million IPO. It plans to trade on the NYSE under ticker symbol NWP, with Goldman Sachs serving as lead underwriter. The company was formed in 2005, when Cerberus Management bought the coated paper operations of MeadWestvaco Corp. Last year it reported a $23 million net loss on $2.17 billion in net sales.

PE Exits

Albertson’s LLC has agreed to sell 72 convenience stores and fueling kiosks to Valero (NYSE: VLO). No financial terms were disclosed. Albertson’s was taken private in 2006 by Cerberus Capital Management, Kimco Realty Corp., CVS Caremark and Supervalu Inc.

HitecVision has sold its 35% stake in Knowledge Systems, a Texas-based geopressure and geomechanical services business, to Halliburton. No financial terms were disclosed.

Taleo Corp. (Nasdaq: TLEO) has agreed to acquire Vurv Technology Inc., a Jacksonville, Fla.-based provider of HR management software. The deal is valued at approximately $128.8 million, including $36.5 million in cash, 4.1 million shares of Taleo Class A common stock and the assumption of up to $9 million in debt. Vurv has raised over $33 million in VC funding since 2003, from QuestMark Partners, Tudor Ventures and Montagu Newhall Associates.

PE-Backed M&A

Orval Kent Food Company Inc., a portfolio company of Questor Management Co., has acquired Fresh Creative Foods LLC, a processor and distributor of ready-to-eat refrigerated gourmet meals and side dishes. No financial terms were disclosed. Fresh Creative was advised on the deal by RSM EquiCo Capital Markets.

Quickoffice Inc., a Plano, Texas–based provider of mobile office productivity software, has acquired DynoPlex, a New York–based provider of mobile office document management solutions. No financial terms were disclosed. Quickoffice has raised over $18.5 million in VC funding since 2005, from firms like Mayfield Fund, Shea Ventures, Advantage Capital Partners, JPMorgan Partners and Shepherd Ventures.

SGS International Inc., a portfolio company of Court Square Capital Partners, said that its Canadian subsidiary has acquired both Backwell Design Inc. and its affiliate Gemini Graphics Imaging Inc. The two companies are based in London, Ontario, and provide package design, production artwork and packaging pre-press services. No financial terms were disclosed.

Firms & Funds

Saudi Arabia is planning to launch a $5.33 billion investment firm to focus on the technology sector. The platform may accept third-party capital, as opposed to acting as a sovereign wealth fund.

Silver Lake has held a $1.1 billion final close for Sumeru, its first middle-market investment fund.

Israel Cleantech Ventures has closed its debut fund with $75 million in capital commitments. Limited partners include Robeco Private Equity and Piper Jaffray. The firm so far has made seven investments: Aqwise (waste water treatment), CellEra (fuel cells), Citrine Renewable Energy (landfill biogas treatment), Emefcy (energy production from wastewater), Metrolight (energy efficient lighting), Project Better Place (electric vehicle infrastructure) and Pythagoras Solar (solar energy).

Human Resources

Miles Mahoney and Glenn Michael have joined Highway 12 Ventures as general partners. Mahoney previously was with SAS as vice president of global alliances and channels. Michael has been a serial CFO and COO, including his most recent role as CFO of Preco Electronics.

F. Stephen Larned and Daniel Lieber have joined Welsh, Carson, Anderson & Stowe as senior operating executives. Larned most recently served as chief marketing and strategy officer for DigitalGlobe Inc., while Lieber was chief operating officer for Union Site Management.

Miles Flint, former president of Sony Ericsson Mobile Communications, has joined Silver Lake Partners as a senior advisor.

Morgan Stanley said that it plans to cut around 5% of its staff this year, excluding its retail brokers.