The San Francisco sky is clearing, the market is rebounding (thanks WalMart) and Buyouts West begins in just a few short hours. In other words, it’s time for some Tuesday TalkBack…
First up are some responses to yesterday’s note about Al Gore joining Kleiner Perkins. First up is Richard: “Al Gore said he won’t take a salary, but neglected to mention carry. Could he have been more transparent? It is interesting thattheMr. Goreis benefiting from his relationship with a top flight VC, as are other connected people, and yet these same VCs threw out the pension plans that helped fund their early efforts. In the fight over taxing carried interest, some Silicon Valley types have intimated that their investing is more beneficial to mankind than buyout and therefore they are getting dragged into a fight that is directed at the ‘Locusts.’ Over the years, the LPs of these top buyout firms have received nicedistributions from their investments.Now these LPs neverwon an Oscar, an Emmy, a Noble Prize, or created the internet, but they are hard workingpeople whoare going to retire incomfortpartially thanks to GPs who will do bu! siness with them.”
Gordon: “As an admirer of what Al Gore has done to raise awareness of global warming, I really hope that he also is donating his carried interest to the nonprofit. Not because I believe he should (I’m a capitalist, after all), but because the press release implies that he isn’t making any money off the endeavor. If it turns out that ‘salary’ only refers to management fees, then it is either a deliberate obfuscation or a PR person who isn’t paying enough attention.”
Just as an FYI: I have emailed the appropriate PR people to ask about the carry issue, but have not yet heard back.
*** Next up is Larry, who responded to last week’s piece on Les Brun and his new leveraged VC fund-of-funds: “Concluding your piece on Les Brun this AM you said you would ‘check back next year to see if it worked.’ The structure Les is proposing (I have not seen the offering) is unique for a reason — most investors are not comfortable leveraging venture capital deals. While checking back next year might tell you if he succeeded in convincing investors he has a good idea, you won’t really know if it ‘worked’ for 5-7 years at best. Raising the money is not making the concept ‘work.’ That is called marketing. Making it ‘work’ is producing a superior risk-adjusted rate of return and none of us will know that for many years.”
You’re right Larry. Poor choice of words on my part.
*** William answers yesterday’s quiz question: “Is it Vivox? That deal was attracting a lot of attention in Boston, but I heard that Benchmark got the lead. Probably because it also is a Second Life investor.”
If only I had a prize to give you William. The company this morning issued a press release on the deal.
*** Last week saw a flurry of comments on the Lightspeed/Riverbed distribution issue over at peHUB. This included a bunch of back-and-forth after my follow-up, in which Lightspeed reversed course in its LPs’ favor (i.e., did the right thing). Here are two such conversations:
Nancy: “Many firms have a threshold they must meet before GPs get carried interest distributions. Thus, there is no implication of the fund “being underwater” or “around water-level” if the Lightspeed GP did not get a carried interest distribution. Our funds, for example, require that we return 100% of LP contributed capital before we receive GP carried interest distributions. Carried interest is being accrued, (as the funds are not “underwater”), but will not be paid out until the LPs get their money back. It would depend on how much in previous distributions, if any, this fund has had. Distributions do not necessarily equal allocations, and thus, no inference on the success of the fund can be read. Also, I can’t help but wonder if the stock had gone the other way, if the LPs would have let Lightspeed increase the distribution price. While it was accommodating of the GPs to adjust the LP agreement to help the LPs out, it rarely happens in the other direction.”
Will: “Nancy, I think you are missing the point here. Nobody can control the stock price once the distribution takes place. The stock had already fallen when they distributed (but they chose a higher price to mark it at). There is no ‘reverse’ decision to discuss. Lightspeed got itself in this mess by its own calculations. If the stock had gone up before the distribution, you can bet that Lightspeed would have waited the full five days to capture the higher ‘average’ price to fully participate in their carry.”
Next is an LP: “I have several issues with your Lightspeed articles. One of the most glaring is your use of the word ‘belatedly’ which is simply wrong. Lightspeed has a history of soliciting input from their LPs before making important decisions. They moved very quickly in this case to present and implement a very equitable position. In brief, we have tremendous respect for the Lightspeed team who has a history of doing the right thing for their LPs.”
Jeff: “Lightspeed didn’t consult with their LP’s before they decided to cut themselves an extra $8 Million check. And they only decided to give that back once they were vilified in the press.”
Finally, a Lightspeed LP closes us out: “I have known and invested in the Lightspeed team for many years and continue to think of them as a high integrity team with a history of doing the right thing for their LPs. This was an unfortunate situation which stems from the terms of the LP agreement, not the integrity of the team. They addressed the issue quickly and professionally and that should be the end of the story.”
Top Three
Securitas Direct AB, a listed Swedish home security company, has received a $1.4 billion buyout offer from EQT Partners, SakI AB, Melker Schorling AB and Investment AB Latour. Securitas said that its board was evaluating the offer, and would make a decision by early January. The $4.10 per share offer represents a 25% premium over yesterday’s closing price.
Onex Corp. announced that it will soon begin raising its third buyout fund with a $4.5 billion target. The firm’s second fund is currently 75% committed. www.onex.com
Vivox Inc., a Framingham, Mass.-based provider of VoIP services for online games and virtual worlds, has raised $7.8 million in Series B funding. Benchmark Capital led the round, and was joined by return backers Canaan Partners and GrandBanks Capital.
Lockdown Networks Inc., a Seattle-based network security company, has raised $14.68 million in Series B funding. Cargill Ventures led the round, and was joined by return backers Ignition Partners, Intel Capital and Integral Capital Partners. News of the round was first reported by the Seattle Post-Intelligencer. www.lockdownnetworks.com
Stellar Restaurant Group, operator of Boloco fast-casual burrito restaurants in and around Boston, has raised $10 million in private equity funding from Winona Capital Management.
CaseNET Inc., a Waltham, Mass.-based provider of medical care management software for healthcare enterprises and government agencies, has raised $7.5 million in Series B funding. HLM Venture Partners led the deal with $4 million, and was joined by return backers Sigma Partners, Aurora Funds and Howard Cox.
FirstBest Systems Inc., a Lexington, Mass.-based developer of underwriting management systems, has raised $7 million in Series A funding. IDG Ventures Boston led the deal, and was joined by NextStage LLC and Brookstone Partners.
KoolConnect Technologies Inc., a Needham, Mass.-based, has raised $6.5 million of a $10.5 million funding round. Lewis Trust Group led the deal, and was joined by Plough Penny Partners and real estate developer Arthur Weiner. www.koolconnect.com
ComAbility Inc., an Israel-based provider of subscriber management software for communications service providers, has raised $6 million in Series A funding. Backers include Vertex Venture Capital and Stata Venture Partners. www.comability.com
Akermin, a St. Louis-based developer of biocatalysts that immobilize enzymes, stabilizes their performance and extends their operating life, has raised nearly $5 million in Series A-2 funding. Return backers include Prolog Ventures, OnPoint Technologies, Chrysalix Energy and the St. Louis Arch Angels. The company has now raised just under $8.5 million in total VC funding.
Huddle.net, a London-based provider of online workspaces, has raised $4 million in Series A funding led by Eden Ventures.
GrubHub.com, a Lake View, Ill.-based online delivery service and local search engine for restaurants in Chicago and San Francisco, has raised $1.1 million in first-round funding led by Origin Ventures. The company had previously been self-funded, save for a $25,000 award from the University of Chicago New Venture Challenge. www.grubhub.com
Pacific Pathway Inc., a Solana Beach, Calif.-based provider of emergency preparedness and personal safety products, has raised an undisclosed amount of funding from the Highland Consumer Fund. A regulatory filing indicates that the amount is $6 million.
ViVOtech Inc., a Santa Clara, Calif.-based provider of wireless payment software and chips, has raised an undisclosed amount of strategic funding from Motorola Ventures. Earlier this year, ViVOtech raised $22.5 million in Series C funding from First Data Corp., NCR, Miven Venture Partners and return backers Alloy Ventures, Draper Fisher Jurvetson and Nokia Growth Partners.
Buyout Deals
The Halifax Group has sponsored a management buyout of PJ United Inc., the largest franchisee of Papa John’s pizza shops. No financial terms were disclosed. North Point Advisors served as exclusive financial advisor to management., whileGE Franchise Finance and Merrill Lynch Capital provided leveraged financing for the transaction.
Mirant Corp. (NYSE: MIR) has officially removed itself from the auction block, according to comments from company CEO Ed Muller on Mirant’s Q3 earnings call. JPMorgan had been serving as the Atlanta-based company’s advisor. Mirant has a market cap of approximately $9.47 billion. www.mirant.com
PE-Backed IPOs
NTK Holdings Inc. (Nortek), a Providence, R.I.-based maker of ventilation, air conditioning and heating products, has withdrawn registration for a $690 million IPO. No explanation was provided. It had planned to trade on the NYSE, with Goldman Sachs and Credit Suisse serving as co-lead underwriters. Thomas H. Lee Partners had acquired the company from Kelso & Co. in 2004, and currently holds a 66.48% stake. www.nortek-inc.com
PE Exits
EDS (NYSE: EDS) has agreed to acquire a 93% stake in Saber Holdings Inc. from sellers like majority shareholder Accel-KKR, for approximately $420 million in cash. Saber provides software and services to U.S. state governments, and its CEO and COO will retain the other 7 percent.
Firms & Funds
EnerCap Capital Partners, a Czech private equity firm, has held a €75 million first close on its first fund, which will focus on renewable energy projects in Central and Southeastern Europe. Limited partners include the European Investment Bank and the European Bank for Reconstruction & Development. It plans to hold a of €100 million final close early next year.
Human Resources
Permira will name Damon Buffini, a co-founder and managing partner, in the new role of chairman today as part of the group’s transformation from a British buyout group to a global private equity company, according to The Times of London. Tom Lister, who manages the firm’s New York office, and Kurt Bjorklund, who runs Nordic operations, will take over as co-managing partners. www.permira.com
Mid Europa Partners has promoted the of its professionals to partner: Robert Knorr, Zbigniew Rekusz and Matthew Strassberg. Knorr joined the firm in 1999 and is based in London. Rekusz joined the firm’s Warsaw office in 2002, while Strassberg joined the London office in 2002.
Steven Kluger has joined Aquiline Capital Partners, a private equity firm focused on the financial services sector, as a senior advisor. He previously was president and CEO of GE Capital Markets Services.
Lake Capital has named Michael Latiner as head of business development. He joined the firm in 2000 as a founding member of its business development group.
Joe Conroy will become CEO of law firm Cooley Godward Kronish LLP, effective January 1. He currently is a partner in the firm’s business department in its Reston, Va. Office. Stephen Neal, who has been the firm’s chairman and CEO for the past seven years, will remain as chairman.
Rosalyn Wilton has joined 3i Group as a senior advisor focused on the media sector. She currently serves as chairwoman of Ipreo LLC, the recent merger between Hemscott PLC and i-Deal.
Jesse Ding has been named CEO of EnTie Commercial Bank (TWSE: 2849), which is in the process of selling a 51% ownership stake to The Longreach Group. Ding previously served as president of Taipei Fubon Bank.
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