PE Week Wire: Tues., Nov. 20, 2007

Stop me if you’ve heard this one before: The credit crunch has not really impacted the middle markets.

I think certain mid-market lenders and sponsors actually answer the phone that way — reaching for A-list status while the bulgies and mega-funds dry out in rehab. And it makes a certain amount of sense, given that few mid-market transactions included the types of sponsor-lovin’ terms that turned radioactive in early July. But it also glosses over a significant bifurcation among mid-market lenders: Traditional underwriters whose balance sheets can hold reams of paper, and middle-men who lend primarily for the purpose of syndicating.

The former group is mostly OK, save for a pulled IPO here and minor layoffs there. But the latter group is in some serious trouble. For example, Buyouts Magazine yesterday reported (sub req.) that Cratos Capital has “sacked one of its two founders and laid off nearly a third of its staff.”

Cratos was formed just about one year ago, and more closely resembles aCLO than a traditional lender. It lives — or perhaps lived — on fee income, and doesn’t really have the balance sheet power to handle lean times. There were a lot of these boutiques launched between 2005 and 2007, and word is that more than just Cratos has fallen on desperate times. For example, rumor is that at least one Cratos-clone that has been cut off by a Wall Street sugar daddy that has major problems of its own.

So next time someone tells you that all is swell in the middle-markets, make sure you know just which middle-markets they’re talking about….

*** InsideCRM has compiled a list of the 20 Worst High-Tech VC Deals of All Time. Heavy emphasis on dollars invested, which is why the top two are Amp’d Mobile and Procket (and, presumably, why Napster escaped scrutiny). Whaddya think? Got any life sciences candidates? Thinking about sending out some emails to VCs who participated in the Top 10 (or bottom 10), to get some reaction. Probably do that this morning, as my regular post-Wire walk looks less appealing in the face of snow.

*** Note to self: Never again use a college sports analogy, unless you move to a part of the country that actually cares about college sports. Turns out that Les Miles apparently can buy himself out to take any other college coaching job, but would have to pay extra to punch a ticket for Michigan. Doesn’t completely defeat my point – as LSU was acutely aware of his desires, and still let him insert an out in his contract at a price that wouldn’t dent Michigan’s coffers (or Miles’, post-signing). But boy did a bunch of you write in to correct me… And, as a response to a dozen of you, I’m not a Michigan alum, although did spend a couple of toddler years living in Ann Arbor.

*** United Rentals is suing Cerberus for bailing on its buyout agreement, alleging that the move was an improper maneuver to renegotiate the price. You can download the full complaint at peHUB First Read.

Top Three

Quadrangle Group and GS Capital Partners have agreed to acquire Get AS, a provider of cable, Internet and telephony services in Norway, from Candover. The deal is being transacted at an enterprise value of NOK 5.8 billion (€724m/$1.1b). It is expected to close next month. Candover acquired Get AS in January 2006, when it was still known as UPC Norway, for approximately €450 million.

Sears Holding Corp. (Nasdaq: SHLD) has bought a 13.9% stake in Restoration Hardware Inc. (Nasdaq: RSTO), according to an SEC filing. The move comes less than two weeks after Catterton Partners agreed to take Restoration private for $6.70 per share, or a total equity value of $267 million, and raises the possibility of a bidding war.

AT&T has agreed to acquire Ingenio Inc., a San Francisco–based provider of pay-per-call technology. No financial terms were disclosed for the deal, which is expected to close in early January. Ingenio has raised around $113 million in total VC funding since 1999, from firms like Benchmark Capital, Integral Capital Partners, Vulcan Capital, Impact Venture Partners, Carlyle Venture Partners and Draper Fisher Jurvetson.

VC Deals

Agami Systems Inc., a Sunnyvale, Calif.-based enterprise network storage company, has raised $50 million in Series C funding, according to a regulatory filing. Backers include Advanced Equities. DAG Ventures, Apex Venture Partners, Alta Partners, Kleiner Perkins Caufield & Byers and New Enterprise Associates.

SolFocus Inc., a Palo Alto, Calif.-based developer of solar concentrator photovoltaic systems, has raised $11.6 million in new Series A (for its European subsidiary) and Series B funding. This follows a $52 million initial close announced in September. New Enterprise Associates led the deal, and was joined by Moser Baer India, Metasystem Group, NGEN Partners and Yellowstone Capital.

Synthasite, a South Africa-based developer of a Web 2.0 publishing platform, has raised $5 million in VC funding from Columbus Venture Capital, a Swiss subsidiary of Compagnie Financiere Richemont.

DoublePositive Marketing Group Inc., a Baltimore–based provider of sales leads and sales lead generation solutions, has raised $4 million in VC funding. Backers include Hamilton Investment Partners, Southern Capitol Ventures, Slate Venture Group, Frank Bonsal (co-founder of NEA) and Dave Willey (former Capital One CFO).

Buyout Deals

J.C. Flowers & Co. is leading a $1.8 billion offer for a 32.6% stake in Shinsei Bank of Japan. The Flowers group also includes Grupo Santander and Swiss Re. This would be J.C. Flowers chief Chris Flowers’ second go-around with Shinsei. He was a partner with Ripplewood when it acquired the bank for $1.2 billion in 2000, and helped turn it around for one of the most profitable private equity deals in history.

Candover has agreed to acquire Alma Consulting Group, a European provider of cost reduction and tax recovery services, from Apax Partners and Chequers Capital. No financial terms were disclosed for the deal, which includes an equity contribution from Alma management and leveraged financing arranged by RBS.

DLJ Merchant Banking Partners has agreed to acquire Deffenbaugh Industries Inc., a Shawnee, Kansas-based waste management company for approximately 450,000 customers in the Midwestern United States. No financial terms were disclosed.

J.C. Flowers has made the first offer to acquire all of troubled UK bank Northern Rock, following partial bids from Virgin Money and Olivant Advisors. Cerberus Capital Management had been expected to be the fourth bidder, but reportedly has lost interest.

Kinderhook Industries LLC has acquired Extang Corp. of Ann Arbor, Mich. And TruXedo of Yankton, S.D. – both of which manufacture soft tonneau covers for trucks. No financial terms were disclosed for the deal, except that MFC Capital Funding provided senior financing. Kinderhook completed the transactions via THI, an acquisition platform focused on the trucking aftermarket.

Monomoy Capital Partners has acquired both Indiana Glass Co. and E.O. Brody Co. from the Lancaster Colony Corp. (Nasdaq: LANC). No financial terms were disclosed. The two companies will be combined with The Anchor Hocking Co., a $220 million glassware manufacturer that Monomoy acquired out of Chapter 11 in April.

Olin Corp. (NYSE: OLN) has completed the sale of its metals business to KPS Capital Partners for $400 million. The deal included all of Olin’s global metals operations and its AJ Oster metals service centers, with KPS making the acquisition through an affiliate called Global Brass and Copper Holdings Inc.

VMG Partners has acquired an undisclosed stake in Colorescience, a Dana Point, Calif.–based maker of branded mineral makeup sold through physicians’ practices and medical spas. No financial terms were disclosed. .

PE-Backed IPOs

SuccessFactors Inc., a San Mateo, Calif.-based provider of on-demand performance and talent management software, raised nearly $108 million in its IPO. The company priced 10.79 million common shares at $10 per share ($8-$10 range), for an initial market cap of approximately $497 million. The company will trade on the NYSE Arca under ticker symbol SFX, while Morgan Stanley and Goldman Sachs served as co-lead underwriters. Shareholders include Greylock Partners (31.8% pre-IPO stake), TPG Ventures (19.8%), Cardinal Ventures (9.1%), Canaan Partners (7.5%), Emergence Capital Partners (6.6%) and Granite Global Ventures (5.2%).

Broncus Technologies Inc., a Mountain View, Calif.-based developer of medical devices for emphysema and other lung diseases, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol LUNG, with Lehman Brothers and Bear Stearns serving as co-lead underwriters. The company has raised around $73 million in total VC funding since 1997, from firms like HBM Partners (26.2% pre-IPO stake), Abingworth Management (15.3%), Menlo Ventures (12.7%), Boston Scientific Corp. (7.9%) and SightLine Partners (7.6%), Bio*One, Charter Ventures, JAIC America, Oakwood Medical Investors, Pac-Link Management, Pequot Ventures and Saratoga Ventures. Inc., an Austin, Texas-based online destination for consumers to search, compare, and apply for credit cards, has postponed its IPO due to “market conditions.” The company had planned to sell around 10.73 million common shares at between $13 and $15 per share. It would have an initial market cap of approximately $421 million, were it to price at the high end of its range. Credit Suisse and Citi are serving as co-lead underwriters. Austin Ventures sponsored a recap of last fall, and holds a 65.6% pre-IPO position. Also participating on the recap were American Capital Strategies (9.6%) and company founder Dan Smith (16.1%).

K12 Inc., a Herndon, Va.-based provider of online education curricula and learning programs, has set its IPO terms to six million common shares being offered at between $16 and $18 per share. It would have an initial market cap of approximately $490 million, were it to price at the high end of its range. K12 plans to trade on the NYSE under ticker symbol LRN, with Morgan Stanley and Credit Suisse serving as co-lead underwriters. It has raised around $45 million in VC funding, from firms like Constellation Ventures.

PE Exits

General Dynamics (NYSE: GD) has acquired Mediaware International Pty Ltd., an Australia–based provider of real-time full-motion compressed digital video processing software and systems for defense, intelligence and commercial customers. No financial terms were disclosed. Mediaware had raised VC funding from Australian firm Epicorp.

Knight Capital Group Inc. (Nasdaq: NITE) has agreed to acquire EdgeTrade Inc., a New York-based provider of agency-only trade execution and algorithmic software. The deal is valued at approximately $58 million, including $29.5 million in cash and 2.3 million shares of unregistered Knight common stock. EdgeTrade had raised VC funding from Edison Venture Fund, and was advised on the deal by Evercore Partners.

Middleby Corp. (Nasdaq: MIDD) has agreed to acquire New Star Holdings International Inc. from Weston Presidio and Beechtree Capital Partners. The deal is valued at $188 million, and is expected to close next month. New Star is a St. Louis-based manufacturer of commercial foodservice equipment, and is being advised on the transaction by Harris Williams & Co.

Summit Partners has completed its sale of Dutch enterprise security software vendor SafeBoot NV to McAfee Inc. (NYSE: MFE) for $350 million in cash. Summit acquired a majority stake in SafeBoot two years ago from ABN Amro Capital for $47 million.

TA Associates has completed its sale of Alere Medical Inc., a Reno, Nev.-based provider of disease management services to group health plans, to Inverness Medical Innovations (AMEX: IMA). The deal was valued at $302 million, including $125 million in cash and $177 million in Inverness common stock. It came just six months after TA acquired Alere for $175 million from a syndicate of venture capital firms.

PE-Backed M&A

Cambridge Major Laboratories Inc., a Germantown, Wis.-based provider of chemistry outsourcing to the pharma and biotech industries, has acquired ChemShop BV, a Dutch supplier of active pharmaceutical ingredient development services. No financial terms were disclosed. CML is ownedby Arlington Capital Partners.

Consolidated Utility Services Inc., an Omaha, Neb.-based portfolio company of Tricor Pacific Capital, has acquired Red-Alta Utility Location Ltd., an Alberta-based provider of underground utility locating services to Canadian oilfield, telecom and power facility customers. No financial terms were disclosed. Madison Capital Funding provided senior financing, while Manufacturers Life Insurance Co. provided subordinated notes.

Greenline Foods, an acquisition platform sponsored by The Riverside Company, has acquired Green Glen Produce Inc., a supplier of fresh-trimmed, packaged green beans.

Staffing Now, a portfolio company of Gryphon Investors, has acquired Certes Financial Pros, a provider of high-end finance and accounting staffing in the Minneapolis and St. Paul markets. No financial terms were disclosed.

VoluBill, a France–based provider of mobile data charging and control solutions, has acquired the Dynamic Charging Platform (DCP) product business of Intec Telecom Systems PLC. No financial terms were disclosed. VoluBill recently raised Euro10.5 million in fifth-round funding from XAnge Private Equity, Sofinnova Partners, Sofinnova Ventures, Seventure, DVCG and Argo Capital.

Zayo Bandwidth, a Louisville, Colo.-based regional provider of fiber-based network services, has acquired VoicePipe Communications Inc., a Goldon, Colo.–based provider of retail VoIP services. No financial terms were disclosed. Zayo earlier this year secured access to $225 million in private equity funding, from firms like Columbia Capital, M/C Venture Partners, Oak Investment Partners, Battery Ventures and Centennial Ventures. It also received an $85 million credit facility from CIT Group, CoBank and Hercules Technology Growth Capital.

Human Resources

Sever Totia has joined Edison Venture Fund as a principal, with a focus on software opportunities in the Mid-Atlantic region. He previously was a vice president with Lazard Technology Partners.

David Buckel has stepped down as vice president and CFO of Internap Network Services Corp. (Nasdaq: INAP), in order to “pursue other interests in the private equity markets.” He had joined Internap in July 2003, and was named CFO the following May.

Katina Dorton has joined Needham & Co. as a managing director in the firm’s corporate finance department, with a focus on life sciences. She previously was an investment banker with Morgan Stanley.