PE Week Wire: Tues., Sept. 11, 2007

Each month, I put together a “Six Degrees of Separation” feature for Buyouts Magazine. It typically connects a private equiteer with some celebrity who has a similar-sounding name. It’s the kind of seminal work that keeps Economist HR folks on speed dial.

Anyway, yesterday I mentioned to Buyouts editor David Toll that there was a private equity connection to Britney Spears’ disastrous performance at the MTV Video Music Awards. “How many degrees?” he asked. “Just one,” I replied. Here’s how it works:

Spears recently fired her longtime agent, and instead hired Jeff Kwatinetz, founder and CEO of The Firm Inc. If that particular talent agency sounds familiar, it’s because Thomas H. Lee Partners and Bain Capital acquired a minority stake back in 2004. In fact, THL’s Scott Sperling sits on the board of directors, alongside Kwatinetz (who serves as our single degree).

This was a tiny deal by THL and Bain standards, with Sperling emailing to say that his firm only put in $7 million. In fact, it seems to have been done, in part, to give THL and Bain a better strategic understanding of the entertainment management business — as both firms also hold significant stakes in Warner Music Group (then private, now public).

It might also soon become a busted deal, as entertainment press reports suggest that the Spears debacle has significantly damaged the reputation of both Kwatinetz and his agency.

As Roger Friedman of writes: “Kwatinetz has already had a very bad year, nearly killing the career of original ‘American Idol’ star Kelly Clarkson by letting her — or rather encouraging her — to buck the advice of Clive Davis and release a terrible album against his wishes. What followed was a series of public embarrassments including the cancellation of Clarkson’s tour and her firing of Kwatinetz…. Now with Spears’ tanking live on international television, insiders will no doubt question Kwatinetz’s ability to manage anything… The Firm’s unraveling could turn out to be the biggest story of the year.”


Last but in no way least: Please take a moment today to remember the thousands of innocents murdered six years ago. In particular, the private equity community lost Brian Dale of Blue Capital Management, Chris Mello of Alta Communications and David Retik of Alta Communications. May they not be forgotten…

Top Three

Kohlberg & Co. has agreed to buy Hoffmaster from Solo Cup Co., a portfolio company of Vestar Capital Partners. The deal is valued at $170 million, with leveraged financing committed by National City Bank and GE Antares. It is expected to close with 45 days. Hoffmaster makes specialty napkins, plastic placemats and other items for restaurants and hotels. Goldman Sachs advised Solo, which is minority-owned by Vestar.

Kajeet, a Bethesda, Md.-based mobile virtual network for kids and tweens, has raised $36.8 million in Series B funding. DFJ Growth Fund led the deal, and was joined by return backers Bessemer Venture Partners, Fidelity Ventures, Gabriel Venture Partners and InterWest Partners. Randy Glein of DFJ Growth joined the Kajeet board of directors.

The Carlyle Group reportedly has pulled Insight Communications Co. off the auction block, due to credit market troubles deflating the desired sale price. Carlyle had taken the New York cable company private in December 2005 for $2.1 billion, but offered it up earlier this year with Morgan Stanley and Waller Capital running the process.

VC Deals

Enobia Pharma Inc., a Montreal-based developer of enzyme replacement therapies for the treatment of serious bone diseases, has raised Cdn$40.1 million in Series B funding. OrbiMed Advisors and CTI Life Sciences Fund co-led the deal, and were joined by return backers Fonds de solidarite FTQ, Desjardins Venture Capital, Lothian Partners and T2C2/Bio 2000. Enobia’s lead candidate focuses on hypophosphatasia, a severe genetic disorder that affects the ability to mineralize bone.

Endicott Biofuels LLC of Houston has raised $40 million in private equity funding from Haddington Energy Partners. The capital will be used to finance the construction of a biodiesel and bio-derived products plant that will feature a “high level of feedstock flexibility.”

Splunk, a San Francisco-based provider of a search engine for logs and IT data, has raised $25 million in Series C funding. Ignition Partners led the deal, and was joined by return backers August Capital, JK&B Capital and Sevin Rosen Funds. The company previously raised a $10 million Series B round in early 2006 and a $5 million Series a in late 2004.

FaceTime Communications, a Foster City, Calif.-based provider of solutions that control greynets and manage unified enterprise communications, has raised $15.6 million in eighth-round funding. Credit Suisse led the deal through its Next II fund, and was joined by return backers Sutter Hill Ventures, JK&B Capital and Scale Venture Partners. FaceTime has raised approximately $100 million in total VC funding since 1997.

BroadLight, a Mountain View, Calif.-based provider of GPON semiconductors and software, has raised $12 million in Series E funding. Benchmark Capital led the deal, and was joined by return backers Azure Capital Partners, Broadcom, Cipio Partners, Delta Ventures, Israel Seed Partners, Motorola Ventures, Star Ventures and Tellabs.

BitMicro Networks Inc., a Fremont, Calif.-based developer of solid-state disk and non-volatile semiconductor storage solutions, has raised $9.3 million in Series F funding led by Woodside Investments.

Bazaarvoice, an Austin, Texas-based provider of hosted social commerce applications, has raised $8.8 million in second-round funding. Battery Ventures led the deal, and was joined by Austin Ventures, return backer First Round Capital and individual angels.

VoodooVox has raised $8.1 million in Series D funding. SoftBank Capital led the deal, and was joined by return backers Apax Partners, Steamboat Ventures and Village Ventures. The New York-based company has developed a process for inserting ad-supported audio content directly into the call stream of high-call volume companies.

4Blox Inc., a San Jose, Calif.-based developer of software for improving iSCSI SAN performance, has raised an undisclosed amount of Series A funding led by Flywheel Ventures.

CollegeFanz Inc., a Wayne, Pa.-based operator of website for college sports fans, has launched with an undisclosed amount of funding from The Musser Group. CollegeFanz was formed by ESPN founder Bill Rasmussen

Buyout Deals

Kirtland Capital Partners has acquired Rent-a-PC, a national computer service and rental company. No financial terms were disclosed. In partnership with Rent-a-PC management, Kirtland formed SmartSource Holdings LLC, which will be used as a platform for future acquisitions. Rent-a-PC will operate as a wholly-owned subsidiary of SmartSource.

KPS Capital Partners and Pegasus Partners have sold Genesis Worldwide II Inc. to HVS Acquisition Inc., an affiliate of Grey Mountain Partners. No financial terms were disclosed. Genesis is a maker of metal coil processing equipment under the Herr-Voss Stamco brand name. It also provides mill roll services, and operates a repair and spare parts business. Lincoln International advised Genesis on the sale.

Pret A Manger, UK sandwich and coffee shop chain, reportedly has received takeover approaches from Iceland’s Kaupthing Bank and, separately, Bridgepoint Capital and PPM Capital. In June this year, Pret’s co-founder Julian Metcalfe hired NM Rothschild to advise his company on several approaches, having revealed plans in April to float the business. Pret’s 160 outlets generate around £200 million in annual revenue.

Silver State Helicopters has received an undisclosed amount of private equity funding from Eos Partners. The deal will help Silver State expand its flight training and commercial operations.

Summit Energy Services Inc., a Louisville, Ky.-based provider of energy management services, has raised an undisclosed amount of funding from Weston Predisio. As part of the deal, Weston Presidio partners Chip Baird and Mark Bono have joined the Summit board of directors.

Leerink Swann & Co., a Boston-based I-bank focused on the healthcare market, has completed its previously-announced receipt of a $35 million minority investment from Lovell Minnick Partners and the March Group.

GS Capital Partners has extended the close date for its $1.07 billion of Myers Industries Inc. (NYSE: MYE) until Q4, according to The Deal. Myers is an Akron, Ohio-based manufacturer of polymer products for industrial, agricultural, automotive, commercial and consumer markets.

PE-Backed IPOs

ArcSight Inc., a Cupertino, Calif.-based provider of security and compliance management solutions for enterprise and government clients, has filed for a $74.75 million IPO. It plans to trade on the Nasdaq under ticker symbol ARST, with Morgan Stanley and Lehman Brothers serving as co-led underwriters. The company has raised around $15 million in VC funding since 2002, from firms like Kleiner Perkins Caufield & Byers (23.8% pre-IPO stake), Institutional Venture Partners (11.9%), Integral Capital Partners (6.3%) and New Enterprise Associates (5.4%).

PE Exits

Omniture Inc. (Nasdaq: OMTR) has acquired Offermatica Corp., a San Francisco-based provider of software to test, measure and optimize online marketing and advertising campaigns. The deal was valued at $65 million. Offermatica shareholders had included Baker Capital, Accel Partners and Meritech Capital Partners.

Merck & Co. (NYSE: MRK) has completed its acquisition of NovaCardia Inc., a San Diego-based drug company focused on cardiovascular disease. The deal was valued at approximately $350 million in Merck stock, plus the value of NovaCardia’s cash on hand. NovaCardia had raised around $88 million in VC funding since its 2001 formation, from firms like Domain Associates (24.9% stake), Forward Ventures (15.6%), InterWest Partners (10.4%), Skyline Venture Partners (15.3%), Versant Ventures (13.6%) and Montreaux Equity Partners (12.5%).

PE-Backed M&A

Aptuit Inc., a Greenwich, Conn.-based provider of streamlining and support services for drug developers, has agreed to acquire the chemical development business of Evotec AG (Frankfurt: EVT). The deal is valued at approximately €46.4 million in cash, and includes Evotec’s capabilities in process R&D, custom preparation, analytical development, pilot plant manufacturing and formulation. Aptuit said that it intends to retain all of the businesses 210 employees, who are split between Oxford and Glasgow, UK. Aptuit is backed by Welsh, Carson, Anderson & Stowe and Temasek Holdings. http://www.ssci-in!

Gennum Corp. (TSX: GND) has agreed to sell its hearing instrument products and manufacturing operations to Sound Design Technologies Ltd., a portfolio company of Gores Equity. The deal is valued at Cnd$14 million in cash, plus another Cdn$1.3 million in possible milestone payments. Genuity Capital Markets advised Gennum on the transaction.

United BioSource Corp., a Bethesda, Md.-based provider of evidence-based services and information to the pharma and life sciences markets, has acquired an ownership interest in ClinResearch GmbH, a Cologne, Germany-based provider of technology solutions and services for clinical trials. No additional information was disclosed. United BioSource has raised $153 million in private equity funding from firms like Grotech Capital Group, J.W. Whitney and Oak Investment Partners.

Firms & Funds

Cape Natexis has closed its new fund with €195 million in capital commitments. The firm will focus on small and mid-cap buyouts of companies in Northern Italy – particularly around the “Golden Triangle” of Lombardia, Veneto and Emilia Romagna. A small amount of capital also will be used for selective investments in China. Acanthus Advisers served as placement agent.

Nogales Investors Management has closed its second fund with $245 million in capital commitments. The Los Angeles-based firm will continue to invest between $10 million and $30 million in middle-market companies. It was founded by former Univision president Luis Nogales, and also includes partners Mark Mickelson and Steve Sebastian (joined in July from Westar Capital).

PPM Capital, the private equity arm of Prudential, has confirmed that the spinout from its parent should close in the fourth quarter. PPM also is in the process of raising capital for its first independent fund, which is expected to conclude at around the same time as the spinout.

Alvarez & Marsal Transaction Advisory Group has opened a Boston office. It will be staffed by former Ernst & young pros Scott Soderstrom, Andrew Carroll and Daniel Madden.

Human Resources

Barry Allen has joined Providence Equity Partners as a senior advisor, focused on the telecom industry. He previously was with Qwest Communications, as executive VP of operations.

Musab Balbale and Andrew Doyle have joined Summit Partners as Boston-based vice presidents. Balbale previously was an associate with Sterling Partners, while Doyle worked in the real estate private equity group of Morgan Stanley. Summit also formally announced the hiring of Robert Hall as a Palo Alto-based vice president. PE Week Wire reported the news last month.

Jay Rose has joined StepStone Group as a managing director, where he will head up portfolio management. He previously was head of research for PCG Asset Management.