PE Week Wire: Tues., Sept. 18, 2007

Yesterday I mentioned that North Castle Partners had acquired private equity pariah Atkins Nutritionals, and that I’d soon post more info over at peHUB. A reader replied that one of North Castle’s four managing directors – Jim Eason – had unexpectedly passed away on Friday night. The reader assumed that North Castle was unlikely to comment on the Atkins deal for at least a few days (as did I), but the firm nonetheless kept its interview commitment. So what follows are two very different items – different in tone and, clearly, in level of importance.

Atkins Nutritionals

The original deal for Atkins Nutritionals was perhaps the worst private equity deal transacted since I began covering this market. Yes, that means worse than Refco. And now it’s back in private equity hands, after having spent several post-bankruptcy years controlled by first-and-second lien holders. It’s certainly curious. And brave. And possibly stupid.

For the uninitiated, I’ve posted a backgrounder here. The brief version is as follows: Parthenon Capital and Goldman Sachs acquired Atkins in October 2003, via a $533 million leveraged buyout. The deal ultimately caused Parthenon to pay Summit Partners $20 million for violating a deal-sharing arrangement – which was chump change compared to what it lost when the company went belly-up in the summer of 2005. The debacle helps explain why it took Parthenon several years to close its third fund, and to do so $300 million shy of its $1 billion target.

Fast forward to yesterday, when North Castle announced that it was buying Atkins from its bondholders. To be clear, North Castle may be the best possible firm to have bought Atkins. It has an exclusive focus on “healthy living and aging” companies, and has some past nutritional experience with Leiner Health Products, EAS and N*ked Juice. Moreover, former EAS and N*ked Juice CEO Monty Sharma will be put in charge of Atkins.

North Castle managing director Lou Marinaccio says that his firm “didn’t spent a lot of time trying to understand Parthenon or Goldman’s ownership… We were focused on what had happened post-bankruptcy.” Ok, but past of Parthenon and Goldman’s problem was that Atkins is an inherently tricky company. First off, national diet trends are best described as national diet fads. In fact, one big reason for Atkins’ original troubles was the death of its namesake – who was rumored to have died from a heart attack (he did suffer one in 2002, but died one year later from hitting his head after slipping on some ice). Positive scientific studies are great, but they aren’t what drive the national consciousness.

But that isn’t my main beef (no pun intended). Instead, it’s that Atkins disciples do not actually need to buy anything from Atkins Nutritionals. They can get the basic diet plan online, and make the food themselves. Or buy them from other vendors. In fact, I have a friend who successfully used the Atkins diet to shed double-digit pounds, but he never bought a single Atkins-branded product.

Marinaccio responds thusly: “The angle we took was a bit different. If the diet works, then the brand is going to have real value… We don’t need every customer who utilizes a low-carb diet. So let’s flip your argument on its head: Who are the customers actually buying Atkins today? They are very loyal folks who use Atkins products as a component of their weight management, and they keep coming back to the diet when they need to. It is a business that we see as trending in the right direction.”

In Memoriam: Jim Eason

Jim Eason, managing director of North Castle Partners, passed away last Friday. The firmhas declined comment, citing the family’s wishes. He was just 45 years old.

Easonhad helped North Castle founder Charles Baird form the firm’s first fund, and then signed on at the beginning of Fund II in 1998. The firm focuses on consumer product and services companies focused on “healthy living and aging” — and Eason had been particularly focused on such portfolio companies as Red Door Spas, Naked Juice, Octane Fitness and EAS. Current board seats had included Enzymatic Therapy, Octane Fitness and Performance Inc.

A memorial service for friends and family will be held this morning in New Canaan, Connecticut. He is survived by his wife Wendy, children Andrew and Emily, father Robert, sisters Jean Reichard, Carol Willersdorf and Beverly Eason, and his brothers William and Robert.

In lieu of flowers, the family welcomes donations to Augie’s Quest — an organization devoted to finding a cure for Lou Gehrig’s disease. It was founded by Jim Eason’s friend, and was an organizationclose to his heart.

Donations can be sendC/O: TheMuscular Dystrophy Association, Augie’s Quest, 1805 E. Garry Ave., Suite 100, Santa Ana, CA 92705,

Other Stuff

* SAIF Partners is pulling out of South Korea. peHUB has the scoop.

* The Carlyle Group is mixed up in an alleged kick-back scandal involving former New York State Comptroller Alan Hevesi, according to the NY Post.

* VentureBeat is doing some snapshot analysis (and rankings) of the companies presenting at TechCrunch40. See here and here.

* Allan Sloan takes on the carried interest tax issue in today’s Washington Post. He breaks down a key argument/fallacy on each side, before declaring his support for change.

* All take-private buyouts have been going through a phase where their lenders threaten to pull the plug. The latest is Blackstone and GE’s pending purchase of PHH Corp.

* Clarification: Audax Group is only targeting $200 million in LP commitments for its new senior debt and distressed debt. Butouts has since ammended its report that say that the $1 billion figure cited yesterday was inclusive of leverage.

* Totally unrelated: Later this month, J and I will be participating in The Memory Walk — a fundraiser for The Alzheimer’s Association. If any readers are interested in providing us with a pledge, it would be greatly appreciated. You can do so online here. Thank you.

Top Three

Yahoo Inc. has agreed to buy Zimbra Inc., a San Mateo, Calif.-based maker of open-source email server software,for around $350 million. No other financial terms were disclosed for the deal, which is expected to close in Q4. Zimbra has raised $28.5 million since 2004, from firms like Accel Partners, Benchmark Capital, DAG Ventures, Redpoint Ventures and Presidio STX.

H.I.G. Capital has agreed to acquire Gienow Windows & Doors Income Fund (TSX: GIF.UN), a Calgary-based maker of windows and doors. The total deal is valued at approximately Cdn$183 million, with Gienow stockholders to receive Cdn$4.20 per share.

Tim Bunting has joined Balderton Capital as a partner. He is the former vice chairman of Goldman Sachs International, and also served as Goldman’s head of equity capital markets. Balderton is a London-based VC firm previously known as Benchmark Capital Europe.

VC Deals

Ecrio, a Cupertino Calif.-based provider of real-time communications and commerce software for mobile phones, has raised over $24 million in Series C funding. Participants included CSK, JAIC, Nomura Securities, Aplix, NTT DoCoMo, Visa and Noventi/CIR Ventures.

AdvanDx Inc., a Woburn, Mass.-based provider of in vitro molecular diagnostic products, has raised $15 million in Series C funding. BioMérieux led the deal, and was joined by return backers LD Pensions and SLS Venture. The company had previously raised $10 million.

Pentadyne Power Corp., a Chatsworth, Calif.-based commercial manufacturer of clean energy storage systems, has raised $14 million in a venture recap round led by Loudwater Investment Partners.

Nirvanix Inc., a San Diego-based provider of a storage delivery service optimized for media applications, has raised $12 million in new VC funding. Mission Ventures and Valhalla Partners co-led the deal, and were joined by Windward Ventures.

Radius Health, a Cambridge, Mass.-based, has raised $10 million in new Series C funding from Novartis (via a fund managed by MPM Capital). The infusion is related to a larger strategic deal in which it received an option to obtain an exclusive global license (except for Japan) to developer and commercialize Radius’ osteoporosis drug candidate. Radius has raised $91.5 million in total VC funding since its 2003 inception, from firms like MPM Capital (which manages the fund through which Novartis invested), HealthCare Ventures, Oxford Bioscience Partners, MPM Capital, Bellevue Asset Management and the Welcome Trust.

BlueRoads Corp., a San Mateo, Calif.-based provider of partner opportunity management solutions to medium-to-large enterprises, has raised $9.27 million in Series D funding. The company did not identify round participants, but past backers have included ArrowPath Venture Capital, Cardinal Venture Capital, El Dorado Ventures and The Halo Fund. Blueroads has raised around $24.5 million in total VC funding since 2002.

StreetFire Inc., an Atlanta-based car enthusiasts’ website and video network, has raised around $6.1 million in Series A funding, according to a regulatory filing. The filing did not identify investors, except to say that they are based in California.

BioMicro Systems Inc. of Salt Lake City has called down $1.7 million of a $2.02 million Series B-1 round, according to a regulatory filing. Shareholders include vSpring Capital and Glen Arden Associates. The company developers microfluidic biochip technologies for genomics, proteomics and diagnostics research.

Buyout Deals

H&Q Asia Pacific, FAT Capital and Merrill Lynch have agreed to acquire Primax Electronics Ltd., a Taiwan-listed computer peripherals maker. The total deal is valued at NT$8.6 billion ($260m). Primax management would retain a 30% ownership stake after the delisting.

Palladium Equity Partners has acquired Castro Cheese Company Inc., a Houston, Texas-based maker of Hispanic cheeses and creams under the La Vaquita brand. Emporia Capital Management provided senior notes. No pricing terms were disclosed.

Prairie Capital has acquired M. Lee Smith Publishers LLC, a Brentwood, Tenn.-based B2B publisher for human resources, employment and other law and political professionals. M. Lee Smith CEO Dan Oswald will remain in his current position with the company, which has been renamed Fortis Business Media. The total deal was valued at approximately $35 million, including $20.1 million in leveraged financing from NewStar Financial.

Wynnchurch Capital has acquired the North American operations of Metzeler Automotive Profile Systems, a Detroit-based designer and manufacturer of vehicle sealing systems for doors, windows, trunks, lift gates, sunroofs and hoods. Bank of America provided leveraged financing. No pricing terms were disclosed.

Common Resources LLC, a Houston, Texas-based oil and gas exploration and production company, has received a $125 million line-of-equity from Pine Brook Road Partners.

Olive Group, a global provider of critical infrastructure protection and security solutions, has raised an undisclosed amount of private equity funding led by Monitor Clipper Partners.

PE Exits

Hearst Magazines, a unit of Hearst Corp., has agreed to acquire RealAge Inc., a San Diego-based consumer health media company and provider of personalized health information and management tools. No financial terms were disclosed for the deal, which is expected to close within the next week. RealAge was founded in 1999, and raised around $14.6 million in VC funding from Camelot Ventures, Broadview Capital Partners, Dain Rauscher Corp. and individual angels. UBS advised RealAge on the sale.

Nokia Corp. has agreed to acquire Enpocket Inc., a Boson–based mobile advertising and marketing company. No financial terms were disclosed for the deal, which is expected to close by year-end. Enpocket had raised around $17.5 million in VC funding since mid-2002, from firms like Bru Venture Capital, Dolphin Equity Partners, GrandBanks Capital and BlueRun Ventures (f.k.a. Nokia Venture Partners).

Solera Holdings LLC (NYSE: SLH), a San Ramon, Calif.-based claims processing company, has filed for a $360.52 million secondary public offering. It plans to sell up to 20.81 million common shares, with 17.74 million of them being offered up by private equity firm GTCR. If successful, the deal would reduce GTCR’s ownership position from 47.4% to 20 percent. Goldman Sachs and JPMorgan are serving as underwriters.

PE-Backed M&A

Barracuda Networks Inc., a Campbell, Calif.–based provider of email and Web security appliances, has acquired NetContinuum Inc., a Santa Clara, Calif.-based provider of Web application firewalls. Barracuda raised a $40 million Series A round in 2005 from Sequoia Capital and Francisco Partners. NetContinuum has raised around $77.5 million in total VC funding since 2001, including a $15 million recap round in 2005 from Adams Street Partners, Menlo Ventures, Palomar Ventures, Invus Group, Entrepia Ventures and Siemens Venture Capital.

FitLinxx, a Stamford, Conn.-based provider of exercise motivation and tracking solutions, has acquired FitSense Inc., a Southborough, Mass.-based provider of wireless health monitoring solutions. No financial terms were disclosed. FitLinxx has raised over $132 million in total VC funding, including an early 2003 venture recap. Current shareholders include Ironwood Capital, North Atlantic Capital and Warbos Venture Partners.

Loving Care Agency Inc., a Fort Lee, N.J.–based provider of home healthcare services, has acquired Andventure Inc. (a.k.a. Links2Care), a Harrisburg, Penn.-based provider of pediatric homecare services throughout central Pennsylvania.No financial terms were disclosed for the deal, which results in a combined company with over $100 million in annual revenue. Financing was provided by Loving Care shareholders MTS Health Investors and Oaktree Capital Management.

Firms & Funds

Alvarez & Marsal has opened an office in Shanghai. It is the firm’s third Asian office, following Hong Kong and Singapore.

Human Resources

Janet Brooks has joined the London affiliate of Monument Group Inc., a Boston-based private equity placement agent, effective next month. She has spent the past 15 years with UK middle-market firm ECI Partners.

John Andrews has agreed to join hedge fund manager Citadel Investment Group, after having served as head of investor relations for Goldman Sachs. The move is believed to a precursor to Citadel filing to go public.