PE Week Wire: Tuesday, May 27, 2008

I spent most of Sunday napping, or thinking about napping. It was recovery from a bachelor party that had kept me out until past 3am, and generally reminded me that I’m really looking forward to my annual July vacation. Like past summer breaks, it will involve little travel and lots of couch time. Unlike last year, however, it is unlikely to include any television appearances.

I bring this up to point out that we’re coming up on the one-year anniversary of the credit crunch spreading into the private equity markets. It’s tough to pinpoint an exact date or event, but I use a pair of emails from CNBC producers for demarcation. The first came the week of July 4, and asked me to appear to discuss the “buyout boom.” This was around when Blackstone’s Hilton deal was announced, and topics were to include “the next major target,” “how big can deals get” and other such things. Shiny happy stuff.

The second email came at the tail-end of my vacation (or maybe a few days later), and was a forward of the original email: “We’d like you to discuss what we talked about last time (see below), except the opposite.”

So we’re now more than 10 months into the morass, and most of the PE market still seems stuck. For a while, the banks served as obvious culprit. If sponsors can’t get debt, they can’t do deals. But most of the hung bridges have now fallen or tightened, with just a few outliers remaining (BCE, Penn Gaming, etc.). And the lenders I speak with do seem willing to finance traditional deals again, albeit at pre-2006 terms. So I wonder if the real holdup is now the private equity firms themselves. Not for a lack of liquidity, but rather for a lack of courage.

I can’t blame anyone for being gun-shy, particularly after how difficult some of the past year’s deals have been to close. That said, it is an investors job to invest. For private equity firms, that doesn’t just mean using flexible fund structures to acquire distressed debt – including for one’s own portfolio companies. Instead, it means doing private equity deals. And, if you’re a mega-fund, that translates into mega-deals. That’s what LPs are paying for.

I’m not saying to completely eschew caution. Nor am I discounting the preponderance of CEOs and boards who haven’t yet internalized their company’s drop in value. Instead, I’m arguing that the current deal blockage is largely due to the oxymoronic display of overzealous self-restraint. It’s bruised hearts overwhelming heads that know to buy in a down-market.

This is a curable condition. The entire private equity market takes its lead from the mega-firms (sorry mid-markets, but it’s true), so what’s needed is a few major deal announcements. Not even deal closures yet, just funded agreements. That should prime the pump for most everyone else, and remove the condition of uncomfortable trail-blazing.

Not saying it’s easy, but that it’s certainly necessary. If not, I’ll be spending my July vacation watching TV, rather than appearing on it.

*** peHUB First Read, including how thinking can cost you money. Plus, a venture fund from hedgie Artis Capital?

*** Last week’s Deal of the Week.

*** Jeff Bussgang on VCs and dealflow: Seeing everything, and doing (nearly) nothing.

*** Happy birthday J. Each year together is better than the last. See you tonight.

Top Three

SunEdison LLC, a Beltsville, Md.-based solar energy services provider, has raised $131 million in new private equity funding. It also secured $30 million in debt financing. Backers include Greylock Partners, HSH Nordbank AG, Applied Ventures, Black River Commodity Clean Energy Investment Fund, MissionPoint Capital Partner; and Allco Renewable Energy Ltd.

Lehman Brothers Merchant Banking Partners has agreed to acquire Angelica Corp. (NYSE: AGL), a St. Louis-based provider of linen and textile solutions to the healthcare market. The total deal is valued at approximately $210 million, with Angelica stockholders to receive $22 per share. Morgan Joseph & Co. is advising Angelica on the deal.

Qiming Venture Partners has closed its second fund with $320 million in capital commitments. The Shanghai-based firm focuses on VC opportunities in China, and partners with Seattle-based Ignition Partners. In other Qiming news, the firm made several personal announcements: Robert Headley, an Ignition partner and former head of finance for Starbucks, has joined Qiming’s investment team on the ground in China; Hans Tung, former China representative of Bessemer Venture Partners, joined as a new partner; a Richard Chen has joined as a venture partner; and Nisa Leung was promoted to partner.

VC Deals

OpenLane Inc., a Menlo Park, Calif.-based online auction company for automotive dealers, has raised $25 million in new VC funding. Meritech Capital Partners led the round, and was joined by return backers August Capital, RPM Ventures and Zilkha Venture Partners.

eCast Inc., a San Francisco-based operator of a broadband-enabled touchscreen media network, has secured $12.3 million of an $18.64 million Series D-1 round, according to a regulatory filing. Shareholders include Focus Ventures, Mobius Venture Capital, Crosslink Capital, DCM and El Dorado Ventures. The company has raised over $97 million in total VC funding since its 199 inception.

Vantos Inc., a Seattle-based provider of enterprise investigation management, has raised $10.69 million in Series B funding, according to a regulatory filing.Backers include Fluke Venture Partners, OVP Venture Partners and Outlook Ventures., a Santa Monica, Calif.-based provider of cooking recipes and ecommerce services, has raised $7 million in Series E funding, according to a regulatory filing. Listed shareholders include Azure Capital Partners, Clearstone Venture Partners, Starbucks Corp. and Idealab. The company had raised over $90 million between 1998 and 2000, plus $7 million in venture debt funding earlier this year from Orix Finance.

United Sample Inc., an Encino, Calif.-based online sampling service, has raised $1.29 million in Series A funding, according to a regulatory filing. Backers include DFJ Frontier Fund and Webtigo.

Pelago, a provider of software that combines smartphone mapping technology with social networking, has raised an undisclosed amount of capital from Kleiner Perkins’ iPhone fund, according to BusinessWeek.

Buyout Deals

3i reportedly is considering a bid for the high-voltage power transmission network of German utility E.ON.

AEA Investors has acquired Implus Footcare LLC, a Morrisville, N.C.-based maker of footwear accessories, from FdG Associates. No financial terms were disclosed. Sawaya Segalas & Co. advised Implus on the deal.

Apollo Management and The Blackstone Group are in early talks to acquire Chemtura Corp. (NYSE: CEM), according to The Wall Street Journal. The chemicals company said in December that it would pursue strategic alternatives, and currently has a market cap of approximately $1.9 billion.

Arcapita is in advanced talks to buy UK rail freight operator Freightliner from 3i and Electra Capital Partners, according to The Financial Times. Freightliner is believed to have an enterprise value of around £350 million.

Hypo Real Estate, an embattled German bank. said that it supports J.C. Flowers & Co.’s offer to buy a 24.9% stake for €1.1 billion.

MBF Healthcare Partners and the Goldman Sachs Urban Investment Group have acquired OMNI Home Care, a Coral Springs, Fla.-based provider of skilled nursing and therapy home healthcare services. No financial terms were disclosed.

Tenaska Capital has agreed to acquire the Rolling Hills Power Generation facility from a subsidiary of Dynegy Inc. No financial terms were disclosed. The facility is an 815-megawatt, natural gas-fueled generating plant near Wilkesville, Ohio.

PE-Backed IPOs

Towry Law, a UK-based financial services company, is planning to float later this year, according to The Independent. The company is partially owned by Palamon Capital Partners.

Facebook IPO speculation continues, according to a weekend report from Reuters.

PE-Backed M&A

Coverity Inc., a San Francisco-based provider of software quality and security improvement solutions, has acquired Codefast, a San Jose, Calif.-based provider of scalable software lifecycle automation systems. No financial terms were disclosed. Coverity earlier this year raised $22 million in its first round of institutional funding, co-led by Foundation Capital and Benchmark Capital. Codefast has raised $9.5 million from Foundation and Trinity Capital.

T-Mobile reportedly has agreed to sell part of its Dutch fixed-line broadband Internet unit to Ziggo. No financial terms were disclosed. T-Mobile acquired the unit last year via the purchase of Orange Netherlands. Ziggo was formed by Cinven and Warburg Pincus, via the merger of Casema, Multikabel and Essent Kabelcom.

Firms & Funds

Caltius of Los Angeles has raised $500 million for its fourth mezzanine fund, according to a regulatory filing. Credit Suisse served as placement agent.

Edmond de Rothschild Investment Partners has raised €150 million for BioDiscovery 3, a venture capital fund focused on European life sciences opportunities. Limited partners include La Compagnie Financière Edmond de Rothschild, LaCaisse des Dépôts and Amgen. The firm also opened a 10% “greenshoe” for additional investors.

Quinlan Private has raised €725 million for its latest private equity real estate fund. It is the firm’s first fund open to U.S. investors, who contributed €400 million. Quinlan has offices in Dublin, London and New York.

Electra Partners has raised £100 million for a new fund to invest in European mid-market companies. The vehicle will co-invest alongside the listed Electra Private Equity Partners, which gives Electra around £1 billion of buying power.

Charter Life Sciences has held a $56.4 million first close for its $150 million-targeted second fund, according to a regulatory filing. Limited partners include Pacific Coast Investors and The Ohio Capital Fund.

Element Partners, a cleantech VC firm formerly known as DFJ Element, has held a $262 million first close for its second fund, according to a regulatory filing. The firm is seeking upwards of $400 million. Lehman Brothers is serving as placement agent.

Human Resources

Dharmash Mistry has joined Balderton Capital as a partner. He has spent the past eight years with Emap, including as managing director of consumer media and performance. He was part of the team that sold eMap’s consumer magazine business to H. Bauer for £1.1 billion.

JPMorgan Chase has promoted Karen Simon to global co-head of financial sponsors. She will work out of London, alongside fellow co-head George Foussianes in New York. Former global head of financial sponsors John Coyle left last month to join Permira.

William “Boots” Del Biaggio has resigned as one of four general partners at Sand Hill Capital, citing “personal reasons.”

Burger King Holdings said that three representatives from the PE firms that own around 32% of the company’s outstanding shares will resign. They are: David Bonderman of TPG Capital, Andrew Balson of Bain Capital Partners and Adrian Jones of Goldman Sachs. The resignations are effective June 30.