PE Week Wire: Tuesday, September 30, 2008

The sky is gray, Congress is gutless and the combo of baseball playoffs/presidential politics makes me very glad to have picture-in-a-picture.

First up is a pair of emails on my distain for the Wall St.versus Main Street dichotomy. LB writes: “Perhaps the single best paragraph that has been written about this entire bailout mess….. What’s the old cliché about tossing out babies with the bathwater? That’s exactly what would happen without this less-than-divine-but-incredibly-necessary intervention. Your paragraph to cut through (and cut up) the whiny, nonsensical populist rhetoric deserves huge applause.”

Joe disagrees: “Your comments on Main Street vs. Wall Street show that you have no awareness of the core issue between the two groups, and to imply that guys that pay 15% of billions while most pay over 20% on thousands are operating on the same plane is naïve… Speaking of losses from the meltdown, how small does an industry have to be before Thompson [sic] pulls the plug on the cheering sections pretending to be journalism?”

*** Moving on to TPG/WaMu being the worst private equity deal in history. Lee: “Look on the bright side… Those of us on the VC side usually take at least a couple of years to achieve a write-off.” G writes: “Big loss, but look at it this way: TPG won’t pay taxes for the next thousand years. In fact, they may be working on ways to turn this write-off into derivatives.”

More seriously, Allan offers: “I keep hearing about how private equity might ride to the rescue of the banking sector, particularly after the ownership rules were eased. It seems to me, however, that TPG’s loss on WaMu will be a big red warning sign to the entire private equity industry. Don’t be hasty or presumptuous enough to believe that you can see the bottom.”

Scott: “Just a note that Refco doesn’t belong anywhere near this category. Its sponsors were able to recap Refco and didn’t wind up being hurt all that badly. Granted the investment was written up before the fraud was uncovered, so there was a massive write-down… but as far as losing the original investment, this doesn’t come close to WaMu. Of more importance to TPG than merely losing money (a lot of it) on WaMu, is them raising a financial-focused fund… This was a huge error that savvy financial investors would have been able to see.”

*** John has a question: “Are any LP’s making noises about asking $20b buyout funds to give back some money, a la the post bubble venture world?” I have been asking this question for more than a year, and the typical LP reply has been that buyout egos would not allow such a retreat. I counter by pointing out that VC egos were equally-inflated back in 1999-2000, and that plummeting IRRs can have a humbling effect.

But let me put the question to you dear readers, particularly those of you on the LP side of things. Are you asking for fund cuts, or are you simply becoming stingier with new commitments?

I’ve heard a lot about the latter, but little about the former. It’s also worth noting – as Erik Schonfeld did today at TechCrunch – that VC funds could also face some capital commitment issues, as certain high-net-worth individuals transition into lower-net-worth individuals. So what say you LPs?

*** A reminder that Buyouts Magazine is hosting its first-ever Canadian conference tomorrow, in Toronto. Speakers include Hamilton Lane CIO Erik Hirsch, Onex Corp. managing director Andrew Sheiner and Sageview Capital co-founder Scott Stuart. Get more info here.

Top Three

Lehman Brothers announced that it is selling its Investment Management division to Bain Capital and Hellman & Friedman for $2.15 billion. The all-equity deal includes Neuberger Berman, the fixed income unit and all non-direct alternative investment activities. What that leaves out is direct alternatives, which includes Lehman Brothers Merchant Banking (buyouts), Lehman Brothers Venture Capital and Lehman Brothers Real Estate.

Hexion Specialty Chemicals Inc., a portfolio company of Apollo Management, has been ordered by a court to complete its stalled $6.5 billion buyout of Huntsman Corp. Hexion, a portfolio company of Apollo Management, has said that Huntsman’s increased debt loan has made the deal nonviable, and that it will review the court’s decision.

Solar Power Partners Inc. announced that it has closed a total of $100 million in private equity and debt financing, and that it soon expects to close on another $60 million for project financing. Backers include United Commercial Bank, Globespan Capital Partners, Energy Investors Funds, The Enlightened World Foundation, Carrelton Asset Management, Dry Creek Ventures and Silicon Valley Technology Group. The Mill Valley, Calif.-based company develops, owns and managers a distributed network of mid-size commercial solar energy facilities that is remotely managed from a central location.

VC Deals

Link Medicine Corp., a Cambridge, Mass.-based developer of disease-modifying therapies for neurodegenerative indications, has raised $40 million in Series C funding co-led by Clarus Ventures and SV Life Sciences.

Mechtronix World Corp., a Montreal-based provider of flight simulation equipment, has raised C$39 million in private equity funding from Richardson Capital.

APT Pharmaceuticals Inc., a Burlingame, Calif.-based developer of inhaled treatments for serious lung diseases, has raised $32.3 million in Series B funding. Three Arch Partners led the round, and was joined by InterWest Partners, Pinnacle Ventures and return backers Charter Life Sciences, Great Point Partners, Versant Ventures and Vivo Ventures. It had previously raised around $33 million.

Nitec Pharma AG, a Swiss drug company focused on chronic inflammation and pain-related diseases, has raised CHF 24 million (approx. $22m) in new VC funding. TVM Capital led the round, and was joined by Deutche Bank and return backers NGN Capital, Global Life Sciences Venture and Atlas Venture.

Telormedix SA, a Swiss developer of immunotherapeutics, has raised around CHF 21 million ($19m) in Series A funding. Aravis Ventures led the round, and was joined by Proquest Investments, BSI SA, Nextech Venture and Generali Insurance Group.

EnQii Holdings Ltd., an digital out-of-home advertising company with offices in five countries, has raised $18 million in Series B funding. Amadeus Capital Partners and Wellington Partners co-led the deal, and were joined by return backer Ithmaar Bank.

Tungle, a Web-based meeting schedule tool, has raised $5 million in Series A funding. Commonwealth Capital Ventures led the round, and was joined by seed backers JLA Ventures and Desjardins Venture Capital.

Buyout Deals

Bain Capital and Silver Lake Partners have submitted formal offers for a controlling stake in Huawei Technologies’ mobile handset business. The unit’s total value is expected to be in excess of $3.5 billion.

Bedford Funding has agreed to acquire Authoria Inc., a Waltham, Mass.-based provider of talent management solutions, for $63.1 million. Authoria had raised around $140 million in venture capital and debt funding since 1998, from firms like Menlo Ventures, Norwest Venture Partners, Austin Ventures, Van Wagoner Capital Management, CIBC Capital Partner, Horizon Technology Finance and Velocity Financial Group. This included a $22.5 million infusion last October.

Charlesbank Capital Partners has acquired Tecomet, a Wilmington, Mass.-based contract manufacturer of complex components for the medical device and aerospace industries. No financial terms were disclosed. The seller was Cardinal Health (NYSE: CAH).

Reliant Energy (NYSE: RRI) has secured $1 billion in new capital commitments, including a $650 million term loan commitment from GS Loan Partners and a $350 million convertible preferred stock purchase by First Reserve Corp. The Houston-based company said its move was prompted by “disappointing” 2008 retail results, plus difficulties related to Hurricane Ike.

PE-Backed IPOs

Grand Canyon Education Inc., a Phoenix-based provider of online postsecondary education services, has set its IPO terms to 10.5 million common shares being offered at between $18 and $20- per share. It would have an initial market cap of approximately $800 million were it to price in the middle of its range. Credit Suisse and Merrill Lynch are serving as co-lead underwriters, while shareholders include Endeavour Capital.

PE Exits

Close Brothers Private Equity has sold BWA Water Additives, a maker of chemicals for the water treatment market, to United International Bank BSC (Bahrain). No financial terms were disclosed, except that the deal provided Close Brothers with a 3.5x return on an investment originally made as part of a May 2006 management buyout from Chemtura.

Estée Lauder Cos. has acquired AGI Dermatics, a Freeport, N.Y.-based drug company focused on skin repair, according to VentureWire. No financial terms were disclosed. AGI had raised around $9 million in VC funding from firms like Spring Mountain Capital and Trevi Health Ventures.

European Capital has sold Avery Weigh-Tronix, a UK-based maker of industrial weighing products and systems, to Illinois Tool Works Inc. for an undisclosed amount.

Montagu Private Equity has dropped plans to sell German wound-care company BSN Medical, which it had acquired for just over €1 billion in 2005. The firm had been hoping to secure upwards of €1.9 million, with Morgan Stanley running the process.

PE-Backed M&A

Emdeon, a provider of revenue and payment cycle management solutions for the healthcare industry, has acquired GE Healthcare IT’s patient statement business. No financial terms were disclosed. Emdeon is in registration for a $460 million IPO, and is backed by General Atlantic and Hellman & Friedman.

Great Expressions Dental Centers, a Bloomfield Hills, Mich.-based operator of nearly 100 dental centers in seven states, has acquired ConsoliDent Inc., a dental chain with 41 affiliated practices in Florida and Michigan. No financial terms were disclosed. Audax Group acquired Great Expressions earlier this year. Harris Williams & Co. served as advisor to ConsoliDent, which had raised VC funding from DFW Capital Partners, RFE Investment Partners and Antares Capital.

Firms & Funds

Alta Growth Capital is targeting $150 million for its debut fund, according to LBO Wire. The Mexico City-based firm plans to focus on mid-market opportunities in Mexico, and was formed by Scott McDonough (formerly vSpring Capital) and Erik Carlberg and Rafael Payro (Baring Latin America).

Human Resources

Matthew Niemann has rejoined Houlihan Lokey as a managing director and co-head of the firm’s Midwestern restructuring practice. He previously was with Cerberus Capital Chicago, an affiliate of Cerberus Capital Management.