PE Week Wire: Wed., April 23, 2008

Warburg Pincus yesterday announced that it has closed its tenth fund with $15 billion, or nearly twice what it secured for its ninth fund in 2005. It’s also $3 billion more than the firm was targeting when it began fundraising last May.

This certainly fits the recent mega-firm pattern, in which Bain, KKR and others have raised record amounts despite a paucity of new deal opportunities. Fee today, call-down in a few hundred tomorrows (unless they spot a problematic PIPE or cratering leveraged loan portfolio).

I had really wanted Warburg Pincus to help retard this trend, which skates the thin line between optimism and greed. Few other firms exude the same spirit of independent thinking – having been an early adopter of globalization and stubborn defender of transacting both massive LBOs and early-stage venture deals out of the same fund. If there was any firm willing to stand on objectivity, it would have been Warburg.

But, alas, it was not to be. Maybe I should have been stripped of my delusions when Warburg propped up MBIA, in a bid to replicate its long-ago success with Mellon Bank (Question: Did LPs who came in on the final close get some sort of discount?). I guess Warburg is willing to stand apart, but not too far apart.

So Blackstone is the now the only fundraising firm left with enough gravitas to help stem market overcapitalization, but looking to Blackstone for moderation is like looking to the Boston Bruins for a Game 7 goal. Sure a few big firms will claim fundraising sanity, but beware the difference of intentional and unintentional fundraising scale-back (yeah, I’m gazing toward Chicago)…

Warburg Pincus would likely respond that it has a flexibile enough investment strategy to handle macro-economic fluxuations, and that it’s investing for the long-term (Note: It declined to comment for this piece). Fine, but it’s a specious argument.

How can any private equity firm claim that it requires the same amount of money today that it did in May 2007? Even if Warburg plans to do the exact same number of deals, many of them will require less cash due to decreased valuations. In fact, the only reason Warburg was raising more money in the first place was because the private equity targets were getting larger and more expensive. Doesn’t what goes up also go down?

Finally, it’s worth emphasizing that LPs share much blame for this fool’s goldrush. I keep hearing investors complain about 2008 fund sizes and strategy drift, but then learn that Warburg got its highest-ever level of LP re-ups. If you don’t want mega-firms raising so much money, then don’t increase your commitments. It’s just as simple as it sounds…

Top Three

CVC Capital Partners has agreed to buy a 73.2% stake in Dutch supermarket chain Schuitema NV from Ahold. The deal is valued at €950 million.

GlaxoSmithKline (NYSE: GSK) has agreed to acquire Sirtris Pharmaceuticals Inc. (Nasdaq: SIRT), a Cambridge, Mass.-based developer of therapeutics that modulate an enzyme family called sirtuins The deal is valued at approximately $720 million in cash. Sirtris went public last May at $10 per share, for a $278 million valuation. It had previously raised $67 million in VC funding (plus $15m in venture debt), from firms like Polaris Venture Partners, TVM, Cardinal Health Partners, Skyline Ventures, Wellcome Trust, Three Arch Partners, Novartis, Cargill Ventures, Cyad Group, Hunt Ventures, Red Abbey, Bessemer Venture Partners, Genzyme Ventures, QVT Fund and Alexandria Real Estate Equity.

Morgan Stanley today announced plans to launch a private equity unit in India, where it already has investment banking and asset management operations. Aluri Srinivasa Rao will run the new effort, which launches May 1. peHUB reported earlier this month that Rao had resigned as a director of life sciences investments with ICICI Venture.

VC Deals

Resolvyx Pharmaceuticals Inc., a Bedford, Mass.-based developer of resolvin therapeutics, has raised $25 million in Series B funding. QVT Financial led the round, and was joined by Radius Ventures, Biogen Idec New Ventures and return backers Atlas Venture, CHL Medical Partners and Flagship Ventures.

Business Financial Services Inc., a Raleigh, N.C.-based provider of cash advances to U.S. merchants, has raised $9 million from Edison Venture Fund. Some of the proceeds will be used to provide shareholder liquidity.

Altor Networks, a Redwood City, Calif.-based provider of virtual network security solutions, has raised $6 million in second-round funding co-led by Accel Partners and Foundation Capital.

Enerpulse Inc., an Albuquerque–based developer of energy-efficient automobile spark plugs, has raised $5 million in additional Series B funding from Robeco, a unit of Rabobank Group. This brings the total round to $10.5 million, including a $5.5 million first close from Sail Venture Partnersand Altira Group.

Play Hard Sports Inc., a Foxboro, Mass.-based developer of casual sports gaming network, has raised $5 million in Series A funding from New Enterprise Associates. The company is run by Jeffrey Anderson, who stepped down as CEO of gaming company Turbine Inc. last October. Harry Weller, a partner with NEA, will join the Play Hard board of directors.

MediaScrape, a Montreal-based video news aggregator, has raised $3.2 million in VC funding from an undisclosed investor. The company referred to the round as its second, but TechCrunch notes that earlier coverage indicates that it’s actually MediaScrape’s fourth time at the funding trough.

MobiTV Inc., an Emeryville, Calif.-based provider of mobile and broadband television and music services, has raised $5 million in equipment financing from Leader Ventures. The company had previously raised around $118 million in total VC funding since 2001, including a $100 million Series C round in 2006 at a post-money valuation in excess of $400 million. Shareholders include Oak Investment Partners, Menlo Ventures, Redpoint Ventures, Gefinor Ventures, Adobe Systems and Hearst Corp. R, a Sarasota, Fla.-based provider of a broker-centric online real estate search platform, has raised an undisclosed amount of bridge funding from Merrick Capital. The company plans to raised $10 million in Series A funding later this year. R

Tiny Prints Inc., a Mountain View, Calif.-based online stationary retailer, has raised its first round of outside funding from Summit Partners and Technology Crossover Ventures. No financial terms were disclosed for the deal, which provides Summit and TCV with a minority ownership position. Tiny Prints was founded in 2004.

Buyout Deals

Arlington Capital Partners has acquired Consolidated Precision Products Corp., a Pomona, Calif.-based manufacturer of highly-engineered components and sub-assemblies for the military, defense and commercial aerospace markets. No financial terms were disclosed for the deal, which was done in partnership with company management.

Palladium Equity Partners has made a “significant investment” in Carpio Solutions, a Research Triangle Park-based provider of business systems software and services.

Aozora Bank, a listed Japanese portfolio company of Cerberus Capital Management, reportedly will cut its earnings estimated for the year ended March 31 for a third time. The bank originally estimated net profits of 26.5 billion yen, but is now expected less than half of that.

Infineon is in third-party talks to reduce its stake in listed memory chipmaker Qimoda, but does not expect private equity firms to participate.

PE Exits

Apple Computer has agreed to acquire P.A. Semi, a Santa Clara, Calif.-based fabless semiconductor company, for around $278 million. P.A. Semi has raised $126.5 million in total VC funding, including a $40.5 million Series D round last summer. Backers include Bessemer Venture Partners, Highland Capital Partners, TI Ventures, Focus Ventures and Venrock.

QAD Inc. (Nasdaq: QADI) has agreed to acquire the assets of Full Tilt Solutions Inc., a Wayne, Pa.-based provider of product information management software. No financial terms were disclosed. Full Tilt had raised over $63 million in VC funding since 2000, from firms like Grotech Capital Group, Comerica Venture Capital, Mellon Ventures and William E. Simon & Sons. It is unclear which of those firms – if any – remain shareholders. Full Tilt sold its services business in early 2004 to Ciber Inc.

Rockwell Automation Inc. (NYSE: ROK) has agreed to acquire Incuity Software Inc., a Mission Viejo, Calif.-based provider of enterprise manufacturing intelligence software. No financial terms were disclosed. Incuity Software raised a $7.3 million Series A round in mid-2006 from American River Ventures and Palomar Ventures.

Sony Corp. of America has agreed to acquire Gracenote Inc., an Emeryville, Calif.-based provider of embedded technology and data services for digital entertainment solutions within networked devices. The deal is valued at approximately $260 million, plus “other contingent consideration.” Gracenote has raised around $50 million in VC funding from firms like Sequoia Capital and Bessemer Venture Partners.

PE-Backed M&A

Anew Learning, a portfolio company of Sweden-based Bure Equity, has acquired school operator Didaktus AB. No financial terms were disclosed.

Satellier Inc., a Chicago-based provider of workshare solutions for the architecture, construction and building owner markets, has acquired Screampoint, a developer of “5D” digital city and digital building systems. No financial terms were disclosed. Satellier last fall raised $10.38 million in Series A funding led by Sequoia Capital. The company also reports London-based Dena Valley Corp. as a shareholder.

Firms & Funds

AIG Capital Partners has closed its second Brazilian special situations fund with $691.9 million in capital commitments. The vehicle also has flexibility to invest opportunistically in other Latin and South American countries like Mexico and Columbia.

Babson Capital Management has acquired Murray Capital Management’s distressed debt management business. No financial terms were disclosed.

CIT Group Inc. (NYSE: CIT) yesterday sold $1.5 billion of common and convertible preferred stock, which was 50% more than originally planned.

Merrill Lynch yesterday sold $7 billion in debt. The sale included $1.5 billion in five-year notes with a 3.25% yield over Treasuries, and $5.5 billion of 10-year notes at a 3.20% yield over Treasuries.

Millennium Private Equity of Dubai reportedly has held first closes on both of its inaugural Shariah-compliant funds. It secured $200 million for a Global Energy Fund, and $150 million for a Telecom, Media & Tech fund. Both vehicles are targeting $1 billion.

Human Resources

Lorne Somerville has joined CVC Capital Partners as head of the firm’s telecoms practice. He previously was with UBS as joint global head of telecoms and head of its European communications group.

John Brunjes has joined Bracewell & Giuliani as a partner in the firm’s private investment funds practice. He is a former Connecticut assistant attorney general in the finance and antitrust divisions.

Michael Henkin and Steven Strom have been named co-heads of the restructuring and recapitalization advisory group at Jefferies & Company, according to Dow Jones. The pair replace Thane Carlston and William Derrough, who left Jefferies last summer to join Moelis & Co. In other Jefferies news, the firm said that it has sold a 13.7% equity stake in itself to Leucadia National Corp.

Loren Balsam has joined Perseus Realty Partners as a managing director. He previously was the senior investment officer of Fidelity Management & Research’s private equity real estate group.