PE Week Wire: Wed., Feb 21, 2007

Greetings from Beaver Creek, Colorado – where the snow is powdery, a high-speed quad is no more than 20 yards from my hotel room door and the VC in the Rockies event is just about to kick off with a keynote from Liberty Media CEO Greg Maffei. So just a few notes before I catch a shuttle bus over to the Ritz…

*** I was mildly – and perhaps unfairly — critical of the methodology used for last month’s Forbes Midas List, which ranks VCs by a variety of metrics. But the Forbes folks were empirical savants compared to the crew over at Fortune Magazine, which yesterday released its Private Equity Power List. The actual magazine doesn’t hit until next Monday (Blackstone’s Steve Schwarzman is on the cover), but the initial rankings are now online here.

What’s my beef? All this vaunted list does is rank firms in order of latest fund size. Really, that’s it. First-place Blackstone has a bigger fund than second-place KKR, which has a larger fund than third-place Carlyle, and so on. It’s also worth noting that “latest fund size”’ is used collectively. For example, it says that Bain Capital’s last fund netted $13 billion, but this actually includes the following current investment vehicles: $8 billion core fund, $2 billion co-investment fund, $1.2 billion European fund, $1 billion Asia fund and $1 billion employee co-invest fund (and, yes, it should therefore total $13.2 billion). The only things excluded are VC funds, debt funds or other funds not primarily earmarked for buyouts.

In other words, this is something most of us could have done after just five minutes in the Venture Economics database. Except that we probably would have gotten it right. For example, where is Goldman Sachs? Or Permira? Or First Reserve? They should be there based on latest fund size, but are not mentioned.

More importantly, what is the value in ranking firms based just by size? Doesn’t performance count for something – and, arguable, something more. I’m not saying the firms on the list have lousy performance, but rather that IRR should have at least been considered. And how about fund terms (i.e., how much firms keep for themselves)?

I spoke to a Fortune PR guy who said he’d try to get an explanation, but I haven’t yet heard back. It’s a shame that some trees are going to have to die for such silliness. Discuss here.

*** It’s worth noting that any criticism in today’s PE Week Wire could be aftershock from my losing my $85 ski pass after just two runs yesterday (and being unable to get a replacement). Venture capitalist Brad Feld later offered to reimburse me on behalf of Colorado, which I appreciated, but had to decline. I’m pretty sure the exact same thing happened to Maria Bartiromo, and look how that’s turned out…

*** Alex calls out for poetry.

*** Pacific Corporate Group today announced that it is spinning off its asset management group (i.e., discretionary/non-discretionary consulting) into an independent entity. PCG itself will remain operational for direct and indirect investing.

The big news here is that the spinout’s management team will not include PCG honcho Chris Bower, although he will be one of four members of its board (alongside three independent directors. Ok, it’s only sort of big news, because Bower still will own more than 50% of the spinout – with employees eventually able to own up to 50% if they apparently meet some sort of milestones. And shouldn’t management have at least one board seat – like Monte Bream had last time this was tried (even though that was still under the PCG umbrella). A step forward, but not all that far.

*** There was a media roundtable yesterday to discuss local VC issues. I’ll be writing more on this later, but a common theme was how little term sheet competition there is for Series A deals here. Either a firm already has an in with the CEO, or it just partners up with its competition. Good for VCs, bad for entrepreneurs. Even worse might be the situation in the Pacific Northwest. Lucinda Stewart of OVP Venture Partners said: “The last time we fought for a deal was 2004.” That’s gotta sting in Boston and the Valley…

*** Note for all other VCIR attendees: Do not complain to someone back home that you have to stay up late tonight for the poker tournament, then wake up early so as to get some work done before hitting the slopes. Trust me, it doesn’t go over well.

*** Last but certainly not least: Yesterday’s column on Todd Brooks produced the most voluminous – and most profound – response in the four years since the Wire began. Much of this was online, but a lot also came in via email. The stories about both Todd and about other families that have experienced depression and suicide have been extraordinarily moving. Thank you for taking the time to write. And, as I mentioned yesterday, I’ll be compiling the notes about Todd and sending them to the family for one of their memory books. Thanks again.

Top Three

Apollo Management has agreed to acquire Smart & Final Inc. (NYSE: SMF) for $22 per share. The total deal is valued at approximately $813 million. Smart & Final is a Los Angeles-based operator of non-membership warehouse stores for food and foodservice supplies. It was advised on the transaction by Goldman Sachs.

Clearwire Corp., a Kirkland, Wash.-based WiMAX company, has acquired a large swath of wireless 2.5 GHz spectrum from AT&T for $300 million in cash. The FCC had mandated that AT&T sell the spectrum – which is mostly in the Southwestern U.S. – as a condition to its 2006 merger with BellSouth. Clearwire currently is in registration for a $500 million IPO, and lists shareholders like Intel Capital, Bell Canada, Motorola and company founder Craig McCaw.

Providence Equity Partners has closed its sixth fund with $12 billion in capital commitments. The firm focuses on buyouts of media and communications companies. Its previous fund was capped at $4.25 billion in 2004.

VC Deals

Gearworks Inc., a Minneapolis-based provider of location-based mobile business applications, has raised $21.4 million in “Series 2” funding. Split Rock Partners and Rho Ventures co-led the deal, and were joined by return backer Bluestream Ventures. The company has raised over $62 million in total VC funding since its 1998 inception.

AirClic Inc., a Newtown, Pa.-based provider of business process mobilization solutions, has raised $12.5 million in third-round funding. JMI Equity led the deal, and was joined by return backers Motorola and Zon Capital Partners.

Brickfish, a San Diego-based provider of a user-generated content platform that connects advertisers and consumers, has raised $11.2 million in Series A funding. DCM-Doll Capital Management led the deal, and was joined by Draper Richards, Draper Associates, Mangrove Capital and OCA Ventures.

Enyvision Inc., a Boulder, Colo.-based provider of broadband video management solutions, has raised $6.5 million in second-round funding. Columbia Capital led the deal, and was joined by return backers like High Country Venture and Bear Equity. The company raised $3 million in first-round funding last year.

Mozes Inc., a Palo Alto, Calif.-based provider of a mobile service that allows users to create and share content, has raised $5 million in first-round funding from and North Bridge Venture Partners.

Proficiency Inc., a Westborough, Mass.-based provider of OEM and supplier product data integration, has raised $5 million from return backers Carmel Ventures and Pitango Venture Capital. The company has raised over $55 million in total VC funding since its 1998 inception.

H2Oil Recovery Services, a Midway, Utah–based natural resource recovery company specializing in the reclamation of hydrocarbons and fresh water from oil and gas exploration and production processes, has raised $4.7 million in Series B funding. CMGI @Ventures led the deal with a $3 million investment.

REGiMMUNE Corp., a Tokyo–based drug developer, has raised $4.2 million in Series B funding. NIF SMBC Ventures led the deal, and was joined by Jafco Co., Orix Capital Corp., Yasuda Enterprise Development Co., New Business Investment Co., Mitsubishi UFJ Capital Co., Fund Creation Co. and return backer Japan Asia Investment Co.

Racemi Inc., an Atlanta-based provider of enterprise IT resource management software, has raised $3.4 million in Series A-1 funding from Pattillo Investments.

Harland Medical Systems Inc., an Eden Prairie, Minn.-based developer of coating automation systems and testing instruments for coated devices, has raised an undisclosed amount of private equity funding from DSM Venturing, the corporate venture unit of Royal DSM NV.

Buyout Deals

Central Parking Corp. (NYSE: CPC) of Nashville has agreed to be acquired for $22.53 per share by Kohlberg & Co., Lubert-Adler and Chrysalis Capital Partners. The total deal is valued at around $726 million. Central Parking was advised by The Blackstone Group.

American Securities Capital Partners last week closed its acquisition of a majority stake in NEP Broadcasting LLC from Apax Partners and Spectrum Equity Investors. No financial terms were disclosed. NEP is a Pittsburgh-based provider of outsourced media services, and was acquired by Apax and Spectrum from Wachovia Capital Partners in 2004.

Sentinel Capital Partners has acquired Trussbilt LLC, a New Brighton, Minn.–based manufacturer of steel security products for the detention and corrections market. No financial terms were disclosed for the deal, which closed last Friday. Trussbilt was founded in 1926.

Countrywide PLC reportedly has received a £1.01 billion buyout offer from Apollo Management. The UK-based property and financial services company’s shareholders recently rejected an offer from 3i Group.

Stirling Square Capital Partners and Diamond Castle Holdings have agreed to acquire Public Safety Equipment, an international provider of highway safety solutions, from Seton House Acquisition Ltd. (f.k.a. Britax Group). No financial terms were disclosed.

GE Energy Financial Services has paid $65 million to acquire a preferred equity interest in the Bobcat underground salt dome storage project in Louisiana from Haddington Energy Partners. GE will have a one-time option to convert its preferred interest to 50% common ownership within 90 days of the commencement of the project’s commercial operations. RBS Securities advised Haddington Energy Partners on the sale, and also is arranging $185 million in senior secured credit facilities to be used for the construction, development and long-term financing.

Mitsui & Co. has teamed with Green Gas International to jointly develop global green energy projects that would collect methane from landfills and subsequently use it for electricity generation. No financial terms were disclosed.

PE-Backed M&A

ChipX, Santa Clara, Calif.-based provider of ASIC products, has agreed to acquire the ASIC engineering team and assets of Oki Semiconductor Company. In addition, Oki Semiconductor has become a turnkey foundry for ChipX and has licensed its embedded array and Gate array technology and internally-developed IP to ChipX. No financial terms were disclosed. ChipX raised $12 million in Series AA recap funding in 2004 from firms like Elron Electronic Industries, Needham Asset Management, Newlight Associates, Parker Price Venture Capital, UMC Capital, VantagePoint Venture Partners and Wasserstein Ventures.

PE Exits

Willis Stein & Partners is considering a sale of Midwestern supermarket chain Roundy’s, according to The Wall Street Journal. A deal could be worth upwards of $2 billion. Willis Stein acquired Milwaukee-based Roundy’s in 2002, alongside Norwest Equity Partners.

Firms & Funds

American Securities Capital Partners, a New York-based middle-market private equity firm focused on North America, has opened a new office in Shanghai, China. It will be used to support ASCP portfolio companies with sourcing, supply chain optimization and access to Asian markets. The office will have five fulltime employees, and will be led by former GE executive Jun “Jim” Tao.

Human Resources

Kenneth Galbraith has joined Ventures West as a venture partner focused on life sciences opportunities. Last year he served as chairman and interim CEO of AnorMED, until its $600 million cash sale to Genzyme.

Scott Berdan has joined Kamlet Shepherd & Reichert LLP, as a partner in charge of the Denver-based law firm’s securities and corporate finance practice. He also will be charged with expanding M&A and private equity capabilities. Berdan previously was a partner in the Denver office of Hogan & Hartson LLP.

Brian DiLaura has joined Saints Capital as a senior associate focused on secondary opportunities in the buyout and growth capital markets. He previously was president of Sextant Holdings, a firm focused on consulting and investing in small-cap companies.