PE Week Wire: Wed., Jan. 16, 2008

Love ‘em or hate ‘em, dividend recaps were a hallmark of the recent buyout boom. Firms would buy companies in highly-levered transactions, and then pile on more debt post-close, in order to reimburse their (paltry) equity commitments. All fun and games until somebody can’t pay the Piper Jaffray.

Critics (like me) assailed the practice as short-term greed, and claimed it was rampant. Industry insiders called us ignorant alarmists, adding that it was rare, safe and legal.

Well, we finally have some behind-the-curtain clarity from Moody’s Investors Service, which yesterday released a report called “Private Equity: Tracking the Largest Sponsors.” It examines leveraged buyouts it rated between 2002 and 2007, and howequity sponsors differed in their post-close financial management.

Here’s the key paragraph, in regard to dividend recap frequency:

Large private-equity sponsors took dividends in over 45% of the deals rated before September 2006, as seen in the table on page seven, with nearly 30% taking dividends large enough to remove all or nearly all of the equity that contributed to the initial transaction. In 10% of the deals, private-equity sponsors took a large dividend within the first year of the initial rating. A large dividend is defined as one that is equal to, or greater than, 80% of the equity contributed to the initial transaction.

Moody’s also learned that fast-cash lust varied from firm to firm. For example, six LBO shops did dividend recaps on more than 50% of their deals: Welsh Carson Anderson & Stowe, Cerberus Management, Providence Equity Partners, Carlyle Group, Madison Dearborn Partners and Thomas H. Lee Partners. You might notice Blackstone missing from this group, but it shows up when it comes to firms most likely to do take dividends of 50% or more (joining Cerberus and TH Lee).

On the flip side were KKR, Goldman Sachs and Bain Capital, which took dividends in only around one-third of their deals. KKR actually turns up repeatedly in the report for its lack of aggression, which is an surprising contrast to its purchase price behavior. For example, KKR only did add-on acquisitions for 21% of its portfolio companies.

The report also noted that only two of its tracked companies defaulted — or 1.1%, compared to 3.4% for high-yield. That’s pretty impressive, but would be more so if it holds through the economic slog of 2008.

I’ve posted the full report over at peHUB, for your perusal.

*** Yesterday I wrote that Quad-C Management was losing partner Gary Binning and principal Bob Haswell. Seems I was one short: Principal Asish Rughwani is also leaving, which means that Quad-C is out of senior managers in its New York office (firm’s HQ is McLean, VA). In related news, Binning called to confirm that the departures are voluntary, and that they have nothing to do with he and Haswell’s deal for Heartland Automotive (which just filed Chapter 11, but which Binning says has produced 3x returns for Quad-C investors). Rughwani was not involved on Heartland.

*** HBM BioVentures is applying for a public listing in Switzerland (where it’s based), and it’s getting a lot of press play. Not quite sure why, as lots of European venture firms have gone public. The real story would be a U.S. firm doing it on the Nasdaq, or perhaps selling a piece of itself to a sovereign wealth fund (or to CalPERS, which is a more transparent version). That’s why I think Morgan Stanley’s acquisition of a stake in NGEN Partners is a bigger deal.

Top Three

Thomas H. Lee Partners is in talks to acquire a 65% stake in MoneyGram International Inc. (NYSE: MGI), a provider of global payment services. The recap would include between $750 million and $850 million of equity from THL, plus between $550 million and $750 million in new debt facilities from third parties.

Oak Hill Capital has agreed to invest $150 million into Oversee.net, an provider of online marketing solutions. The deal is expected to close later this month, and does not represent a control or majority acquisition.

Morgan Stanley has acquired a minority stake in NGEN Partners, a venture capital firm focused on cleantech opportunities. No financial terms were disclosed. Get more info.

VC Deals

Metaweb Technologies Inc., a San Francisco-based maker of infrastructure for sharing data and building applications on the web, has raised $42.5 million in Series B funding. Goldman Sachs led the round, and was joined by DAG Ventures and return backers Benchmark Capital, Omidyar Network and Millennium Technology Ventures. The company had raised a $15 million Series A round in March 2006.

eCorp LLC, a Houston, Texas-based developer of natural gas storage facilities, has raised $40 million in growth capital funding from PCG Capital Partners.

Enforta BV, a Moscow-based WiMax network operator for Russia, has raised $40 million inSeries Cfunding. Bessemer Venture Partners led the round, and was joined by return backers Baring Vostok Capital Partners, Sumitomo Corp. and the European Bank for Reconstruction and Development. www.enforta.com

BackOffice Associates LLC, a Harwich, Mass.-based provider of SAP data quality solutions, has raised $30 million from Goldman Sachs.

OpenAds, a London-based provider of an open-source ad server for online publishers, has raised $15.5 million in Series B funding. Accel Partners led the deal, and was joined by return backers Index Ventures, First Round Capital, Mangrove Capital Partners and O’Reilly AlphaTech Ventures.

Criteo, a France-based provider of personalized purchasing recommendations and online advertising, has raised €7 million in Series B funding. Index Ventures led the round, and was joined by return backers AGF Private Equity and Elaia Partners. Aelios Finance advised Criteo on the deal.

Mercent, a Seattle-based provider of online marketing technology, has raised $6.5 million in Series B funding. TVC Capital led the deal, and was joined by return backers Madrona Venture Group and the Hillman Company.

Alfresco Software, a UK-based provider of open source enterprise content management solutions, has secured $5 million of a $13 million Series C round, according to a regulatory filing. Return backers include Accel Partners Europe and Mayfield Fund. www.alfresco.com

Overlay.tv, an Ottawa-based provider of an interactive online video advertising platform, has raised Cnd$4.6 million in Series A funding. Participants included Celtic House Venture Partners, EdgeStone Capital Partners and Tech Capital Partners. www.overlay.tv

Buyout Deals

The Carlyle Group is in talks to acquire the government contracting business of Booz Allen Hamilton, according to multiple reports. The deal could be worth up to $2 billion, with other private equity firms waiting in the wings. www.carlyle.com

Founders Equity has acquired both The Pay-O-Matic Corp. and C.L.B. Check Cashing Inc. The firm also has merged the two companies into a new entity named FEF Cash Inc., which will provide check-cashing and other community-based financial services in New York City and Long Island. No financial terms were disclosed. www.fequity.com

Hewitt Associates Inc. (NYSE: HEW) has agreed to sell its Cyborg unit to Vista Equity Partners. No financial terms were disclosed. Cyborg is a licensed payroll and human resources software services organization.

LNK Partners has agreed to sponsor a recapitalization of sandwich shop chain Au Bon Pain, in partnership with company management. The sponsors will invest more than $100 million in equity for a majority position, while leveraged financing has been committed by CapitalSource and Intermediate Capital Group. The Compass Group, which owned Au Bon Pain from 2002 to 2005, will retain an equity position, while subsequent buyer PNC Mezzanine Capital will sell its interest.

Ocwen Financial Corp. (NYSE:OCN), a mortgage servicing firm, has received a $7 per share buyout offer from a group that includes Oaktree Capital Partners, Angelo Gordon & Co. and Ocwen chairman and CEO William Erbey. The bid would value Ocwen’s equity at approximately $438 million. Ocwen’s board has formed a special committee to evaluate the offer, and has retained Evercore Group as an advisor. www.ocwen.com

Regency Energy Partners LP (Nasdaq: RGNC) hascompleted its acquisition of CDM Resource Partners LP, a Houston, Texas-based provider of turnkey natural gas contract compression services. The deal was valued at $655 million. CDMhad been owned by management and Carlyle/Riverstone Global Energy & Power Fund II.

PE-Backed IPOs

Transoma Medical Inc., a St. Paul, Minn.-based maker of implantable wireless vital sign monitors, has set its IPO terms to four million common shares being offered at between $14 and $16 per share. It would have an initial market cap of approximately $290 million, were it to price at the high end of its range. Transomaplans to trade on the Nasdaq under ticker symbol TSMA, with Piper Jaffray and Thomas Weisel Partners serving as co-lead underwriters. Transoma has raised just over $38 million in total VC funding, from firms like Polaris Venture Partners (24.47% pre-IPO stake), Canaan Partners (20%), Affinity Capital Management and Cross Creek Capital. www.transomamedical.com

PE Exits

Biodel Inc. (Nasdaq: BIOD) has filed for a secondary public offering of $3.81 million common shares. Sellers include Great Point Partners, OrbiMed Advisors and Vivo Ventures. Each firm would retain shares in Biodel following the sale. Biodel is a Danbury, Conn.-based drug improvement company focused on endocrine disorders like diabetes and osteoporosis. It went public last May. www.biodelinc.com

PE-Backed M&A

Engauge, a marketing agency owned by Halyard Capital, has acquired StreamRight, a Columbus, Ohio-based developer of Web applications for marketers. No financial terms were disclosed. The seller was Rockaway Partners. www.engauge.com

Fabrik Inc., a San Mateo, Calif.-based provider of online storage for large files, has acquired G-Technology Inc., a Santa Monica, Calif.–based maker of storage solutions for Apple products. No financial terms were disclosed. Fabrik has raised around $50 million in VC funding from 3i Group, Velocity Interactive Gorup (fka ComVentures) and Intel Capital.

ImpactRx Inc., a Mr. Laurel, N.J.-based developer of a subscription database for pharmaceutical companies, has acquired Paragon Research & Consulting Inc., a West Chester, Pa.-based provider of pharmaceutical market research and consulting services. No financial terms were disclosed. ImpactRx has raised around $36 million in VC funding from Mediphase Venture Partners, 3i Group, Oxford Bioscience Partners and Merck Capital Ventures.

The Mayline Group, a Sheboygan, Wis.-based office furniture maker, has acquired the AVA Furniture Group, a San Jose, Calif.-based maker of transitional and contemporary office furniture. No financial terms were disclosed. Mayline was acquired last May by Baird Capital Partners, company management, BMO Mezzanine Fund and Hexagon Investment LLC.

Firms & Funds

Arsenal Capital Partners has opened an office in Shanghai, which is its first fulltime presence in mainland China. Its first staffer is Steve Li, who previously was a senior executive with Arch Chemicals Inc.

Challenger Equity Partners is raising its debut fund with a $200 million target, according to LBO Wire. The Dallas-based firm will focus on small buyouts, and is run by Douglas Wheat. www.challengercapitalgroup.com

Human Resources

Jiong Ma has joined Braemar Energy Ventures as a principal. She previously was with 3i Group, where she focused on cleantech deals like Carbonite from the firm’s Waltham, Mass. office.

Bill Van Sant has joined Stone Arch Capital, a Minneapolis-based private equity firm, as an operating partner. He previously served as chairman and CEO of Paladin, both before and after its sale to Dover Corporation. He also worked with Norwest Equity Partners.

ICV Capital Partners has promoted Cory Mims to managing director and Zeena Rao to vice president.

New Enterprise Associates has made the following promotions: China chief Xiaodong Jiang to partner, healthcare pros Justin Klein and Mohamad Makhzoumi to principal and tech-focused Tom Grossi to principal.

Summit Partners has made five promotions: Sotiris Lyritzis to general partner (London), Thomas Jennings to general partner (Boston), Christian Strain to principal (London), Peter Connolly to principal (Boston) and Greg Goldfarb to principal (Palo Alto). www.summitpartners.com

Waud Capital Partners has promoted David Neighbours to principal and Chuck Edwards to vice president. Neighbours joined in 2003, while Edwards joined in 2005.

Keith Anderson, co-founder of BlackRock, has joined Soros Fund Management as chief investment officer.

Edward Nelson has joined Gibson, Dunn & Crutcher LLP as a New York-based partner focused on private equity funds and transactions. He previously was a partner with Dewey & LeBoeuf.

Joe Kenny has joined Brookwood Associates, a middle-market I-bank, as a managing director in the firm’s Charlotte office. He previously was a managing director in the M&A group of Wachovia Securities.