PE Week Wire: Wed., March 14, 2007

The strange case of AA Capital Partners has gotten stranger – and this time it’s a limited partner that appears to be acting badly.

For those who don’t remember, AA is the Chicago-based private equity firm that last September was accused of misappropriating at least $10.7 million from its six union pension fund investors. Specifically, the SEC charged that AA managing partner John Orecchio withdrew client funds to invest in such personal endeavors as horse farms and strip clubs, while also dropping thousands of client dollars on nights out in Las Vegas. Many of these expenses got passed on to LPs as “capital calls” – and at least some other AA Capital staffers allegedly looked the other way. Its so-called controller didn’t seem to be looking at all (maybe she borrowed some blinders from the horse farm).

Anyway, AA Capital has spent the past several months in receivership – as the legal proceedings lumber along. But then a funny thing happened: One of AA Capital’s limited partners sent out an RFP to replace the AA Capital general partner. Specifically, it says: “The Michigan Regional Council of Carpenters Pension Fund-Detroit and Vicinity (Pension Fund) is in the process of selecting a replacement manager for Private Equity Fund of Funds managed by AA Capital Partners, who is currently in receivership.”

All well and good, except for one not-so-tiny problem: The Detroit Carpenters Pension Fund has no legitimate authority to select a replacement manager for AA Capital. Oops.

The union could obviously seek to sell its own limited partnership interests on the secondary market, but that’s not what it’s doing. Instead, it is purporting to speak for all – or at least a majority – of AA Capital’s limited partners. After all, one minority LP cannot unilaterally replace a general partner.

I spoke briefly yesterday with Scott Porterfield, an attorney who is serving as AA Capital’s receiver. He said that he is aware of the RFP, but that neither he nor the other LPs are part of the process. Moreover, he said that Detroit Carpenters Pension is – or should be – aware that any “selection” would have to be reviewed and ratified by the other LPs. “There is no formal agreement that we would be required accept [any selection related to the RFP],” he explained.

But the tenuous nature of this manager “selection” is completely absent from the RFP. As such, it makes the document misleading at best, and outright fraudulent at worst. Imagine responding to such an RFP, only to find out later that the issuer didn’t even have authority to make a final determination. Moreover, the document for some reason only covers AA Capital’s fund-of-fund commitments, without noting that there also is a portfolio of direct investments.

I have left multiple messages for the Smith Barney brokers who are listed as contacts on the RFP, but no word back as of yet. You can find the entire document here.

*** Gametime Reminder: You have just about 49 hours left to participate in our annual March Madness contest. We’ve got about 150 players so far – but have room for many more. Go here for all the signup details.

*** I don’t usually promote online auction items, but this one meets my two criteria of being both a very cool item and a very worthy cause.

Larry Ellison has offered up the 18th man position aboard his Oracle BMW racing yacht during a leg of the upcoming America’s Cup regatta in Valencia, Span. The beneficiary will be the Okizu Foundation, which operates Northern California’s only summer camp for kids with cancer. You can learn more about the auction here, or more about Okizu here.

New at

• Alex on why Apple doesn’t need to launch an in-house VC arm

• Me on the uncharitable Rudy Giuliani

• Amanda on what the European PE industry must do to silence its critics

• Arthur Klausner of Pappas Ventures on the similarities between venture capital and the March Madness tournament.

And, as always, news and analysis updated throughout the day…

Top Three

Clear Channel Communications has postponed its shareholder vote on the proposed $19 billion buyout by Bain Capital and Thomas H. Lee Partners, from March 21 to April 19. The move comes after proxy advisory firm Glass Lewis became the latest organization to publicly oppose the deal, saying that it undervalues Clear Channel. Other critics have included large Clear channel shareholders like Fidelity Investments and T. Rowe Price.

Travelport Ltd. said today that it plans to sell part of its online travel-booking subsidiary Orbitz via an initial public offering. No specific size or price details have yet been determined. Blackstone Group and Technology Crossover Ventures bought Travelport from Cendant earlier last year for $4.3 billion, and later agreed to added on PE-backed Worldspan for $1.4 billion.

Oorja Protonics Inc., a Fremont, Calif.-based developer of alcohol-based fuel cell systems, has raised $15 million in Series B funding, according to a regulatory filing. DAG Ventures and Artis Capital joined by return backers Sequoia Capital and McKenna Capital.

VC Deals

SmoothShapes Inc., a Merrimack, N.H.-based aesthetics company, has raised $15 million in Series B funding led by Three Arch Partners. SmoothShapes’ initial product is an FDA-cleared combination therapy that uses lasers at predetermined wavelengths in the visible and infrared spectrums with vacuum massage to effect the treatment of cellulite.

Aicent Inc., a San Jose, Calif.-based provider of mobile data network services, has raised $14.3 million in Series C funding led by Warburg Pincus, according to a regulatory filing.

Advasense Inc., an Israel-based developer of mobile phone image sensors, has raised $14 million in Series B funding. Genesis Partners led the deal, and was joined by VentureTech Alliance, Giza Venture Capital and BlueRun Ventures.

Slacker Inc., a San Diego-based provider of a personalized online music service, has raised $13.5 million in startup funding from Austin Ventures, Mission Ventures and Sevin Rosen Funds.

QuickCycle Inc. (f.k.a. Lumenare Networks), a Santa Clara, Calif.–based provider of lab automation and test management software, has raised $8.9 million in new VC funding from Crescendo Ventures. It now has raised around $40 million in total VC funding since its 1998 inception.

FreedomPay Inc., a Wayne, Pa.-based provider cashless payment and loyalty solutions, has raised $6 million in Series D funding. Core Capital Partners led the deal, and was joined by return backers like BlueRun Ventures.

Progress Financial Corp. has secured $4.4 million of a $5 million Series B round led by Greylock Partners, according to a regulatory filing. The San Jose, Calif.-based financial services company focuses on providing unsecured consumer loans to the unbanked and underbanked Hispanic community.

Amimon Inc., a Santa Clara, Calif.-based fabless semiconductor company focused on wireless uncompressed high-def video, has raised an undisclosed amount of strategic funding from Motorola Ventures. Last August, it had raised $14 million in second-round funding from Stata Venture Partners, Argonaut Private Equity and return backers Cedar Fund, Walden Israel and Evergreen Partners.

Coupa Software, a Foster City, Calif.-based provider of e-procurement solutions, has raised an undisclosed amount of Series A funding led by BlueRun Ventures.

AVEO Pharmaceuticals Inc., a Cambridge, Mass.-based, has secured $50 million in fourth-round commitments, according to a speech given yesterday by company CEO Tuan Ha-Ngoc at the Cowen & Co. Healthcare Conference. The news was first reported by VentureWire. The company previously raised over $58 million from firms like Highland Capital Partners, Flagship Ventures, MPM Capital, Oxford Bioscience Partners, Clearview Capital, Prospect Venture Partners, Greylock Partners, Merck and Venrock Associates. It also secured around $15 million in venture debt funding last year from Hercules Technology Growth Capital.

Buyout Deals

TA Associates reportedly has emerged as the frontrunner for Jupiter Asset Management, a UK fund manager currently owned by Commerzbank. The deal is expected to be worth between Gbp800 million and Gbp1 billion.

Inflexion Private Equity has acquired a majority stake in Aspen Pumps Ltd. & BBJ Engineering Ltd., a UK-based supplier of condensate pumps and air conditioning accessories. No financial terms were disclosed. Leverage facilities were provided by Acquisition Finance and Lloyds TSB Corporate Markets.

Avantce Software, a private equity firm focused on the IT market, has acquired Radcliffe Inc., a provider of warehouse management solutions. No financial terms were disclosed for the deal, which results in Radcliffe being combined with existing Avantec portfolio company Robocom Systems International.

Hammond Kennedy Whitney & Co. has acquired Aero-Metric Inc., a Sheboygan, Wis.-based provider of professional geospatial photography services. No financial terms were disclosed for the deal, which was first reported by LBO Wire.

PE-Backed IPOs

eTelecare Global Solutions Inc., a Philippines-based business process outsourcing company, has filed for an IPO of 5.5 million American depository shares at between $12.50 and $14.50 per share. It plans to trade on the Nasdaq under ticker symbol ETL, with Morgan Stanley serving as lead underwriter. Shareholders include Electra Partners Mauritius, AIG Asian Opportunity Fund and Crimson Velocity Fund.

Flagstone Reinsurance Holdings Ltd., a Bermuda-based reinsurer, has set its proposed IPO terms to 13 million common shares being offered at between $12.50 and $14.50 per share. It plans to trade on the NYSE under ticker symbol FSR, with Lehman Brothers and Citigroup serving as co-lead underwriters. The company completed a $715 million initial capitalization earlier this year co-led by Lehman Brothers Merchant Banking and Lightyear Capital.

PE-Backed M&A

SS&C Technologies Inc., a Windsor, Conn.-based financial management software provider owned by The Carlyle Group, has acquired the assets of Northpoint LLC, a Clark, N.J.-based provider of accounting and administrative solutions for the private equity industry.

Apollo Management is combining portfolio companies Berry Plastics Group Inc. and Covalence Specialty Materials Holding Corp. The stock-for-stock merger results in a single plastic packaging company operating under the Berry name, with Berry chairman and CEO Ira Boots and Berry COO Brent Beeler remaining in place. It will close in April. Apollo acquired both companies last year: Berry for $2.4 billion from GS Capital Partners and JPMorgan Partners, and Covalence from Tyco International for $916 million. Graham Partners also was a minority investor on the Berry deal.

Penhall International Corp., an Anaheim, Calif.-based provider of concrete grinding services and equipment rentals, has acquired The Graff Co., a provider of concrete cutting, scanning and demolition services in Ontario, Canada. No financial terms were disclosed. Penhall is a portfolio company of Code Hennessy & Simmons.

Ecopia BioSciences Inc. (TSX: EIA) and Caprion Pharmaceuticals Inc. have completed their merger into a new listed drug company called Thallion Pharmaceuticals Inc. The combined company also closed a $45 million private placement. Caprion shareholders include Ventures West and Fidelity Management & Research.

PE Exits

Cisco Systems has agreed to acquire NeoPath Networks Inc., a Santa Clara, Calif.-based provider of network file management solutions. No financial terms were disclosed. NeoPath has raised has raised $29 million in VC funding since 2004, from firms like Cisco, August Capital, DCM-Doll Capital Management, Gabriel Venture Partners, HighBar Ventures and Dot Edu Ventures.

EDS has agreed to acquire RelQ Software Private Ltd., Bangalore, India-based software testing company. No financial terms were disclosed. RelQ has raised VC funding from firms like ICICI Venture and Karnataka Asset Management.

Montagu Private Equity has sold UK waste management company Cory Environmental Holdings Ltd. to a consortium made up of ABN Amro Infrastructure Capital Management, Finpro and Santander Private Equity. No financial terms were disclosed.

NTelos Holding Corp. (Nasdaq: NTLS), a Waynesboro, Va.-based provider of wireless and wireline communication services in Virginia and West Virginia, has registered for a $230 million secondary offering of common stock. All of the shares are being offered by Citigroup Venture Capital Equity Partners and Quadrangle Capital Partners. Bear Stearns and Lehman Brothers are serving as co-lead underwriters.

VWR International, a West Chester, Pa.-based provider of scientific supplies to the research lab market, said that it has retained Goldman Sachs and Banc of America Securities to explore strategic options. The company was acquired by Clayton, Dubilier & Rice in 2004.

Clayton Dubilier & Rice has put UK food distributor Brakes PLC on the block for around $1.2 billion, according to Dow Jones. The auction will be run by JPMorgan and Deutsche Bank.

Firms & Funds

Amadeus Capital Partners, a UK-based venture firm focused on European technology companies, has closed its third fund with over $310 million in capital commitments. Limited partners include Access Capital Partners, Adams Street Partners, Alpinvest Partners NV, Bank of Scotland, Capital Dynamics, European Investment Fund, Parish Capital Advisors Europe, Pantheon Ventures and Partners Group.

The Pennsylvania State Employees’ Retirement System today will vote on commitments recommendations for the following funds: Insight Ventures VI, Avenue Special Situations Fund V and OCM Opportunities Fund VII. It also will vote on interview recommendations for Asia Alternatives Capital Partners, Highland Consumer Fund I and SB Energy Partners.

Human Resources

Christopher Pasko has agreed to join The Blackstone Group’s corporate advisory group as a senior managing director, effective this June. He has spent the past 18 years with Morgan Stanley, including as head of its East Coast Tech Group since 1998. Last year, he helped form the Morgan Stanley’s Boston financial sponsors group.

Cerberus Capital Management has hired former Chrysler COO Wolfgang Bernhard as a fulltime advisor, according to The Financial Times. Cerberus is among those interested in acquiring Chrysler.

Tom Huseby and Keith Krach have joined Voyager Capital as strategic partners. Huseby will focus on wireless opportunities, while maintaining his managing partner role with SeaPoint Ventures and existing relationships with Oak Investment Partners and Hunt Ventures. He co-founded Metawave Communications Corp. and was the first president and CEO of Innova Corp. Krach co-founded Ariba Inc. in 1996, and has been serving on the Voyager advisory council.

Vincent Miles has joined Abingworth Management as a Waltham, Mass.-based venture partner. He most recently served as senior vice president of business development with Abingworth portfolio company Alnylam Pharmaceuticals (Nasdaq: AMLN).

Cadwalader, Wickersham & Taft LLP has added four partners to its financial restructuring department in New York: Deryck Palmer, John Rapisardi, George Davis and Andrew Troop.

Union Capital Corp. has promoted of Jay Landauer to vice president and hired hiring of Reis Alfond as an analyst. Landauer joined the New York-based firm as an associate in 2004, and has focused on the marketing services, food product and consumer product markets. Alfond previously was with Strategic Decisions Group in Boston.