PE Week Wire: Wed., March 28, 2007

Private equity has been the hot business story on Q1, with everything from Forbes cover stories to Newsweek columns to an upcoming feature on female PE pros in the inaugural issue of Conde Nast Portfolio. I’ve even covered it from time to time (i.e., Mondays through Fridays). But here’s a dirty little secret: Private equity deals were down in Q1.

Final data won’t be available until the quarter formally ends on Friday, but preliminary numbers show that buyout firms invested fewer dollars in Q1 2007 than in Q4 2006. This decline holds true for disclosed values of both closed deals and combined closed/pending deal figures. Moreover, private equity has actually lost global M&A market share, as total M&A volume is expected to top $1 trillion for the second consecutive quarter (first time that’s happened since Q4 ’99 and Q1 ’00). There are some caveats to what I just reported – including an apparent increase of middle-market deals with undisclosed values – but the main data trend is nonetheless at odds with the consensus storyline.

*** Shareholder lawsuits are commonplace in public-to-private buyouts, as someone is always convinced that they’re getting short shrift. But I don’t believe I’ve ever seen a buyout firm sue its acquisition target for choosing the other guy.

But that’s what happened yesterday in Texas, when Apollo Management sued EGL Inc. (Nasdaq: EAGL) and its chairman Jim Crane to block a $38 per share buyout by Crane, Centerbridge Partners and The Woodbridge Company. As previously mentioned in this space, Apollo believes that it was improperly cut out of the auction process, even though it was willing to offer $40 per share (which the WSJ has now been raised to $41 per share). Crane responded in a statement by basically calling Apollo liars about being denied access to information. He also said that Apollo was unwilling to make a signed offer, although such a claim wouldn’t much matter if Apollo is correct in its contention that EGL accepted the Crane-led deal prior to when formal bids were due. One to watch – more background here.

*** OMB spokesman Sean Kevelighan got back to me late yesterday, regarding the seeming inconsistency of Red Planet Capital’s termination and the continued funding for In-Q-Tel (as we discussed, OnPoint has a different structure). He reiterated Portman’s central thesis, by saying: “These types of mechanisms can create conflicts of interest and market distortions.” He then added: “They should only be used in exceptional situations… In-Q-Tel met that criteria.”

In other words, the Administration will overlook “conflicts of interest and market distortions” if a program is working. And by working, it means that it’s been around long enough to work. Had In-Q-Tel been launched last year, it probably would have been chopped. Had Red Planet begun five years ago, it likely would be maintained. This had nothing to do with principle – just pragmatism. Too bad Portman couldn’t have just said as much in the first place.

As for OnPoint, none of this means much – as a new Administration will be in place by the time it requires another feeding at the federal trough.

*** Are you a life sciences startup in search of venture capital funding? Well today might be your lucky day…

The VCIC competition is seeking one additional life sciences company to present at the International Finals on April 12 in Chapel Hill, North Carolina. This means that you’ll get to give an elevator pitch to a roomful of MBA candidates and real-life VCs, plus get to hobnob with aforementioned VCs afterward (I’ll be there too). Consider it a chance to hone your presentation and to get feedback. If you are interested or want info, please drop me an email and I’ll forward it on to event organizers.

New at

• 5 Questions for Roger Kafker of TA Associates, on his firm’s decision to buy into hedge fund-of-funds manager K2 Advisors.

• Attorney John Montgomery on Early Adopters and the Icon Factor in the cleantech market.

• The Blackstone Group’s missed opportunity to get even with media critics.

• Israeli VCs pick up the pace.

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

Top Three

MAP Pharmaceuticals Inc., a Mountain View, Calif.-based developer of inhaled drug products for respiratory and CNS diseases, has raised has raised $50 million in Series D funding. D.E. Shaw Group was joined by return backers Perseus-Soros Biopharmaceutical Fund, Pequot Ventures, Brookside Capital and Skyline Ventures. MAP Pharma has raised around $107 million in total VC funding since its 2003 formation. It also recently completed Phase II clinical trials for its two lead programs for pediatric asthma and migraine.

TA Associates has acquired a minority interest in K2 Advisors, a $5.5 billion hedge fund-of-funds manager. No financial terms were disclosed. More info here.

Goldman Sachs is planning to raise between $19 billion and $20 billion for its next buyout fund, according to comments made yesterday by CEO Lloyd Blankfein during the company’s annual meeting in New York.

VC Deals

Brash Entertainment LLC, an Atlanta-based video game startup, said that it is nearing a final close on more than $150 million in private equity funding. It also announced that it already has secured $6 million in initial funding, with a regulatory filing indicating that the money came in the form of convertible notes. Brash is run by former Massive Inc. execs Mitch Davis and Nicholas Longano, while initial backers include film producer Thomas Tull and former iXL Enterprises CFO Bert Ellis.

Aerovance Inc., a Berkeley, Calif.-based drug company focused on respiratory and inflammatory diseases, has reached milestones that allow it to call down $28 million in Series C funding. The company announced last year that it had raised $60 million, with an initial $32 million call-down and the remainder based on Aerovance meeting certain clinical goals. Clarus Ventures led the overall round, and was joined by Alta Partners and return backers Apax Partners, Lehman Brothers, NGN Capital and Burrill & Co. Aerovance was spun out of Bayer in 2004.

Regado Biosciences Inc., a Durham, N.C.-based drug company focused on antidote-controlled antithrombotics, has raised $23 million in Series C funding. Caxton Advantage Life Sciences Fund was joined by return backers Domain Associates, Quaker BioVentures and the Aurora Funds. The company previously had raised around $21 million since its 2001 inception.

Ascend Health Corp., a New York-based operator of psychiatric hospitals, has raised $20.1 million in Series B funding. Polaris Venture Partners led the deal, and was joined by return backers CHL Medical Partners, Three Arch Partners and individual angels.

Axial Biotech, a Salt Lake City-based developer of DNA-based pre-symptomatic and prognostic tests for common spinal disorders, has raised $15.3 million in Series B funding. Johnson & Johnson Development Corp. led the deal, and was joined by return backers vSpring Capital and Ohio Biotech Group.

Coghead, a Mountain View, Calif.-based provider of a Web-based application creation and delivery platform, has raised $8 million in second-round funding. American Capital Strategies led the deal, and was joined by return backer El Dorado Ventures.

FastScale Technology Inc., a San Jose, Calif.-based provider of adaptive computing products, has raised $6.5 million in Series A funding. ATA Ventures led the deal, and was joined by Leapfrog Ventures and Hunt Ventures.

Thin Battery Technologies Inc., a Cleveland-based producer of thin, flexible, printed power source solutions, has raised $6.2 million in Series A funding. SunBridge Partners led the deal, and was joined by Key Capital Corp., Orix Capital and return backer Early Stage Partners.

Digital Fuel Technologies Inc., a San Mateo, Calif.-based provider of SLA and service-cost management solutions, has raised $5 million in Series CC funding, according to a regulatory filing. The company had previously raised $35 million since 2000, including a $20 million Series D round in early 2005. Listed shareholders include Apax Partners, Benchmark Capital, Israel Seed Partners and Sigma Partners.

Sanovia Corp., a Philadelphia-based provider of technology and services to assist managed care organizations in managing their pharma costs, has raised $3 million in Series B funding from return backers HLM Venture Partners and Claritas Capital. It raised a $5 million Series A round in 2005.

Fliptrack Inc., a Mountain View, Calif.-based online music video company, has raised around $1.53 million in Series A funding led by Mohr, Davidow Ventures.

Buyout Deals

Apollo Management reportedly has filed suit against EGL Inc. (NYSE: EAGL), in order to block a proposed $38 per share sale of the company to CEO Jim Crane, Centerbridge Partners and The Woodbridge Co. The move comes just one week after Apollo claimed to have offered $40 per share, and that it had been unable to obtain relevant financial information from EGL. In related news, The Wall Street Journal reports that Apollo has raised its bid to $41 per share.

Sun Capital Partners has acquired Restaurants Unlimited Inc., operator of 29 restaurants in 12 states including 14 Kincaid’s and nine Palomino’s. No financial terms were disclosed.

Excel-Tech Ltd. (TSX: NRV) said that it has received a preliminary expression of interest from a potential acquirer. No additional details were disclosed. The Canadian company makes medical devices used for monitoring and diagnoses of the central and peripheral nervous systems.

Broadcasting Media Partners has received FCC clearance for its proposed $12.3 billion acquisition of Spanish-language broadcaster Univison Communications Inc. (NYSE: UVN). BMP consists of Haim Saban, Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group and Thomas H. Lee Partners.The deal is expected to close later this week.

PE-Backed IPOs

eTelecare Global Solutions Inc., a Philippines-based business process outsourcing company, priced 5.5 million American depository shares at $13.50 per share ($12.50-$14.50 range), for an IPO take of approximately $74.3 million. It will trade on the Nasdaq under ticker symbol ETL, whileMorgan Stanley served as lead underwriter. Shareholders include Electra Partners Mauritius, AIG Asian Opportunity Fund and Crimson Velocity Fund.

PE-Backed M&A

Travelex, a UK-based currency exchange backed by Apax Partners, has acquired Washington, D.C.-based payment servicing company Ruesch International from Welsh Carson Anderson & Stowe. The deal was valued at $440 million.

Mobilelime Inc., a Watertown, Mass.-based provider of software that lets consumers to make purchases via mobile phones, has acquired Cuesol Inc., a Quincy, Mass.–based provider of interactive shopping, marketing and self-service solutions for grocers. No financial terms were disclosed. Mobilelime has raised around $15 million in VC funding from firms like Ignition Partners, Seapoint Ventures and Oak Investment Partners.

Chef Solutions Inc., a portfolio company of Questor Management Co., has sold wholly-owned subsidiary I&K Distributors Inc. to Countryside Foods LLC, an entity controlled by private equity sponsor Ramex Inc. I&K products include Yoders deli salads and side dishes and Michigan Brand cottage cheese. No financial terms were disclosed for the deal, on which Chef Solutions was represented by Goldsmith Agio Helms.

PE Exits

Best Buy Co. Inc. (NYSE: BBY) has agreed to acquire Speakeasy Inc., a Seattle-based provider of broadband voice, data and IT services. The deal is valued at approximately $97 million, which is around 1.2x Speakeasy’s 2006 revenue of $80 million. Speakeasy has raised around $55 million in VC funding since 2000, from firms like Granite Ventures, 3i Group, BV Capital, Intel Capital and TI Ventures.

Optium Corp. (Nasdaq: OPTM), a Chalfont, Pa.-based maker of optical subsystems for use in telecom network systems, has agreed to acquire Kailight Photonics Inc., an Israel-based provider of 40Gb/s optical transmission products. The deal includes a $35 million up-front cash payment, plus a stock earnout of up to $5 million. Kailight has raised around $12.1 million in VC funding since 2001, from firms like Lucent Venture Partners, Hyperion Venture Partners, Ofer Brothers High-Tech Group, Peregrine Ventures and Yozma Venture Capital.

Firms & Funds

Leonard Green & Partners of Los Angeles has closed its fifth buyout fund with $5.3 billion in capital commitments. Buyouts Magazine reported the fund close on its website earlier this week – adding that the PPM was printed last October with fundraising effectively finished by January. The final close was held off until March in order to complete paperwork. Leonard Green’s prior fund closed in 2003 with $1.85 billion.

NanoDimension, a Zurich-based VC firm focused on nanotech opportunities, has closed its inaugural fund with €45 million in capital commitments.

Ziegler Meditech Partners, a joint venture between Ziegler Cos. and Medtech Advisors LLC, has closed its inaugural venture fund with $52.7 million, according to VentureWire. The fund will focus on mid-to-late stage medical device companies in the U.S. and Israel.

Human Resources

Dr. Sanuj Ravindran has joined Radius Ventures as a principal. He previously was with Burrill & Co., where he worked on such deals as diaDexus, Proventys, Endocyte, Neosil, Cardiokine and Arete.

LGT Capital Partners, a Swiss alternative investment manager, has made the following hires: Andrew Kwee has joined the firm in New York to lead its U.S. private equity office. He previously spent ten years at GIC Special Investments, where he was responsible for establishing and managing its New York office; Doug Coulter has joined the firm in Hong Kong to lead its Asia-Pacific private equity investment activities. Doug previously worked for eight years at the International Finance Corp. in Hong Kong and Washington D.C., where he was responsible for making principal investments across the Asian region. Jürg Burkhard has joined the firm in Switzerland) to lead the firm’s private equity portfolio and risk management activities. He previously worked at private equity fund-of-funds manager Adveq; and Alexandre Delos) has joined the firm in Switzerland to focus on European private equity investments. Previously, Alexandre was an investment director with Paris-based funds-of fund-manager Access Capital Partners.

Dr. Laura Sullivan has joined the healthcare team of Paul Capital Partners as a New York-based principal, effective April 23. She previously was in the pharma and medical products practice of McKinsey & Company.

Joseph Pescatore has joined Jefferies Asset Management as director of marketing. He previously helped Energy Capital Partners raise fund capital.

Fort Washington Investment Advisors has promoted Christopher Baucom to managing director, where he will serve as co-manager of the firm’s private equity group. Prior to joining Fort Washington in 2001, he was co-founder and CFO of venture-backed software company Copernus Inc.

J. Michael O’Brien has joined Investcorp Real Estate Group as a principal and head of the firm’s East Coast real estate asset management activities. He previously was a director with ING Clarion.

Terry Tian has joined Chicago-based turnaround firm Lake Pointe Partners as an associate in the firm’s new Shanghai office.