PE Week Wire: Wed., March 7, 2007

*** During a 2005 speech in San Francisco, David Rubenstein of The Carlyle Group got asked if there was a difference between mega-LBO firms and corporate conglomerates. He acknowledged some similarities, but added one big difference: LBO firms don’t acquire to indefinitely consolidate – they acquire to ultimately sell.

Here’s another difference: Corporate conglomerates traditionally do a better job thinking of their assets as a collective. In other words, they are more likely to centralizing shared services, and to generate cost savings by obtaining bulk discounts on everything from shipping to office equipment to healthcare.

As Rubenstein suggested, one reason for this dichotomy is that LBO firms plan to sell portfolio companies, and there can be two problems with portfolio-wide bulk discounts: (A) Are the discounts portable, and (B) If not, will it be difficult for potential acquirers or the public markets to factor non-discounted fixed costs into their valuation assumptions?

But certain firms are beginning to answer those questions, and therefore increase operating margins throughout their entire portfolios (or at least most of it). One notable example is The Riverside Company, which probably has done more acquisitions than any other PE firm so far in 2007. It actually began the process around three years ago, and today its participating portfolio companies receive a 30% discount of FedEx shipping and a 10% discount on healthcare (it originally used Blue Cross for healthcare, but now uses what I think is the first-ever dedicated private equity product from UnitedHealth).

Riverside COO Pamela Hendrickson says that the portability problem is solved in different ways for different programs, but that they generally allow Riverside portfolio companies to maintain the discount post-exit, so long as they continue to use the same vendor. Patrick O’Keefe of UnitedHealth adds that, in general, his group’s program allows companies to maintain their discounts for 12-24 months post-exit. He adds that if the buyer is a large strategic, it probably would have it’s own negotiated bulk rate (i.e. portability would be irrelevant).

What is strange, however, is that relatively few private equity firms are exploring bulk discount options. Hendrickson says that during a recent private equity CFO/COO conference, the audience was asked to raise their hand if they were considering such a move in the next year. She reports that just around 15% of attendees raised their hands. It obviously doesn’t work for a small firm – too much in-house administrative overhead – but should be a no-brainer for firms with around $300 million or more per fund.

*** How many of you spent some time yesterday lamenting the baseball cards callously pinned to your bicycle spokes, in light of the news that Topps has agreed to be acquired by Madison Dearborn and Michael Eisner? Ok, I’m a bit young for that (sports cards were already a commodity in my youth), so I can sympathize with the hundreds of Garbage Pail Kids I threw in the… (wait for it) garbage. But my family has some history with Topps, and it makes your hole-ridden Mickey Mantle pale by comparison.

My late grandfather used to own a printing company in New York City, where he handled such pop products as Archie comic books and Peter Max posters. For a short time in the early-to-mid 1950s, his clientele also included Topps, which at the time was using baseball cards to help sell gum (rather than the other way around). He spent several years literally surrounded by penny cardboard sheets that today would be worth hundreds of thousands of dollars. Each. Never kept a single one – which is odd, given that he did hold on to some of the old Archies, posters, etc. One of the smartest businessmen I ever knew – but not even he could predict that today’s junk would become tomorrow’s treasure.

*** Charles River Ventures is not buying BigBand Networks. Apologies for the self-obvious news flash, but two separate people have now inquired about the matter. At issue seems to be a the Federal trade Commission’s mid-February ruling that CRV would not be in violation of Hart-Scott-Rodino regs as related to BigBand. Such rulings do often portend an acquisition, but not in this case. First, CRV wouldn’t be able to buy BigBand, even if it wanted to. The firm is nearing a final close on just over $275 million for its new fund, but BigBand would cost in excess of half a billion dollars.

So why the filing? Because BigBand shareholder ADC Telecom decided late last year to sell its 11% position back to the company. In actuality, it sold the stake to BigBand’s venture capital backers: CRV (5%), Redpoint Ventures (5%) and Meritech Capital Partners (approx. 1%). No idea why only CRV was listed on the FTC report, but no matter… BigBand is on its IPO road-show, and is expected to price next week.

Top Three

TransOral Pharmaceuticals Inc., a Point Richmond, Calif.-based CNS drug company, has raised $40 million in Series D funding. New Enterprise Associates led the deal, and was joined by return backers New Leaf Venture Partners, Montreux Equity Partners, InterWest Partners, Hamilton BioVentures, Vivo Ventures and Peninsula Equity Partners. TransOral’s first product is designed to help treat insomnia in patients who awaken in the middle of the night and have difficulty returning to sleep.

Colony Capital and French billionaire Bernard Arnault have invested around Euro 4 billion to acquire a 9.8% stake in European retailer Carrefour SA, which has intensified talk that the company could get bought out. Further intensifying speculation was yesterday’s resignation of chairman Luc Vandevelde.

Movie Gallery Inc. (Nasdaq: MOVI) has agreed to acquire MovieBeam Inc., a Burbank, Calif.-based provider of on-demand movie services. No financial terms were disclosed. MovieBeam raised $52.5 million in Series A funding in 2005, from firms like Mayfield, Norwest Venture Partners, Intel Capital, Cisco and ABC.

VC Deals

VentiRx Pharmaceuticals Inc., a San Diego-based drug company initially focused on small molecule Toll-like receptor (TLR)-based therapeutics, has raised $26.6 million in Series A funding from Frazier Healthcare Ventures, ARCH Venture Partners and Domain Associates. It previously had raised a $2.3 million seed round.

UUSee, a Chinese operating of a video distribution website, has raised $23.5 million in VC funding. Draper Fisher Jurvetson and Highland Capital Partners co-led the deal, and were joined by Steamboat Ventures and return backers Sequoia Capital and Susquehanna International Group.

PainCeptor Pharma Inc., a Montreal-based drug company focused on the treatment of chronic and acute pain, has raised Cdn$24.4 million in Series B funding. Participants included Desjardins Venture Capital, CDP Capital (managed by VantagePoint Venture Partners), T2C2/Bio 2000, Business Development Bank of Canada and Lothian Partners 27.

Cylex Inc., a Columbia, Md.-based provider of immune system testing solutions, has raised $20.5 million in third-round funding. Channel Medical Partners and Canaan Partners co-led the deal, and were joined by Siemens Venture Capital, First Analysis Corp., Calvert Funds, Chesapeake Ventures, NJTC Venture Fund and Roche Venture Fund. Asante Partners advised Cylex on the financing.

Impinj Inc., a Seattle–based provider of semiconductor and RFID technology, has raised $19 million in fifth-round question. AllianceBernstein led the deal, and was joined by return backers ARCH Venture Partners, GF Private Equity Group, Madrona Venture Group, Mobius Venture Capital, Polaris Venture Partners, Unilever Technology Ventures, UPS Strategic Enterprise Fund, VentureTech Alliance and the Viterbi Group.

Provigent, a Santa Clara, Calif.-based provider of system-on-a-chip solutions for the broadband wireless transmission market, has raised $16 million in fourth-round funding. Globespan Capital Partners was joined by return backers Sequoia Capital, Pitango Venture Capital, Magnum Communications Fund, Ascend Technology Ventures, Delta Ventures and Qualcomm co-founder Andrew Viterbi.

RockYou, a maker of photo/slideshow sharing widgets for blogs, has raised $11 million in second-round funding at a $50 million post-money valuation, according to TechCrunch. Partech International led the deal, and was joined by return backers Sequoia Capital and Lightspeed Venture Partners.

Geni (f.k.a. Wikigenia), a West Hollywood, Calif.-based developer of a global family tree, has raised $10 million in Series B funding. Charles River Ventures led the deal, and was joined by return backer The Founders Fund. TechCrunch reports that the deal comes with a $100 million post-money valuation, whereas the $1.5 million Series A round had a $10 million post-money valuation.

Casabi Inc., a Campbell, Calif.-based company that Web-enables home phones via broadband, has raised around $10 million in Series B funding, according to a regulatory filing. Canaan Partners was joined by return backers Mayfield Fund and Vanguard Ventures.

Capella Inc., an Auburndale, Mass.-based developer of bifurcated medical stents, has secured $7.9 million of a $23.1 million Series B round, according to a regulatory filing. Backers include PolyTechnos Ventures.

QD Vision Inc., a Watertown, Mass.-based developer of flat panel displays, has raised $5 million in Series B funding. Highland Capital Partners led the deal, and was joined by return backer North Bridge Venture Partners. VentureWire reports that the deal is being kept open for an additional $2 million in strategic commitments.

Synfora Inc., a Mountain View, Calif.-based provider of application engine synthesis software used to design systems-on-chips, has secured around $3.5 million of a $9 million Series C round, according to a regulatory filing. Wafra Partners and Xilinx were joined by return backers ATA Ventures, Foundation Capital, and U.S. Venture Partners.

NewCross Technologies Inc., a San Mateo, Calif.-based provider of hosted VoIP for service providers, has raised $3.25 million in Series C funding, according to a regulatory filing. Participants included Columbia Ventures Corp. and Headway Ventures.

Platial Inc., a Portland, Ore.-based online aggregator of stories, reviews and multimedia for local geographies, has raised $2.4 million in Series A funding. KeyNote Ventures joined return backers Kleiner Perkins, Caufield & Byers, Omidyar Network, Ram Shriram and Ron Conway.

MicroAzure Corp., an Alamo, Calif.-based lithium-ion battery startup, has raised $2.25 million in Series A funding led by DCM-Doll Capital Management, according to a regulatory filing.

MedPage Today LLC, a Little Falls, N.J.-based provider of real-time medical news for healthcare professionals, has raised $2.1 million. Milestone Venture Partners led the deal, and was joined by SJF Ventures.

Rostima Ltd., a UK-based provider of workforce management solutions, has raised £2.0 in second-round funding. Close Ventures led the deal, and was joined by Oxford Capital Partners and Rostima chairman Arthur Balland.

Tastemakers Inc., a Seattle-based online software startup, has raised nearly $1 million in Series A funding led by

Peer39, a New York-based online ad marketplace operator, has raised $3 million in first-round funding from Dawntreader Ventures. The news was first reported by VentureBeat.

Buyout Deals

British regulators have imposed a six-week deadline for a buyout consortium to make a bid for UK supermarket chain J Sainsbury. Blackstone Group is leading the consortium, which also includes CVC Capital, KKR and TPG. The bid would be worth a minimum of Gbp9.5 billion.

TPG and Cerberus Capital have been short-listed in the auction for Japanese consumer electronics company Victor Co. of Japan (JVC), according to The Deal. Second-round bids are due this week.

TorQuest Partners is in talks to acquire Associated Brands Income Fund (TSX: ABF.UN), a Toronto-based manufacturer and supplier of private-label dry-blend food products and household products.

KKR and Permira have acquired a majority stake in German television broadcaster ProSiebenSat.1 Media AG for an undisclosed amount.

American Capital Strategies has invested $165 million in private equity and debt to acquire a minority stake in Geosign Group Holdings Inc., a Canadian search company and publisher of online B2C content.

Tenaska Power Fund and Warburg Pincus have completed their acquisition of three electric generation stations from Dominion Resources Inc. (NYSE: D). No financial terms were disclosed. The three plants include the: 625-megawatt (MW) Armstrong plant in Armstrong County, Pa.; 313-MW Pleasants plant in Pleasants County, W.Va.; and the 600-MW Troy plant in Wood County, Ohio.

Todobebe Inc., a Miami, Fla.-based multimedia company focused on Hispanic parenting, has received an undisclosed amount of private equity funding from Palladium Equity Partners.

W.P. Carey & Co. has acquired three cold storage facilities in the Atlanta market, which it will lease back to Nordic Cold Storage LLC on a triple net basis.

Allied Capital has acquired a majority interest in Direct Capital Corp., a Portsmouth, N.H.–based small-ticket leasing company that provides financing for business-essential equipment. Allied’s $75 million investment took the form of senior subordinated notes, junior subordinated notes and a majority of the common equity.

PE-Backed IPOs

Starent Networks Corp., a Tewksbury, Mass.–based provider of mobile multimedia infrastructure solutions, has filed for a $115 million IPO. It plans to trade on the Nasdaq under ticker symbol STAR, with Goldman Sachs and Lehman Brothers serving as co-lead underwriters. It has raised around $95 million in total VC funding since its 2000 inception, from firms like Matrix Partners (20.1% pre-IPO stake), North Bridge Venture Partners (20.1%), Highland Capital Partners (18.4%), Focus Ventures (6%) and the T-Mobile Venture Fund.

Glu Mobile Inc., a San Mateo, Calif.-based mobile game publisher, has set its proposed IPO terms to 7.3 million common shares being offered at between $10 and $12 per share. It plans to trade on the Nasdaq under ticker symbol GLUU, with Goldman Sachs and Lehman Brothers serving as co-lead underwriters. The company has raised around $57 million in VC funding since its 2001 inception as Sorrent, from firms like New Enterprise Associates, BA Venture Partners, Globespan Capital Partners, Granite Global Ventures and Sienna Ventures.

Aruba Networks Inc., a Sunnyvale, Calif.-based provider of wireless LAN technology, has set its proposed IPO terms to 8 million common shares being offered at between $8 and $10 per share. It plans to trade on the Nasdaq under ticker symbol ARUN, with Goldman Sachs and Lehman Brothers serving as co-lead underwriters. It has raised around $86 million in total VC funding from firms like Artis Capital Management, Matrix Partners, Sequoia Capital, Trinity Ventures and WK Technology Funds.

PE Exits

Opsware Inc. (Nasdaq: OPSW) has agreed to acquire iConclude Co., a Bellevue, Wash.-based provider of IT process automation software. The deal is valued at around $53 million, including $30 million in cash and 3.39 million shares of Opsware common stock. In addition, iConclude’s $7 million worth of existing cash will be distributed to stockholders at closing in the form of a dividend. iConclude had raised $12 million in VC funding since its 2005 inception, from firms like Cronus Ventures, Greylock Partners, Madrona Venture Group and Shasta Ventures.

Meggitt PLC (LSE: MGGT.L) has agreed to acquire aerospace partners maker K&F Industries Holdings Inc. (NYSE: KFI) for $27 per share. The deal represents and exit for Aurora Capital Group, which acquired K&F in 2004 and which still holds a 36% of K&F’s outstanding shares (along with certain of its cosponsors).

PE-Backed M&A

PlantCML, a Temecula, Calif.–based provider of mission-critical communications systems for emergency contact centers, has acquired Tel Control Inc., a Huntsville, Ala.-based provider of networked and hosted E911 solutions. No financial terms were disclosed, except that the transaction was funded by PlantCML owner Golden Gate Capital.

The Riverside Company has acquired Salamander, the UK’s third-largest producer of specialty chemicals used to clean and protect boiler-based residential heating systems. No financial terms were disclosed. Riverside will add Salamander onto Sentinel, a platform Riverside acquired in August 2005 as a carve-out from GE.

Tornier SAS, an France-based maker of orthopedic reconstructive products, has agreed to acquire DVO Extremity Solutions, a Warsaw, Ind.-based provider of shoulder joint replacement and extremity surgical products. No financial terms were disclosed. Tornier also confirmed the closing of its previously-announced acquisition of Nexa Orthopedics. Tornier is a portfolio company of Warburg Pincus, The Vertical Group and Split Rock Partners.

Firms & Funds

Thompson Street Capital Partners of St. Louis has closed its second mid-market buyout fund with $300 million in capital commitments. Monument Group served as placement agent.

WI Harper, an early-stage VC funding focused on the U.S. and China, has closed its sixth fund with $133 million in capital commitments. The fund already has thirteen portfolio companies, including Maxthon (web browser in China), Panorama Stock (professional photo image company in China), iKang (healthcare services provider in China), HomeE (home decoration and construction e-commerce sites), (mobile internet and WAP solution provider), Troodon (MMORPG mobile gaming), Mapbar (LBS media and technology), LSMC (semiconductor foundry), Tenor (fabless chips), MJ Group (medical healthcare clinics across Asia), NeoPac (LED lighting solution), Laszlo Systems (open source rich internet application software) and Ultriva (lean manufacturing software solutions). www.wiharper! .com

The Blackstone Group is raising up to $10 billion for its sixth real estate fund, according to a regulatory filing. It already has secured around $1.2 billion in commitments.

Adams Capital Management of Pittsburgh is raising up to $350 million for its fourth venture capital fund, according to a regulatory filing.

Paul Capital Partners of San Francisco is raising up to $200 million for its ninthsecondaries fund,according to a regulatory filing.

Human Resources

Richard Hepper has joined UK-based venture firm Oxford Capital Partners as finance director. He previously held a similar position with Enterprise Ventures.

Townes Pressler has joined Lime Rock Partners as a Houston-based managing director. He previously was co-founder of Peregrine Oil & Gas.

Jay Horgen has joined asset management company Affiliated Managers Group Inc. (NYSE: AMG) as executive vice president. He previously served as founder and managing director of private equity firm Eastside Partners.

Timothy Pfister has joined the New York office of Patton Boggs LLP as a partner, where he will focus on international corporate finance and capital markets transactions, including M&A and private equity. He previously was a corporate partner with Sonnenschein Nath & Rosenthal LLP.

Terrance Gregg, a special venture partner with Galen Associates, has been named president and CEO of Vasogen Inc. (Nasdaq: VSGN), an Ontario-based biotech company focused on the research and commercial development of technologies targeting the chronic inflammation underlying cardiovascular and neurological disease.