PE Week Wire: Wed., May 9, 2007

I came very close to running a feedback column this morning, given the flood of emails that hit after yesterday’s discussion of possible tax treatment changes for private equity funds. But many of the good ones were simply too long for this format, so I posted some here.

In general, however, there was a common theme: You think this is all about my political biases.

In general, I have a common reply: You’re wrong.

I am not in the employ of Max Baucus, Chuck Grassley or any other elected official – of either party – who is contemplating ways to increase federal revenue. I also am not the one who decided that federal revenue needed to be increased. All I’m telling you is that the former is happening, and it’s happening because of the latter. Not really a novel argument, as NVCA president Mark Heesen has been making it for months (although he’s unconvinced that anything will actually come of it).

It’s this type of blame the messenger thinking that caused buyout firms to wait so too long to form their own trade association. “If only they’d just leave us alone and realize we know best, then everything will be OK.”

Sorry, needed to get that off my chest. As for the actual issue at hand, a few quick notes:

• In the current political/economic atmosphere, I continue to believe that a hybrid model is the most likely outcome, because it is the fairest compromise (i.e., neither side really gets what it wants). Would PE firms prefer to pay corporate capital gain tax rates?

• If you want to argue against capital gains taxes in general (regressive tax, etc.), feel free. But it’s a battle long lost.

• In the purest sense of the term, any profit from a private equity investment is a capital gain. But we’re essentially talking about individual taxes here, and the intent of “favorable” individual capital gains tax treatment is to reward the risk of personal investment. If general partners pass off most of that risk to limited partners, I’m still unclear as to why they deserve equal rewards (in terms of tax treatment, not dollars).

• Some have suggested that the capital gains treatment on carry is, in part, justified by the blood, sweat and tears that GPs put into managing a fund. I thought that’s what management fees were for.

• Please don’t let my opening rant stifle your opposition. Keep it coming, either via email or online…

*** Quiz Time: Last week, I asked the following question: Who did Venrock just quietly hire to help build out its digital media practice? Hint: His first name is David, but his last name is not Siminoff.

As a few of you correctly replied, the answer is David Beisel, who is best known to web denizens for his Genuine VC blog. He previously spent several years with Masthead Venture Partners, and also oversees a Boston-area networking confab called the Web Innovators Group.

His first day with Venrock was Monday, and is working out of the firm’s Cambridge, Mass. office (just off the Charles River near Kendall Square). Expect deals in both the consumer-facing and infrastructure sides of the digital media business, with most of his sourcing to be in the Boston-New York corridor. “Boston is a historic technology hub, but you need to inject media into it, whereas New York is almost the exact opposite,” Beisel says. “Both areas have some work to do, obviously, but I think there are great opportunities here – particularly in Cambridge.”

*** Not a single one of you got yesterday’s Quiz Question correct, which means it will remain outstanding for at least another day. To be clear, I’m talking about a firm that no one has reported is planning to sell a management co. stake, not Oaktree (which has been repeatedly reported). Moreover, would I really put “tree” in my hint if it was Oaktree? Gimme at least a little credit…

Top Three

Alltel Corp. (NYSE: AT) has received buyout interest from three different private equity consortia, according to The Wall Street Journal. The potential buyers include: Blackstone Group with Providence Equity Partners; TPG with GS Capital Partners; and Carlyle Group with KKR. Alltel’s current market capitalization is approximately $22.4 billion.

Shunda Holdings Co. Ltd., a China-based maker of mono-crystalline silicon ingots and wafers, has raised $82 million in private equity funding. Actis led the deal with a $40 million infusion, and was joined by Chinese institutions Jolmo and Waichun. Shunda is a supplier to solar cell manufacturer Suntech, an existing Actis portfolio company.

TomoTherapy Inc., a Madison, Wis.-based developer of cancer treatment systems that use on-board CT imaging and conformal radiation therapy, priced around 11.7 million common shares at $19 per share, for an IPO take of $222.3 million. It had originally planned to offer around 10.94 million shares at between $15 and $17 per share. TomoTherapy will trade on the Nasdaq under ticker symbol TTPY, while Merrill Lynch served as lead underwriter. The company has raised around $79 million in VC funding since 1999, from shareholders like Venture Investors (17.3% pre-IPO stake), Avalon Technology (12.9%), The Endeavors Group (12.6%), Open Prairie Ventures (6.1%), Ascension Health Ventures (5.5%) and the Wisconsin Alumni Research Foundation (5.3%).

VC Deals

CVRx Inc., a Maple Grove, Minn.-based developer of an implantable device designed to control hypertension, has raised $65 million in Series D funding. Johnson & Johnson Development Corp. led the deal, and was joined by BBT Fund and return backers New Enterprise Associates, Thomas Weisel Healthcare Venture Partners, InterWest Partners, ABS Ventures, Frazier Healthcare Ventures and SightLine Partners. CVRx has now raised just over $125 million in total VC funding since its 2000 inception.

KNEIP Communication SA, a Luxembourg-based business process outsourcing company for the investment fund industry, has raised €37 million in private equity funding from 3i Growth Capital. In return, 3i received a minority ownership position and seat on the company’s board of directors.

Avid Radiopharmaceuticals Inc., a Philadelphia-based molecular imaging company, has raised $26 million in Series C funding. Safeguard Scienfitics and AllianceBernstein co-led the deal, and were joined by BioAdvance, Lilly Ventures, Pfizer and RK Venture Group. The company previously had raised around $9.4 million in total VC funding.

NetEffect Inc., an Austin, Texas.-based provider of Ethernet silicon solutions, has secured $8.02 million of a $12.03 million Series C round, according to a regulatory filing. Return backers include Austin Ventures, Granite Ventures, Infinity Capital, JatoTech Management, TL Ventures, TI Ventures and Duchossois Technology Partners. NetEffect previously had raised nearly $90 million in total VC funding, including a 2004 recap.

Asmacure, a Quebec City-based pharma startup focused on asthma, has raised US$9 million in Series A funding. Participants included Domain Associates, Fonds Bio-Innovation and Québec Chaudière-Appalaches.

Avestha Gengraine Technologies Pvt. Ltd., an India-based preventative medicine company, has raised approximately $5.5 million in venture funding from New York Life Investment Management India Fund.

VideoNEXT Network Solutions Inc., a Chantilly, Va.-based provider of video security management solutions, has raised $5.4 million in Series B funding. Delta Private Equity Partners led the deal, and was joined by return backers Newlight Associates and Longstreet Partners.

dna13 Inc., a New York-based provider of stakeholder relationship and reputation management software, has raised Cdn$1.5 million in Series A funding from Celtic House Venture Partners and Propulsion Ventures.

Tungle Corp., a Montreal-based P2P meeting coordinator, has raised $1.5 million in first-round funding from JLA Ventures and Desjardins Venture Capital. Angel investor Alex Karakozoff also participated.

XBux Inc., a Redwood Shores, Calif.-based provider of ecommerce solutions to the extreme sports market, has secured around $1.13 million of a $2 million Series B round led by Artiman Ventures, according to a regulatory filing. It raised a $1.25 million Series A round in 2005 at a $3.5 million post-money valuation.

Kinaxo Biotechnologies, a German provider of selectivity profiles to drug and biotech companies, has raised an undisclosed amount of first-round venture funding. Mountain Partners AG and KfW co-led the deal, and were joined by seed backers High-Tech Gründerfonds, Max Planck Society and BioM AG.

Buyout Deals

Fortress Investment Group has agreed to acquire real estate developer and manager Florida East Coast Industries Inc. (NYSE: FLA). Under terms of the agreement, FECI will pay shareholders a special dividend of $21.50 per share in cash, while shareholders also will receive $62.50 per share via the Fortress acquisition. The total transaction is valued at approximately $3.5 billion, including the special dividend and assumed debt. FECI was advised on the deal by Morgan Stanley.

Oaktree Capital Management has offered to acquire listed Taiwanese golf club maker Fu Sheng Industrial Co. (TW: 1520) for approximately $852 million. The T$37.50 per share offer represents a 15.7% premium to Fu Sheng’s average closing price over the past 30 days.

BC Partners is in exclusive talks with senior management of UK real estate chain Foxtons, regarding a possible £400 million buyout bid. 3i Group had originally expressed interest in the deal, but pulled out due to pricing issues. Foxtons founder Jon Hunt is believed to own approximately 90% of the business.

Apax Partners and Bain Capital have pulled a joint bid for the generic drugs business of Merck KGaA, according to Reuters. The move leaves just a pair of strategics — Teva Pharmaceutical Industries Ltd. and Mylan Laboratories Inc. – as remaining bidders. The final pricetag could be upwards of €4.8 billion, which apparently is more than Apax and Bain were willing to pay.

Littlejohn & Co. has agreed to acquire the Switches business of ITT Corp. (NYSE: ITT), which manufactures switches, dome arrays, interface controls and keypads for industries like mobile communications, computer and automotive. No financial terms were disclosed for the deal, which is expected to close within the next few months.

Angelo Gordon & Co.’s dedicated net lease group has acquired the headquarters and manufacturing facilities of Coffman Stairs LLC, a wholly-owned subsidiary of Visador Holding Corp. The deal was structured as a sale-leaseback transaction, but no financial terms were disclosed. Visador is a portfolio company of Carousel Capital.

PE-Backed IPOs

Deltek Systems Inc., a Herndon, Va.–based provider of enterprise applications software for project-focused organizations, has filed for a $200 million IPO. It plans to trade on the Nasdaq under ticker symbol PROJ, with Credit Suisse serving as lead underwriter. New Mountain Capital is Deltek’s majority shareholder.

Stremel Manufacturing LLC, a Minneapolis–based provider of sheet metal and machined parts to manufacturers, has acquired Stewart Manufacturing Inc., a Phoenix–based precision machine supplier to the aerospace and defense markets. No financial terms were disclosed. Stremel is a portfolio company of Spell Capital Partners, while Stewart was advised on the sale by Citi Capital Strategies.

PE-Backed M&A

Stremel Manufacturing LLC, a Minneapolis–based provider of sheet metal and machined parts to manufacturers, has acquired Stewart Manufacturing Inc., a Phoenix–based precision machine supplier to the aerospace and defense markets. No financial terms were disclosed. Stremel is a portfolio company of Spell Capital Partners, while Stewart was advised on the sale by Citi Capital Strategies.

CSA Group, an engineering services firm backed by Hispania Capital Partners, has acquired MDM Consulting Engineers of New York. No financial terms were disclosed.

LumaSense Technologies Inc., a Santa Clara, Calif.–based sensor maker controlled by Oak Investment Partners, has completed its acquisition of Mikron Infrared (Nasdaq: MIKR) for $11.50 per share. The entire transaction was valued at approximately $65 million.

Endurance International, a portfolio company of Audax Partners, has acquired IPower Inc., in order to form a single provider of web hosting services to the SME market. LBOWire reports that the deal is valued at more than $100 million, and is structured as a recap that includes new equity and debt commitments from Cerberus Capital and LLM Capital Partners. Auduax sold some of its shares to the new sponsors, but retained its control position.

PE Exits

SAP AG (NYSE: SAP) has agreed to acquire OutlookSoft Corp., a Stamford, Conn.–based provider of planning, budgeting, forecasting and consolidation software. No financial terms were disclosed for the deal, which is expected to close next month. OutlookSoft has raised around $59 million in total VC funding since 1999, from firms like Pequot Capital, Greylock, GE Equity, Battery Ventures and Merrill Lynch.

Summit Business Media LLC, a B2B media company backed by Wind Point Partners, has sold four magazines to Milo Trade Media. No financial terms were disclosed. The magazines are: Contractor Tools and Supplies, Construction Purchasing, MRO Today and Progressive Distributor.

Curtiss-Wright Corp. (NYSE: CW) has acquired the assets of Scientech LLC, an Idaho Falls, Idaho-based provider of commercial nuclear power instrumentation, electrical components, specialty hardware, process control systems and database solutions. The deal was valued at approximately $57.8 million, with sellers including Caltius Mezzanine.

Mobistar SA of Belgium reportedly is in talks to acquire Luxembourg-based mobile phone operator VoxMobile, which is backed by Audiolux and BGL Investment Partners. No financial terms were reported.

Firms & Funds

Odewald & Compagnie of Germany is raising up to €1.5 billion for its third private equity fund, according to a regulatory fund. Lazard Freres is serving as placement agent.

Orlando Italy, a Milan-based private equity firm focused on special situations opportunities, has closed its inaugural fund with €180 million in capital commitments. MVision Private Equity Advisers served as fund placement agent.

PTV Sciences has closed its second venture capital fund with around $175 million in capital commitments, according to a regulatory filing. The Houston, Texas-based firm focuses on seed and early-stage opportunities in life and materials science sectors. Limited partners include The University of Texas Investment Management Company.

Summer Street Capital Partners has closed its second fund with $197 million in capital commitments. The Buffalo, N.Y.-based firm focuses on small-market buyout and growth equity opportunities. Champlain Advisors served as fund placement agent.

Morgan Stanley is considering a sale of its South Korean asset management unit, according to Reuters. The deal could be worth up to $220 million, with possible bidders including ING Group.

Human Resources

Bill Ringo has joined Sofinnova Ventures as an executive-in-residence, focused on the life sciences market. He is the former president and CEO of Abgenix Inc., which was sold to Amgen last year for $2.7 billion.

Akin Gump Strauss Hauer & Feld has hired two private equity/investment fund attorneys in its Dubai office. They are: Chris Sioufi, partner, who previously was general counsel and chief compliance officer of Bahrain-based Unicorn Investment Bank; and Samer Amro, senior associate, who previously worked at a different Dubai-based law firm.