PE Week Wire: Wed., Oct. 10, 2007

Standard Life seemed to be a corporation that did right by its in-house private equity group, Standard Life Investments. But it didn’t, and now is paying the price. So are its investors.

Multiple sources tell me that SLI’s entire Boston-based North American private equity team has quit, after a long-simmering dispute over economics. That includes team leader Dan Cahill, and leaves many open questions about the viability of a $300 million North American fund-of-funds raised just months ago.

SLI’s Boston office yesterday pretended like Cahill and company were still with the firm (“He’s out right now, why don’t you leave a message with me or send him an email…”), while the UK headquarters would only issue the following statement: “We can confirm that certain members of our private equity team in Boston are no longer with the company. We cannot comment further at this time.”

This is a bunker mentality, and it’s just as misguided as the decisions which apparently led to this mess in the first place.

The origins of the SLI debacle can be found late last year, when then-SLI chief Jonny Maxwell was negotiating to buy the group out from corporate parent Standard Life. This was hardly a revolutionary idea, as we’ve seen spinouts from such institutions as JPMorgan (CCMP Capital), Morgan Stanley (Metalmark Capital) and BCE (Summerhill Venture Partners). But Standard Life demured, leading to Maxwell’s surprise departure last December (he’s since resurfaced with Allianz).

By this past June, however, Standard Life had partially reversed course. It agreed to sell a 40% SLI ownership stake to nine managers, with the resulting LLP to be called SL Capital Partners. The semi-spinout also would invest out of two new funds: A €900 million European private equity fund-of-funds to be managed by the UK team, and a $300 million dedicated North American fund-of-funds to be managed by the Boston team. SLI’s Boston team previously had made plenty of fund commitments in North America, but this would be the team’s first dedicated vehicle. Its existing North American fund commitment portfolio – and, in some cases, co-investment partners – included Sun Capital Partners, New Mountain Capital, Avista Capital Partners, Eos Partners, The Sterling Grou! p, Sterling Investments Partners, Sterling Partners and Towerbrook Capital Partners.

From the outside, it looked like the Boston-based team had what it wanted. On the inside, however, it was missing something very important: Partnership economics. None of the Boston team members were among the nine who received access to the 40% ownership position. They were just employees, and the difference between them and their “executive director” colleagues was stark. Not only did they work without similar financial incentives, but they also were asked to sign certain employment agreements that they found objectionable. This culminated in the mass exodus, which has left SLI with a North American fund-of-funds, but no one in North America to invest it.

I have been unable to reach Dan Cahill, although I dutifully sent an email to his SLI address. It is unclear what he and his team will do next, or if that move has even been determined. What we do know, however, is what we already knew: Unequal partnerships will lead to dissention and, ultimately, destruction. No idea how Standard Life didn’t see this coming…


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Top Three

The Carlyle Group has acquired Arabela, a door-to-door retailer of beauty and personal-care products in Mexico, from Advent International and Procorp. No financial terms were disclosed for the deal, which will keep Arabela’s existing senior management team in place. Scotia Capital provided acquisition financing.

NBC Universal has agreed to buy Oxygen Media, a cable television networkaimed at women, for approximately $925 million. The deal is expected to close next month Oxygen was founded in 2000 by such people as Oprah Winfrey, andraised over $320 million from AOL/Time Warner, L Capital Management and Vulcan Capital. NBC said that it would finance thedeal via the sale of non-core assets, including a pair of independent Telemundo station.

New Leaf Venture Partners has closed its second fund with $450 million in capital commitments. The bi-coastal firmwas founded in 2004 by the life sciences team of Sprout Group – the longstanding affiliate of DLJ (and later Credit Suisse). It closed its inaugural fund in August 2005 with $310 million, and late last year had a big hit with the $480 million sale of Cerexa to Forest Labs.That deal could grow even larger, with $100 million in possible milestone payments.

VC Deals

Metastatix Inc., a Tucker, Ga.-based drug company focused on cancer and HIV, has raised $35 million in Series B funding. Yesterday’s PE Week Wire reported the total as $20 million, based on a regulatory filing. Frazier Healthcare Ventures led the deal, and was joined by return backers like H.I.G. Ventures, S.R. One, The Aurora Funds, Advanced Technology Development Center, CM Capital, MedImmune Ventures, Georgia Venture Partners and Centrosome Ventures.

Luca Technologies Inc., a Golden, Colo.-based company focused on gasification of in-ground coal, shale and oil reserves, has called down $14.6 million of a $20 million Series B funding, according to a regulatory filing. Kleiner Perkins Caufield & Byers and Oxford Bioscience Partners were joined by return backer BASF Venture Capital.

FraudSciences Corp., a Palo Alto, Calif.-based provider of online credit card-not-present fraud detection, has raised $11 million in Series B funding. Redpoint Ventures led the deal, and was joined by return backer BRM Capital.

Catalyst Mobile, an Emeryville, Calif.-basedprovider of mobile music and entertainment services, hasraised $10 million in Series B funding. Sofinnova Ventures led the deal, and was joined by return backer DCM. The company previously had raised around $4.5 million, and will use the capital to build out music distribution services, including the deployment of a joint service in Japan with Warner Music Group.

Octavian, a Woburn, Mass.-based provider of separately managed account solutions for the wealth and investment management industry, has raised $10 million in second-round funding. Vertex Venture Capital led the deal, and was joined by return backers Carmel Ventures and Gemini Israel Funds.

Intronis Technologies, an Englewood Cliffs, N.J.-based provider of online backup services, has raised $5 million in VC funding from OpenView Venture Partners.

Reflex Photonics, a Redwood City, Calif.-based developer of high-speed connectivity solutions for semiconductor packaging and data transfer applications, has raised $3 million in Series A funding. FIER Succes and return backer MSBi Capital co-led the round, which also included RESO Investments.

Lure Media Inc., Montreal-based provider of ERP and web-based applications for the global commercial and residential interior design industry, has raised Cdn$2.5 million in VC funding from Garage Technology Ventures Canada. It also announced that it has acquired the assets and IP of Impact IS for an undisclosed amount., a Brooklyn, N.Y.-based developer of local news/blog websites, has raised $1.5 million in second-round funding. Return backers include Union Square Ventures, Milestone Ventures, Village Ventures and individual angels (except for Marc Andreessen, who reportedly did not re-up).

Fjord Media AS, Norway-based company focused on routing, optical transport and processing needs within a single multi-purpose frame system, has raised an undisclosed amount of VC funding from Verdane Capital.

WunderWorks BV, a Dutch provider of multi-user interaction and collaboration software, has raised an undisclosed amount of seed capital from Flevoland Technofund and REOF Fund.

Buyout Deals

Bain Capital has completed its $63 per share buyout offer of Guitar Center Inc., a Westlake Village, Calif.-based retailer of guitars, amplifiers, percussion instruments, keyboards and pro-audio and recording equipment. The total deal was valued at $2.1 billion, with Guitar Center having de-listed from the Nasdaq.

Silver Lake Partners has acquired a majority stake in Mobile Messenger, a provider of technology and services for mobile content management and distribution. No financial terms were disclosed. This was Silver Lake’s first deal out of its Sumeru fund, which will focus on middle-market transactions.

Swander Pace Capital has led a buyout of Gilchrist & Soames, an Indianapolis–based supplier of branded luxury personal care products and amenities for the hotel industry. No financial terms were disclosed, except that Allied Capital committed $51 million in financing.

Thoma Cressey Bravo has sponsored a recapitalization of Porter & Chester Institute Inc., an operator of postsecondary institution providing technical, business and health related occupational preparation in Connecticut and Massachusetts. No financial terms were disclosed for the deal, which was done in partnership with Porter & Chester management. The Bank of Montreal served as agent and lead arranger of the transaction’s debt financing package.

PE-Backed IPOs

Compellent Technologies Inc., an Eden Prairie, Minn.-based provider of data storage and data management solutions, raised $81 million in its IPO. The company priced six million common shares at $13.50 per share ($10-$12 range), for an initial market cap of $400 million. Compellent will trade on the NYSE Arca under ticker symbol CML, while Morgan Stanley served as lead underwriter. The company had raised around $53 million in total VC funding since 2002, from firms like El Dorado Ventures (21.4% pre-IPO stake), Crescendo Ventures (21.4%), Cargill Ventures (10.9%), Centennial Ventures (10.3%), Affinity Capital (6.6%) and Nomura International (5.5%).

Targanta Therapeutics Inc., a Cambridge, Mass.-based developer of antibacterial agents, raised $57.5 million in its IPO. The company priced 5.75 million common shares at $10 per share (below $12-$14 range), for an initial market cap of approximately $210 million. It will trade on the Nasdaq under ticker symbol TARG, while Credit Suisse served as lead underwriter. Shareholders include Brookside Capital Partners (15.2% pre-IPO position), InterMune Inc. (15.2%), Skyline Ventures (13.2%), VenGrowth (11.8%), OrbiMed Advisors (11.1%), T2C2 (7.3%), Canadian Medical Discoveries Fund (7.1%), Seaflower Ventures (7%) and Radius Ventures (6.1%).

PE Exits

Computershare Ltd. (ASX: CPU) has agreed to acquire Restricted Stock Systems Inc., a Princeton, N.J.-based provider of insider trading software and services to brokerage firms and publicly traded companies. RSS was founded in 2000, and raised a small amount of VC funding from Beehive Ventures, Gamma Investors and individual angels.

PE-Backed M&A

1105 Media Inc., a Chatsworth, Calif.-based portfolio company of Alta Communications and Nautic Partners, has acquired three public sector IT trade shows from National Trade Productions. No financial terms were disclosed for the transaction, which included: GovSec, serving the government security market; U.S. Law, for the law enforcement market; and Ready, serving emergency preparedness professionals. Berkery Noyes represented National Trade Productions on the sale.

Sugar Inc., a San Francisco-based blog publisher, has acquired Courture Media, a network of independent online style publishers. No financial terms were disclosed. The deal comes just weeks after Sugar acquired social shopping website ShopStyle. Sugar has raised more than $5 million in VC funding from Sequoia Capital and NBC Universal Digital Media.

Firms & Funds

Enterprise Partners Venture Capital, a La Jolla, Calif.-based venture capital firm focused on life sciences, has indefinitely suspended fundraising for its seventh fund, according to Private Equity Insider. The firm also has parted ways with managing directors Marios Fotiadis and Kleanthis Xanthopoulos, who both were hired within the past year.

Fried Frank has opened an office in Shanghai. This is the law firm’s second Asia office, following a Hong Kong branch opened last December.

Human Resources

Dorian Faust has joined Gryphon Investors as a principal, with a focus on retail and consumer opportunities. He previously was a principal with Norwest Equity Partners.

Suzanne Burke has joined Lake Pointe Partners as a director. She previously was a consultant with High Ridge Partners, through which she served as interim CEO of a $200 million pork processing business.

Jill Greenthal, a senior advisor with The Blackstone Group’s private equity unit, has joined the board of Akamai Technologies Inc. (Nasdaq: AKAM). Prior to joining Blackstone in 2003, Greenthal was with CSFB as co-head of its global media group and co-head of its Boston office.

Lawrence Field, co-founder and managing director of Regent Private Capital, has joined the board of 3DIcon Corporation (OTC BB: TDCP).