PE Week Wire: Wed., Oct. 17, 2007

The Q3 presidential fundraising reports are in, and the winner is… Mitt Romney. Ok, maybe not in terms of total dollars, but at least in terms of contributions from buyout pros. The former Massachusetts governor had fallen behind both Barack Obama and Rudy Giuliani in Q2, but roared back in Q3 with $71,100 from 43 private equity pros (VCs and buyout spouses not included, because there are only so many hours in my day).

Runner-up Chris Dodd raised $60,500 from 28 pros, including $34,500 from 18 members of Apollo Management and its Apollo Investment Corp. affiliate. Obama placed show with $55,185 from 36 PE pros, while Hillary Clinton ($53,350) and Giuliani ($33,045) rounded out the top five.

Coming into the quarter, some folks had speculated that PE pros would flock to Republicans, as all Democratic candidates but Dodd had pledged to change the tax treatment of carried interest from capital gains to ordinary income. But Democrats easily held their ground. If you remove Dodd from the equation, GOP candidates only outgained Democrats $124,645 to $112,715. And Dodd may ultimately fall onto his party’s side of the fence, which would represent a clear Democratic lead.

Romney leads in overall 2007 fundraising from PE pros with $394,500, in large part thanks to a monster first quarter that included dozens of donations from Bain Capital and H.I.G. Capital. Next up is Obama with $211,385, followed by Giuliani with $148,345 and Clinton with $135,740. You can get much more detailed data over at peHUB, including a downloadable spreadsheet of each individual contribution. Just go here.

*** I’m expecting that there will be some sort of compromise on the Sallie Mae deal, since all of this huffing and puffing seems to be more about leverage than indignation. But, for the sake of column, let’s assume that the Flowers consortium walks away and is required to pay the $900 million breakup fee. The question at that point is: Who pays?

This might seem like a cut-and-dry question, but it’s not. In fact, more than a few J.C. Flowers LPs have told me that they’ve gotten little to no guidance on the subject (I posted one such email here). For starters, J.C. Flowers is the deal’s lead, but still is only contributing about half of the total. That means it would only be on the hook for around $450 million of the breakup fee, which is believed to be broken out with $200 million attributed to the general fund and the other $250 million attributed to co-investors.

If Flowers goes by the book, then limited partners in the general fund (which include Chris Flowers) are required to pay the full $200 million, while co-investors would be out the full $250 million. The former would just have their piece taken out of future fund performance, while the co-investors would actually have to cut checks. The only other option would be for Flowers to magnanimously agree to pay for his own mistake, which clearly is what LPs would prefer. But, as I said, there has not yet been any indication one way or the other.

The big problem here is that there isn’t much precedent. LPs have always been on the hook for reverse breakup fees – considered a broken deal expense – but there have been virtually no cases in which they’ve been triggered. In fact, the first one might be only occurring now, with Silver Lake Partners and ValueAct Capital backing out of an agreement to buy Acxiom.

The original Acxiom reverse breakup fee was $130 million, but the firms negotiated it down to $65 million. Then the lenders agreed to pay half, with the private equity firms just indebted a total of $32.5 million. I don’t know about ValueAct, but have been told that Silver Lake did require its LPs to cover their piece. Again, this comes out of performance (no checks getting cut) and is a relatively small amount of cash – but nonetheless might be something for Flowers to point to if Sallie Mae doesn’t work out.

Top Three

Spectrum Equity Investors has agreed to acquire a majority interest of Generations Network Inc., parent company of a portfolio of websites that include The deal is valued at $300 million, and is expected to close later this year. Lehman Brothers is advising Generations Network on the deal.

SiC Processing AG, a Germany-based service provider of wet separation, treatment and reclamation of used slurry, has raised €53.4 ($75.75m) in new VC funding. Zouk Ventures led the deal, and was joined by Merrill Lynch CPI Group, CC Private Equity Partners, Masdar Clean Tech Fund, Foursome Investments and the Heckmann family. SiC was founded in 2000, and currently owns and operates recycling plants in Germany, Norway, Italy, USA and China.

General Atlantic has offered to acquire messaging software company Critical Path Inc. (OTC BB: CPTH). General Atlantic already holds a 54.1% stake in Critical Path, which closed trading yesterday at just $0.08 per share. The take-private buyout would value the outstanding shares at $0.10 each.

VC Deals

Ikonisys Inc., a New Haven, Conn.-based provider of cancer and prenatal diagnostics, has raised $30 million in Series C funding. Goldman Sachs led the round, and was joined by return backers Lakeview Capital Management, New Science Ventures Palisade Capital, Promark Holding, Saint Simeon Marketing e Investimentos and WHI Group.

TriReme Medical Inc., a Pleasanton, Calif.-based maker of stents and stent delivery systems for vascular lesions at or near bifurcations, has raised $15.6 million in Series C funding. Three Arch Partners led the deal, with Adams Street Partners also participating.

WeatherBill, a San Francisco-based online service that helps companies protect revenue and control costs from the impact of bad weather, has raised $12.5 million in new Series A funding. The company has now raised a total of $16.8 million. New Enterprise Associates and Index Ventures co-led the round, and were joined by Allen & Co., Atomico Investments, Sean Park and return backers First Round Capital and individual angels. Kittu Kolluri of NEA and Neil Rimer of Index Ventures will join the WeatherBill board of directors. Also joining the board is Barney Schauble, a partner at Nephila Capital, WeatherBill’s risk capacity partner.

Jordan Valley Semiconductors Ltd., an Israel-based developer of tools for thin-film metrology based on X-ray technology, has raised $11 million from Intel Capital.

Infusion Software Inc., a Phoenix-based provider of CRM software for small businesses, has raised $9 million in first-round funding from Mohr Davidow Ventures.

Casero Inc., a Toronto-based provider of white-label and Web 2.0 products for service providers, announced that it has raised $5.8 million in Series B funding. Rembrandt Venture Partners led the deal, and was joined by return backers Argo Global Capital Partners, Highland Capital Partners and Casero co-founders Paul Atkinson and Kevin Kimsa. The round formally closed back in February.

PacketTrap Inc., a San Francisco–based provider of free network management tools, has raised $5 million in Series A funding. August Capital led the round, and was joined by individual angels.

Stonybrook Water Purification Inc., a Setauket, N.Y.-based water purification startup, announced that it has raised $4.1 million in Series A funding. PE Week Wire originally reported on the deal last month, based on a regulatory filing. Battery Ventures led the deal, and was joined by TianDi Growth Partners, Modern Water PLC and seed backer T2 Venture Partners.

Treemo Inc., a Seattle-based company that helps users share photos and videos online and via mobile devices, has raised $2.55 million in Series A-1 funding. JK&B Capital led the round, with partner Tasha Seitz joining the board of directors.

Buyout Deals

H.I.G. Capital has formed American Hardwood Industries Inc., via the simultaneous recapitalization of Rossi American Hardwoods and Hardwood Lumber Manufacturing. The Cromwell, Conn.-based company will manufacture a diverse portfolio of lumber products. Rossi and HLM are vertically-integrated suppliers with operations in timber-rights purchasing, sawmills, kiln-drying and logistical support. No financial terms were disclosed.

Highland Capital Management has acquired Cornerstone Healthcare Group, an Austin based provider of long-term acute care hospital services in Texas, Louisiana, Arizona and West Virginia. No financial terms were disclosed.

Hunt Private Equity Group has acquired Universal Companies Inc., an Abington, Va.-based distributor of spa and skin care products. No financial terms were disclosed. The company will continue to led by former majority owner, and current chairman and CEO, Marti Morenings.

Kilmer Capital Partners has acquired a majority stake in Algorithme Pharma, a Quebec-based clinical research and biopharma research company. No financial terms were disclosed.

Riverside Partners has simultaneously acquired and merged New England Precision Grinding of Holliston, Mass. and Accu-Met Laser of Cranston, Rhode Island. Both companies are outsourced manufacturers for medical device OEMs. No financial terms were disclosed.

Sentinel Capital Partners has acquired Vintage Parts,a Beaver Dam, Wis.-basedsupplier of original slow moving and inactive OEM replacement parts.Company management also participated, while the seller was James Finlay Ltd., a subsidiary of the Swire Group. No financial terms were disclosed.

PE-Backed IPOs

Trans1 Inc., a Wilmington, N.C.-based developer of a surgical device for treating a degenerative disc disease affecting the lower lumbar region of the spine, raised $82.5 million in its IPO. The company priced 5.5 million common at $15 per share (above $12-$14 range), for an initial market cap of approximately $281.64 million. It will trade on the Nasdaq under ticker symbol TSON, while Lehman Brothers and Piper Jaffray served as co-lead underwriters.Trans1 had raised around $40 million in VC funding since 2000, from firms like Advanced Technology Ventures (19.5% pre-IPO stake), Delphi Ventures (16.3%), Cutlass Capital (15%), Sapient Capital (12%) and Thomas Weisel Healthcare Venture Partners (7.2%).

PE Exits

Bridgepoint reportedly is considering a £600m sale or IPO of UK pet retailer Pets at Home. The company is compiling a short list of I-banks, which is believed to include Citigroup, Goldman Sachs, NM Rothschild and UBS.

Cubist Pharmaceuticals Inc. (Nasdaq: CBST) has signed an exclusive option to acquire Illumigen Biosciences Inc., a Seattle-based drug developer whose lead product is an interferon replacement product for the treatment of Hepatitis C infections. Cubist would pay $4.7 million on the option, plus another $1 million for an IND-enabling study on Illumigen’s lead compound. Illumigen has raised around $6 million in VC funding from Pacific Horizon Ventures and Ventures West.

Westgate Group has agreed to sell Cardinal Brands Inc. to R.R. Donnelley & Sons Co. (NYSE: RRD) for $130 million in cash. Cardinal is a Lawrence, Kansas-based maker of business forms, accordion files, loose-leaf binders and craft product organizers.

PE-Backed M&A

2Wire Inc., a San Jose, Calif.-based provider of broadband service delivery platforms, has acquired Kenati Technologies Inc., a Sunnyvale, Calif.–based provider of home networking software and services. No financial terms were disclosed. 2Wire has raised nearly $200 million in VC funding since 1998, from firms like Accel Partners, Invesco Private Capital, Liberty Ridge Capital, Meritech Capital Partners, Oak Investment Partners, Shell Internet Ventures, Granite Global Ventures, Weber Capital and Venrock. Kenati had raised an undisclosed amount of funding from Inc3 Ventures.

Symphony Services Inc., a Palo Alto, Calif.–based provider of outsourced product engineering services, has agreed to acquire Optimal Engineering Partners Inc., a Westford, Mass.-based engineering services firm focusing on embedded and real-time, systems and application development.No financial terms were disclosed. Symphony is backed by TH Lee Putnam Ventures and Symphony Technology Group.

Firms & Funds

Mooreland Partners, a Greenwich, Conn.-based I-bank focused on the IT and communications sectors, has opened a Silicon Valley office. It will be staffed by a team of former SVB Alliant pros: Rick Dalton (managing director), Charlie Bullock (managing director), Paul Milek (principal), Brian Sapp (principal) and Allen Kogan (senior analyst).

Human Resources

Eric Aguiar has joined Thomas, McNerney & Partners as a partner focused on life sciences opportunities. He will be based in the firm’s Stamford, Conn. office, and previously was a managing director in the Boston and Princeton offices of HealthCare Ventures. Prior to joining HealthCare Ventures, Aguiar was CEO of Genovo Inc.

Greg Dracon has joined .406 Ventures as a principal. He previously was a vice president with Core Capital Partners. Prior to joining Core, he held various operating roles with Texas Instruments.

Amy Errett and Nick Mehta have joined Trinity Ventures as entrepreneurs-in-residence. Errett previously served as CEo of web property company, while Mehta spent the past five years with Symantec Corp.

Robert Maederhas joined Fort Washington Capital Partners Group as an investment manager. He will be responsible for leading due diligence and investment analysis of underlying funds and direct co-investment opportunities. Maeder previously was an engagement manager at L.E.K. Consulting.

Bessemer Venture Partners has promoted Devesh Garg to managing director. He had joined the firm in 2003 as an operating partner, and is part of a nine-person team based in Mumbai. Bessemer recently closed a $1 billion fund that includes a $350 million earmark for Indian companies.

Paul Kedrosky has joined The Ewing Marion Kauffman Foundation as a senior fellow, where he will explore new programming opportunities for Kauffman in the areas of entrepreneurship, innovation, and capital markets. He previously was executive director of the William J. von Liebig Center in San Diego, and continues to be a venture partner with Ventures West.

Charles Harwood and Ron Sparks have joined Avista Capital Partners as healthcare industry advisors. Harwood is executive chairman of Avista portfolio company BioReliance, while Sparks most recently served as president and CEO of Accellent Inc.

J. Frank Brown, dean of INSEAD, has joined the European advisory committee of Bridgepoint.

Thomas Cardy has joined Hyde Park Capital Partners, a Tampa, Fla.-based boutique I-bank, as a managing director. He previously co-founded Beach Capital Advisors.