PE Week Wire: Wed., Sept. 19, 2007

An interesting subplot to the carried interest tax debate has been how venture capitalists keep trying to disassociate themselves from buyout pros. PE Week Wire considers both groups to be part of the private equity landscape (I take “private equity” literally), but most VCs would sleep better is Kleiner Perkins was never again mentioned in the same breath as Blackstone or KKR. Buyout pros, on the other hand, keep clinging to VCs like elderly straphangers on a bumpy subway line.

Why the fissure? Because VCs believe they are forces for good and buyout pros are forces for bad. Or at least they believe Congress and the general public believes that – and they are worried about their halos being dirtied. For buyout pros, it’s the same idea in reverse – with LBO mavens hoping to launder their reputations through the VC wash.

The struggle reached a new level yesterday, when the National Venture Capital Association issued a variety of comments designed to distinguish VC from LBO. For example, NVCA president Mark Heesen said: “The venture capital industry isn’t in the ‘buy it and flip it’ business. We invest for the long haul, helping to create exciting new industries and companies that revitalize communities.”

The NVCA also said that there are “distinct characteristics of venture capital that no other industry can claim.” Gee, I wonder what other “industry” it might be referring to… I’ve posted the entire release, which came out as the NVCA board met in Washington.

NVCA spokeswoman Emily Mendell referred to the statements as an effort to “raise our voice to new levels.” She says that VCs want Congress to examine each industry independently, rather than lumping VC in with buyouts, hedge, real estate, timber, oil and gas, etc.

What this leads to is a giant question: Could Congress pass a law that changes carried interest tax treatment for LBO funds, but not for VC funds? I doubt it. NVCA is correct that VC and buyout funds have different investment strategies and outcomes, but they nonetheless share very similar structures (which is why they both utilize the exact same tax loophole).

What would “separate” language look like? Would it simply be a matter of company control? If so, VC firms could be classified as LBO firms if they do a Series A deal in which they receive over a 50% stake in the company. Or maybe they get around it by making it a Series A consortium, with each individual fund taking a minority position. Ok, but how is that different from Blackstone and KKR clubbing up for a deal in which each takes a 45% interest (with management holding the remainder)?

Mendell acknowledged the difficulty in crafting such language, which is perhaps why NVCA has not yet done so. However, Mendell also said that NVCA would consider working on such legislation with lawmakers, if asked. That request will probably come soon – so it’s time for some creative minds to get busy. If you’ve got any ideas on how to split this baby, let me know…

Top Three

Accredited Home Lenders Holding Co. (Nasdaq: LEND) and Lone Star Funds have amended their merger agreement. The move both reduces the amount Lone Star will pay to acquire Accredited, and also settles a pending lawsuit between the two companies. Lone Star originally offered to pay $15.10 per share, but later lowered the amount to $8.50 per share. The new agreement is at $11.75 per share.

Amyris Biotechnologies Inc., an Emeryville, Calif.-based synthetic biology company that developers renewable hydrocarbon biofuels, has closed the first tranche of a $70 million in Series B funding. DAG Ventures led the deal, and was joined by return backers Khosla Ventures, Kleiner Perkins Caufield & Byers and TPG ventures. The company raised $20 million in Series A funding last year, and named for BP executive John Melo as CEO. VentureWire quotes Melo as saying that the Series B round came with a post-money valuation of $470 million.

David Marchick has joined The Carlyle Group as a managing director and head of regulatory affairs, effective October 22. It is a newly created position, in which Marchick will report directly to Carlyle’s co-founders. He previously was with Covington & Burling LLP, as a partner advising U.S. and foreign companies on regulatory and strategic issues.

VC Deals

Mimeo Inc., a provider of Web-based document printing and delivery services, has raised $25 million in new VC funding. Goldman Sachs Principal Strategies Group led the deal, and was joined by return backers Draper Fisher Jurvetson, DFJ Gotham Ventures, HarbourVest Partners and Hewlett-Packard. Mimeo previously had raised around $52 million since 2000.

QuickPlay Media, a Toronto-based provider of a mobile video platform, has raised US$15 million in Series C funding. Ventures West led the deal, and was joined by return backers General Catalyst, J.L. Albright Venture Partners and Up Capital.

CloudShield Technologies Inc., a Sunnyvale, Calif.-based provider of IP services control and security solutions, announced that it has raised $15 million in Series D funding. Tektronix Inc. led the deal, which closed last December. Return backers included ComVentures, TPG Growth, Foundation Capital and Paladin Capital. CloudShield and Tektronix also announceda strategic partnership in which the two companies will jointly offer and blend service control and security technology from CloudShield with service assurance solutions from Tektronix.

Amminex, a Danish developer of ammonia storage and delivery systems for cleaner emissions, has raised €7 million in Series C funding. Conduit Ventures led the deal, and was joined by return backer Seed Capital KS.

PlaySpan Inc., a Santa Clara, Calif.-based operator of an in-game commerce network, has raised $6.5 million in Series A funding. Easton Capital led the deal, and was joined by Menlo Ventures, STIC International (South Korea) and Novel TMT Ventures (Hong Kong).

Novate Medical Ltd., a Galway, Ireland-based developer of inferior vena cava filters, has raised €4 million in VC funding. ACT Venture Capital and Seroba BioVentures co-led the deal, and were joined by Enterprise Ireland.

Emote Games Ltd., a UK-based developer of cross-platform games, has raised £4 million from Electra Quoted Management Ltd.

Altheus Therapeutics Inc., an Oklahoma City-based drug company focused on inflammatory bowel disease, has raised $3.6 million in VC funding. Prolog Ventures led the deal, and was joined by the Oklahoma Seed Capital Fund and Oklahoma Equity Partners.

Phurnace Software Inc., an Austin, Texas-based Java application deployment company, has raised around $1.33 million in Series A funding led by DFJ Mercury.

Restricted Stock Partners, a New York-based operator of an electronic platform for trading restricted securities, has raised an undisclosed amount of Series A funding from Pequot Ventures.

Buyout Deals

Cogentirx Energy Inc., a wholly-owned subsidiary of Goldman Sachs, has agreed to sell an 80% interest in 14 power plants to Energy Investors Funds. Cogentrix will retain the remaining 20% interest. No financial terms were disclosed for the deal, which is expected to close by year-end.

Institutional Shareholder Services is recommending that Clear Channel Communications (NYSE: CCU) stockholders approve a $39.20 per share buyout offer from Bain Capital and Thomas H. Lee Partners. This is a reversal for ISS, which previously had opposed the deal. In its explanation, ISS said: “The ongoing credit crunch has likely taken away the punch bowl from the jumbo LBO party at least for the medium term.”

Audax Group has agreed to acquire Help/Systems Inc. from Summit Partners, according to an antitrust clearance announcement by the FTC. No financial terms were disclosed. Help/Systems is an Eden Prairie, Minn.-based provider of automated operations and business intelligence software.

Endeavour Capital has acquired a minority interest in Barrett-Jackson Auction Co. LLC, a Scottsdale, Ariz.-based provider of products and services to classic and collector car owners and automotive enthusiasts. No financial terms were disclosed.

Technology Crossover Ventures has acquired a minority stake in Intelligent Beauty Inc., a Manhattan Beach, Calif.–based developer of beauty brands built via analytically-driven Internet marketing. No financial terms were disclosed.

Hilton Hotels Corp. (NYSE: HLT) shareholders approved a $47.50 per share buyout offer from The Blackstone Group. The total deal is valued at $26 billion, and is expected to close by the end of October.

Guitar Center Inc. (Nasdaq: GTRC) stockholders have approved a $63 per share buyout offer from Bain Capital. The total deal is valued at $2.1 billion, and is expected to close next month. Guitar Center is a Westlake Village, Calif.-based retailer of guitars, amplifiers, percussion instruments, keyboards and pro-audio and recording equipment.

Nuveen Investments Inc. (NYSE: JNC) stockholders have approved a $65 per share buyout offer from Madison Dearborn Partners. The total deal is valued at $6.3 billion (including $550 million in existing debt), and is expected to close in Q4. Nuveen is a Chicago–based provider of diversified investment services to institutional and high-net-worth investors.

PE-Backed IPOs

Mako Surgical Corp., a Ft. Lauderdale, Fla.-based developer of robotic solutions and implants for minimally-invasive orthopedic knee procedures, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol MAKO, with JPMorgan and Morgan Stanley serving as co-lead underwriters. The company had raised $50 million in total VC funding, including a $30 million round earlier this year. Shareholders include MK Investment Co. (13.4% pre-IPO stake), MDS Health Ventures (12.68%), Tudor Ventures (11.12%), MDS Capital (12.68%), Sycamore Ventures (10.54%) Appaloosa Ventures (6.84%), Highbridge Capital (6.02%) and Aperture Venture Partners (5.96%), Ziegler Meditech Equity Partners, Ivy Healthcare Capital and The Exxel Group.

PE Exits

Allergan Inc. (NYSE: AGN) has agreed to buy Esprit Pharma Inc., an East Brunswick, N.J.–based drug company focused on the genitourinary (GU) and women’s healthcare markets. No pricing terms were disclosed for the all-cash transaction, which is expected to close within 30 days. Merrill Lynch advised Esprit, with Cowen & co. serving as co-advisor. Esprit has raised over $220 million in VC funding since 2002, from Domain Associates, New Enterprise Associates, Apax Partners, Montagu Newhall Global Partners, Oak Investment Partners and clients advised by Performance Equity Management.

Cisco (Nasdaq: CSCO) has agreed to acquire Cognio Inc., a Germantown, Md.-based provider of wireless spectrum analysis and management for wireless networks. No financial terms were disclosed. Cognio has raised over $30 million in VC funding since 2001, from firms like ABS Ventures, North Bridge Venture Partners and Avansis Ventures.

Frontenac Co. has sold TrialGraphix, a Miami, Fla.-based provider of trial consulting and presentation services, to risk consultant Kroll. No financial terms were disclosed.

Versata Enterprises Inc. (OTC BB: VATA) has acquired Nextance Inc., a Redwood City, Calif.–based provider of enterprise contract management solutions. No financial terms were disclosed. Nextance has raised around $50 million in VC funding from El Dorado Ventures, Lightspeed Venture Partners, Onset Ventures and Palo Alto Venture Partners.

GIMV has sold its stake in Dutch outdoors retailer Bever Zwerfsport to AS Adventure.

PE-Backed M&A

Delphi Corp. has agreed to sell some of its brake operations to TRW Automotive Holdings Corp. (NYSE: TRW), as part of its efforts to exit Chapter 11 bankruptcy protection. No financial terms were disclosed. The deal includes part of Delphi’s North American brake component machining and module assembly assets. TRW also will acquire production inventory, lease part of Delphi’s brake manufacturing facility in Saginaw, Mich. for at least five years and maintain the leased site’s hourly workers. The Blackstone Group bought TRW from Northrop Grumman back in 2003 for $4.7 billion, and still holds more than a 40% stake.

Dominion Gas, a portfolio company of Graphite Capital, has acquired Global Gas, a supplier of diving gasses to the oil and gas industry. The deal was valued at £22 million, with leveraged financing provided by RBC Structured Finance.

Ennis Paint, a portfolio company of Brazos Private Equity Partners, has bought the pavement marketing paint division of Laurentide Inc. No financial terms were disclosed.

Firms & Funds

Energy Ventures has raised more than NOK$1 billion ($170m) for its third venture capital fund focused on petroleum-related companies. The Stavanger, Norway-based firm also has opened offices in Aberdeen and Houston.

MDS Capital Corp., a North American venture capital firm focused on drug and medical device companies, has changed its name to Lumira Capital Corp. The firm also made several personnel changes: Gerry Brunk (Cambridge, MA), Beni Rovinski (Toronto) and Nandini Tandon (Mountain View, CA) have been promoted to managing director. Daniel Hetu (Montreal) has been added as a venture partner, while Jack Jenuth and Charles Trimble were named senior analysts.

Praesidian Capital has closed its second fund with $236 million in capital commitments. The New York-based firm provided mezzanine financing for middle-market companies that have revenue of between $15 million and $150 million.

Houlihan Lokey has acquired Blenheim Advisors Ltd., a London-based leveraged debt advisory firm focused on the European market. No financial terms were disclosed. As part of the deal, Blenheim co-founders William Allen and Jonathan Guise have joined Houlihan Lokey as managing directors and co-heads of European debt advisory.

PCT Capital has launched as a McLean, Va.-based advisory and asset management firm focused on intellectual property. The firm is run by Raymond Millien, who previously was general council with Ocean Tomo and, before that, was vice president and IP council for The American Express Co.

Jay Sidhu, former chairman and CEO of Sovereign Bancorp, has formed a new private equity firm focused on the financial services industry. Addition information is not yet available. Sidhu is announced the firm today during the Piper Jaffray Financial Services Private Equity Conference in New York.

Human Resources

Atle Eide has joined HitecVision Private Equity as a partner. Eide previously served as CEO ofNordic seafood company Marine Harvest ASA.

Thomas Keane has joined Challenger Capital as managing director of private equity. He previously was executive vice president of Carlyle Management Group and the subsequent spinout Ewing Management Group.

Tim Whittard has joined Sovereign Capital, a UK-based middle-market buyout firm. He previously was a director with Gresham Private Equity.

Umesh Padval has joined Bessemer Venture Partners as an operating partner. He will be based in Menlo Park, and previously was executive vice president of LSI Logic’s consumer products group.

Chika Yoshinaga has joined Sofinnova Partners as a vice president focused on Asian activities. She previously was deputy general manager with NIF SMBC Ventures.

Oxford Bioscience Partners has promoted Douglas Fambrough to the position of general partner. He joined the firm in January 2000 as an associate, after having been a genomic scientist with what is now known as the Broad Institute. He led Oxford’s deal for Sirna Therapeutics (acquired by Merck for $1.1b), and also was involved with Solexa (sold to Illumina for $550m).

Ascend Venture Group has promoted Kylie Sachs to the position of partner. She joined Ascend’s New York officein 2003.

Fulbright & Jaworski LLP has added three attorneys in its corporate practice: Partner Courtney Marcus, partner, joins from Weil Gotshal & Manges LLP, while partner Barry Cowan and senior council Randy Fickel join Fulbright’s Dallas office from Winstead PC.