PE Week Wire: Wednesday, August 6, 2008

The public fortunes of Fortress Investment Group don’t directly correlate to the eventual performance of KKR, but this still has to make Henry & Co. a bit queasy:

Citigroup yesterday downgraded Fortress from “hold” to “sell,” estimating that “private equity IRRs have declined by up to 30 percentage points in legacy funds since the firm’s last public disclosure.” Citi also wrote that Fortress would have trouble raising new capital, may be on the hook for up to $200 million in clawbacks and could be compelled to cut its dividends.

Part of this dour outlook is based on Fortress’ ongoing exposure to subprime mortgages, but Citi really seems to be aiming at the larger private equity asset class. Not only with the IRR estimate — which is far deeper than I’ve seen elsewhere — but also with the suggestion that Fortress erred in not “harvesting private equity gains at their peak.” Citi says this cost Fortress between $6 billion and $7 billion, but also assumes the assets in question were liquid or quasi-liquid.

That’s a tough assumption, particularly given how hard it was to IPO a PE-backed company even before the credit crunch. My read would be that Citi was therefore overestimating Fortress’ value in the first place, but that’s a consequential vagary of being publicly-traded.

*** Speaking of publicly-traded private equity: The Blackstone Group this morning released its Q2 results, which included a sharp drop in profits from Q2 2007 (yeah, shocking).

The firm also has held a first close on Blackstone Capital Partners VI – an event that was originally slated for April. As peHUB first reported last night, the firm secured around $7.1 billion in limited partner commitments, including $500 million from Blackstone executives (inclusive of estimated fees). It had originally been hoping for $8 billion, with a total target of $20 billion.

Tony James acknowledged the first close during this morning’s Q2 call with reporters, but didn’t bite at my suggestion that Blackstone made significant concessions to even hit the $7.1 billion mark. Instead, he said that both Blackstone and its investors gave a little, in order to arrive at a net-net break-even. He did not discuss specific issues like fee splits or the future of large PIPE deals like Deutsche Telekom.

“It’s a tough fund-raising environment,” James said. “People are worried about the world in general, and allocations of those institutions driven by strict allocation models are under pressure because private equity, as an asset class, has outperformed other asset classes.”

*** Final private-going-public thought: Everyone knows Carlyle Group eventually wants to go public, but it may have an added hurdle. One of Blackstone and KKR’s major arguments was that they needed public currency to better expand their asset management platform beyond private equity (hedge funds, etc.). Carlyle would likely make that case also, but investors may be a bit concerned about such expansion given the collapse of CCC and pending liquidation of Blue Wave.

In other words: Carlyle has already demonstrated difficulty in straying from its knitting, but would be asking for new capital to do that very thing. Could be tough for public investors to swallow…

*** Anyone else choke a bit on Founders Fund investing $20 million in SpaceX? That’s a big nut for an early-stage venture firm whose fund is only $220 million.

*** Matt Winn, an associate with Chrysalis Ventures, has just created a free online database that can help locate venture capitalists based on their educational or professional alma matters. It’s kind of like a bare-bones version of LinkedIn for VCs, entrepreneurs and limited partners — minus all the social networking functionality (I said bare-bones).

For example, I learned that there are six venture capitalists who went to my tiny alma matter of Haverford College, while there are 26 folks related to Thomson. You also can search by location, non-profit affiliations or assets under management.

Winn used National Venture Capital Association information for most of the underlying data, and hopes that users will help push it from “reasonably comprehensive” to “all-encompassing.” You can play around with it here, or read Matt’s blog post about the site’s creation.

Top Three

Carlyle/Riverstone has agreed to acquire Canadian midstream energy company Gibson Energy Holdings Inc. from Hunting PLC (LSE: HTG) for C$1.1 billion.

VitAG Corp., a Beach Island, S.C.–based recycler of municipal biosolids, has secured up to $60 million in private equity commitments from Denham Capital.

Leeds Equity Partners has acquired Ex Libris Group, an Iceland-based provider of automation solutions for academic, research and national libraries, from Francisco Partners. No financial terms were disclosed.

VC Deals

Koolanoo Group, a Chinese Internet and new media investment firm, has raised $25 million in new VC funding. An undisclosed investor led the round, and was joined by return backer Giza Venture Capital.

Enigmatec Corp., a UK-based provider of enterprise data center automation solutions, has raised $14 million in Series C funding. Scottish Enterprise and Noble Venture Finance were joined by return backers Amadeus Capital Partners, Pentech Ventures, Herald Ventures and Kevin Lomax.

Nextreme Thermal Solutions, a Durham, N.C.-based provider of microscale thermal and power management products for the electronics industry, has raised $13 million in Series B funding. Chart Venture Partners led the round, and was joined by Itochu Corp. and return backers edshift Venture Partners, Harris & Harris Group, Inc., In-Q-Tel and RTI International. The company has now raised $27 million.

DynaTrace Software, a Boston-based provider of lifecycle application performance management for distributed Java and .NET applications, has raised $12.9 million in Series B funding. Bay Partners led the round, and was joined by return backer Bain Capital Ventures.

Eye-Fi Inc., a Mountain View, Calif.-based maker of wireless memory cards for digital cameras, has raised $11 million in Series B funding. TransLink Capital led the round, and was joined by LMS Capital and return backers Opus Capital and Shasta Ventures.

SkyGrid, a New York-based platform for news personalization, filtering and search, has raised $11 million in Series B funding. RRE Ventures led the round, and was joined by return backers like Draper fisher Jurvetson and Esther Dyson.

Payoneer Inc., a New York-based provider of co-branded reloadable prepaid credit cards, has raised $8 million in Series B funding. Carmel Ventures led the round, and was joined by Greylock Partners and Crossbar Capital.

CleveX, a Columbus, Ohio-based maker of devices that assist in the excision of cancerous and non-cancerous skin lesions, has raised $1.4 million in VC funding. Plymouth Venture Partners led the round, and was joined by WPWIII Cap LP and the Esposito Group.

Amobee Media Systems Inc., an Israel-based developer of ad-serving solutions for mobile operators, has raised an undisclosed amount of strategic funding from Motorola and Cisco Systems. The round also included participation from return backers Telefonica, Vodafone, Accel Partners, Globespan Capital Partners and Seqauoia Capital. Amobee had had previously raised approximately $37 million., an online music licensing marketplace, has raised an undisclosed amount of Series A funding from Israel’s Ofer Media. has offices in Tel Aviv, London and New York.

Buyout Deals

American Industrial Partners has acquired E-One Inc. from Federal Signal Corp. No financial terms were disclosed. E-One is an Ocala, Fla.–based provider of fire rescue vehicles.

Capvis has acquired a majority stake in Bartec from Allianz Capital Partners, for an undisclosed amount. Bartec is a German provider of industrial safety technology.

The Carlyle Group has agreed to acquire a 48% stake in Italian clothing company Moncler, at an enterprise value in excess of €400 million. The company’s current shareholders are Mittel Private Equity (35%), Progressio Sgr (22%), ISA SpA (4%), CEO Remo Ruffini (38%) and other company management (1%). Post-transaction, the combined holdings of Mittel, Progressio and ISA will be 13.5 percent.

F9 Investments has acquired Proton Energy Systems, a developer of renewable hydrogen technology, from Distributed Energy Systems Corp. (OTC BB: DESCQ). The deal was valued at $10.2 million. F9 represents the private equity interests of Lumber Liquidators founder and chairman Tom Sullivan.

Huritga International Holdings of Singapore has acquired Ahead Magnetics, a San Jose, Calif.-based provider of specialty magnetic heads for video production, computer and data storage. No financial terms were disclosed. Ahead Magnetics was advised on the deal by GW Equity.

Marlin Equity Partners of Los Angeles has completed a take-private acquisition of Chelford Group PLC, a UK-based provider of enterprise and supply chain software solutions. No financial terms were disclosed.

The Riverside Company has acquired Results Weight Loss, a Naples, Fla.–based operator of weight-loss centers. No financial terms were disclosed for the deal, which Riverside transacted out of its Micro-Cap fund.

Rockfish Seafood Grill, a Richardson, Texas-based operator of 14 casual dining restaurants, has been acquired by Charter Private Equity, White Oak Capital Partners, Capital Point Partners and incoming CEO Henry Leonard. No financial terms were disclosed.

PE Exits

Clinical Data Inc. (Nasdaq: CLDA) has acquired Adenosine Therapeutics LLC, a Charlottesville, Va.-based developer of agonists and antagonists of adenosine receptor subtypes. The deal included a $22 million up-front cash payment, $25.2 million in promissory notes and up to $30 million in milestone-based earn-outs. Adonesine had raised VC funding from firms like ATEL Ventures and Emerging Technology Partners.

Curacyte AG has sold subsidiary Curacyte Discovery GmbH, which develops a compound for the prevention of blood loss during surgery, to The Medicines Co. (Nasdaq: MDCO). The deal includes a €14.5 million up-front payment, and additional payments based on the achievement of clinical milestones. Curacyte has raised over $60 million in VC funding from firms like TVM Capital, AlpInvest Partners and IKB Venture Capital.

HBOS reportedly is considering sales of portfolio companies like Keepmoat and Ainscough.

Sierra Wireless (Nasdaq: SWIR) has acquired Junxion, a Seattle-based provider of managed 3G wireless router solutions for enterprise and government customers. No financial terms were disclosed. Junxion has raised a small amount of VC funding from Trilogy Equity Partners.

PE-Backed M&A

Fulcrum Group, a UK-based outsourced administrator for hedge funds and the alternative asset management industry, has agreed to merge with Butterfield Fund Services, a provider of administration services for investment and pension funds. Existing Fulcrum shareholder 3i Group will retain a majority interest in the combined entity.

Firms & Funds

N+1, a Spanish alternative asset manager, has acquired a 35% stake in Access Capital Partners, a mid-market buyout shop primarily owned by Capman. The deal was valued at €18 million.