PE Week Wire: Wednesday, June 25, 2008

Josh Kopelman of First Round Capital is one of the better VC bloggers, and yesterday posted something called The Death of Stealth Mode. Here’s his intro:

A pre-launch, stealth-mode company just closes a seed round of funding. Three weeks go by, and the news of the company’s funding starts appearing in VentureBeat, peHUB and Venturewire. The story is then picked up by mainstream tech bloggers and press.The CEO starts getting phone calls from journalists.I then receive frantic, angry phone calls and emails from the CEO that go something like this: “Dude! Did you announce the funding? We wanted to stay under the radar…”

I want to reply, “No. I didn’t announce the funding. Your lawyer did.”

What Josh is talking about, of course, is an SEC requirement that companies falling under Regulation D exemptions must submit a brief filing after raising capital. It should include the company’s name, business description, executive officers, significant shareholders, placement agents, amount of capital raised and what the capital will be used for. These are called Form D filings, and are what I regularly use to sniff out unannounced deals and fundraisings (when doing so, I cite “regulatory filings”).

Now Josh correctly asserts that these filings make it more difficult to keep a company in stealth mode. He also laments the fact that issuers soon will be required to submit Form D filings electronically, which will make them far more public than the current system of paper filings and reference room scouring. In other words, every blogger and their cousin will be able to “out” stealth mode companies. No need to have a colleague in DC.

But let me make a counter argument, which I’ll call The Rebirth of Stealth Mode.

What all of these Form D newbies are about to find out is that there can be more than 100 Form D filings in a single day. The majority of those have little to do with venture capital. Instead, they are capital raises from hedge funds, REITs, energy exploration companies and banks. Or small-time businesses that got $50k from Uncle Al (you can spot these quickly, because they’re often hand-written instead of typed). In other words, it takes lots of time to separate the wheat from the chafe.

Making matters worse, there are a lot of issuers that file for small Series A funding rounds that may or may not have institutional VCs behind them. I currently can identify the “real” ones because the company must list its significant shareholders. But the revised SEC restrictions remove that requirement, which means that my job is about to become much, much more difficult. For every one VC-backed deal I find via the SEC, there are another five companies I ignore because there does not appear to be institutional backing. Now the only way I can make the distinction will be through shoe-leather journalism. Not complaining about having to work hard, but pointing out that I’ll be unable to identify nearly as many deals as I do now.

The result, of course, is that more companies may slip through the cracks and remain in stealth mode. Yes there will be more people looking, but I think the change still favors secrecy. This is particularly true if/when clever lawyers tell their clients to make up bogus holding company names, so that the jazzy Web 2.0 startup funded by Sequoia now becomes Maple Holding Co. funded by anonymous. Unless I recognize the executive’s name, I’m probably skipping over it. So will most everyone else.

Top Three

Compagnia Italiana Forme Acciaio SpA, an Italian maker of construction machinery, has agreed to be acquired for €271 million. Chinese rival Changsha Zoomlion is leading the investor consortium, and will hold a 60% stake post-acquisition. The remainder will be held by Goldman Sachs, Mandarin Capital Partners and Hony Capital.

SpringSource, a San Mateo, Calif.-based provider of an enterprise Java application server, has raised $15 million in Series B funding. Accel Partners led the round, and was joined by return backer Benchmark Capital.

Intervale Capital, a buyout firm focused on the oilfield service and manufacturing sector, has closed its debut fund with over $280 million in capital commitments. Champlain Advisors served as placement agent. Intervale has offices in Cambridge, Mass. and Houston, Texas.

VC Deals

Aspen Aerogels, a Northborough, Mass.-based nanotech company focused on insulation materials, has raised $37 million in fourth-round funding, according to VentureWire. Arcapita Ventures led the round, and was joined by return backers Lehman Brothers Venture Partners Reservoir Capital Group and RockPort Capital Partners. The company had previously raised over $61 million.

BridgeWave Communications, a Santa Clara, Calif.-based provider of gigabit wireless solutions, has raised around $10 million in new VC funding. Core Capital Partners and Intel Capital co-led the round. The company has now raised over $70 million since 1999.

Advanced ICU Care, a St. Louis-based provider of telemedicine intensivist services provider, has raised $5 million in Series B funding. Versant Ventures led the round, with managing director Barbara Lubash taking a board seat.

GDCM, a London-based provider of data center management solutions, has raised a “multi-million dollar” investment from Balderton Capital. The financing will be used to help financing international growth.

Buyout Deals

Crestwood Midstream Partners, a Houston, Texas-based midstream pipeline company, has received a $500 million equity commitment from The Blackstone Group, GSO Capital Partners and return backer Kayne Anderson Energy Funds.

The European Commission has extended its review of Bristol-Myers Squibb Co.’s sale of ConvaTec to Nordic Capital and Avista Capital Partners for $4.1 billion. The original deadline was July 1, but it has now been pushed back to July 15. ConvaTec provides wound therapeutics and ostomy care products.

Mason Capital is leading a group of institutional investors demanding that Expro International delay a shareholder vote on a pending $3.5 billion buyout of Expro by Candover, Goldman Sachs and AlpInvest. The hedge fund contingent holds around 20% of Expro’s shares, and wants Expro to further explore a higher acquisition approach from Halliburton.

Milestone Partners has sponsored a recapitalization of Fatz Cafe, an owner and operator of 43 casual dining restaurants in North Carolina, South Carolina, Tennessee, Georgia and Virginia. No financial terms were disclosed for the deal, which was done in partnership with company management. Debt financing was provided by GE Capital, Franchise Finance and Madison Capital Funding.

Phoenix Equity Partners has acquired the oil and gas division of UK technology rental company Ashstead PLC. The deal was valued at £95.6 million.

Sun Capital Partners has acquired Sunrise Growers-Frozsun Foods, a Placentia, Calif.-based supplier of frozen and fresh strawberries, from Heritage Partners. No financial terms were disclosed. MHT Partners advised Heritage on the sale.

Warburg Pincus has formed Constitution Medical Investors, a Boston-based acquisition platform focused on the healthcare sector. No financial terms of Warburg’s equity commitment were disclosed. CMI will be led by former Cytec senior executives Patrick Sullivan and Daniel Levangie.

PE Exits

AIG Highstar Capital has agreed to sell its 50% interest in Intergen NV to Indian infrastructure developer GMR Infrastructure Ltd. No financial terms were disclosed. InterGen is a global power generation company based in The Netherlands. It was acquired in 2005 by Highstar and Ontario Teachers’ Pension Plan.

Compass Diversified Holdings has agreed to sell its majority stake in Aeroglide Holdings Inc. to Buhler Holding AG for an enterprise value of $95 million. Aeroglide is manufacturer of industrial process drying and cooling systems.

PE-Backed M&A

Bearence Management, a Des Moines, Iowa-based portfolio company of The McCarthy Group, has acquired property and casualty insurer Rosenbloom & Rosenbloom. No financial terms were disclosed. Headwaters MB advised Rosenbloom & Rosenbloom on the deal.

Proofpoint Inc., a Sunnyvale, Calif.-based provider of email security and data loss prevention solutions, has acquired Fortiva Inc., a Toronto-based provider of email archiving solutions. No financial terms were disclosed. Proofpoint has raised $86 million in VC funding since 2003, from firms like raised Benchmark Capital, Bridgescale Partners, DAG Ventures Inventures Group, JAFCO Ventures, Meritech Capital Partners, Mohr, Davidow Ventures and RRE Ventures. Fortiva has raised around $7.5 million from Cargill Ventures, Ventures West and Mclean Watson Capital.

Human Resources

Lehman Brothers has rehired two former executives: Michael Gelband for the new position of global head of capital markets, and Alex Kirk as global head of principal investing.

Mohit Daswani has joined JMI Equity as a San Diego-based principal. He previously was a principal with FT Ventures and, before that, an associate with JPMorgan Partners.

James Dunleavy has joined ORIX Finance as director and head of the firm’s media finance practice. He previously founded the media finance group at Merrill Lynch Capital.

Norvestor Equity AS has promoted Henning Vold to partner. He joined the firm in 2001, and sits on the boards of European Interactive Travel and Elixia Holdings AS. Norvestor has also hired Karl Svozilik as a senior associate, and Yvonne Bakkehaugen as an associate.

Daryl Overholt has been named CEO of Aztek Networks, a Boulder, Colo.-based provider of emergency standalone switching products. He previously was controller of Sequel Venture Partners, which is one of Aztek’s investors.

Athena Capital Advisors, a Boston-based wealth management firm, has hired three managing directors: Kimberly Clouse, former CEO of Hale and Dorr Wealth Advisors; John Grady, former head of Lehman Brothers’ New England private client business; and Leonard Lewis, former chairman and managing partner of law firm Gadsby Hannah.

Thomas Weisel Partners Group has named three new managing directors: Jason Moran and Ralph Sutton to focus on the healthcare sector, and Robert Nabholz to focus on telecom services for investment banking. Moran will be based in San Francisco, and previously was a managing director with Piper Jaffray & Co. Sutton and Nabholz will be based in New York, and previously were managing director with Bear Stearns.

Updata Advisors has promoted Joel Strauch to partner. He will continue to lead the firm’s software practice, where he recently advised SwapDrive on its acquisition by Symantec.