PE Week Wire: Wednesday, November 5, 2008

Barack Obama will be the next president of the United States, which means it’s soon time for this space to discuss what that means for the private equity markets. It’s soon time to begin resume contemplation of a change in carried interest tax treatment. Soon time to begin contemplating an increase in capital gains tax rates. Soon time to begin contemplating an increase in federal R&D budgets, particularly at the NIH. Soon time to begin contemplating a sea change in healthcare reimbursement. Soon time to consider how powerful CFIUS may become. Soon time to learn which investment pros and corporate executives (including from Silicon Valley) will become part of the new bureaucracy, and which ones return to private practice.

Soon. For right now, however, I hope we can take a few hours to simply reflect. There will be plenty of time to look ahead…

*** Ted Forstmann has been railing against the evils of credit since before KKR levered up RJR Nabisco, so it’s no surprise that he’s speaking out about the current crisis. In a recent interview with Charlie Rose, Forstmann puts the blame on Fed policies that helped create a culture of “easy money.”

Forstmann is an interesting position, because he began winding down his private equity firm, Forstmann Little & Co., before the boom really began. The shop still officially exists, but it operates on a skeleton staff and hasn’t done a new deal since the 2004 acquisition of talent agency IMG.

Favorite moment is when Rose asks Forstmann if private equity firms are “a good thing.” Forstmann takes a long pause, before saying “Yeah I do… Depends on which ones.” You might think he’s slamming longtime nemesis KKR here, but he instead lauds the firm, before saying what KKR has been thinking since originally filing for its un-IPO: “I think [private equity firms] are going to take the place of the investment banks.”

*** Question from a colleague, vis-a-vis public pensions pulling cash out of hedge funds to meet PE cap calls: “I wonder if this is just being used as an excuse to run away from hedge funds. It’s hard to imagine they can’t meet the very few PE capital calls that are currently coming in.”

*** Today is a lot of things, and a Wednesday is among them. Since Wednesday is a weekday, that means we have yet another electric vehicle financing to report.

This one is for Miles Electric Vehicles Inc., a Santa Monica, Calif.-based company that is in the midst of raising $40 million in Series B funding. So far it has secured around $13 million from backers like Angeleno Group, which previously led a $15 million Series A round.

Angeleno managing partner Daniel Weiss confirmed the funding numbers, and argued Miles is “less capital intensive than a number of other folks in the space.” Specifically, he cites that the company outsources much of its manufacturing to China, and that it’s already proved fulfillment for the fleet market (the consumer market comes next).

I also asked Weiss about how Miles’ prospects are affected by Americans buying fewer new cars than in any other time in the past 25 years. His response: “The big difference between an emerging manufacturer and a large incumbent that has massive ongoing capital commitments is that we don’t need to sell 15 million cars to have a profitable, successful company. I don’t think that any business selling consumer products in this environment is immune, but I think the opportunity for Miles is still very compelling, even with the adjustment in oil prices.”

He declined to talk future funding requirements or possible exit opportunities (which I see as the elephant). Miles CEO Kevin Czinger was unavailable for comment, because he was on the campaign trail for someone in Connecticut.

Top Three

Cardiovascular Systems Inc., a St. Paul, Minn.-based maker of a minimally-invasive catheter system for the treatment of peripheral arterial disease, has agreed to go public via a reverse merger with Replidyne Inc. (Nasdaq: RDYN). CSI shareholders will hold approximately 83% of the combined company, while Replidyne shareholders will hold the remainder. CSI is currently in registration for an IPO, and has raised around $65 million in VC funding from firms like Maverick Capital (15% pre-IPO stake), Easton Hunt Capital Partners (9.1%) and Mitsui & Co. (5.6%). Replidyne was VC-backed prior to its June 2006 IPO, with shares still held by HealthCare Ventures, TPG Ventures, Morgenthaler Ventures, Perseus-Soros and Sequel Venture Partners.

Boscov’s Department Store LLC has terminated an agreement to be acquired by Versa Capital Management. It instead has agreed to sell most of its assets to a family group led by Albert Boscov and Edwin Lakin.

Vista Equity Partners has closed its third fund with $1.3 billion in capital commitments. The San Francisco-based firm focuses on mid-market opportunities in the enterprise software market.

VC Deals

Memento Inc., a Concord, Mass.-based developer of internal security software, has raised $10 million in Series D funding, according to a regulatory filing. Return backers include Bain Capital Ventures, Rock Maple Ventures and .406 Ventures. It had previously raised around $12 million.

FerroKin Biosciences Inc. has secured $8.4 million of a $15 million Series A round, according to a regulatory filing.Shareholders include Clarus Ventures, Burrill & Co. and Celegene Inc. The San Carlos, Calif.-based company is developing an iron chelator for the treatment of iron-overload in patients with transfusion-dependent hereditary and acquired refractory anemias.

Allpartis Biotechnologies Inc., a San Francisco-based cleantech company trying to convert sustainable biomass into clean fuels, has raised $750,000 in seed funding. CalCEF Angel Fund led the round, and was joined byX/Seed Capital Management.

Recapping Inc. has raised $500,000 in Series A funding from Khosla Ventures, according to a regulatory filing. The filing indicates that the company manufactures electric components, and that its only executive is Khosla Ventures partner Alex Kinnier.

Buyout Deals

Bayside Capital has acquired Flight Express Inc., an Orlando-based provider of same-day air courier services to banking and life sciences customers in the South and Midwest. No financial terms were disclosed.

Clearview Capital has acquired All Tech Inspection, a Corpus Christie, Texas-based provider of mechanical integrity inspection and non-destructive testing services. No financial terms were disclosed.

Marlin Equity Partners has acquired Holiday Creations, a Denver-based manufacturer of LED string lights and accessories in Canada and the United States. No financial terms were disclosed.

Oncap has acquired an undisclosed stake in Caliber Collision Centers, an Irvine, Calif.-based owner and operator of 66 collision repair facilities in California and Texas. No financial terms were disclosed.

Pala Investment Holdings has withdrawn its $85.7 million buyout offer for Rockwell Diamonds Inc. (TSX: RDI). The move comes a week after South African regulators said that Pala’s existing bid does not “properly consider the rights of option holders and warrant holders.”

Standard & Poor’s has lowered its corporate credit rating from B to B- for Hexion Speciality Chemicals, an Apollo Management portfolio company that is in the midst of a protracted battle to acquire Huntsman Corp.

PE Exits

Country Road Communications LLC, a telecom services company owned by Abry Partners, has completed its sale of three subsidiaries to Otelco Inc. (Nasdaq: OTT) for just over $101 million.

Inflexion Private Equity has sold Ilchester Cheese, a UK-based maker and exporter of specialty cheeses, to Tine, a Norwegian milk co-operative and the maker of Jarlsberg cheese. No financial terms were disclosed.

PE-Backed M&A

Reservoir Group, a UK-based provider of downhole drilling products and services to the oil and gas industry, has acquired InfoAsset. The deal is expected to help Reservoir create a data management division. Reservoir is a portfolio company of SCF Partners.

Firms & Funds

Atlas Venture is targeting $500 million for its eighth fund, according to VentureWire. The firm closed its seventh fund with $385 million in 2006.

Herkules Capital, a Norwegian firm previously known as Ferd Private Equity, has closed its third fund with NOK 6 billion ($890m) in capital commitments. Limited partners include Argentum, Ferd, Orkla, DnB NOR, Storebrand, Goldman Sachs and Indiana PERF.

Human Resources

Charlie Bott has left Goldman Sachs, where he had been chairman of the firm’s European financial sponsors group, according to Dow Jones. He originally joined Goldman in 1986, and was its first banker dedicated to private equity.

Qazi Fazal has joined Evercore Partners as a senior managing director in the firm’s restructuring advisory practice. He previously was a managing director with Miller Buckfire & Co.

HgCapital has promoted Justin von Simson to partner in the firm’s Munich office. He joined the firm as an associate in 2003, after having worked for both Goldman Sachs and Deloitte.

Peter McKillop has joined Kohlberg Kravis Roberts & Co. as director of global communications, effective Nov. 17. He previously was head of corporate communications for Bank of America’s Consumer and Small Business Bank. This is a new position for KKR, which will continue to use Kekst as its outside PR firm. McKillop will report to former RNC head Ken Mehlman, who joined KKR earlier this year as head of global public affairs.

Antoine Pau has joined Paris-based VC firm Truffle Capital as an investment manager on the firm’s life sciences team. She has spent the past three years with Mazars, where he audited pharmaceutical and biotechnology companies and investment funds.

Daniel Sasaki has joined LDC, the private equity arm of Lloyds TSB, as a director in the firm’s London office. He previously co-founded Hemisphere Capital and, before that, was a managing director of Softbank Europe Ventures.

Dan Slack is stepping down as executive director of the Illinois State Universities Retirement System (SURS), in order to become chief executive of the Fire and Police Pension Association of Colorado. The news was first reported by Pensions & Investments.