PE Week Wire: Wednesday, September 24, 2008

This Friday’s presidential debate is about foreign policy, but it is almost certain that economic policy will also be discussed. Were I moderator Jim Lehrer, I’d ask the following question first: Who would be three of your top three choices for Treasury Secretary, and why?

Hank Paulson fought hard for his plan yesterday, and passage of anything similar would easily make him the nation’s most consequential financial figure. More an economic czar than a Treasury secretary. He’d almost certainly be around to spend/invest the $700 billion, but it’s unlikely that he’d be able to unload much of it before the next administration takes hold. That job would fall to someone else, and his/her identity, therefore, arguably becomes more important to our collective economic security than is the political football of short-term tax policy.

So Senators, who do you want? Obama suggested on 60 Minute! s that he might be open to keeping Paulson on board, but wasn’t pressed for a rationale. McCain, to my knowledge, has not commented on it (although he did suggest Andrew Cuomo should replace Chris Cox as SEC chair). I know picking cabinet candidates typically comes post-election, but this is an extraordinary post in an extraordinary time. It’s a question that should be asked and answered now, not later.

*** Some of you have asked for my thoughts on the new Fed rule making it easier for PE firms to invest in banks (btw: Chris Flowers announced plans to acquire a Missouri bank, but in his own name rather than as J.C. Flowers & Co.). Here’s my initial take:

1. Private equity firms are very tempted to do bank and bank-like deals, because the financial services sector is considered at a nadir with lots of motivated sellers.

2. Big private equity firms are further tempted to do such deals, because they want to expand their asset management platform beyond just alternative investments (this is particularly true of KKR).

3. Limited partners are terrified of both #1 and #2, because they know only fools rush in. LPs look at the TPG/WaMu situation, and would rather it become an isolated incident rather than a trailblazer.

4. #3 probably cancels o! ut #1 and #2, particularly given that PE firms still are unable to take control under the proposed rules — which would put them in a very difficult position were future cash infusions required.

5. So PE firms looking to capitalize on the current mess will probably turn their sites to the Paulson Plan. If it, or something similar, goes through, expect to see a whole host of new funds dedicated to buying up the toxicity at 10 cents on the dollar, and then trying to work it out. This may include funds from existing firms or from dedicated spinout teams of ex-PE/ex-hedge pros. In both cases, the buying is easy while the workout is hard. That means that all those ex-Lehman, etc. folks may soon have new homes. Yes, it’s kind of like hiring an arsonist to be your fire chief, but no one ever said this was all supposed to make much sense.

*** Venture capitalists should be very nervous about new reports saying that companies plan to cut/cap new IT spending next year. It was that phenomenon more so than dotcom silliness – that caused so many VC portfolio problems earlier this decade.

*** It was great seeing more than 200 of you last night at our first-ever peHUB Shindig in Denver. We’ll certainly be coming back. Tonight is San Francisco, which is officially sold out. However, I’m opening up 25 more tickets right now. Then that’s it. You will got be able to get in at the door without having already signed up. See lots of you tonight, and then onto Seattle tomorrow.

Top Three

GridPoint Inc., an Arlington, Va.-based smart-grid company, has raised $120 million in fifth-round funding. It also has acquired V2Green, a Seattle-based developer of plug-in electric vehicle grid integration technology. No financial terms of the acquisition were disclosed. GridPoint did not identify investors participating on the deal, which includes an initial $100 million call-down and the conversion of all outstanding shares into common stock. It did say, however, that most of the mone! y came from prior backers, which include Goldman Sachs, New Enterprise Associates, Susquehanna Private Equity, Perella Weinberg Partners and Robeco. Gridpoint has now raised around $220 million in total VC funding.

Brazos Private Equity Partners has closed its third fund with more than $700 million in capital commitments. The Dallas-based firm focuses on middle-market companies with enterprise values of between $50 million and $400 million.

Rosetta Stone Inc., an Arlington, Va.-based provider of language learning software, has filed for a $115 million IPO. It plans to trade on the NYSE under ticker symbol RST, with Morgan Stanley and William Blair & Co. serving as co-lead underwriters. Rosetta Stone was acquired in a 2006 management buyout by ABS Capital Partners (46.1% pre-IPO stake) and Norwest Equity Partners (30.1%).

VC Deals

ForteBio Inc., a Menlo Park, Calif.-based provider of analytical systems for life science and pharmaceutical development, has raised $25 million in Series C funding. OrbiMed Advisors led the round, and was joined by MPM Capital and return backers Alloy Ventures, Latterell Venture Partners, The Vertical Group and Versant Ventures.

Telligent, a Dallas-based maker of social computing solutions and business intelligence tools, has raised $20 million in venture funding from Intel Capital. The deal includes a pair of $10 million tranches, with the first one already called down.

InMage Systems Inc., a Santa Clara, Calif.-based provider of data protection and disaster recovery software, has raised $15 million in Series C funding. Intel Capital led the round, and was joined by return backers Hummer Winblad Venture Partners and Kumar Malavalli.

Confluence Solar Inc., a St. Louis-based maker of single-crystal silicon for the solar PV market, has raised $12.7 million in Series A funding. Convexa Capital (Norway) led the round, and was joined by DC Chemical Co., Scatec Adventure AS and Oceanshore Venture.

Buyout Deals

Advent International has acquired Grango Assado, an operator of highway restaurants in Brazil, from the company’s founding family. No financial terms were disclosed, although Grango Assado expects 2008 sales in excess of US$120 million.

American Fibers and Yarns Co. has filed for Chapter 11 bankruptcy protection, in order to liquidate its assets. The company makes polypropylene fibers and yarns for home furnishings, automotive and industrial applications. Monitor Clipper Partners sponsored a management buyout of the company in late 1999 from a division of AP Amoc! o.

Warburg Pincus has sold ChartOne Inc. to Healthport, a portfolio company of Abry Partners. No financial terms were disclosed, although an earlier Dow Jones report said the deal was expected to include $150 million in debt financing being arranged by GE Capital and NewStar Financial. ChartOne is a Burlington, Mass.-based provider of medical record workflow solutions.

Lehman Brothers is being replaced as agent on a pair of European leveraged loans that backed buyouts of Firth Rixson (Oak Hill Capital Partners) and Iglo Birds Eye Frozen Foods (Permira).

PE Exits

Axa Private Equity has retained Lazard to run an auction for Paris-based cleaning products company The Spotless Group. Reports suggest that Axa is looking to get bids of around 700 million.

GMAC, which is majority-owned by Cerberus Capital Management, has agreed to sell its home services unit to a division of Brookfield Asset Management. No terms were disclosed for the deal, which is expected to close next quarter.

PE-Backed M&A

Active Interest Media, a media roll-up platform formed by Wind Point Partners in 2003, has acquired Yellowstone Journal Corp., a media company focused on happenings at Yellowstone National Park. No financial terms were disclosed.

Human Resources

Robert Savage has joined Greenpark Capital as a London-based investment director. He has spent the past 13 years with Doughty Hanson.

True Ventures has promoted Braughm Ricke to chief financial officer. He previously was VP of finance with True and, before that, was controller with 5AM Ventures.

American Capital Ltd. has opened an office in Hong Kong, which is its first satellite in Asia. The office will be led by David Steinglass, who has been with American Capital for the past eleven years.