PE Week Wire: Wednesday, September 3, 2008

Running very late this morning, because there was an extraordinary amount of news to compile (including a flurry of exits). I’d like to suggest that yesterday’s prediction came true in less than 24 hours, but realize that it’s a case of PR flacks telling their clients to hold big news until someone is paying attention. Anyway, onto some business:

*** We’ve been hearing a lot about “seller expectations” lately, particularly as an excuse for why deal activity has been so slow (yes, save for this morning). The poster child for that is Yahoo, but there are hundreds — if not thousands — of potential M&A targets that won’t sell unless the payout approaches what they would have gotten during the bull market of 2006 and early 2007.

I totally buy the theory, but wonder why it rarely gets talked about as a factor in the recent paucity of private equity exits (Yes Jeff, there have been some). Aren’t buyout pros and venture capitalists susceptible to overvaluing their portfolio companies? Mark-to-market accounting should help assuage some of that self-love, but almost no investor I speak with believes that such figures are legitimate (”You can’t value a private company using public metrics…”).

Seller expectations go both ways, particularly when the buyers ultimately need to become sellers.

*** Platinum Equity today announced that it has closed its second fund with $2.75 billion in capital commitments. For those paying close attention, this is about five months later than Platinum originally planned to close the fund, which principal Mark Barnhill attributes to rounding up a few stray cats (my words, not his).

“We held the final close last Friday, but fund-raising was basically done for all intents and purposes by the end of Q1,” Barnhill says, in his own words. “It just took a bit longer to get to the official finish line with a couple of LPs, so we waited.”

Platinum originally began pre-marketing the fund in late 2006 with a $1.5 billion target, which was twice the size of its first third-party fund raised in 2004 (it had previously used the personal fortunes of founder Tom Gores). The obvious question, therefore is why it raised $2.75 billion — particularly in a time of decreased deal activity and volume. It’s a particularly obvious question for me, given how I criticized Warburg Pincus earlier this year for doing something similar (criticism that I do need to revisit/reevaluate at some point).

Barnhill explained that current market conditions prompted Platinum’s decision, rather than contracted it. “We focus on operationally underperforming and undermanaged businesses in need of operational capabilities on the ground to facilitate turnaround,” Barnhill explains. “From that perspective, it’s a more target-rich environment than it was when we began fund-raising.”

It also didn’t hurt that the firm just got around 25x return on PNA Group, which went in a non-auction sale to Reliance Steel…

*** Speaking of fund-raising, we’ve learned that Blue Wolf Capital has held a $100 million first close for its second fund, which is targeting $250 million. This is the lower-middle-market firm formed by a pair of guys who used to work in the New York City Comptroller’s Office. More info here.

*** One of today’s top items is that WildBlue Communications, a provider of broadband-over-satellite services to rural customers, has raised $50 million in new VC funding. That brings the company’s total private equity take to over $430 million since 1999.

I spoke briefly this morning with WildBlue CFO Mark Adolph, who said the new round is structured like a merger that recaps the company into an all-common stock structure. He adds that there are plans to raise even more capital, in order to better support the space (read: satellite) segment. No solid decisions yet on how much more is required, since the deal could end up being more strategic than financial. The current $50 million will be used to support subscriber acquisition costs via retail channels.

Top Three

WildBlue Communications Inc., a Greenwood Village, Colo.-based provider of broadband Internet-over satellite services in rural America, has raised $50 million in new VC funding. Backers include Libery Media, Intelsat, the National Rural Telecommunications Cooperative and Kleiner, Perkins, Caufield and Byers.

Energy Capital Partners has agreed to sell FirstLight Power Enterprises Inc. to SUEZ Energy North America for a reported $1.9 billion. FirstLight owns and operates 15 power generation plants, primarily storage and traditional hydro facilities in New England.

Platinum Equity of Los Angeles has closed its second fund with $2.75 billion in capital commitments.

VC Deals

Quotient Bioscience Group Ltd., a UK-based provider of bioscience analytics and safety evaluation services, has raised approximately £35 million from TA Associates, in exchange for a minority equity position.

Osprey Pharmaceuticals USA, a San Francisco-based developer of protein therapeutics for treating inflammatory diseases, has raised $11 million in first-round funding. Burrill & Co. led the round, and was joined by Novo Nordisk Biotech Fund, Yasuda Enterprise Development, GeneChem Therapeutics Venture Fund, BDC Venture Capital, Inc. and Western Technology Seed Investment Fund.

Conject AG, a Munich, Germany-based provider of management software for the real estate and construction industry, has raised €5 million in new VC funding. Seventure Partners led the round, and was joined by return backer Earlybird. The company has now raised around €20 million in total VC

Correlix Ltd., a New York-based provider of solutions for monitoring and analyzing trading execution and market-data flows in real time, has raised $8 million in Series B funding. Sequoia Capital led the round, and was joined by return backers Genesis Partners, Blumberg Capital and Xenia Ventures.

Old Road Computing (a.k.a. Virtual Computer), a Westford, Mass.-based virtualization technology startup, has raised $6 million in Series A funding from Highland Capital Partners and Flybridge Capital Partners. The round closed back in Q1.

Primedic SAPI de CV, a Monterrey, Mexico-based provider of healthcare services, has raised $6 million in first-round funding. Ignia Fund and Tango co-led the round.

Secure64 Software Corp., a Greenwood Village, Colo.-based developer of server security applications, has raised $3.7 million in Series A funding from undisclosed investors.

ReputationDefender, a Redwood City, Calif.-based provider of online name-monitoring and protection services, has raised $2.6 million in first-round funding. Backers include European Founders Fund, Maples Investments and RP/JA Investments.

DiaKine Therapeutics, a Charlottesville, Va.-based developer of diabetes drugs, has raised an undisclosed amount of seed funding from BlueTree Allied Angels.

Buyout Deals

LLR Partners and FTVentures have sponsored an acquisition of TransPlatinum Services Inc., the holding company for Fleet One, from SunTrust Banks Inc. No financial terms were disclosed. Fleet One provides fuel charge cards and fleet management information services. It was acquired by SunTrust in 2004 as part of its National Commerce Financial merger.

Monomoy Capital Partners has acquired Katun Corp., a Minneapolis-based provider of compatible supplies, photoreceptors and parts to the imaging industry. No financial terms were disclosed.

The Riverside Co. has acquired HealthcareFirst Inc., a provider of hosted software solutions to small businesses in the Medicare-reimbursed home health agency and hospice markets. No financial terms were disclosed. Riverside did the deal out of its Micro-Cap fund, which focuses on companies with $5 million or less in EBITDA.

Griplock Systems LLC, a Carpinteria, Calif.-based maker of cable suspension systems, has raised an undisclosed amount of private equity funding from KCA Partners.

Telerik, a Sofia, Bulgaria-based provider of software development tools and components, has raised an undisclosed amount of private equity funding from Summit Partners. The company has a U.S. office in Newton, Mass., and was founded in 2002.

PE-Backed IPOs

Codexis Inc., a Redwood City, Calif.-based provider of solutions for pharma chemical process development and manufacturing, has withdrawn registration for a $100 million IPO. It has planned to trade on the Nasdaq, with Credit Suisse and Goldman Sachs serving as co-lead underwriters. Codexis has raised just over $80 million in VC funding since 2002, from firms like CCTV Investments, CMEA Ventures, Pequot Capital, Bio*One Capital and Pfizer.

PE Exits

Abingworth has sold Clinical Designs Ltd. to Mundipharma International Corp., for an undisclosed amount. Clinical Designs is a UK-based maker of devices for drug delivery via the respiratory system.

Barclays Ventures has sold Uninterruptible Power Supplies Ltd., a UK-based provider of UPS systems and services, to Kohler Power Systems, a unit of Kohler Co. No financial terms were disclosed.

IntercontinentalExchange (NYSE: ICE) has completed its acquisition of credit derivatives broker Creditex Group Inc., from shareholders like TA Associates. The sale price was $513 million – including $461 million in ICE common stock and $52 million in cash – which is significantly lower than the original announced value of $625 million. TA Associates invested $57 million into Creditex in July 2005, in exchange for a minority position. It also is a former investor in ICE.

J.C. Flowers & Co. and Metalmark Capital have agreed to sell Direct Response Corp. to an affiliate of Unitrin Inc. (NYSE:UTR) for approximately $220 million. Direct Response is a Meriden, Conn.-based seller of personal automobile insurance.

Oracle has agreed to acquire ClearApp Inc., a Sunnyvale, Calif.-based provider of application performance management automation for portal, J2EE and SOA applications. No financial terms were disclosed. ClearApp had raised around $25 million in venture capital and venture debt from Sierra Ventures, 3i Group, Partech International and TriplePoint Capital.

Permira and KKR do not plan to put ProSiebenSat’s flagship channel up for sale, despite acquisition interest from rival Premiere.

Tuckerman Capital has sold Auto & Truck Glass LLC to Guardian Industries Corp. for an undisclosed amount. Auto & Truck Glass is a Mission Viejo, Calif.-based provider of windshield replacement and installation services to the U.S. rental car industry. It was advised on the sale by Prestwick Partners.

PE-Backed M&A

iTradeNetwork Inc., a Pleasanton, Calif.-based provider of on-demand software solutions to the food industry, has acquired Amphire Solutions Inc., a provider of supply chain and purchasing solutions. No financial terms were disclosed. iTradeNetwork is majority-owned by Accel-KKR.

Transcept Pharmaceuticals Inc., a Point Richmond, Calif.-based CNS drug company, has agreed to go public via a reverse merger with Novacea Inc. (Nasdaq: NOVC). Following the transaction, Transcept shareholders would hold a 60% stake in the combined company, while Novacea shareholders would hold the remaining 40 percent.

Transcept has raised around $70 million in VC funding since 2003, including a $40 million Series D round last year. New Enterprise Associates led the round, and was joined by New Leaf Venture Partners, Montreux Equity Partners, InterWest Partners, Hamilton BioVentures, Vivo Ventures and Peninsula Equity Partners.

Firms & Funds

Water Street Healthcare Partners, a private equity firm focused on the healthcare industry, has closed its second fund with $650 million in capital commitments.

Human Resources

Mo Koyfman has joined Boston-based venture firm Spark Capital, according to Silicon Alley Insider. He previously was COO of IAC’s Connected Ventures.

Bradley Critchell and Andy Nick have joined Cogent Partners as a New York-based director and Dallas-based associate, respectively. Britchell previously was an I-banker with Credit Suisse, while Nick had been with Citigroup Global Markets.

Edward Rimland has joined The Silverfern Group as a managing director. He previously was a senior managing director in the M&A group of Bear Stearns.