PE Week Wire

Monday Mouth-Off

The sun is shining, the Boston Herald could not be sold and Vinod Khosla is the Dateline NBC-anointed face of ethanol evangelism. In other words, it?s time for some Monday Mouth-Off.

*** First up is the $5 billion KKR flotation in Amsterdam, and my suggestion that this is a trial run for a mega-fund sea shift from traditional limited partners (particularly state pension funds) to the European public markets. Andrew writes: ?The reason they want to go public is the reason everyone wants to go public: GREED.Being public betters your chance to sell stock at a premium to book value (NAV), and allows the older generation of partners — who are not contributing as much to new funds — to retain ownership (because they will own shares in the management companies or funds that will end up holding some stock).Since when has any of these branded mega funds had trouble raising capital? Never, but raising capital at prices that reflect the enterprise value is something new.?

A different Andrew opines: ?Your point about the biggest LBO funds engaging in a dangerous game of one-upsmanship is dead-on.I like the analogy of nuclear proliferation in particular. Given that the term ?Mega-Fund? used to apply to funds of $1 billion, I?d suggest a name term for this select cadre of >$10 billion monster funds: the ?Super-Fund.? Mega just isn?t impressive enough anymore and I like the post-apocalyptic/EPA connotation of the term superfund as a descriptor in keeping with your nuclear theme.? Whaddya say fellow Wire readers? Is it Super Funds? Mega-Mega Funds? Dear Lord, Please Don?t Let The Leverage Tighten Funds?

Sameer asks: ?Any thoughts on whether KKR’s listingmightlead directly/indirectly to a revival of the SPAC trend?? I doubt it Sameer, but will reserve judgment until I compare terms in KKR?s Amsterdam prospectus with terms in KKR?s original SPAC offering from 2004 (which later was converted into an REIT). Unfortunately, I still haven?t gotten my hands on the Amsterdam document yet, but am hoping someone out there might be able to help out (either by emailing it to me or a European colleague)?

Joshua noticed that a Reuters story about the IPO includes the following line (bolding is mine): ?The globalization and institutionalization of private equity, impending retirement among top fund leaders, and a current slowdown in the buyout market are helping fuel the industry’s heightened focus on public vehicles to raise cash.? It seems Reuters knows something the rest of us don?t…

*** Mike writes in about my Intel Capital-related comment about ?strategic investors? being better at writing term sheets than ?treasurers? are at due diligence: ?That may be true, but any PE/ VC investor should hope that it is not. Indeed, ifmost VC’s did a better analysis ofthe cashflow forecasts/ possibilitiesof the companiesthey invest in, and spent less time writing tortuous term sheets, they might get (even) better returns. Capital appreciation is driven by the underlyingassumption that eventually there will be a big cashflow payback. It may be well beyond the averageVC’s time horizon, but ultimately the basic rules of economics kick in, and, as Microsoft’s mega dividend a while back shows, cash is still king, even in the technology world. Conclusion: Let the treasurers analyze the cash, and the strategic investors analyze the strategy, and if they both like it, and like/ trust the people, write a simple term sheet and get on with it.?

*** Finally, a bunch of you wrote in to inquire about Saturday?s announcement that Liberty Group Publishing is buying the community newspaper unit of Herald Media, plus some papers owned by Heritage Partners. Jay summed up the correspondence by asking: ?Why wasn?t the Boston Herald itself included in the deal?? The answer Jay is that no one would buy it. Boston Herald ad revenue is getting cannibalized by online classifieds companies like CraigsList, the free Boston Metro has eaten into its mass transit readership and its best asset (i.e., its Chinatown-adjacent HQ) could be contaminated with decades of printing press toxins.

Herald owner Pat Purcell originally asked Wachovia Securities to sell the entire company, with potential bidders told not to bother if they only wanted the community papers. But he had investors who wanted/needed out (Audax Group, Weston Presidio, Halyard Capital) and simply could not get enough buyer interest in a comprehensive deal.

None of this, however, prevented Purcell from publishing a thoroughly disingenuous front-page message in today?s Herald. He wrote: ?So let me dash the fondest hopes of the politicians, the prognosticators and our competitors at the Globe: The Boston Herald is here to stay.? Only because you couldn?t sell it Pat, not because you didn?t try to.

    Top Three

The Insitu Group Inc., a Bingen, Wash.-based designer and manufacturer of unmanned aerial vehicles for intelligence, surveillance and reconnaissance, has raised $23 million in Series C funding. Battery Ventures led the deal, and was joined by Second Avenue Partners and Pteranodon Ventures.

NTK Holdings Inc., a Providence, R.I.-based provider of building products under the Nortek brand, has filed to raise $690 million via an IPO of common stock. It plans to trade on the NYSE under ticker symbol NTK, with Goldman Sachs and Credit Suisse serving as lead underwriters. Thomas H. Lee Partners is the company?s majority shareholder, based in a $1.75 billion buyout from Kelso & Co. in 2004.

Scott Russell has left the general partnership of Diamondhead Ventures, according to today?s edition of Private Equity Week. He co-founded Mobius Venture Capital in 1996, but left to join Diamondhead in 2003. No word yet on his future plans.

    VC Deals

The 41st Parameter, a Scottsdale, Ariz.-based provider of covert fraud detection and prevention for the online channel, has raised $11.2 million in Series B funding. Kleiner Perkins Caufield & Byers led the deal, and was joined by Series A backer Norwest Venture Partners.

Varonis Systems Ltd., an Israel-based provider of information usage management solutions, has raised around $10.14 million in Series B funding, according to a regulatory filing. Backers include Pitango Venture Capital, Evergreen Venture Partners and Accel Partners.

DreamFactory Software Inc., a Los Altos, Calif.-based provider of adaptive on-demand applications, has raised $5.8 million in Series A funding led by New Enterprise Associates.

Atempo Inc., a Palo Alto, Calif.-based provider of data storage and protection solutions, has raised around $7.66 million in Series A funding from Vision Capital, according to a regulatory filing.

ViTrue Inc., an Atlanta-based developer of a user-created advertiser platform, has raised $2.2 million in first-round funding from General Catalyst Partners and former Tandberg Television president Reggie Bradford.

Cequint Inc., a Seattle-based provider of software and hardware applications to enhance mobile devices, has secured $505,000 of a $1.5 million Series A round, according to a regulatory filing. Backers include Alco Investment Co., BioNet Systems Inc. and The Benaroya Co. Cequint is run by former Dwango Wireless CEO Rick Hennessey. Ltd., a London-based provider of an online social music network, has raised an undisclosed amount of first-round funding. Index Ventures led the deal, and was joined by angels Joi Ito, Reid Hoffman and Stegan Glaenzer.

DotPhoto Inc., a West Trenton, N.J.-based provider of multimedia sharing and storage applications for wireless and online users, has raised $3.5 million in second-round funding from Edison Venture Fund and Sycamore Ventures.

xTech Inc., a Minneapolis-based information services company that enables online commerce and direct marketing companies to secure more profitable customers while preventing fraud and identify theft, has raised $8 million in Series A funding from Split Rock Partners.

Protagen AG, a Germany-based biotech company, has raised ?3.3 million in second-round funding from MIG AG and S-Venture Capital Dortmund GmbH.

    Buyout Deals

Candover has agreed to acquire UK-based used car information provider EurotaxGlass for £320 million from Lion Capital, according to The Telegraph of London. JPMorgan advised EurotaxGlass on the deal.

    PE-Backed IPOs

DivX Inc., a San Diego-based provider of video compression technology, has filed to raise $135 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol DIVX, with JPMorgan serving as lead underwriter. DivX has raised around $55 million in VC funding from firms like Zone Ventures, WI Harper Group, Insight Venture Partners, Draper Atlantic, Wasatch Venture Fund, Springboard-Harper, Cardinal Venture Capital, Ali Corp. and Cyberlink International Technology Corp.

H&T Group Ltd., a UK-based pawnbroker, has completed a public flotation on London?s AIM. It valued the company at £91.9 million. Rutland Partners had acquired H&T in 2004 from Cash America International Inc. for £49 million.

This week?s IPO calendar includes expected offerings from Novacea, QuatRx Pharmaceuticals, Alliance Holdings, BioMimetic Therapeutics, Compass Group Diversified Holdings, HD Partners Acquisition Corp. and Basin Water.

    PE Exits

Citrix Systems Inc. (Nasdaq: CTXS) has acquired Reflectent Software Inc., a Westford, Mass.?based provider of solutions to monitor performance of client-server Web and desktop applications from an end-user perspective. No financial terms were disclosed. Reflectent had raised around $13.5 million in VC funding, including a $10 million Series B round in 2004 at a post-money valuation of approximately $18 million. Backers included Greylock, Sigma Partners, Globespan Capital Partners and Velocity Equity Partners.

Vedior North America, a professional staffing subsidiary of VediorNV (ENXTAM: VDOR), has acquired CNC Global Ltd., a Toronto-based provider of IT staffing and recruitment process outsourcing solutions. No financial terms were disclosed. CNC Global had been a portfolio company of Torquest Partners. Robert W. Baird & Co. served as exclusive advisor to CNC Global on the deal.

Reddy Ice Holdings Inc. (NYSE: FRZ), a Dallas-based manufacturer and distributor of packaged ice, has filed for a secondary public offering of 4.59 million shares. Selling shareholders include Trimaran Capital Partners and Bear Stearns Merchant Banking Partners.

    PE-Backed M&A

TelePacific Communications Inc., a Los Angeles?based provider of telecom services to business in California and Las Vegas, has agreed to acquire Mpower Communications Corp. (AMEX: MPE) for approximately $204 million in cash, or $1.92 per share. The deal will be financed via a senior credit facility arranged by Credit Suisse and Bank of America. Investcorp is TelePacific?s largest shareholder.

SOA Software Inc., a Los Angeles-based provider of enterprise-class SOA solutions, has acquired Blue Titan Inc. of San Francisco. No financial terms were disclosed. SOA has raised around $46 million in VC funding from firms like Redpoint Ventures, Paladin Capital Management, Palisades Ventures and Vulcan Capital. Blue Titan has raised over $10 million from firms like Draper Fisher Jurvetson.

Online Resources Corp. (Nasdaq: ORCC) has agreed to acquire electronic payments company PrincetoneCom Corp. for $180 million in cash and an earn-out of up to $10 million. Tennenbaum Capital Partners will provide acquisition financing to ORC, while Conning Capital Partners will sell its Princeton eCom position. Lehman Brothers advised ORC, and Lane, Berry & Co. advised Princeton eCom.

BASE Entertainment Inc., a live entertainment acquisition platform backed by Clarity Partners, has acquired interests in numerous properties from Live Nation, including Andrew Lloyd Webber’s Phantom – The Las Vegas Spectacular, Cirque du Soleil’s Delirium, rights to build and operate two venues in the newly branded Planet Hollywood Las Vegas’ Resort & Casino and the Broadway-bound original musical Martin Short: Fame Becomes Me. No financial terms were disclosed.

    Firm & Fund News

Dragonvest Partners, a Shanghai, China-based early-stage VC firm, has held an initial close on its $30 million second fund. Dragonvest also said that it has formed two strategic relationships. It will jointly review deal opportunities with Softbank China Venture Capital in order to co-invest, and will also work with Waltham, Mass.-based Kodiak Venture Partners to help Kodiak portfolio companies expand into the Chinese market.

Greylock is looking to raise $150 million for a fund focused exclusively on Israeli companies, according to BusinessWeek.

Wachovia Corp. has agreed to acquire Golden West Financial Corp. The total deal could be valued at upwards of $26 billion.

    Human Resources

Michelle Ollier and Roman Fleck have joined Index Ventures as a principal and associate, respectively. They both will focus on life sciences out of Index?s Geneva, Switzerland office. Ollier previously was a director with Edmond de Rothschild Investment Partners, while Fleck worked in drug discovery and business development with Boehringer Ingelheim Pharmaceuticals.

Peter Schwanitz has joined German fund-of-funds manager VCM Capital Management, where he will focus on the buyout market. He previously has worked with both AXA Private Equity and Colonia Nordstern Group.

Michael Even has agreed to join TA Associates portfolio company Numeric Investors LLC as president and CEO, effective June 1. He currently served as executive vice president and head of institutional asset management for Legg Mason.

Commerzbank Corporates & Markets has added five people to its leveraged finance group. They are: Christoph Reinhard, Frankfurt-based transaction team leader, previously with BNP Paribas; London-based Antoine Collas, formerly a high yield and mezzanine analyst with Trust Company of the West; Frankfurt-based Markus Koechling, previously with Landesbank Baden-Wurttemberg; Frankfurt-based Jan Hoon; and Frankfurt-based Alexander Schroder.