peHUB Wire: Friday, December 4, 2009

This is Erin filling in for Dan. Reach me here.

The never-ending New York pay-to-play scandal plot thickened yesterday with the guilty plea of Markstone Capital’s Elliott Broidy. As founder and Chairman of the Israel-focused venture capital fund, Broidy paid almost one million dollars in gifts to four New York officials to obtain a $250 million investment from the New York State Common Retirement Fund in Markstone Capital Partners, L.P. That included trips to Israel, and yes, a big chunk of money for our favorite horrible movie, “Chooch.”

Dan returned from vacation briefly to liveblog the call with Attorney General Andrew Cuomo here. You can find Broidy’s statement on the matter here. The press release from the Attorney General’s office is here. And a press release from Markstone Capital is here.

Our main questions are (1) What does this mean for Markstone’s fund? The firm has quickly appointed a replacement for Broidy. Ambassador Dan Gillerman has stepped in as Chairman following Broidy’s resignation. Gillerman is a former Israeli Ambassador to the UN and Chairman of the Israel Association of Chambers of Commerce. The press release stressed that the firm’s operations are based in Israel and will remain that way.

In a statement, Markstone said is expects the investigation to have “no effect” on the value of its investors’ interests in the partnerships. Maybe, but the exit of Broidy has to trigger a key man provision. And furthermore, is New York capable of withdrawing its investment? Now that it’s clear the investment was not made on the basis of merit, doesn’t it seem wrong that New York would continue to fund Markstone’s capital calls?

For background, Markstone raised an $800 million pool of capital in 2005, including $250 million from New York State Common Retirement Fund. The firm has invested $562 million of it to date and seen an overall gross return of 11%. As of March, $181 million of New York’s investment had been was called down, meaning there’s as much as $69 million in uncalled capital.

And (2) When do we see the guilty parties on the pension fund side? Chief Investment Officer David Loglisci has already been implicated, but Cuomo has said there are three more bride-takers. One is likely to include former state comptroller Alan Hevesi, who Cuomo declined to comment on yesterday. Today WSJ reports that that foursome does include Hevesi, who had “long expressed a desire to stay at the King David hotel” in Jerusalem’s Old City, a dream Broidy apparently fulfilled. Yikes.

Lastly, today the L.A. Times provided an in-depth look at Broidy’s ties to CalPERS and his shady dealings while at Los Angeles Fire and Police Pensions Board (from which he resigned in May). He and his wife donated to several of CalPERS’s board members; CalPERS made a $50 million investment in Markstone’s fund. The pension fund said it’s evaluating its partnership with Markstone.

***That’s it for me, Dan will return on Monday. Have a great weekend!

Top Two

Zoosk, a social dating community, has closed a $30 million Series D round of funding. The round was led by new investor Bessemer Venture Partners. Existing investors Canaan Partners and ATA Ventures also participated.

Hudson Clean Energy Partners has officially closed its debut fund, Hudson Clean Energy Partners, L.P., with commitments of $1.024 billion. The fund had a target of $1 billion. C.P. Eaton Partners LLC served as lead placement agent for the fund, and was assisted by Credit Suisse and Poalim Ventures Ltd.

VC Deals

Apnex Medical, Inc., a private medical device company based in St. Paul, Minn., completed a second round of private equity financing totaling $14 million. Participants in the financing include Domain Associates, New Enterprise Associates (NEA), Polaris Venture Partners and Michael Berman. This financing brings the total investment in Apnex Medical to $30 million.

Lanyon, Inc., a provider of content, bid and spend management solutions to the travel and hospitality industries, today announced that it has received $10 million in expansion funding from Frontier Capital. Frontier is a private equity firm providing growth equity to technology enabled business services companies.

H.I.G. Ventures invested in Triad Digital Media, LLC, a Tampa, FL-based online advertising services company. The deal value was not disclosed. The financing is Triad Digital Media’s first institutional investment.

HiBeam Internet & Voice raised additional seed funding from private investors. Both existing and new investors participated in this funding, which HiBeam plans to use to continue to deploy 4G wireless into rural and semi-rural markets. The terms were not disclosed.

Buyouts Deals

H.I.G. Capital completed an investment in National Asset Recovery Services “NARS,” a St. Louis, Miss.-based provider of accounts receivable management and outsourcing services. Terms were not disclosed. Greenberg Advisors represented H.I.G. Capital and Reprise in this transaction.

AIA Group Ltd, the Asian life insurance unit of American International Group Inc, could raise between $5 billion and $10 billion in a planned initial public offering, the Wall Street Journal reported. The company would list AIA Group in Hong Kong, the paper added.

Royal Mail has agreed to sell its 20 percent stake in Camelot, the British national lottery operator, reported the Times on Friday. The sale has attracted the interest of a number of private equity firms. Investment banks Rothschild and Greenhill & Co are running the auction process which recently entered a second round. The next round of bids are due to be submitted next month, the Times said.

Private equity firm EQT’s lenders are meeting next week to discuss a 1 billion pound ($1.7 billion) underwritten loan as it moves closer to a bid for German publisher Springer Science and Business Media, Reuters reported.

American Airlines said it and other members of the Oneworld airline alliance along with private equity fund TPG are willing to invest $1.1 billion in Japan Airlines to prevent it defecting to Delta Air Lines and the rival Skyteam group of bidders. Delta has said that it and other SkyTeam members are ready to offer JAL a total financial aid package of about $1 billion, including a $500 million equity investment.

Unsecured creditors to bankrupt Freedom Communications received court approval to begin pursuing an alternative reorganization plan for the owner of the Orange County Register newspaper. The family of R.C. Hoiles and private equity firms Blackstone Group LP and Providence Equity Partners, as current owners of Freedom, would get stock and warrants representing 12 percent of the new company under the proposed plan.

Firms & Funds

Lone Star Funds has raised more than $1.2 billion for two funds that will invest in commercial real estate and securities, Bloomberg reported. The firm, led by John Grayken, has secured pledges for more than $500 million for Lone Star Fund VII and about $725 million for Lone Star Real Estate Fund II.

PAI Partners, France’s biggest private equity group, has got the go-ahead from investors to reopen a buyout fund, but on a more modest scale and with governance that is more favourable to them. The Fifth buyout fund, which has already invested 900 million euros, will be reopened but cut in half to 2.7 billion euros.

Crisis-struck private equity house Candover ditched ambitious plans for its 2008 flagship fund, shutting off cash supply for further deals, and raising question marks over the firm’s future. The British group proposed to scale back future commitments to just 100 million euros ($151 million) from 3 billion, it said on Friday, to provide cash for the fund’s sole investment, oil and gas services business Expro.

Britain’s Electra Private Equity is back targeting distressed sellers for new deals after a year of firefighting to protect investments and limit declines in asset valuations. Electra, said NAV per share in the year to end-September slipped 4.5 percent to 1,720 pence, the top end of analyst forecasts, driving its shares 6.1 percent higher.

Geneva-based Swiss Investment Fund for Emerging Markets (SIFEM) agreed to participate in a $100 million fund to buy distressed small and medium-sized assets in Egypt, the fund’s sponsors said on Thursday.

Human Resources

Janney Montgomery Scott, an investment bank and financial services firm, hired of Peter A. Blackwood as Managing Director in the Technology & Services Investment Banking Group. Prior to joining Janney, he served as Principal and Head of the Internet & Digital Media Group at Merriman Curhan Ford & Co. where he was responsible for the origination and execution of public equity, private equity and M&A advisory transactions.

Commonwealth Capital Ventures, a VC firm with investments in software and software-based services, Internet and digital media, communications technology, and instruments and systems, hired J. Casey Gibbons and Joel J. Rodriguez as Associates. Gibbons was co-founder of NextPlay. Rodriguez was Senior Associate Consultant at Bain & Co.

Hodes Weill & Associates, an advisory and investment business focused on real estate private equity and private funds, hired Ray Potter has joined the firm as a Principal. Mr. Potter will focus on the firm’s property underwriting, due diligence and principal investment activities.

Riveron Consulting, a consulting firm serving private equity funds, expanded into the Chicago market with the hiring of Jason Apple as director of business development. Apple was previously Mrsenior vice president of business development for Houlihan Lokey.