peHUB Wire: Friday, February 26, 2010

This is Erin filling in for Dan. Reach me at

In recent weeks, PE pros have lamented that, since the FDIC imposed its stringent set of rules for bank buyouts, none have happened. But a total and complete drought is not necessarily the case.

Yesterday, TPG’s David Bonderman (in a rare public appearance) slammed the FDIC for causing more banks to fail by not making it easier for private capital to invest. “The reason you are seeing so many announced bank failures and no equity coming in is because of misguided policies by the U.S. Government,” he said, via Reuters.

He also said the FDIC is “terrified” of private equity taking control of a bank. Sidenote: He did not mention that TPG is likely terrified of investing in a bank without taking control, a lesson the firm learned the hard way with its disastrous PIPE deal in WaMu.

And he’s right—the fear that buyout firms will mess things up is one I’ve heard echoed by industry bankers. “Public policy consideration is trumping the economics at this point,” one banker said. To put it another way, the government doesn’t want to screw up.

But I think it’s important to point out that, contrary to Bonderman’s comments, buying (and saving) a bank is more complicated than many private equity pros think. For example, while private equity firms typically want to change the asset mix of a failed bank, there are a lot of regulatory hurdles to doing so.

And while we haven’t seen a big, clubby bank buyout in the past six months, there have in fact been (apologies) “green shoots.” According to industry bankers, deals are happening, slowly, on a smaller scale and under the radar.

In early February, for example, Lightyear Capital and Westport Capital invested a respective $52.2 million and $20.8 million into Community & Southern, formerly First National Bank of Carrollton. Former Flag Financial Corp. CEO Joe Evans invested $300 million alongside private equity firms to buy Georgia’s Security Bank Corp. Parthenon Capital Partners, Lovell Minnick Partners, Continental Investors and a group of existing shareholders invested in Seaside National Bank & Trust, based in Florida.

Somewhere between five and 10 bank buyouts have closed in the past six months, one banker estimated. That’s clearly miles below the pace and volume previously expected, but at least capital is being raised and deals are being discussed. Another banker characterized the successful deals as “only certain extraordinary opportunities,” while the “broader, more conventional” auction processes are moving slowly. As a result, some failed banks have been able to “grow out” of their financial troubles under the FDIC’s umbrella, because they can retain their earnings instead of distributing them as dividends, helping to heal the bank’s financial troubles.

Either way, the FDIC’s guidelines may be revisited, even though that promised six-month review is looking more and more like a nice political gesture. Bonderman said, “Sooner or later the Feds will get the idea that the way you get capital into the system is to attract it, not to repel it, and make rules that reward capital and not the other way around.” But for now, the FDIC is merely “having ongoing discussions” with PE groups to help it decide whether to even review the policy.

Previously: Dear FDIC, It’s Been Six Months… How About Those Bank Deals?

Top Three

THL Partners has agreed to acquire publicly traded CKE Restaurants, which operates the Carl’s Jr. and Hardee’s chains, for $928 million. The deal includes the assumption of $309 million in debt. UBS Investment Bank is acting as financial advisor to CKE. BofA Merrill Lynch and Barclays Capital are acting as financial advisors to THL. Affiliates of BofA Merrill Lynch and Barclays Capital have provided a financing commitment to THL to support the transaction.

Silver Spring Networks has hired Morgan Stanley and Jefferies & Co. to underwrite an IPO, Dow Jones Clean Technology Insight reported. The company aims for a valuation of $3 billion in its debut. The smart grid networking company, based in Redwood City, Calif., has raised $255 million from venture capitalists including Google Ventures, Foundation Capital, Kleiner Perkins Caufield & Byers and Northgate Capital.

Afores, Mexico’s pension funds, will take a $200 million stake in a fund that invests in private equity in the coming days, those involved in the deal said, as the risk-shy funds search for bigger returns.

VC Deals

Baidu, Inc., a Chinese language Internet search provider, confirmed previous reports that Providence Equity Partners will invest in the company. The Providence-based private equity firm will invest $50 million in Baidu’s new online video company to develop an advertising supported online video business. Baidu will continue to maintain majority ownership in the company.

MOG, a digital music and music blogging network based in Berkeley, Calif., closed a round of funding totaling $9.5 million, led by London-based Balderton Capital and Menlo Ventures. Additional investors in the company include Simon Equity Group, Universal Music Group and Sony Music.

Whiteglove House Call Health Inc., a healthcare services company based in Austin, Texas, raised $6.4 million toward a target of $8 million in a Series C round of financing from seven investors, according to an SEC filing.

CalStar Products, Inc., a Newark, Calif.-based green building materials business, closed a $15 Million equity investment led by Nth Power. The round included new investors The Westly Group and Clearpoint Capital as well as continuing investors Foundation Capital and EnerTech Capital.

Buyouts Deals

Diamond Foods Inc., a publicly traded nuts and snacks seller, agreed to buy potato-chips maker Kettle Foods from Lion Capital LLP for $615 million in cash, to expand its presence in the growing potato chip market.

GMAC, the government-controlled auto finance company, has largely been stabilized, but an initial public stock offering that will reduce the taxpayers’ stake is probably at least a year away, senior U.S. Treasury officials said.

Harrah’s Entertainment Inc., backed by TPG and Apollo Management, reported a fourth-quarter profit on Thursday, compared with a year-earlier loss, but revenue fell 8 percent as demand in Las Vegas and Atlantic City remained weak.

Eureka Growth Capital and Shore Points Capital recapitalized Commercial Carpets of America a floor coverings provider based in Washington, D.C. Susquehanna Bank provided a senior term loan and working capital revolver as debt financing for the transaction.

AMICAS Inc., a publicly traded medical technology company, said it would review the revised offer it received from Merge Healthcare now that it has been updated to include an executed definitive commitment letter for $200 million of financing from Morgan Stanley. AMICAS had previously agreed to sell itself to New York buyout firm Thoma Bravo, rejecting a rival offer from Merge because it did not have proof of guaranteed financing.

PE-Backed M&A

Ipreo, a provider of data and market intelligence to banking and corporate clients, has acquired the certificates collection service of Markit Group, based in London. Ipreo is majority owned by New York private equity firm Veronis Suhler Stevenson.

PE Exits

Denmark’s Danske Bank and Sweden’s SEB have joined a team of banks to launch a share offering in Danish telecom TDC for its private equity owners, Reuters reported. Blackstone, Permira, Kohlberg Kravis Roberts, Providence and Apax Partners hold 87.9 percent of TDC via Nordic Telephone Company Holding, following its 100 billion Danish crown ($18.1 billion) buyout in 2005.

Solta Medical Inc., a publicly listed medical aesthetics company, has acquired Aesthera Corporation, a Pleasanton, Calif.-based provider of light-based acne treatments, for $6 million in common stock and cash. Aesthera received approximately $15 million in venture backing from MedVenture Associates and Adams Street Partners.

Pinnacle Gas Resources, a publicly traded energy company minority-owned by DLJ Merchant Banking Partners, has sold to an investor group which includes management and Scotia Waterous, part of Scotia Capital, for 34 cents a share. The company went public in 2007 for $9 per share. DLJ Merchant Banking has invested approximately $44 million into the company.

Firms & Fund

Ares Capital Corp, a BDC which is buying struggling rival Allied Capital Corp, reported a fourth-quarter profit which beat market estimates helped by higher investment spreads and higher structuring fees. Net investment income rose to $38.4 million, or 35 cents a share, from $32.1 million, or 33 cents a share, a year ago.

Kohlberg Kravis Roberts & Co. said on Thursday it could not predict the timing of its long-sought New York Stock Exchange listing, but it would move as promptly as practical.

Onex Corp, a Canadian private-equity firm, swung to a fourth-quarter profit, and said it was well positioned to take advantage of investment opportunities. For the fourth quarter, Onex reported net earnings of C$40 million compared to a net loss of C$348 million a year ago.

Fortress Investment Group LLC, one of the world’s largest publicly traded alternative asset managers, said its assets under management shrank by almost 1 percent during the fourth quarter as client redemptions totaled over $1 billion.

Blackstone Group has three commitments so far to the yuan-denominated fund it is raising in China. Blackstone announced plans in August to launch a 5-billion-yuan ($732 million) fund to invest primarily in the city of Shanghai. The size of the fund is limited under Chinese law to that size.

National Social Security Fund, China’s national pension fund, is expected to be a major investor in Blackstone’s yuan fund – a source briefed on Blackstone’s fundraising plan in China said.

Caisse de depot et placement du Quebec, Canada’s biggest pension fund manager, said its assets under management had recovered nearly 10 percent of their value in 2009, but were still below pre-crisis levels.

ErGo Media Capital, an entertainment and media investment firm headed by former Cinetic Media co-founder Matt Littin. Based in New York, the firm is backed by ErGo Ventures, a private investment vehicle.

TEXO Ventures has been launched in Austin, Texas, to make seed and early-stage investments of up to $2 million in healthcare companies. The firm’s founders are Philip Sanger, M.D., Jerry DeVries and Randall Crowder.

Fifth Street Finance Corp. received a financing commitment from ING Capital LLC for a syndicated three year revolving credit facility for up to the amount of $150 million, with a targeted initial close of $65 million.

Human Resource

Warren Hibbert, a Partner with MVision Private Equity Advisers, a UK placement agent and advisory firm, has left “to explore new opportunities,” according to an email sent to colleagues. Hibbert did not disclose his future plans.

Salo Aizenberg has joined Hauppauge, N.Y.-based lender Westbury Partners as Managing Director. He was previously a Managing Director at Global Leverage Capital. Westbury’s current fund will be focused on mezzanine investments.

Perella Weinberg Partners announced today that Sebastien Maurin has joined the Firm as a Managing Director in its Corporate Advisory Group where he will focus on restructuring and distressed merger and acquisition transactions. He was most recently a senior member of the debt restructuring advisory business at MPC Longberry. Prior to that, Mr. Maurin was Head of the Global High Yield and Distressed Debt Proprietary Trading Group at Commerzbank AG.

Charles Mills has joined Houlihan Lokey, an investment bank, in its Atlanta office as a managing director, heading up Southeast M&A in the U.S. Prior to Houlihan Lokey, Mr. Mills headed Macquarie Capital’s M&A practice in the Southeast U.S. region.

Persistence Capital Partners, a Canadian healthcare services investment firm, appointed Lloyd M. Segal as a Partner of the Fund. Segal was previously CEO of Thallion Pharmaceuticals, where he currently serves as Chairman.

Brown Brothers Harriman & Co., a an investment services company based in , appointed Timothy E. Hartch and Seán Páircéir as partners. Hartch is part of the firm’s Corporate Finance Department, providing merger and acquisition advisory services to BBH clients and evaluating, negotiating, and monitoring investments for private equity and mezzanine funds. Páircéir works with global investment funds.