peHUB Wire: Friday, July 30, 2010

One unusual aspect of this publication is that it covers two asset classes – venture capital and leveraged buyouts – that don’t typically overlap (save for their funding sources). So whenever there is a story that could apply to both… well, I get a bit giddy.

Such it is with Internet gambling. No, not because both VCs and LBO pros like to play online poker, but rather because the House Financial Services Committee this week passed a bit that would lift the ban on (non-sports) Internet gambling. Got to find that tax revenue under every rock…

So how does this affect both VC and LBO? Because the former has sponsored dozens of social gaming companies (like Zynga) currently restricted to virtual currency, and the latter owns big casino chains like Harrah’s (Harrah’s).

The repercussions of Congressional action could be both independent and combined. For social gamers, betting real money could represent a huge new revenue stream. Remember, for all the talk about FarmVille, Zynga has millions of Texas Hold ‘Em players (many of whom already have trusted Zynga with their credit card digits).

For a company like Harrah’s, it means both generating more online and offline revenue. One might think that online gaming would cannibalize physical casinos, but check out these figures: Internet gambling really took off in around 2003, at which point there were 383 poker tables in Nevada. It added 100 tables in 2004 and was up to 701 tables in 2005. In fact, the increases ended in 2006 – which is the same year that Congress instituted its ban. Correlational instead of causational, but still…

Anyway, back to the combo options: Dave Schwartz, director of the UNLV Center for Gaming Research, believes that no ban could result in consolidation of social gamers with casino companies. If not formal mergers, then partnerships. “Maybe Harrah’s pools its customer database with Zynga’s customer database, or outsources its online operations to Playdom,” he says. “There are lots of ways you can get creative.”

For example, just yesterday Harrah’s partnered with Playdom to release a W1orld Series of Poker game on social networks like Facebook (basically a rebanded version of Playdom’s Poker Palace). One thing Schwartz doesn’t expect to see, however, is casino companies creating too many social games that don’t have an on-site mirror.

“If casino companies create social games, they’ll skew older than most of what companies like Zynga offer,” he says.

*** Digital Sky Technologies reportedly plans to go public next year in New York, and already has hired Goldman Sachs as a lead underwriter. For the uninitiated, DST is a Russian Internet conglomerate known for taking minority stakes in companies like Facebook, Zynga and Groupon. It also has lots of local investments, including in leading Russian web portal

Matthew Ingram described DST as a “mutual fund of hot startups,” and my only quibble is that DST shareholders may not have many details on DST’s holdings. In other words, it’s unlikely that DST will be required to provide the type of “underlying asset” info that got VCs all hot and bothered during the public pension transparency debate of 2003.

Laurie Cerveny, a partner with law firm Bingham McCutchen, says that a company like DST typically would not be required to disclose underlying asset valuation (e.g., Facebook’s revenues) unless: (1) DST holds at least a 20% stake in the underlying asset; or (2) The underlying asset represents a certain percentage of DST’s total assets under management (I think she said 20%, but am not certain).

We can’t know if Facebook/Zynga/Groupon would qualify until DST actually files, but it’s highly unlikely. If they were to qualify, however, don’t expect confidentiality agreements in original funding docs to serve as shields. Those clauses almost always have “unless required by law” language that would apply to SEC reporting regs.

*** During a media call last Thursday, Blackstone Group president Tony James said: “We’ve had first closings in our cleantech fund and a final closing for BCP VI. We have a few investors still completing documentation and we current anticipate BCP VI to end up at approximately $13.5 billion.”

Seems I heard the first part (final closing for BCP VI) and not the contradictory second part. But I got kind of curious, when the Oregon Investment Council approved a $200 million commitment to BCP VI this week. And then an LP source noted that Oregon was not the only LP that hadn’t made a final decision as of James’ pronouncement.

So what gives?

It would appear that James veered a bit off script during the media call – he was more exact in the subsequent analyst call – and overstated the situation. The $13.5 billion figure is not what already is in hand, but rather is what Blackstone expects (based on conversations, etc.). In a follow-up statement today, Blackstone spokesman Peter Rose said:

“We have held our targeted close on BCP VI as of June 30th. There are a small number of investors, like Oregon, which had expressed a strong interest in the fund before June 30th but had not completed diligence, documentation or other administrative procedures, who will be permitted to invest after that date.”

In related news, there was a report yesterday that the Oregon commitment came with sweetened terms. No specifics were offered, but my understanding is that there was no change to the 65/35 fee split option (it was 50/50 on BCP V). Any sweetener would have to be retroactively applied to earlier LP commitments – via “most favored nations” clauses – so I’m skeptical that anything significant changed.

*** I could not find a single venture capital deal announced this morning. Not sure that’s ever happened before. Guess it’s a summer Friday thing…

*** Film note: Paul Rudd’s character in Dinner for Schmucks works at fictional private equity firm Fender Financial.

*** Publishing Note: Luisa will be handling Wire duties on Monday, as I’ll be out of the (home) office. Have a great weekend…

Top Three

Silver Lake Partners and Warburg Pincus have completed their take-private buyout offinancial information provider Interactive DataCorp. The $22.86 per share deal valued IDC at approximately $3.4 billion.

SiGe Semiconductor Inc., an Ottawa-based supplier of RF front-end solutions for wireless systems, has filed for a $143.75 million IPO. It plans to trade on the Nasdaq under ticker symbol SIGE, with Barclays Capital, Deutsche Bank Securities and Jefferies & Co. serving as co-lead underwriters. The company reports $20.69 million in revenue for Q1 2010, compared to $16.43 million for Q1 2009. SiGe Semiconductorhas raised around $132 million in VC funding since 1999. Current shareholders includePrism VentureWorks (19.8% pre-IPO stake), VenGrowth(15.5%), W Capital Partners (11.2%), TD Capital and Caisse de depot et placement du Quebec.

A New York judge yesterday ruled that “finder” Hank Morris could be tried on several felony charges, including money laundering, bribery and violating state securities laws. Morris had been arguing that the Martin Act did not apply to his situation, because his actions had not caued the New York State Common Retirement Fund any financial harm.

Buyouts Deals

Colony Capital has led a $660 million acquisition of film studio Miramax from Walt Disney Co. (NYSE: DIS).

Dimensional Associates has completed a $2.05 per sharetake-private acquisition of The Orchard, a provider of music and video distribution and digital strategy. Dimensional already was The Orchard’s majority shareholder.

Golden Gate Capital has exercised warrants to buy another 4.7 million shares in Zale Corp. (NYSE: ZLC), making it the jewelry retailer’s largest shareholder with a 34.5% stake. It previously had acquired a 19.9% stake in May.

Quorum Business Solutions, a Houston-based provider of business and IT solutions for the oil, gas and renewable energy industry, has raised an undisclosed amount of private equity from The Carlyle Group and Riverstone Holdings.

Silver Lake Partners has agreed to acquire a 62% indirect equity stake in Allyes Online Media Holdings, the Internet subsidiary of Focus Media Holding Ltd. (Nasdaq: FMCN). The deal is valued at $124 million.

The Sterling Group has acquired a majority stake in CCCG LLC, including subsidiaries Express Integrated Technologies and Express Metal Fabricators. No pricing terms were disclosed. BNP Paribas provided debt financial. Tulsa-based Expressmakes heat transfer, environmental compliance and sound suppression equipment.

THL Partners announced an agreement to acquire Intermedix Corp., a provider of revenue cycle management solutions for emergency services providers, from Parthenon Capital Partners. No financial terms were disclosed. peHUB first reported on the deal earlier this week.

Water Street Healthcare Partners has acquired Medical Specialties Distributors LLC, a Stoughton, Mass.-based provider of infusion products, supplies, biomedical services and technology solutions to the home infusion therapy market. No financial terms were disclosed. MBF Healthcare Partners was the seller.

PE-Backed IPOs

Facebook may push its IPO into 2012, giving it more time to add users and revenue, according to Bloomberg.

HCA, the PE-backed hospital company in registration for a $4.6 billion IPO, posted a slight increase in Q2 net income.

MakeMyTrip Ltd., an Indian online travel portal, has set its IPO terms to five millionordinary shares being offered at between $12 and $14 per share.It plans to trade on the Nasdaq under ticker symbol MMYT, with Morgan Stanley serving as lead underwriter. The company reports a $6.2 million loss for the fiscal year ending March 31, on $83.56 million in revenue. Shareholders include Softbank Asia Infrastructure Fund (51.32% pre-IPO stake), Tiger Global Private Investment Partners(12.14%), Helion Ventures (11.97%) and Sierra Ventures (7.98%)

PE-Backed M&A

Actient Pharmaceuticals Inc., a Denver-based specialty pharma acquisition platform sponsored by GTCR, has acquired six on-marketl products from a subsidiary of Belgium’s UCB SA. No financial terms were disclosed.

GeoDigm Corp., a portfolio company of Welsh, Carson, Anderson & Stowe, has completed its $100 million take-private acquisition of National Dentex Corp. (Nasdaq: NADX), an owner and operator of dental laboratories in North America.

PE Exits

Natural Gas Partners has sold CRC-Evans International to Stanley Black & Decker (NYSE: SWK) for $445 million in cash. Houston-basedCRC-Evans provides tools, equipment and services for the construction of oil and natural gas transmission.

Pearson has agreed to acquire Wall Street Institute from The Carlyle Group and Citi Private Equity for $92 million. WSI is a global provider of spoken English training for adults.

Wright Express Corp. (NYSE: WXS) has agreed to acquire the Australian assets of Retail Decisions for A$353 million (US$318m), from Palamon Capital Partners, AlpInvest Partners and Morgan Stanley Alternative Investment Partners. The deal includes fleet and prepaid card businesses.

Firms & Funds

The Carlyle Group has secured 2.4 billion yuan ($354m) in commitments for a Beijing-based fund that will invest in large growth Chinese companies.

Greenspring Associates is raising upwards of $300 million for its second growth equity fund-of-funds, according to a regulatory filing. The firm previously was known as Montagu Newhall

Pravi Capital is planning to raise $200 million for its debut fund. The firm was launched by former members of ICICI Ventures, and focuses on growth equity opportunities in India.