peHUB Wire: Friday, March 27, 2009

Yesterday I interviewed Peter Nolan, managing partner of Leonard Green, as part of Buyouts East here in New York City. He was pretty candid, which perhaps was enabled by his firm’s seeming lack of recent scandal or massive portfolio company collapses (amazing, really, given its heavy emphasis on retail). A few quick takeaways:

• There had been some trade reports that the firm was raising an annex its fourth fund ($1.85b, 2004), but what it’s technically done is to get a recyc! ling provision. This still could present similar legal conflicts inherent in an annex or cross-fund investing – LPs who don’t participate could have their initial investments diluted – but it’s a bit easier for LPs to sign off on because it doesn’t require new capital commitments.

• Leonard Green is mostly just concentrating on PIPE deals (i.e., Whole Foods) and bank debt purchases right now. It just doesn’t believe that leveraged buyouts can work in this market, in large part because of seller expectations.

• Nolan doesn’t shy away from the “financial engineer” label. Remember, this is a firm without “operating partners.”

• It’s also a firm whose current leadership comes out of Drexel, so Nolan has some empathy for some of the folks at AIG (like the one who wrote the “I Quit” letter). At the very least, he said he didn’t want to pass judgment on anyone before all the facts are in. “I’d make a lousy Congressman.”

• Leonard Green’s fifth fund ($5.! 3b, 2007) is 25% invested, and was marked down 11% in 2008. Its fourth fund is almost entirely invested – save for the new recycling option – and was written down 17.3% in 2008.

• Through the end of 2008, the Fund IV IRR was 1.4 percent. Fund III was 28.1%, Fund II was 19% and Fund I was 45.5 percent.

• The firm has written a pair of restaurant chains down to zero: Claim Jumper and Captain D’s/Del Taco.

• Was $5.3 billion too much to raise for Fund V? “No, it was too little.”

*** NY Scandal I: I wrote last week that NY Common was particularly ripe for corruption, because its system is designed as a single fiduciary. One bad apple, therefore, is the only apple. The only other state with a simila! r system was Connecticut, and that ended up with both an elected treasurer and private equity manager in prison.

But maybe I transposed the cause and effect. As someone suggested to me yesterday: “The corruption didn’t happen because it was a single fiduciary. It got exposed because it was a single fiduciary.”

In a related line of thinking, perhaps Loglisici’s strategic mistake was using one corrupt “placement agent,” instead of using three or four.

*** NY Scandal II: I’ve had multiple public pension managers (past and present) tell me some version of the following: “I am/was responsible for X% of the private equity portfolio. It was made clear to me that I shouldn’t concern myself with the rest.”

*** NY Scandal III: Many of the PE firms who received tainted commitments have spent thousands in related legal fees. Not because they necessarily did anything wrong, but ! because you always hire a pricey attorney when the SEC and Martin Act- enabled AGs come a ‘knocking. Ironically, these legal fees are often paid via management fees, which are paid by LPs like New York Common Fund.

*** NY Scandal IV: In many ways, this is the worst time to be involved in a financial scandal involving public monies. On the other hand, it’s arguably the best time to be involved in this particular scandal. After all, almost no one in the mainstream biz press is paying any attention. Too many other things to write about. The indictments have even fallen off of Andrew Cuomo’s homepage, because there’s so much new AIG stuff.

*** Game Time: Our current March Madness leader is Jeremy Naylor, a New York-based partner in the tax department of White & Case. He’s got 70 points, with a Final Four of Louisville, UConn, Pitt and Oklahoma. Final game is Louisville beating OK.

*** Good seeing so many of! you in New York this week. Be back in the home office on Monday. Have a great weekend!

Top Three

KPS Capital Partners has completed its acquisition of certain assets of luxury tableware maker Waterford Wedgwood. No financial terms were disclosed. KPS also announced that the company would be led by Pierre de Villemejane, former CEO of Speedline Technologies — a KPS portfolio company sold to Illinois Tool Works.

Oak Investment Partners has agreed to buy up to $50 million worth of convertible preferred stock in Clarient Inc. (Nasdaq: CLRT), a provider of anatomic pathology and molecular testing services. The first $40 million is split up into two tranches, with Clarient receiving $29.1 million today. The final $10 million is dependent on mutual agreement of Oak and Clariant, which is using the PIPE to pay off debt.

Atritech Inc., a Plymouth, Minn.-based maker of medical devices for the prevention of atrial fibrillation-related strokes, has raised $30 million in Series E funding. Thomas, McNerney & Partners led the round, and was joined by return backers Split Rock Partners, Prism VentureWorks, Tullis-Dickerson and Vector Group.

VC Deals

Nexstim Oy, a Finland-based developer of non-invasive brain imaging technologies, has raised approximately €6 million. TEKES was joined on the deal by return backers HealthCap and LSP (Life Sciences Partners), as well as Sitra and Finnish Industry Investment Ltd. Nexstim has now raised €20 million, plus a new €3 million convertible loan.

ThumbPlay, a New York-based provider of mobile multimedia content, has raised $6 million in sixth-round funding, according to a regulatory filing. It had previously raised over $53 million. Sharehol! ders include Brookside Capital Advisors, the public equity affiliate of Bain Capital, and Cross Creek Capital, the private equity affiliate of Wasatch Advisors, Bain Capital Ventures, Redwood Partners, New Enterprise Associates and Meritech Capital Partners.

Home-Account, a San Francisco-based online mortgage search site, has raised nearly $1 million in seed funding led by Charles River Ventures’ QuickStart program.

Lifefactory Inc., a Sausalito, Calif.-based maker of green consumer products like BPA-free baby bottles, has raised $750,000 in seed funding led by Greenhouse Capital Partners.

Buyout Deals

CVC Capital Partners has expressed interest in acquiring some Carrefour stores in Belgium, according to De Standaard. The other known suitor is Belgian supermarket group Delhaize.

! Warburg Pincus has acquired a 5.45% stake in financial information provider Bankrate Inc. (Nasdaq: RATE) according to a regulatory filing. It said that it does not plan to seek a board seat. The position is currently worth approximately $25.75 million.

PE-Backed M&A

Social Solutions, a Baltimore-based provider of nonprofit performance management software, has acquired Esteam, a provider of financi! al performance management software and services. No financial terms we re disclosed. Social Solutions has raised over $9 million in VC funding from firms like Frontier Capital, WWC Capital Group and IDEA Fund Partners.

SS&C Technologies Inc., a Windsor, Conn.-based financial management software company owned by The Carlyle Group, has acquired Evare LLC, a Burlington, Mass.-based provider of financial data acquisition, transformation and delivery. No financial terms were disclosed. Carlyle holds a 72.2% ownership position in SS&C.

PE Exits

Candover and Cinven are seeking a buyer for academic publisher Springer Science & Business Media, according to The Guardian. The firms re! portedly have retained UBS and Goldman Sachs to manage the process, which requires bidders to signal initial interest by the end of next week.

Human Resources

Wendy Goldberg has joined Hearst Entertainment & Syndication as vice president of business development and strategy. Most recently, she was a senior adviser with The Pilot Group, the New York-based private equity firm run by Bob Pittman.

Target Partners, a Munich-based venture capital firm, has promoted Olaf Jacobi to the position of partner. He had been a venture partner with Target for the past two years.