peHUB Wire: Friday, March 5, 2010

Earlier this week, I wrote at peHUB about the pending Ohio factory closure by Hugo Boss, a publicly-traded retailer controlled by private equity firm Permira.

It’s not unusual for a PE-backed company to shut a U.S. manufacturing facility, due to cost concerns. What’s odd here, however, is that Permira might actually lose money on the switch. At best, the savings would be minimal – and hardly the type of gain that would justify throwing so many folks onto the unemployment rolls.

For the uninitiated: Hugo Boss reportedly asked the Ohio workers to take a pay cut from $12 to $9 and, when they refused, opted to shutter the facility and move the! jobs overseas. Ohio officials tried to intervene withfinancial incentives, but it was too late.

In response, an Ohio public employees union that has invested in Permira’s past two funds said it “now has concerns about future involvement.” Local labor unions also are asking other state pension systems to reevaluate their future dealings with Permira.

Reports over the number of affected employees has varied, but the highest estimate has been 400. Assuming that each of those employees is fulltime — working 40 hours per week, 52 weeks per year — they currently would make just under $25,000 per year (plus benefits). Hugo Boss wanted to cut them down to just under $19,000 per year (plus benefits). Thetotal savings would have been $2.5 million per year.

Now compare that to how much money Permira makes off of its relationship with the Ohio pension system, which committed €60 million ($81.5m) t o Permira’s latest fund. Assuming a standard 2% management fee, OPERS would have paid out €1.2 million ($1.6m)in the first year of the fund’s life. Moreover, Permira probably still collects management fees from OPERS’ €50 million investment in a predecessor fund. Finally, Permira should — in theory — be collecting carried interest from profitable investments made possible, in part, by OPERS.

Now throw in the possibility of other public pension funds following OPERS’ example. And also the startup costs of a new factory and of training of a new workforce.

It’s impossible to say that Permira will or won’t make more money by closing the Ohio plant, but at best it looks like a wash. At worst, it could be disastrous, and certainly will do nothing to improve private equity’s image issues.

Permira isn’t talking, except to say that it is “sensitive to our investors’ concerns and always have an open line of communicati! on with them.” Someone close to Permira tells me that its primary concern is interfering with a decision made by portfolio company management, but isn’t that imperitive of a controlling shareholder? We’re not talking about something piddling like removing bendy straws from the company cafeteria.

Hugo Boss hasn’t been much more forthcoming. It refuses to confirm or deny union assertions that the factory is profitable, except to say that it isn’t “globally competitive.” The former is objective, while the latter is subjective (guess which one is more compelling?).

Moreover, Hugo Boss adds that it “acted in the best interests of shareholders and customers by deciding to close the facility.” Well, we’ve already established that the best interests of Permira are in question. As for customers, have you seen the price of a Hugo Boss suit (which is what the Ohio factory makes)? I know every dollar counts, but no way does a ! Hugo Boss customer make a purchasing decision based on a $5 markup or markdown.

Permira still has a small amount of time to tell its portfolio company to reverse course. It should do so…

*** Tickets to the next peHUB Shindig will go on sale Monday morning. First mention of the release will be via Twitter. Follow us @pehub or @danprimack

*** Have a great weekend…

Top Three

TransMedics Inc., an Andover, Mass.-based developer of portable life support systems for organ transplants, has raised $36 million in Series E funding. Foundation Capital and Kleiner Perkins Caufield & Byers co-led the round, and were joined by return backer Flagship Ventures. In December 2008, the company canceled an $86.25 million IPO, citing “market conditions.” At the time, it had raised around $90 million in total VC funding, from firms like 3i Group, Tudor Investment Corp., Flagship, VantagePoint Venture Partners, Sherbrooke Partners, Alta Partners, CB Health Ventures, Posco BioVentures and Sagamore Bioventures.

Tower International, a Livonia, Mich.-based maker of engineered structural metal components and assemblies for auto OEMs, has filed for a $100 million IPO. Goldman Sachs and Citi are serving as co-lead underwriters. To! wer International is owned by Cerberus Capital Management.

Loren Boston has joined C.P. Eaton Partners as a managing director, and head of the firm’s global private equity fundraising business. He previously was managing director and global head of origination for for Merrill Lynch’s private equity funds group.

VC Deals

Stylesight, a New York-based online provider of fashion information, has raised $10 million in second-round funding from Cue Ball Capital and return backer Volition Capital (f.k.a. Fidelity Ventures). The company previously raised $16 million.

Saladax Biomedical, a Bethlehem, Penn.-based developer of diagnostic tests for the delivery of personalized medicine, has raised $8.4 million in Series C funding. Excel Venture Management led the round, and was joined by return backers Golden Seeds LLC, Ben Franklin Technology Partners and the Life Sciences Greenhouse of Central Pennsylvania. The company previously raised $11.5 million.

Kineto Wireless Inc., a Milpitas, Calif.-based provider of mobile over wireless LAN soluti! ons, has secured $9 million in a $15 million fifth-round funding, according to a regulatory filing. The company previously raised around $103 million in total funding since 2001, from Oak Investment Partners, Motorola, Sutter Hill Ventures, Venrock, Seapoint Ventures and InterDigital Communications Corp. The company has now raised around $103 million in total VC funding since its 2001 inception.

TripIt, a San Francisco-based provider of a platform that lets individuals and businesses organize and share their travel plans, has raised $7 million in Series C funding co-led by Azure Capital Partners and return backer OATV. The company had previously raised $6.1 million, including a $5.1 Series B million round from OATV, Sabre Holdings and Europeean Founders Fund.

Kwedit Inc., a Mountain View, Calif.-based developer of a payment platform for virtual goods and social games, has raised $3.3 million in new VC funding, according to a regulatory filing. Backers include True Ventures, Maples Investments and Fenwick & West. The company was recently “profiled” on The Colbert Report.

Cardagin Networks Inc., a Charlottesville, Va.-based developer of a mobile marketing platform, has raised $1 million in Series A funding from undisclosed angel investors.

Buyouts Deals

A U.S. judge said he would rule later this month on Citigroup’s request that a lawsuit by Terra Firma Capital Partners be moved to London. The suit revolves around Terra Firma’s acquisition of EMI Group.

PE-Backed IPOs

Oasis Petroleum, a Houston, Texas-based oil and gas exploration company, has filed for a $350 million IPO. It plans to trade on the NYSE under ticker symbol OAS, with Morgan Stanley and UBS Investment Bank serving as co-lead underwriters. Oasis is a portfolio company on EnCap Investments.

PE-Backed M&A

SpePharm Holding NV, an Amsterdam-based acquirer and marketer of hospital drugs to the pan-European market, has acquired the global rights (excluding North and South America) to Savene, a drug compound used to treat blood stream leakages, from TopoTarget AS. To finance the deal, SpePharm has raised €7 million in new VC funding from return backers TVM Capital, Signet Healthcare and Paul Capital Healthcare. It also secured €4 million in debt from Paladin Labs Inc.

Trustwave Co! rp., an Annapolis, Md.–based provider of on-demand data security and payment card industry compliance management solutions, has acquired Intellitactics, a Reston, Va.-based provider of security information and event management technology. No financial terms were disclosed. Trustwave raised $10 million from FTV Capital in 2004, while Intellitactics raised around $21 million from JMI Equity, Lazard Technology Partners, RBC Dominion and Enterasys Networks.

PE Exits

Denham Capital is in talks to sell Trinity Coal to India’s Essar Group, according to Reuters. No financial terms were reported.

Trimble (Nasdaq: TRMB) has acquired LET Systems, a Cork, Ireland-based provider of incident and outage management software for utilities. No financial terms were disclosed. LET Systems has raised venture capital funding from Siemens Venture Capital, Tempovest Capital! , Enterprise Ireland, Bank of Scotland and TVC Holdings.

Firms & Funds

Evercore Partners has acquired a 49% stake in Atalanta Sosnoff Capital, whichmanaging large-cap equity and balanced accountsfor institutional, high net worth and broker advised clients. The deal includes a $69 million up-front cash payment, plus up to $14.7 million in earnout payments.

Human Resource

Molly Simmons has stepped down as a managing director with Gemini Investors, in order to join Tonka Bay Equity Partners.

David Gove has joined Needham & Co. as a Menlo Park, Calif.-based managing director in the firm’s Internet and digital media investment banking group. He previously was a managing director with Bank of America.

Charles Stiefel, former chairman and CEO of Stiefel Laboratories, has joined RoundTable Healthcare Partners as a senior advisor.

Terry Wetterman and John DiOrio have joined private equity placement agent BerchWood Partners as a vice president and analyst, respectively. Wetterman previously worked in the private equity funds group of Merrill Lynch, while DiOrio was with Monument Group.