peHUB Wire: Friday, March 6, 2009

Nearly two years ago, I moderated a debate of sorts between Kevin Conway, managing partner of Clayton Dubilier & Rice, and Andrew Ross Sorkin, ubiquitous M&A reporter for the NY Times. It was mostly about the behavior of private equity firms, with lots of talk about CD&R’s involvement with car rental company Hertz.

Specifically, Sorkin was standing in for a business media that had accused Hertz’s private equity owners of doing little more than a quick flip ($15b acquisition to IPO in a year). Them’s fighting words in LBO land, where most investors fancy themselves operational savants — able to add value to a company with a touch of their finger (and then, and only then, profit from the improvements).

Conway bristled at the overall criticism, in part because CD&R and Hertz’s other PE backers still owned most of Hertz, post-IPO. This was an important point emphasized over and over again. In fact, the PE firms stil! l control Hertz today, with around 55% of the company’s outstanding stock.

Well, I’ll bet Conway is currently thinking that a quick flip might not have been such a terrible idea. Hertz yesterday dropped well below $3 per share, on General Motors’ warning that it may go bankrupt. DealBook explains:

“About 28 percent of Hertz’s rental fleet is G.M. cars, according to regulatory filings. For some of those cars, Hertz has agreements with G.M. that allow it to sell them back to the automaker, as well as ‘guaranteed depreciation’ schedules that put a floor on the resale price. But if G.M. were in Chapter 11, it could use bankruptcy law to break those agreements. The residual value of cars not subject to the agreements would also take a hit. What’s more, Hertz could find itself in line with other creditors for money G.M. owed it for cars already sold.”

It obviously would have been impossible for Hertz’s PE backers! to complete a pure quick-flip, because they couldn’t have found publi c market buyers for all of their shares (particularly given that the IPO prices low). But the firms did manage to unload 45 million shares one year later in a secondary sale, which priced at $22.25 per share. I’ll bet they’re now wishing they’d tried unloading even more. Quick flips might have been unpopular, but at least they were profitable…

*** Alert: A venture capital firm is about to hold a final close on a new fund. Yes, this now qualifies as headline news.

The firm is Charles River Ventures, which we’ve learned is about to put the finishing touches on its fourteenth vehicle. The final raise is expected to be around $300 million, which is slightly higher than its $285 million predecessor.

Very impressive, particularly considering that: (a) LPs are generally holding off on new VC commitments; (b) CRV’s biggest hit of late was EqualLogic, which was led by a partner who is not participating on the new fund (Ch! ris Baldwin) and (c) CRV was a seed investor in Twitter, but didn’t get in on the Series A-C rounds (and thus is left with a tiny stake).

CRV obviously isn’t commenting on the fund, but I did speak briefly with partner Izhar Armony about two other issues. First, I asked about CRV’s co-called annex funds, including a $105 million annex to CRV XIII. He said that “annex,” is a misnomer, because the vehicles really invest in intellectual property efforts outside of the general fund portfolios. “We probably should have called then CRV IP funds,” Armony said.

I also asked him why the CRV website continues to feature “partners” who are no longer with the firm, including the aforementioned Chris Baldwin, Rick Burnes (retired), Mike Zak (semi-retired) and Ted Dintersmith (recently moved to Seattle, after a yearlong family trip around the world). His response was that each of those individuals still is an active partner on older CRV funds, with various portfolio respon! sibilities.

*** Poker update: I’m an idiot. Not because I lost big stack near the end, but because I identified the wrong guy as winning the VCIR poker tourney. The correct winner was Doug Fahoury of Iron Gate Capital.

*** Many of you have asked for my list of “walking dead” VC firms. Fine, I’ll put it together in the next few days. The basic qualification is that the firm has to still be operating (office space, fulltime staff, etc.), but be unable to add new portfolio companies. Please send me any you think I should include, along with a basic explanation. I’ll also accept buyout firms. Thanks…

*** Have a great weekend!

Top Three

Proteon Therapeutics, a Waltham, Mass.-based drug developer based in vascular and kidney disease, has raised $38 million in Series B funding. MPM Capital led the round, and was joined by Vectis Healthcare & Life Sciences Fund and return backers TVM Capital, Skyline Ventures, Prism VentureWorks and Intersouth Partners. It had previously raised $12 million. In other Proteon news, the company has signed an acquisition option with Novartis, which is dependent on regulatory approvals and is valued at around $550 million.

3i Group is looking to sell! its majority stake in oil services group Franklin Offshore International. 3i hopes the sale could generate $400 million, with JPMorgan managing the process.

Darren Wong has joined fund-of-funds manager Adveq as a managing director in its Beijing office. He previously oversaw venture capital and Asia investing for HRJ Capital.

VC Deals

GlycoVaxyn, a Swiss developer of conjugated vaccines, has raised CHF 25 million ($22m) in Series B funding. Edmond de Rothschild Investment Partners led the round, and was joined by return backers Index Ventures and Sofinnova Partners.

AltoBeam Technology Co. Ltd., a Beijing-based designer of digital television chipsets, has raised $8 million in VC funding. Backers include Tano Capital, Draper Fisher Jurvetson, DFJ Dragon Fund and PYJ-Dynasty Venture Fund.

Westport Linen Services LLC, a provider of linen services to hospitals and healthcare centers in southern Louisiana and Mississippi, has raised $6.7 million. Advantage Capital Partners led the round with $4 million, while IberiaBank provided the remainder., a Chinese social networking site, has raised $6 million in VC funding. Backers include Tano Capital.

Buyout Deals

Evolution Capital Partners has acquired Accurate Group LLC, a Charlotte, N.C.-based provider of title insurance and settlement services. No financial terms were disclosed.

BioMCN, a Dutch biofuels company, has raised €36 million from Waterland Private Equity. Earlier this week, Waterland invested €50 million into renewable ! energy project developer Enfinity Management.

Joe’s Sports, a Wilsonville, Ore.-based sporting goods and outdoor equipment retailer, has filed for Chapter 11 bankruptcy protection. The company said it would not sell any of its 30 stores during the restructuring. Gryphon Investors bought Joe’s Sports in early 2007 from shareholders that included Nogales Investors.

PE-Backed M&A

AmWINS Group Inc., a Charlotte, N.C.-based wholesale distributor of specialty insurance products and services, has acquired three medical stoploss wholesalers. No financial terms were disclosed. AmWINS is a portfolio company of Parthenon Capital.

Ascension Insurance Inc., a Kansas City-based insurance and employee benefits agency focused on mid-market companies nationwide, has acquired the Dennis Bartlett agency, a Ft. Lauderdale, Fla.-based firm focused on medical malpractice. No financial terms were disclosed. Ascensi! on Insurance is a portfolio company of Parthenon Capital and Century Capital Management.

TriNet Group Inc., a portfolio company of General Atlantic, has agreed to acquire human resource outsourcing services provider Gevity HR Inc. (Nasdaq: GVHR). The deal is valued at $98 million in cash, or $4 per share (nearly double Wednesday’s closing price).

Vitalize Consulting Solutions Inc., a Reading, Mass.-based provider of clinical, business and IT solutions for healthcare enterprises has acquired r3 Health Partners LLC, a Santa Ana, Calif.-based provider of IT consulting to healthcar e organizations. No financial terms were disclosed. Vitalize is a portfolio company of SV Life Sciences and Ferrer Freeman & Co.

PE-Backed IPOs

GlassHouse Technologies Inc., a Framingham, Mass.-based provider of storage consulting and services, has withdrawn registration for a $100 million IPO, due to “current public market conditions.” Goldman Sachs was leading the offering. GlassHouse has raised over $70 million in VC funding, including a $9.8 million Series F round late last year. Backers include GrandBanks Capital, Jafco, Kodiak Venture Partners, Cisco Systems, Montagu Newhall Associates, Paladin Capital Management, Shiprock Capital, Dell and Sigma Partners.

Firms & Funds

CITIC Capital plans to launch a buyout fund in partnership with Chinese pension fund NSSF. It also plans to launch a VC fund in partnership with China Development Bank.

Human Resources

Robert Tessier has been named chairman of Caisse de depot et placement du Quebec, the largest pension system in Canada. Tessier is the former CEO of gas distributor Gaz Metro LP.

Apax Group is in the process of hiring its first global general counsel.

Janet Christensen has joined NewOak Capital as managing director of marketing. She previously was with Tegris and The Blackstone Group.

Quadrangle Group has promoted Amanda Siegel to principal, and Alex Hocherman, Sebastien Briens and Mark Brennan to vice presidents. Each of the promoted professionals work in the firm’s private equity group.