peHUB Wire: Friday, November 20, 2009

Some final notes from Los Angeles before I hop a flight back to Boston…

*** Tom Danis of RCP Advisers suggested yesterday that one reason Charlesbank Capital Partners had an oversubscribed fundraise was that the new vehicle’s terms gave 100% of transaction fees to limited partners (rather than a split). It wasn’t so much the expected dollars, Danis said, but more that Charlesbank was responding to what is broadly seen by LPs as a fairer alignment of interests.

Handing 100% of transaction, portfolio monitoring and other fees is a key tenant of the ILPA guidelines proposed earlier this year. But here is my question: If most firms adopt the ILPA guidelines on fees, will that end the taking of fees? In other words, will GPs still have incentive to pilfer from portfolio companies if they can’t stuff any of it in their back pockets?

I asked this question of a few different people yesterday ! – both on stage and elsewhere – and received a multitude of answers. Danis, for example, believes that such a sea change would, indeed, severely limit fee-taking. John Morris of HarbourVest Partners, on the other hand, argued that GPs would still charge fees in order to boost short-term IRRs and to accelerate their move into the carry.

Curious to hear your thoughts. I’m also going to attempt a bit of quantitative research on the matter next week (too difficult while on the road), by looking at the practices of a firm like Warburg Pincus, which has long given 100% of its fees to LPs. Does it typically charge less than its peers? Won’t prove definitive, but should at least be illuminating.

*** The Carlyle Group yesterday announced a 35-year public/private partnership with the State of Connecticut, whereby it will redevelop, operate and maintain the state’s 23 highway service areas. Carlyle’s partner on the deal is the parent company of Subway Restaurants. I consider this deal to be one of the year’s most important, and plan to write more about it while on the plane. But a few notes in the interim:

• Genesis of this deal was an expiring agreement with McDonald’s and Exxon Mobile. Connecticut issued both a request for qualifications and request for proposals. Believed to be competitive process, although unclear if other PE firms submitted offers (may have just been strategics).

• A key to this deal is that the buyers and Connecticut will share revenue, as opposed to Carlyle buying the assets outright. Huge from a PR perspective.

* Connecticut also has some say on who Carlyle can sell to upon exit, although the specific details are a bit murky (it’s not a simple veto right, and changes based on stage of redevelopment).

• Carlyle pre-negotiated with the SEIU, which will represent the janitorial and custodial workers. Yup, you read that correctly: Carlyle and SEIU working together. And it’s not even 2012…

• Deal came out of Carlyle’s infrastructure fund, which has a 14-year life.

* Figured there was a scatol! ogical joke in here somewhere. Best I’ve come up with is that you will literally be able to piss all over Carlyle.

• The larger rest stops on I-95 will eventually each feature a drive-thru Subway, Dunkin’ Donuts and McDonald’s (the latter of which already exits). To a regular I-95 traveler like me, this is huge.

*** Got an email this morning from UK public relations firm Penrose, announcing that consumer-focused buyout firm Lion Capital has begun raising its third fund with a €2 billion target. Not sure something like that has ever hit my inbox from a reputable shop.

*** Big kudos to Deb Gage, who asked Mark Attanasio if the Milwaukee Brewers would trade Prince Fielder. He said no.

*** Have a great weekend…

Top Three, a Santa Clara, Calif.-based online marketplace for textbook rentals, has raised $57 million in Series D funding. Insight Venture Partners led the round, and was joined by return backers like Kleiner Perkins Caufield & Byers, Foundation Capital, Gabriel Venture Partners and Primera Capital. Insight also led a $25 million credit facility, which is on top of a $30 million facility recently secured from Pinnacle Ventures and TriplePoint Capital.

QuinStreet Inc., a Foster City, Calif.-based provider of online vertical marketing solutions, has filed for a $250 million IPO. The company reported $260 million in revenue for the fiscal year ending June 30, with net income of around $17.2 million. QuinStreet has raised nearly $60 million in VC funding, from firms like Split Rock Partners (16.4% pre-IPO stake), Sutter Hill Ventures (10.55%), Granite Global Ventures (7.05%), Catterton Partners (5.87%), Focus Ventures, Rosewood Capital,Charter Growth Capital, VSP Capital, J&W Seligman and Stanford University. Direct secondaries firm W Capital Partners holds a 6.86% stake.

KKR reported third quarter net revenue of $656.6 million, compared to a Q3 2008 loss of $465.6 million.

VC Deals

TriVascular, a Santa Rosa, Calif.-based developer of endovascular repair devices for treating abdominal aortic aneurysms, has raised $30 million in Series B funding. Return backers include New Enterprise Associates, Delphi Ventures, MPM Capital and Kearny Venture Partners. The company previously raised $65 million, part of which was used to purchase TriVascular from Boston Scientific (which itself had purchased the company from VCs Delphi and Kearny).

Xigen, a Swiss developer of therapeutic peptides, has raised $20 million in Series B funding from return backer Tilocor Life Science.

QuorumLabs, a Fremont, Calif.-based developer of a busine! ss continuity appliance, has raised $5.3 million in Series A funding led by Themis Computer.

Ligon Discovery Inc., a Cambridge, Mass.-based drug developer that uses small molecule microarray technology, has raised $1 million in seed funding led by incTank Ventures.

Buyouts Deals

Advent International has completed its acquisition of a 79% stake in Bulgarian bottled water provider Devin AD, for approximately €31.6 million.

Matalan, a UK-based discount retailer, reportedly has received first-round bids from private equity firms TPG Capital, Blackstone Group, Warburg Pincus, BC Partners and Advent International. The deal is expected to be worth around £1.5 billion, with strategics also making offers.

Taylor-Wharton International LLC, a metal working company owned by Wind Point Partners, has filed for Chapter 11 bankruptcy as part of a prepackaged restructuring.

PE-Backed IPOs

7 Days Group Holdings, a Chinese budget hotel chain, has raised $111.1 million in its IPO. The company priced 10.1 million American depository shares at $11 per share (high end of $9-$11 range), and will trade on the NYSE under ticker symbol SVN. J.P. Morgan and Citi served as co-lead underwriters. Shareholders include Warburg Pincus and Actis.

Archipelago Learning Inc., a Dallas-based provider of online education tools and services, raised around $103.1 million in its IPO. The company priced 6.25 million common shares at $16.50 per share (middle of $15-$17 range), which gives it an initial market cap of approximately $414 million. Providence Equity Partners acquired a majority stake in Archipelago Learning in January 2007, for $84.5 million and held a 70.1% pre-IPO position. www.arch!

Brenntag, a German chemicals distributor owned by BC Partners, reportedly is amending its €2.5 billion leveraged loan to enable an IPO.

Gartmore, a UK-based fund manager owned by Hellman & Friedman, is planning a London flotation that would raise between £500 million and £550 million. The IPO would reduce Hellman & Friedman’s stake below a majority position (it’s currently around 52%).

PE Exits

Asterand PLC (LSE: ATD) has acquired BioSeek Inc., a Burlingame, Calif. drug developer that uses predictive human biology. The deal includes a $1 million up-front payment in Asterand stock, and up to $13 million in earnouts ($10m in cash). BioSeek had raised around $28 million in VC funding, from Amylin Pharmaceuticals, Bay City Capital, Fremont Ventures and Vanguard Ventures.

Goldner Hawn Private Equity has agreed to sell Vitality Foodservice Inc., a Tampa, Fla.-based dispensed beverage business, to Nestle Professional. No financial terms were disclosed.

Smedvig Capital has sold Protego Real Estate Investors, a commercial real estate fund management company formed in 2004, to Cornerstone Real Estate Advisers LLC. No financial terms were disclosed, although Smedvig said the sale produced a 6.2x return with a 58% IRR.

PE-Backed M&A

SS&C Technologies Inc., a Windsor, Conn.-based financial management software company owned by The Carlyle Group, has acquired TheNextRound Inc., a provider of software for the private equity and alternative investment markets. No financial terms were disclosed. ke in Bulgarian bottled water provider Devin AD, for approximately €31.6 million.

Firms & Funds

The European Investment Fund has agreed to invest €26.7 million in a co-investment fund with Karolinska Development AB, a Stockholm-based early-stage investor in the pharmaceutical and medical device markets.

Human Resources

Michael Avon has joined Millennial Media as executive vice president and chief financial officer. He previously was a principal with Columbia Capital. Millennial is a Baltimore-based provider of mobile advertising solutions, which recently raised $16 million in Series C funding from firms like Columbia, New Enterprise Associates, Bessemer Venture Partners and Charles River Ventures.

Steven Demetriou, chairman and CEO of Aleris International, has joined the executive committee and advisory board of Resilience Capital Partners.