peHUB Wire: Friday, September 25, 2009

Earlier this week I attended a meeting of the Village Ventures network, which is a group of small regionally-focused and/or sector-focused VC funds. Groups like Borealis Ventures, Greycroft Partners, Inflexion Partners, Point Judith, Highway 12 Ventures, Village Ventures itself and others. Much appreciation to them for having me.

One thing I discussed with a bunch of attendees – mostly VCs, but also a few CEOs – was this issue of entrepreneurial animosity toward venture capitalists. Almost a sense of glee (schadenfreude?) that the “VC model is broken.”

Most of this animosity has been made public via blogs, and perhaps it has been long-latent without such an easily-accessible bullhorn (just read through year’s old comments on TheFunded). But some of the folks I spoke with think that there has been a recent increase, driven largely by three factors:

1. Nearly a decade of lousy returns/exits, coupled with VCs getting rich anyway (via management fees).

2. Many of the VCs who have backed companies since 2000 are “new” investors who joined established firms without really knowing how to be VCs. As such, entrepreneurs could feel they got the brand without what the brand was supposed to represent.

3. Many of the arguments are coming from Web 2.0 types, whose visibility far surpasses their actual numbers in the entrepreneurial community. They also are a group of entrepreneurs who often don’t need institutional funding.

*** Ares Management and Teachers’ Private Capital today announced an agreement to buy mattress maker Simmons from THL Partners. Some notes:

• Ares/Teachers would be Simmons’ sixth private equity owners. The most recent was Fenway Partners, which sold the company to THL in 2003.

• THL actually made money on its investment, via a pair of dividends in 2004 and 2007. Just about $50 million cash-on-cash, but that’s not bad for a company that’s going bankrupt on its watch (or it is bad, based on your perspective).

• Simmons does plan to file for Chapter 11, but that won’t happen until late October or November. In other words, the PE-backed bankruptcy count for September remains at one.

• I first caught wind of this deal nearly two months ago, because the FTC was beginning to ask other mattress makers about it (apologies, dear reader, but I was unable to confirm it). Reason for the early FTC involvement was that some of the Simmons noteholders were nervous that the transaction had no chance of passing Hart-Scott Rodino muster, and asked for some preliminary advice. Worth noting that this deal, now announced, will enter into a second round of FTC scrutiny. It also must get through both the bankruptcy court and noteholder vote.

• Ares/Teachers plan to put both Serta and Simmons under the same super holdco, but will operate them as separate, independent entities. Were they merged, it would become the nation’s largest mattress manufacturer (title currently held by KKR’s Sealy). No idea how Ares/Teachers will actually management the obvious conflicts of interest. For example, will Ares’ Simmons reps not look at their own funds’ quarterly reports that contain confidential info on Serta, and vice versa?

• Gotta wonder what this means for Sealy. Yet another KKR IPO candidate?

*** Is any high-profile startup more neurotic about its VC funding details than is Twitter? Some say it’s just an act but, if so, it deserves an Oscar.

*** peHUB’s Dallas Shindig on October 14 is now sold out. We hope to free up some more tickets in a couple weeks, so send me an email if you want to get on the waiting list. Big thanks to sponsors StaffOne, Landmark Partners and New Capital Partners.

*** Speaking of which: Still looking for some LA Shindig sponsors. Let me know if you’re interested.

*** Correction: The new name for the group of emerging venture funds is VC 2.0.

*** Shameless Plug: ACG Philly is holdings its M&A East conference on October 13. Speakers include Mitt Romney, Wharton prof Jeremy Siegel & others. Get more info here.

*** Have a great weekend. Go Pats (particularly Brady, since I’m such a homer that I again picked him first in my fantasy draft)…

Top Three

Ares Management and Teachers’ Private Capital, owner of mattress maker Serta, have agreed to buy Simmons Bedding Co. from THL Partners. The deal would include Simmons filing for a prepackaged Chapter 11 bankruptcy, which would reduce its debt from $1 billion to around $450 million (filing within 30-6 days). The actual sale would be valued at $760 million, including equity from the purchaser and both debt and equity from certain existing Simmons lenders. Serta and Simmons would continue to be operated independently.

Twitter, a San Francisco-based micro-messaging service, has raised around $100 million in new VC funding. WSJ’s Deal Journal blog first reported the news, which has since been confirmed by peHUB. New backers include Insight Venture Partners and T. Rowe Price. The company previously raised over $50 million from firms like Benchmark Capital, Institutional Ventures Partners, Spark Capital and Union Square Ventures.

Select Medical Corp., a Mechanicsburg, Penn.-based operator of specialty hospitals, raised $300 million in its IPO. The company priced 30 million common shares at $10 per share, compared to its plan to sell 33.33 million shares at between $11 and $13 per share. The company will trade on the NYSE under ticker symbol SEM, while Goldman Sachs, BoA Merrill Lynch, JPMorgan and Morgan Stanley served as co-lead underwriters. Welsh Carson Anderson & Stowe held a 65.8% pre-IPO stake, while Thoma Cressey Bravo held a 10% stake.

VC Deals

LS9 Inc., a San Carlos, Calif.-based developer of hydrocarbon biofuels and chemicals, has raised $25 million in third-roundfunding. CTTV Investments, the VC arm of Chevron Technology Ventures, led the round. Return backers includeLightspeed Venture Partners, Flagship Ventures and Khosla Ventures. The company previously raised around $20 million.

Agendia BV, a Dutch developer of molecular cancer diagnostics, has raised $23 million in Series E funding. An undisclosed family office led the round, and was joined by return backers ING, Van Herk Biotech, Gilde Healthcare Partners and Global Life Science Ventures. The company raised a $34 million fourth round in 2007, and has not disclosed financial information on its prior fundings.

Continental Warehousing Corp., an Indian provider of container logistics and warehouse management, has raised $16 million from Aureos Capital and ePlanet Ventures.

Dynamics Inc., a Pittsburgh-based payment card startup, has raised $5.7 million in Series A funding. Adams Capital Management led the round, with firm founder Joel Adams joining the Dynamics board of directors.

TransGaming Inc. (TSX-V: TNG), a provider of software portability products that facilitate the deployment of games across multiple platforms, has raised an undisclosed amount of equity funding from Intel Capital. The investment is part of a larger strategic collaboration between TransGaming and Intel Corp.

Buyouts Deals

Advent International has agreed to buy around a 75% stake in Bulgarian bottled water company Devin, from Austria’s Soravia Group. The deal is valued at approximately €21.5 million. Once the transaction is closed, Advent will attempt to acquire the remainder of company’s shares, which are traded at the Bulgarian bourse.

Chesapeake Energy Corp. (NYSE: CHK) has formed a joint venture on a portion of its midstream assets, with Global Infrastructure Partners. The deal would create a new entity called Chesapeake Midstream Partners, in which each firm would own a 50% stake. Chesapeake Energy would receive $588 million in cash from Global Infrastructure Partners.

LDC has sponsored an £11 million management buyout of Homeserve Emergency Services, a UK-based provider ofhome emergency fulfillment services to the domestic insurance industry, from Homeserve PLC.

JLL Partners and Warburg Pincus are facing an investor lawsuit in opposition to theirplan to recapitalize Builders FirstSource Inc. (Nasdaq: BLDR). The two firms currently hold a combined 49.9% stake in the residential construction company, and have agreed to botha $75 million rights offering at $2 per share and a debt-for-equity swap. The suit claims the recap would not be in the best interest of the company or its other shareholders.

Permira has agreed to acquire UK life insurer Just Retirement (LSE: JR) for £225.5 million.

PE Exits

FMC Technologies (NYSE: FTI) has agreed to acquire Direct Drive Systems, a Cerritos, Calif.-based provider of permanent magnet motors and bearings for the oil and gas industry. The deal is valued at approximately $120 million, and is expected to close next quarter. Direct Drive raised $12 million in early 2008 from firms like Energy Ventures and BankInvest.

Sabse Technologies Inc., a Mountain View, Calif.-based provider of VoIP services, has acquired MobiVox, a Montreal-based company that offers free international phone calling from any phone (mobile, landline, etc.). No financial terms were disclosed. MobiVox had raised an $11 million Series A round from Flybridge Cpaital Partners, IDG Ventures China, IDG Ventures Vietnam, Brightspark Ventures and Skypoint Capital Corp.

Warburg Pincus has agreed to sell German credit card processor EasyCash to Ingenico SA for €290 million.

PE-Backed M&A

YellowBrix Inc., an Alexandria, Va.-based provider targeted business news and information, has acquired Screaming Media from Dow Jones & Co. No financial terms were disclosed. Screaming Media provides syndicated general and business news to Internet and wireless services. YellowBrix raised around $32 million between 1997 and 2002, from firms like ABN Amro, Holland Ventures, Prime Technology Ventures, Triad Media Venturesand TowerBrook Capital Partners.

Firms & Funds

Perseus LLC, a Washington, D.C.-based private equity firm, is raising its seventh fund, according to Buyouts. The target is believed to be close to the $600 million that Perseus raised for its sixth fund in 2007.

Human Resources

Robert Barry has joined Proskauer Rose as a London-based partner in the firm’s private funds practice. He previously was head of Travers Smith’s investment funds group.