peHUB Wire: Monday, August 3, 2009

The U.S. House of Reps on Friday passed a bill designed to limit executive compensation at large financial institutions, but private equity and venture capital pocketbooks are unlikely to be affected.

Draft legislation would have applied to PE/VC firms (plus hedge), but the final bill included a clause about how affected firms — including “investment advisors” — must have assets of at least $1 billion. Now plenty of firms publicize their billions, but almost all of that cash in tied up in funds. Investment advisors, on the other hand, typically have between a few hundred thousand dollars and a few million dollars.

As Daniel Evans, a partner with Ropes & Gray, explains it: “The funds are investment companies (like mutual funds, but unlike mutual funds they are exempt from registration), and neither mutual funds nor private funds have ever been viewed as investment advisers. The entities that sponsor and manage the funds are the investment advi! sers.”

This clause could obviously be altered in the Senate version, particularly since I don’t yet know whether its House authors intended to exempt PE/VC firms (or just exempt smaller institutions). We’ll keep an eye on it…

*** The Financial Times reported on Saturday that KKR is prepping at least five of its portfolio companies for initial public offerings. They are: Dollar General, First Data, HCA, TDC and Toys ‘R Us (Erin suggested a few of these last week). This is in addition to Avago Technologies, which has already filed and is expected to price later this month.

I read some cynical responses to the news, suggesting that the debt on a typical mega-buyout portfolio company would make such offerings unappetizing to public ma! rket investors. Moreover, there is a more general argument about how m ost company revenues are at or near cyclical lows, and that PE owners should wait until the internal financials improve (Dollar General, of course, being a countercyclical example)

I get the counterarguments, but most PE firms don’t get close to complete liquidation in an IPO. On the Avago offering, for example, KKR and Silver Lake would only have their combined ownership percentage shrink from 80.7% to 68.4 percent. IPOs can throw off some droplets, but the real purpose is to pave the way for future downpours. That means either going public (and thus getting a head start on the lockup period) or at least prepping an IPO, so that you’ve got options once the market improves.

Yes it costs money, but it’s a worthy opportunity cost.

KKR’s prep-work is getting noticed for two reasons: (1) It wants to list itself in NY; (2) It’s disintermediating the banks, and there’s some Wall Street fascination/dread with how that works out. Truth is, though, I’d be stunned if other big-name firms weren’t doing the same with less fanfare. They’d almost be irresponsible not to.

Top Three

Cooper-Standard Automotive Inc. has filed for Chapter 11 bankruptcy protection, saying it had $1.17 billion in outstanding debt. The auto components maker is a portfolio company of GS Capital Partners and The Cypress Group.

Hicks Acquisition Company I (AMEX: TOH), a blank check vehicle run by Tom Hicks, has agreed to acquire Resolute Natural Resources Co., an independent oil and gas company founded in 2004 by Natural Gas Partners. Hicks would value Resolute at $582 million, rename it Resolute Energy Co! rp. and apply to list it on the NYSE. NGP would remain a minority shareholder.

African Capital Alliance has held a $200 million first close on its third private equity fund, which invests in Nigeria and the West African sub-region. It is targeting $350 million. Limited partners include CDC Group, the European Investment Bank, the International Finance Corp., Netherl! ands Development Finance Corp., First Trustees Nigeria, AIICO Insurance and Africa Re-insurance Corp.

VC Deals

PanGeo Subsea, a Newfoundland-based developer of acoustic imaging technologyfor the energy sector, has raised $11 million in new VC funding. Lime Rock Partners and CTTV Investments co-led the round.

Pelican Imaging Corp., a Soquel, Calif.-based company focused on commercializing computational cameras,has raised $7 million in first-round funding, according to a regulatory filing. Board members include Eric Zimits of Granite Ventures and Tom Rosch of InterWest Partners.

iLoop Mobile Inc. has secured $2 million of a $4 million round of VC funding, according to a regulatory filing. No investor information was disclosed. T! he San Jose, Calif.-based company provides technology and services for interactive mobile marketing, mobile advertising and mobile content distribution.

DNAnexus Inc., a Palo Alto, Calif.-based developer of a platform to manage DNA sequence data,has raised $1.55 million infirst-round funding, according to a regulatory filing. First Round Capital led the round, with partner Rob Hayes joining the company’s board of directors.

Apperian, a Boston-based developer of iPhone apps for large enterprises, has raised $1 million in Series A funding led by CommonAngels.

Buyouts Deals

H.I.G. Capital has acquired an ownership stake in Dutch publisher VNU Media, as part of VNU’s debt restructuring. H.I.G. and prior VNU owner 3i Group will now hold equal stakes, following a joint equity investment of €17.2 million. 3i bought VNU Media in 2007 for €300 million, including €200 million in debt.

Huntsman Gay Global Capital has acquired a majority stake in Boca Raton, Fla.-based bedding manufacturer Hollander Home Fashions. No financial terms were disclosed, except that the transaction included both equity and debt financing.

Langholm Capital reportedly is among the potential suitors for Gu, a London-based based chocolate dessert maker that also is attracting interest from Nestle and Mars. The asking price is between £30 million and £40 million.

SP Acquisition Holdings Inc. (AMEX: DSP), a blank check vehicle controlled by Steel Partners chief Warren Lichtenstein, has agreed to acquire Frontier Financial Corp., an Everett, Wash.-based bank with around $4 billion in assets under management.

PE-Backed IPOs

Talecris Biotherapeutics Holding Corp., a Research Triangle Park, N.C.-based developer of plasma-derived protein therapies, last month filed a pair of amendments to its original IPO filing. Neither amendment disclosed the number of shares to be offered or a price range, but did indicate that the company still plans to go public. Talecris had originally filed for a $1 billion IPO in 2007, but later agreed to be acquired by Australia’s CSL Ltd. for $3.1 billion. That deal was scuttled by anti-trust regulators. Talecris is controlled by Cerberus Management and Ampersand Ventures.

Unity Media, a German cable television and broadband service provider, reportedly is planning to go public later this year. The company has retained Morgan Stanley and UBS as co-lead arrangers, and hopes to raise upwards of $1.4 billion. Apollo Man! agement and BC Partners are Unity Media’s controlling shareholders.

PE Exits

TPG Capital has completed its sale of Midwest Airlines to Republic Airways Holdings Inc. (Nasdaq: RJET). The deal included $6 million in cash and a $25 million note that is convertible to Republic stock at $10 per share.

Firms & Funds

Close Growth Capital has spun out of UK merchant bank Close Brothers, via a management buyout. It is the third of Close Brothers’ private equity units to spin out this year, following Close Ventures and Close Brothers Private Equity.

Guggenheim Partners, a financial services firm with private equity and venture capital affiliates,has agreed to acquire Claymore Group, a provider of ETFs, closed-end funds and unit investment trusts. No financial terms were disclosed for the deal, which is expected to close later this quarter.

Lilly Ventures has spun out fromdrugmaker Eli Lilly & Co., in order to offer its employees more com! petitive compensation packages, according to VentureWire. As part of the deal, Lilly Ventures secured a new $200 million capital commitment from its former parent company.

The Los Angeles City Employees’ Retirement System has approved a commitment of up to $20 million to Hellman & Friedman Capital Partners VII. The fund has a $7 billion target and a $10 billion hard cap.

The New York State Teachers’ Retirement System has approved a commitment of up to $100 million to Energy Capital Partners II, according to board meeting documents.

Human Resources

Zak Doehla has been named chief alternatives investments officer for the Teachers’ Retirement System of Illinois. He previously was an associate director of Orix USA Corp. He succeeds Lamar Villere, who recently left to run private equity for the Tennessee Consolidated Retirement System.