peHUB Wire: Monday, August 31, 2009

Dear reader: I plead appalling naiveté when it comes to mark-to-market accounting. You see, I had assumed that FAS 157 would result in private equity firms using public market comps when valuing their portfolio companies. As such, my theory was that the S&P 500 losing more than 11% of its value in Q1 would be coupled by double-digit declines among typical PE portfolios. When that same index rebounded in Q2 by more than 15%, we’d see some corresponding leap in PE portfolios. Not a perfect mirror, of course, but at least something reflective.

Silly me.

New data from Cogent Partners shows that the median buyout fund write-down was -2.1% in Q1 2009, while the median VC fund write-down was -2.8 percent. In fact, only 15% of all funds examined by Cogent reported a percentage decline greater than that of the S&P 500.

Cogent also found a lack of private/public correspondence in Q2, when the median buyout fund was written up at 1.1% and the median vent! ure fund was written down by -1.2 percent. (Note: Q2 sample sizes are smaller)

Does this mean that private equity firms (and their accountants) are simply eschewing public market comps, in favor of static conservatism? That’s what I asked Katita Palamar, head of operations for Cogent’s research business unit. She replied:

“It may be that, even though the public markets have gone up, funds should actually be written down further. Most LPs would agree that funds should have been written down more in Q4. So by not writing up their funds at Q2, they were in effect writing them down relative to public markets without any of the scrutiny of true write downs. I would not expect to see many GPs write up funds at Q2, as the rising public markets may narrow the delta between current portfolio marks and the real portfolio intrinsic value.”

*** Random Data Point: Through last Friday, VCs had disbursed approximately $1.95 billion into 236 U.S.-based companies during the third quarter.

*** Alan Patricof and Eric Dinallo yesterday took to the NYT Op-Ed page, arguing against proposed rules that would require VC firms to register with the SEC. I agree, in general, but also have a nitpick about the lead:

“Venture-capital funds deal solely with privately purchased equity securities in start-up companies, which are not traded in public markets.”

Not only do some of these companies, if successful, ultimately create public securities that VC firms hold, but more and more VC firms are making investments in already public companies. Just last week, for example, Tallwood Venture Capital agreed to acquire what could become a 45% stake in Ikanos Communications. Again, not saying this negates the authors’larger point, but I do wonder if Patricof/Dinallo would argue a firm like Tallwood should indeed be required to register…

*** Speaking of Tallwood/Ikanos, the firm declined to speak with me about why it would commit up to $55 million into a single company, when its most recent fund is sub-$300 million. Partner Dado Banatao emailed to say that the lack of comment is due to both the “SEC and choice. I have no idea who you are.”

*** Reminder: Tickets are now on sale for our Boston cleantech evening, which is taking place on October 27 at the offices of Bingham McCutchen. We’ve put together what I think should be a great panel to discuss how cleantech execs and investors should navigate the Washington DC landscape (both in terms of funding and regulation), which will be followed by cocktail-fueled networking.

Top Three

Calix, a Petaluma, Calif.-based communications equipment supplier focused on bradband service delivery, has raised $50 million in new VC funding and $50 million in new debt financing. The debt came from Silicon Valley Bank, while the equity came from “existing investors.” Calix had previously raised over $220 million in VC funding, from firms like Credit Suisse, Foundation Capital, Kinetic Ventures, Menlo Ventures, Meritech Capital Partners, Redpoint Ventures, TeleSoft Partners, Azure Capital Partners, Contrarian Capital Management and Integral Capital Partners.

Freedom Communications, a newspaper publisher whose titles include the Orange County Register, is expected to file for bankruptcy protection this week, in an attempt to restructure its debt. T! he Blackstone Group and Providence Equity Partners bought a 40% stake in Freedom Communications in 2004 for approximately $460 million.

Gaia Arnaboldi has resigned as a program manager for Adveq’s fund-of-funds focused on the U.S. distressed and other non-traditional private equity markets.

VC Deals

iWalk, a Cambridge, Mass.-based developer of wearable devices for human augmentation, has raised around $20 million in new VC funding, according to a regulatory filing. General Catalyst Partners led the round, with partner John Simon taking a board seat. Other board members include William Doyle of existing backer WFD Ventures, and William Sahlman of the Harvard Business School. No longer listed is iWalk co-founder Nicholas Negroponte. iWalk’s inaugural device is called the PowerFoot One, and is a self-contained robotic system that serves as a prosthetic ankle and foot for amputees.

BPT, an Israeli developer of chemically-stable membrane-based separation solutions for critical industrial processes, has raised $12 million in Series B funding. U.S. Venture Partners and Pitango Venture Capital co-led the round, and were joined by return backers ! Aurum Ventures and Elron Electronic Industries., a Goffstown, N.H.-based distributor and online retailer of wood pellets and biomass fuels for residential heating, has raised $11 million in Series B funding. Monitor Clipper Partners led the round, and was joined by return backer .406 Ventures. The company previously raised a $4 million Series A round, when it was known as American Biomass Corp.

Buyouts Deals

AIG has paused the auction of aircraft leasing unit ILFC, as AIG’s new CEO reviews the divestiture process.

Kirtland Capital Partners has acquired Northwest Mailing Service Inc., a Chicago-based direct mail marketing company. No financial terms were disclosed. Kirtland will use Northwest as an acquisition platform.

Vogo Fund, a South Korean private equity firm, has agreed to buy a 30.7% stake in domestic credit card processing company BC Card Co. Ltd for 194.4 billion won ($155m). Vogo Fund is in talks with other shareholders to increase its stake to more than 50% later this year.

PE-Backed IPOs

Cetip, a Brazil-based central depository for private fixed-income securities and over-the-counter (OTC) derivatives in Latin America, reportedly plans to restart its IPO process this week. Advent International bought a 30% stake in the company earlier this year for approximately $171 million.

PE-Backed M&A

Definition 6, an Atlanta-based interactive marketing agency, has acquired Creative Bubble, a New York-based video editorial, design, sound and production company. No financial terms were disclosed. Last month, Definition 6 raised $15 million in private equity funding from Navigation Capital Partners.

Tele Columbus, a debt-laden German cable provider, is expected to begin an auction process within the next several weeks. The company could fetch between €400 million and €500 million, with possible bidders to include Kabel Deutchland (owned by Providence Equity Partners) and Versatel (Apax Partners is a major shareholder).

Firms & Funds

SVG Capital (LSE: SVI) reported that its net asset value fell 18% during the first six months of 2009, and blamed much of the decline on currency effects.

Human Resources

T. Kevin DeNicola has stepped down as senior vice president and CFO of KBR (NYSE: KBR), in order to pursue “venture capital opportunities in the alternative fuels area.”

Mark Riedy has joined Mintz Levin Cohn Ferris Glovsky and Popeo as a member of the firm’s corporate practice and energy/cleantech practice. He previously was a partner with Andrews Kurth LLP.

Philippe Faraut has joined Financo Inc. as a managing director and head of West Coast operations. He previously was a director with the Sage Group. Before that, he led consumer retail I-banking for HSBC Securities USA.

Alta Partners has promoted Robert Alexander to the position of principal. He joined the San Francisco-based VC firm in 2005 as a principal.