peHUB Wire: Monday, June 14, 2010

Europe is trying to destroy the global private equity market.

Actually, that’s a bit hyperbolic. Let’s go with this instead: European Union regulators are trying to destroy the global private equity market.

At issue is the EU’s Directive on Alternative Investment Fund Managers, which could effectively prevent European institutions and individuals from investing in non-European funds. No more raising fund capital from that Dutch pension system or that British corporation or that wealthy family in Germany. Buh and bye.

You know all that talk about how the Volcker Role could kick U.S. banks out of the limited partner biz? Well, in terms of impact, Volcker is Lamar Odom and the EU is Kevin Garnett.

The European proposals — there are two, currently being reconciled — cover all types of alternative investments (hedge, private equity, venture capital, real estate, etc.). They were drafted in response to the financial meltdown, despite explicit ackno! wledgment that alternatives themselves were not to blame (save for hedge funds, just a little bit).

Before continuing, let me say that private equity’s lack of culpability is, to a large extent, irrelevant. After all, subprime mortgage bundling did not cause the Great Depression, nor subsequent recessions until 2008. New rules should be judged on their own merit, and there can be valor in thinking ahead.

But these new rules fail the test miserably. Not because they attempt to preempt future over-leveraging that could lead to systemic illiquidity, nor because they will make it more costly for non-European firms to raise money from European investors (although both are true). No, they fail because they insist that non-European home countries of private equity funds adopt the new European standards.

For example, imagine you’re a private equity firm domiciled in New York City, which wants to raise money from European investors. Following a three-year “trans! itional” period (i.e., status quo), you could only secure European fun d commitments if U.S. regulators mimeograph the new EU standards.

The chance of that happening, of course, is nearly the same as Vatican City’s soccer team winning the World Cup.

How come? Well, one proposal would maintain public reporting requirements on a company taken private (for two years after the acquisition). Another would restrict the amount of fund-level leverage in the case of “exceptional circumstances” (think distressed debt/hedge), while a competing draft would include deal-level leverage restrictions (LBOs). Another would require PE firms to provide an annual disclosure of “investment strategy and objectives” on any company in which is acquired a control position (VC-backed companies would be excluded). Finally, there are a whole host of annual reporting requirements.

In short: The U.S. won’t go for it.

Complicating matters even further is a major portability issue. Basically, one draft would require non-EU fund managers to registe! r and provide disclosures to each and every country from which they raise money. The other draft would provide a so-called “passport,” via which you could register in one European country and be copasetic in all the others.

Of course, if the EU doesn’t drop its “you must play by our rules” demand, then the issue of portability is largely irrelevant. If it does blink, then a passport would be required to keep down compliance costs.

I spoke with a bunch of European sources over the weekend — all of whom believe that the EU will come to its senses before it’s too late. They say some additional disclosures will be unavoidable, but that the most absurd proposals are being driven by politicians who want credit for “driving private equity locusts out of [pick a European country].”

I hope my sources are correct but, for now, it looks like the demagogues might just get their idiotic wish.

Top Three

Castlight Health, a Web-based service that helps companies provide employees with individual-level views of their healthcare benefits and costs, has raised $60 million in Series C funding. New investors included Morgan Stanley Investment Management, The Wellcome Trust, U.S. Venture Partners and the Cleveland Clinic. Return backers were Maverick Capital, Oak Investment Partners and Venrock.

Cablevision (NYSE: CVC) has agreed to buy Bresenan Communications from Providence Equity Partners for $1.365 billion. Bresnan provides cable and broadband services to more than 320,000 customers in Colorado, Montana, Wyoming and Utah.

Eric Feng is stepping down as founding CTO of Hulu, in order to become a partner with Kleiner Perkins Caufield & Byers. He will focus on greentech opportunities, and also will serve as a “technical advisor” to Al Gore.

VC Deals

BioScale Inc., a Cambridge, Mass.-based developer of protein analytics technology, has raised $25 million in new VC funding. Morningside Venture led the deal, and was joined by return backers New Science Ventures, WFD Ventures and F2 Ventures.

Pharnext SAS, a France-based, has raised €4.8 million in Series A funding at a €45 million post-money valuation. Backers include Truffle Capital, Aurinvest Capital, Financière Boscary and individual angels.

Attributor, a Redwood City, Calif.-based provider of online content licensing technology, has raised $3.2 million in Series D funding. Return backers included Sigma Partners, Selby Venture Partners and Jafco Ventures. The company previously raised around $22 million, from Sigma, Selby, Jafco, Turner Broadcasting, Amicus Capital, Draper Richards andFirst Round Capital.

Ensysce Biosciences Inc., a Houston, Texas-based developer ofcarbon nanotubes for cancer therapeutics, has raised up to $1.5 million from the State of Texas Emerging Technology Fund.

Livio Radio, a Ferndale, Mich.-based developer of Internet radio devices ! and smartphone apps, has raised an undisclosed amount of VC funding from Beringea.

Buyouts Deals

Colony Capital and GS Capital Partners reportedly are among likely bidders for French furniture retailer Conforama, which is being sold by PPR SA. The deal could be valued at around €1.5 billion.

Gart Capital Partners has acquired Swoozie’s Inc., an Atlanta-based specialty retailer focused on stationary, greeting cards, and personalized products. No financial terms were disclosed.

Kaffee Partner, a distributor of coffee and water dispensers in the German SME market, has raised an undisclosed amount of private equity funding from Partners Group and Capvis Equity Partners.

KKR reportedly is in talks to buy the recruitment services unit of Japanese media company Usen Corp. for around $350 million.

KKR reportedly has agreed to invest $400 million in a joint venture with Hilcorp Energy Co.! to develop the Eagle Ford Shale in South Texas. Hilcorp would hold a 60% stake in the JV and would manage operations.

KKR reportedly has mandated Korea Development Bank to refinance the deal that backed its $1.8 billion leveraged buyout of Oriental Brewery Co last year. The refi would halve KKR’s borrowing costs.

Nomura Holdings reportedly is in early talks to partner with MBK Partners to bid on Lone Star Funds’ $3.5 billion stake in Korea Exchange Bank.

Terra Firma Capital Partners reportedly has invested £105 million of new cash into EMI Group, in order to keep the company from being turned over to lender Citigroup.

TPG Capital is among those reported to have offered to buy AAPT, Australia’s third-largest telecom company, from Telecom New Zealand.

PE-Backed IPOs

Fabrinet Inc., a Thailand-based provider of foundry services to optical component, module/subsystem and optics OEMs, has set its IPO terms to 8.5 million common shares being offered at between $12 and $14 per share. It would have an initial market cap of approximately $472 million, were it to price at the high end of its range. Fabrinetplans to trade on the NYSE under ticker symbol FN, with Morgan Stanley and Deutsche Bank Securities serving as co-lead underwriters. Shareholders include H&Q Asia Pacific (58.3% pre-IPO stake), JDS Uniphase Corp. (6.5%) and J.F. Shea Co. (6.5%)

Metropark USA Inc., a City of Industry-based specialty retailer whose mall-based stores are focused on fashion-oriented 20-30 year-olds, has withdrawn registration for a $100 million IPO. The company cited “changed circumstances regarding the securities market.” Metropark originally filed for the IPO in June 2008, w! ith Goldman Sachs serving as lead underwriter. It raised a small amount of expansion capital in 2007 from Claritas

PE Exits

Trimble (Nasdaq: TRMB) has acquired Definiens, a German developer of image analysis solutions. No financial terms were disclosed. Difiniens had raised around $12.5 million in VC funding from Daimler Chrysler Venture, LBBW Venture Capital and TVM Capital.

Firms & Funds

BTG Pactual, a Brazilian securities firm, reportedly is raising at least $1 billion for a pair of private equity funds (one of which would focus on healthcare).

Intrepid Investment Bankers LLC has launched as a Los Angeles-based, mid-market M&A advisory. Its principals previously were with Barrington Associates, which was acquired by Wells Fargo in 2006.