Last Friday, I participated in a secondary investing conference, hosted by DealFlow Media. Some takeaways:
• The secondary market’s stickiest wicket continues to be the gap between buyside and sellside pricing expectations. Rather than trying to bridge the divide, it would appear that both sides are calcifying – believing that the other will cave.
For buyers, that means banking on a theory that increased capital call volume will push some LPs over the line from liquidity-parched to liquidity-desperate. Sellers, on the other hand, counter that an increase in capital calls is likely to be coupled with an increase in distributions, which could help them maintain an even keel.
Let me add one more variable into the mix: Secondary firms have raised a ton of money over the past 24 months, and at some point will need to either invest big or shrink fund sizes. I understand fears of catching a falling knife, but what is the current excuse for extreme caution? Today’s private equity deals – in the aggregate – should be winners, based on the overall economic environment. If! a prospective deal is mostly unfunded commitments from a historically-strong manager, then a hesitance to buy seems to be a general lack of faith in the asset class. That’s fine, but what are you doing collecting management fees on a fund designed to invest in said asset class?
• On the other hand, buyers have legitimate frustrations when it comes to wide variations in GP reporting (particularly on club deals). One panelist noted that Harrah’s is valued at anywhere from 25 cents to 75 cents on the dollar, depending on the general partner.
• Princeton is one of the few Ivys to have not yet offered its stakes on the secondary market. One panelist suggested that it was just kicking the can down the road, but that it would soon have a “come to Jesus moment.”
• Lots of focus on endowments like Stanford, but the next big secondary opportunities could be from public pensions that have major commercial real estate exposure.
• A couple panelist predictions for the year ahead: (1) We’ll see GPs do a bunch of bundling of their own fund interests; (2) GPs will try including more liquidation options in their own funds.
*** Nearly two years ago, I wrote about a speech in which Blackstone Group’s Steven Schwarzman said that private equity was no longer a high-risk asset class. His argument was that the sponsors were putting out relatively little equity, and the leveraged loans were being syndicated out to so many parties that no one institution would be in deep trouble were a PE-backed company to fail.
Things have obviously changed a bit, so I asked Blackstone president Tony James about the comment during last Friday morning’s media call. Specifically, is private equity once again a high risk asset class?
His basic answer was no: “If you look at the hit ratio of deals done in this environment, it goes way up. The risk goes down in this environment because we get more conservative and more skeptical… sellers have lower expectations.”
But does that mean it is, indeed, high risk during the bull market in which Schwarzman made his original comment?
“Steve’s never wrong,” James joked (sort of). “I don’t think private equity is any higher risk than buying the S&P 500… so long as you don’t look at medians, where you have a lot of amateurs included.”
*** Please send me you Internship Listings as soon as possible. Go here for full details.
*** Scoopiness: Ronnie Lott has resigned as an executive with Capital Dynamics, the firm that recently bought the wreckage of HRJ Capital. That leaves just the “H” (Harris Barton) remaining. I’ll have more about this on the site later this morning…
*** … Speaking of peHUB.com, Friday was our three-year anniversary. Much thanks to all who visit regularly, our archive subscribers, advertisers and those who contribute comments and Vox Populi posts. And to my corporate overlords who keep encouraging us, even if they don’t always know what to make of us…
General Atlantic and KKR have agreed to acquire the TASC consulting unit of defense contractor Northrop Grumman (NYSE: NOC), for $1.65 billion.
Phoenix New Media, the digital media arm of Phoenix Satellite Television (Hong Kong: 2008), has raised $25 million from firms like Intel Capital, Bertelsmann Asia Investment Funds and Morningside Ventures.
eBay on Friday announced that it has reached a deal with the founders of Skype, whereby they will withdraw their legal challenges in exchange for a 14% stake in the VoIP company. Under terms of the deal, Silver Lake Partners, Andreessen Horowitz and Canada Pension Plan would hold 56% of Skype and eBay would hold 30 percent. Index Ventures would no longer be part of the buying consortium.
Tethys Bioscience, an Emeryville, Calif.-based developer of multi-biomarker technology, has raised $25 million in Series D funding. Capital AG led the round, and was joined by Wasatch Advisors and return backers Mohr Davidow Ventures, Kleiner Perkins Caulfield & Byers and Intel Capital. It had previously raised around $54 million.
RPO Inc., a San Jose, Calif.-based developer ofoptical touch technology, has raised $19.3 million in new Series C funding. BASF Venture Capital and JAFCO were joined by return backers Jolimont Capital, Allen & Buckeridge and Neo Technology Ventures.
Eventbrite, a San Francisco-based operator of an online events marketplace, has raised around $6 million i! n Series C funding led by Sequoia Capital.
Promethera Biosciences, a Belgium-based stem cell therapy company, has raised €5.3 million in new Series A funding. Vesalius Biocapital led the round, and was joined by SRIW, Life Sciences Research Partners, NivelInvest, Capital & Croissance, LRM Oxygen for Growth, Vives and return backer Sopartec.
Apprenda, an Albany, N.Y.-based developer of an SaaS application server,has raised $5 million in new VC funding. New Enterprise Associates led the round, and was joine! d by return backer High Peaks Capital.
Advent International has made a public tender offer to acquire Polish educational publisher Wydawnictwa Szkolne i Pedagogiczne SA (WSiP). The offer is valued just north of $142 million.
AXA (Paris: AXAF) has received several first-round offers for its 15.6% stake in Chinese life insurer Taikang, which is expected to be worth more than $1 billion. Bidders include The Blackstone Group, Bain Capital, KKR and Chinese private equity firms Hopu Investments and Hony Capital.
China Investment Corp.has agreed to buy $1.58 billion of new equity inU.S. power generation and distribution company The AES Corp. (NYSE: AES), in exchange for around a 15% ownership position.
EDF (Paris: EDF) next month will launch the sale of Britain’s biggest electricity distribution network, which is expected to be valued at nearly £4 billion.
Kingfisher Airlines of India said that it is in advanced talks to raise $400 million from private equity firms.
Lime Rock Partners has invested $25 million in Expert Petroleum SA, a Romanian rehabilitator of m! ature oil and gas fields.
Milestone Partners has completed a refinancing of portfolio company Good Health Natural Products, a Greensboro, N.C.-based maker of branded reduced-fat salty snack foods. No financial terms were disclosed for the deal, which included participation by Salem Halifax Capital Partners and the Morgan Keegan Strategic Fund.
The Quercus Trust has completed its acquisition of Applied Solar Inc., a maker of building-integrated photovoltaics that filed for bankruptcy earlier this year.
Maxlinear Inc., a Carlsbad, Calif.-based fabless chipmaker, has filed for a $100 million IPO. It plans to trade on the NYSE, with Morgan Stanley and Deutsche Bank Securities serving as co-lead underwriters. The company raised around $35 million in VC funding, from firms like U.S. Venture Partners (21.62% pre-IPO stake), Battery Ventures (13.75%), Mission Ventures (13.03%) and UMC Capital (7.09%). Maxlinera’s net revenue for the first nine months of 2009 was just over $36 million, with $2.4 million in net income.www.maxlinear.com
STR Holdings Inc., an Enfield, Conn.-based maker of solar power module encapsulants, raised $123 million in its IPO. The company priced12.3 million common shares at $10 per share (below $13-$15 offering range), and closed its first day of trading at $13.10 per share. Credit Suisse and Goldman Sachs served as co-lead underwriters on the IPO. DLJ Merchant Bankin! g Partners sold around 4.88 million shares in the IPO, but still holds around a 36% ownership position. Northwestern Mutual Life Insurance Co. sold around 1.46 million shares, and now holds a 10.8% stake.
Trius Therapeutics Inc., a San Diego-based developer of antibacterial drugs, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol TSRX, with Credit Suisse serving as lead underwriter. The company has raised nearly $50 million in VC funding, from firms like Sofinnova Ventures (21.2% pre-IPO stake), Interwest Partners (17.7%), Versant Ventures (17.7%), Prism VentureWorks (13.5)%, Kleiner Perkins Caufield & Byers (11.9%) and FinTech Global Capital. www.triusrx.com
Amdocs (NYSE: DOX) has acquired jNetX, a Dallas-based provider of service delivery platforms. The deal was valued at $50 million, net of cash and debt. jNetx had raised a small amount of VC funding from Mint Capital.
Applied Materials Inc. (Nasdaq: AMAT) has acquired the assets of Advent Solar Inc., an Albuquerque, N.M.-based maker of solar cells and modules. No financial terms were disclosed. Advent Solar had raised around $114 million in VC funding, from firms like @Ventures, Battery Ventures, EnerTech Capital, Firelake Capital, Globespan Capital Partners, New Mexico Co-Investment Partners, Sun Mountain Capital and ZBI Ventures.
AT&T has completed its acquisition ofrural phone company Centennial Communications Corp. (Nasdaq: CYCL). The dealwas valued at $944 million in cash, or $8.50 per share.Welsh Carson Anderson & Stowewas Centennial’s largest shareholder, and has agreed to support the deal.
Biomet Inc. has acquired Cartilix Inc., a Foster City, Calif.-based developer of biomaterials to repair damaged tissues in articular joints. No financial terms were disclosed. Cartilix had raised $6.5 million in Series A funding led by De Novo Ventures.
LogMeIn Inc. (Nasdaq: LOGM), a Woburn, Mass.-based provider of user remote connectivity and support services, has filed to sellthree million shares of common stock. The value would be nearly $60 million, based on Wednesday’s closing share pric! e of $19.90 per share. LogMeIn itself will sell 100,000 shares, with t he remainder being offered by existing shareholders. Company backers include Prism VentureWorks (17.55%), Polaris Venture Partners (13.24%), 3TS Capital Partners (8.98%), Integral Capital Partners (5.05%) and Intel Capital. The company raised $106.7 million via its IPO in late June, pricing at $16 per share. www.logmein.com
Graceway Pharmaceuticals LLC, a portfolio company of GTCR Golder Rauner, has acquired the global license to ananti-proliferative agent from Gilead Sciences. The investigational molecule is designed to inhibit cellular DNA synthesis, leading to the induction of apoptosis. No financial terms were disclosed.
Lantiq, a portfolio company of Golden Gate Capital, has acquired the wireline business of Infineon Technologies AG (Frankfurt: IFX), for approximately €243 million.
Medstop, a Swedish pharmacy company backed by private equity firm Segulah, has acquired threeSwedish pharmacy clusters from Apoteket AB. No financial terms were disclosed.
Firms & Funds
Blackstone Group (NYSE: BX) posted quarterly “economic net income” of $278.4 million, compared to a $509.3 million loss in Q3 2008.
Fortress Investment Group (NYSE: FIG) posted a $0.43 per share loss in Q3, compared to a $0.66 per share loss in Q3 2008.
Romulus Capital, a seed-stage investment firm focused on student-run startups in the Boston area, has closed its debut fund, according to its website. No financial information was disclosed, although a recent regulatory filing indicated that Romulus was seeking up to $1.2 million. www.romuluscap.com
Tim Lui has joined SB China Venture Capital as a managing partner. He previously was executive vice president of Tongfang Co. Ltd., and general manager of its digital media group. www.sbcvc.com