peHUB Wire: Monday, Octoober 19, 2009

It’s taken a while, but I finally have the opportunity to discuss what the meaning of “is” is. No, not in reference to that, but in reference to the questionable trinity of CalPERS, Alfred Villalobos and Apollo Management.

Last week, CalPERS sent over a slew of documents it had compiled on funds that had used Villalobos as a placement agent to successfully secure investments from CalPERS. These documents had been requested by CalPERS of its general partners, as retroactive disclosures that had not been required until just a couple of months ago.

Most of the paper I received was about Apollo, which used Villalobos several different times to secure fund commitments from CalPERS – even after CalPERS purchased a piece of Apollo’s management company (a deal aided by Villalobos).

What’s clear from these documents is that Villalobos was more a “broker” than a “finder,” in that his compensation was structured as a percentage of CalPERS’ monetary comm! itment. “Finders” are typically paid a flat referral fee, according to fund formation attorneys I’ve spoken with. It’s a gray area – even after the SEC tried to clarify it in April 2008 – but it would be unusual for a knowledgeable firm like Apollo to hire an unregistered individual or firm to serve as a “broker.”

But that seems to be exactly what Apollo did with Villalobos. According to FINRA, Villalobos was not a registered broker until May 2009 – even though he was acting like one for Apollo long before that. Moreover, Villalobos’ firm – ARVCO Financial Ventures – wasn’t registered until June 2008 (a predecessor firm called ARVCO Capital Research was not registered).

In its placement agent disclosure forms, CalPERS asked Apollo to “check the box to indicate whether the Placement Agent is registered with the SEC or FINRA and provide details of such registration.”

Notice the ver! b tense, and how CalPERS doesn’t ask if the agent was registere d at the time of their interaction with CalPERS. The result is that Apollo checked the box, confirming that ARVCO is registered.

CalPERS asks a poorly-worded question, and Apollo exploits it by providing a technically accurate answer that is intentionally irrelevant.

An Apollo spokesman declined comment, while I was unable to get anyone on the phone at CalPERS.

*** I moderated a debt markets panel during last week’s Buyouts Texas, and was struck by a comment from Devon Russell, a senior managing director from Madison Capital Funding. He said that while mid-market lenders are slowly increasing their deal volume, they also are shutting out certain equity sponsors who have exhibited bad behavior over the past year.

Russell was specifically referring to situation where “everyone knows it’s over,” but the private equity firm nonetheless “stands in the [lenders’] way.” All of the other panelists bobbed their heads in agreement.

! A bit of a reversal from two years ago, when certain private equity firms were trying to cancel deals they had already agreed to (Sallie Mae, United Rentals, etc.). At the time, I asked a conference panelist – Mark Bradley of Morgan Stanley – if banks would abstain from doing business with such reneging sponsors. His reply: “They might be upset for a while, but it won’t last too long. Bankers are coin-operated.”

Maybe just the difference between the mega-market and middle-market? Or perhaps just not enough time has passed…

*** I know, I know. Should be writing about Galleon…

*** Reminder: Our Boston cleantech event is next Thursday. Agenda and tickets here.

*** This afternoon I’m flying up to the Quebec City Conference, an invite-only gathering of GPs and LPs from the bu! yout and venture capital worlds. Today’s job is to moderate a panel of big-name institutional investors, while tomorrow I’ll be asking Henry Kravis some questions (after he gives a speech). That latter part will eat into my Wire building time, so Erin will be pinch-hitting. We’ll talk again on Wednesday, when I’m back in the home office…

Top Three

H.I.G. Capital has agreed to acquire Allion Healthcare Inc. (Nasdaq: ALLI) for $278 million,including the assumption or repayment of $79 million of indebtedness.The $6.60 per share sale price represents a 21.32% premium over Friday’s closing price. Allion provides pharmacy and disease management services focused on HIV/AIDS patients, plus specialized biopharma medications and services to chronically ill patients.

The Wicks Group of Cos. has agreed to sell online career education companyPenn Foster Education Group Inc. to The Princeton Review Inc. (Nasdaq: REVU). The deal is valued at $170 million in cash.

HubSpot, a Cambridge, Mass.-based provider of inbound marketing ! systems for SMEs, has raised $16 million in Series C funding. Scale Venture Partners led the round, and was joined by return backer Matrix Partners and General Catalyst Partners. The company previouslyraised $17 million.

VC Deals

Flexion Therapeutics, a Woburn, Mass.-based drug development startup, has raised $33 million in Series A funding. Versant Ventures led the round, and was joined by 5AM Ventures and Sofinnova Ventures. Flexion was formed in 2007 by Chorus co-founders Mike Clayman and Neil Bodick.

Endocyte Inc., a West Lafayette, Ind.-based developer of receptor-targeted therapeutics for the treatment of cancer and autoimmune diseases, has raised $26 million in new Series C funding. Clarian Health Ventures was joined by return backers Sanderling Ventures, Burrill & Co., American Bailey Ventures, Blue Chip Venture Co., and Triathlon Medical Ventures. Endocyte has raised around $61 million in total VC funding since 2001.

Audience Science Inc., a New York-based provider! of behaviorally-targeted audience analyticsfor Web advertising, has secured $15 million of a $20 million round (including $10m of converted promissory notes from 2008), according to a regulatory filing. Backers include Mayfield Fund, Mohr Davidow Ventures, Meritech Capital Partners and Integral Capital Partners. Audience Science previously raised over $80 million.

Damballa Inc., an Atlanta-based developer of Internet security software focused on “bot armies,” has secured over $8 million of a $9 million fundinground, according to a regulatory filing. Palomar Ventures was joined by return backers like InterWest Partners and Sigma Partners. The company previously raised $8.5 million.

Channel Intelligence, a Celebration, Fla.-based provider of commerce data interchange services, has raised $3.06 million in n! ew VC funding, according to a regulatory filing. Backers include Aweid a Venture Partners and ICG Holdings. The company previously raised around $28 million.

Additech Inc., a Houston, Texas-based developer of “at the pump” fuel additive technology, has secured nearly $1.8 million of a $3 million round, according to a regulatory filing. It previously raised over $30 million from firms like BEV Capital and Adams Capital Management.

MuseAmi Inc., a Princeton, N.J.-based music software startup, has raised $1.5 million in new VC funding, according to a regulatory filing. It had previously been seeded by Mohr Davidow Ventures., a Los Angeles-based provider of in-stream advertising on Twitter, has raised $500,000 in VC funding, according to a regulatory filing. Mark Sust! er of GRP Partners is listed as a board member.

Sometrics, a Los Angeles-based monetization platform for online game developers, has raised an undisclosed amount of Series B funding. Steamboat Ventures led the round, and was joined by return backers Greycroft Partners and the Mail Room Fund.

Buyouts Deals

ArcLight Capital Partners has acquired the remaining 50% interest in black oil facility Houston Fuel Oil Terminal Company LLC from Motiva Enterprises. No financial terms were disclosed ArcLight acquired its initial 50% interest in HFOTCO in October 2007 from Chartco LLC.

Cossette Inc. (TSX: KOS), a Canadian advertising and marketing company that is subject of a hostile takeover bid by Cosmos Capital, says that it has received written expressions of takeover interest by several other bidders.

Pacific Equity Partners has tentatively offered to buy Australian renewable energy company Energy Developments Corp. (AX: ENE) for A$415 million (US$380m).

Stagecoach (LSE: SGC) has made a £1.65 billion all-stock merger proposal to rival National Express (LSE: NEX). Just last week, a consortium that included CVC Capital Partners decided not to make a formal bid for National Express, after several months of due diligence.

Stallion Oilfield Services Inc., a Houston, Texas-based provider of well-site support, construction and logistics services to oil exploration and production companies, has filed for Chapter 11 bankruptcy protection. The company canceled a proposed $400 million IPO this past January, and is backed by Carlyle/Riverstone.

PE-Backed IPOs

Cellu Tissue Holdings, an Alpharetta, Ga.-based maker of household and industrial paper products, has filed for a $125 million IPO. It plans to trade on the NYSE under ticker symbol CLU, with Goldman Sachs and JPMorgan serving as co-lead underwriters. Company shareholders include Weston Presidio.

Global Geophysical Services Inc., a Missouri City, Texas-based provider of technology that collects seismic data for oil and gas industry, has filed for a $150 million IPO. It plans to trade on the NYSE under ticker symbol GGS, with Credit Suisse and Barclays Capital serving as co-lead underwriters. Backers include Kelso & Co. and Wayzata Opportunities Fund. GGS filed for a $145 million IPO in 2006, but pulled the registration earlier this year.

Minzhong, a Chinese food processing company backed by GIC and Olympus Capital, has hired JP Morgan to help it go public in Singapore.

PE-Backed M&A

Viadeo SA, a France-based operator of a business social network, has acquired Canadian social networking company UNYK. No financial terms were disclosed. Viadeo has raised VC funding fromAGF Private Equity and Ventech.

PE Exits

Pegasus Tower Development Co., a portfolio company of Primus Capital, has sold ten multi-tenant wireless communications towers. No financial terms were disclosed.

Human Resources

Apax Partners has named Sandeep Naik and Shashank Singh as co-heads of the firm’s India office. They both joined the firm in 2004 — New York and London offices, respectively — before relocating to India in 2006. Apax said that former India head Neeraj Bharadwaj “is leaving [Apax] to join a U.S. growth capital firm.”

Nathanial David has joined Arch Venture Partners as a venture partner. David is a serial entrepreneur, having co-founded Sapphire Energy, A! chaogen, Kythera Biopharmaceuticals and Syrrx.

Gustavo Eiben has joined Auroes Capital as head of North American investor relations. He previously was with J.P. Morgan Chase, and before that with Schroder Ventures US and UBS.