peHUB Wire: Thursday, August 13, 2009

Yesterday, I did a peHUB post about how some of Sun Capital Partners’ investors are asking for a fund size reduction (talks are very early, with no actual proposals on the table). Here’s what one of its LPs told me:

“It’s really the larger LPs who are having liquidity issues, which is as much of a driver here as anything. They probably want all of their GPs to cut fund sizes, but you have to pick and choose.”

This is the old denominator effect argument, in which exposure to illiquid PE investments has become more pronounced due to the falling value of public securities. It’s something we’ve discussed and validated ad nausea, but are we nearing a point where it becomes more of an excuse than a legitimate pain point? After all, the public markets are up around 60% from their March lows, which means the denominator ef! fect should be easing a bit. Again, not eradicated – but diminished.

To be clear, I’m not saying that LPs shouldn’t be asking Sun for a fund size cut (they should, and Sun should either comply or work out an alternate arrangement on fees). But I do wonder if the driver in this case is largely residual…

*** Warburg Pincus has quietly added a pair of big-name operating executives. The first is former Alcoa CEO Alain Belda, who will serve as a managing director. The second is Harald Joos, former CEO of Demarg Cranes, who will serve as a senior advisor.

*** As I read through some hedge fund closure letters yesterday, I couldn’t help but wonder what would happen if buyout and venture capital fund structures allowed similar shutdowns. What percentage of 2007 or 2008 vintage buyout funds would still be operational? Or how about 2000 and 2001 vintage venture funds?

*** Yesterday I suggested that PE contributors to Kip Kirkpatrick’s c! ampaign for Illinois tre asurer could be shooting themselves in the foot, due to the SEC’s pending “pay-to-play” rules. Water Street Healthcare Partners – Kirkpatrick’s former firm and source of more than $35k – sent over the following statement:

“While we cannot comment on the identity of our individual investors, we can tell you that Illinois state pension funds have not been and are not a focus for Water Street Healthcare Partners. When Kip informed us of his decision to run for Illinois state treasurer, our firm made the decision that because of our prior relationship with Kip, we will not solicit money from any Illinois state pension fund if he is elected to the treasurer position.”

*** Speaking of comments, Deloitte emailed the following explanation for canning its London-based fund placement team:

“Due to an increasin! gly complex regulatory environment in this area, we have decided that it is no longer practical for Deloitte to maintain a Private Equity Fund Placement Service in the UK. We are working hard to ensure that there is no inconvenience to clients. This was a niche service offering, and we remain fully committed to the PE sector.”

*** If you email me this afternoon and I don’t immediately, please understand that I’ll be playing hooky over at Fenway Park. It’s a wet job, but someone’s gotta do it.

*** Where in the World? I’ve agreed to moderate a media-focused VC/PE panel during Advertising Week in New York City. It will take place on Sept. 22 at the Paley Center for the Media, and will include Rich Bressler of THL Partners, Blair Hendrix of Bain Capital and Aileen Lee of Kleiner Perkins. Gee, what media company do! THL and Bain own that we could talk about…

Top Three

Pacific Biosciences, a Menlo Park, Calif.-based company focused on DNA gene sequencing, has raised $68 million infifth-round funding. Monsanto, the Wellcome Trust and Sutter Hill Ventures came aboard as new investors. Past backers include Deerfield Management, Intel Capital, Morgan Stanley, Redmile Group, T. Rowe Price, Mohr Davidow Ventures, Kleiner Perkins Caufield and Byers, Alloy Ventures, Maverick Capital, AllianceBernstein, DAG Ventures, Teachers’ Private Capital and Blackstone Cleantech Venture Partners. Pacific Biosciences previously raised around $185 million.

Sequoia Capital has agreed to buy $63 million worth of common stock in American Dairy Inc. (NYSE: ADY), a producer and distributor of infant formula, milk powder and related products in China. The deal includes $47 million of cash and the conversion of a $16 million bridge loan provided last month.

Byron Wein, former chief U.S. investment strategist for Morgan Stanley, has joined The Blackstone Group as a vice chairman.

VC Deals

Constellation Pharmaceuticals Inc., a Cambridge, Mass.-based developer of drugs that target selective regulators of epigenetic function, has raised $17.2 million in Series B funding. Altitude Life Science Ventures was joined by return backersThird Rock Ventures, The Column Group and Venrock. The company had previously raised $32 million. Constellation Pharma also announced that it has hired Mark Goldsmith as its new CEO. Goldsmith is the former CEO of Cogentus Pharmaceuticals, and most recently was senior executive-in-residence with Prospect Venture Partners.

Mint, a San Francisco-based provider of online personal money management solutions, has raised $14 million in Series C funding. DAG Ventures led the round, and was joined by return backers Benchmark Capital, Shasta Ventures, First Round Capital, Sherpalo Ventures, Felicis ! Ventures and Hite Capital. Mint has now raised $31 million in total VC funding.

Shocking Technologies Inc., a San Jose, Calif.-based developer of voltage switchable dielectric materials, has raised $10 million in Series B funding. Vista Ventures led the round, and was joined by return backers ARCH Venture Partners, ATA Ventures andBalch Hill Partners. The companypreviously raised $7.1 millionin equity and $4 million inventure debt.

Boxee Inc., a New York-based developer of a “social” media center, has raised $6 million in Series B funding. General Catalyst Partners led the round, and was joined by return backers Spark Capital and Union Square Ventures. The company previously raised $4 million.

Jennerex Inc., a San Francisco-based developer of oncolytic virus therapeutics, has raised over $5.1 million in a first close on its Series C round. A second close is expected to occur next month. The company raised $8.3 million in Series B funding last September.

Crescendo Networks,a provider of Web application acceleration and optimizintion, has raised $5 million in Series D funding. Trilogy Equity Partners was joined by return backers Evergreen Venture Partners, Apax Partners, StageOne Ventures and Challenge Fund. The company had previously raised $36.2 million, and has moved its headquarters from Israel to Menlo Park.

JanRain, a Portland, Ore.-based provide! r of OpenID platform solutions for website operators, has raised $3 million in Series A funding, according to a regulatory filing. DFJ Frontier led the round, withmanaging directorDavid Cremin taking a board seat. www.janrain.com

Buyouts Deals

Environmental Capital Partners has acquired the assets of Intechra Holding Corp. from Marathon Asset Management. No financial terms were disclosed for the deal, which was ECP’s first. Intechra is a Merrimack, N.H.-based IT asset disposition company, and was originally acquired by Marathon two years ago.

KKR and Permira are said to be among the possible suitors for Bellsystem24, a Japanese telemarketer valued at around $1.5 billion. Seller Citigroup has set a Sept. 1 bid deadline.

PE-Backed IPOs

Emdeon Inc. (NYSE: EM), a Nashville, Tenn.-based provider of medical billing software, finished its first day of trading at $16.52 per share, after pricing its IPO at $15.50 per share. Backers include General Atlantic and Hellman & Friedman.

PE Exits

Warburg Pincus has received first-round bids for EasyCash, a German processor of credit card transactions.

PE-Backed M&A

Graham Packaging, a portfolio company of The Blackstone Group, has acquired a minority stake in PPI Blowpack Pvt. Ltd., a Mumbai-based container manufacturer. No financial terms were disclosed. Graham recently agreed to go public via a $3.2 billion reverse merger with Hicks Acquisition Co., a SPAC managed by Tom Hicks.

RenewData, an Austin, Texas-based provider of discovery, archiving and governance solutionsfor electronically-stored information,has acquired Digital Mandate, a provider of discovery lifecycle management solutions. The acquisition was supported by new equity from existing RenewData shareholders ABS Capital Partners and CIBC Capital Partners. No financial terms were disclosed, but VentureWire puts ! the investment at $6 million.

Xora and Gearworks have agreed to merge, forming a single maker of location-based mobile business applications. No financial terms were disclosed, except that each company’s existing VCinvestors has committed new equity. That includes Xora backer Dawntreader Ventures, and GearWorks backers BlueStream Ventures, Split Rock Partners and Rho Ventures.

Firms & Funds

Blackstone Group plans to sell bonds in the private placement market through a unit called Blackstone Holdings Finance. Read more…

Onex Corp. (TSX: OCX) reported Q2 earnings of C$83 million, compared to a C$18 million loss in Q2 2008. Read more…

Veritas Capital, a New York-based private equity firm, is raising up to $1.25 billion for its fourth fund, according to a regulatory filing. UBS Securities is serving as placement agent. Veritas raised around $300 million for its third fund in 2005, and invests in “middle market companies that provide goods and services to a broad array of government-related customers.” www.veritascapital.com

Human Resources

Brian McAndrews, former CEO of digital marketing company aQuantive (acquired by Microsoft for $6 billion), has joined Madrona Venture Group as a managing director.

Iyad Duwaji hasresigned as chief executive of Dubai-based Shuaa Capital, after serving in the position for around 14 years. He plans to launch an “independent private equity platform.”

Lizette Pérez-Deisboeck has joined Battery Ventures as general counsel. She previously was a Boston-based attorney with Goodwin Procter, in the firm’s Technology Companies and Private Equity Practice Groups.

Dan Liebermann has joined Bethesda, Md.-based Reznick Group as a manager in the firm’s Valuation and Transaction Advisory group. He previously was with! CB Richard Ellis.