peHUB Wire: Thursday, December 10, 2009

When does a $20 million fine not suffice as punishment for bad deeds? When you can: (a) Afford it; (b) It preempts you from facing criminal charges of bribing public pension officials; (c) That lack of charges lets you keep a high-paying job that may replenish your platinum coffers; and (d) You don’t have to admit to actually having committed any bad deeds.

Such is the situation in New York, where Riverstone Holdings co-founder David Leuschen agreed to pay $20 million “in restitution” for the benefit of the New York State Common Retirement Fund. This follows an earlier agreement whereby Riverstone agreed to pay $30 million.

What did Leuschen do wrong? Officially nothing. Sure he “invested” $100k into a straight-to-vid flick produced by the brother of NYCRF’s chief investment officer. And that chief investment officer did direct hundreds of millions of dollars in Riverstone funds (not to mention the whole Hank Morris placement agent and Alan Hevesi contribution angles). But so long as the check is big enough, Leuschen gets to avoid the prospect of a felony conviction that would allow – almost require – Riverstone LPs to remove Leuschen from the general partnership.

Just once, I’d like Andrew Cuomo to indict a major private equity firm or executive as part of this disgraceful mess (Saul Meyer was nice, but he was more of a service provider). And if Cuomo doesn’t have the evidence to convict, then don’t strong-arm folks into shelling out millions via the threat of prosecution.

Again, Cuomo’s intent is good. It’s his execution that bothers me.

*** The House of Reps yesterday approved a tax cut extension bill that would (theoretically) be paid for by changing the tax treatment of carried interest. Not surprisingly, the NVCA quickly released a statement condemning the move! as one that would restrict job creation and entrepreneurship.

Equally not surprising, I applaud the House’s move. Still unsure it can pass the Senate, however, given PE/VC sway in states where Democrats hold both seats (CA, NY, MA). Will discuss all of this more tomorrow, so keep sending me your pro/con arguments.

*** First Round Capital has outdone itself. Not with a new investment, but with a new video holiday card.

You might remember last year’s joyous effort, which involved First Round partners dancing with each oftheir portfolio companies (a spoof on the Dancing Matt phenomenon).This time they’ve set their sights onanother, and more recent, viral superstar. Watch it here.

*** Erin’s written over a thousand posts since joining peHUB, but my favorite lead came yesterday: “Sure, David Leuschen had cattle castration and the Logliscis had “Chooch,” but when it comes to sources of schadenfreude, Tim Durham truly tops them all.” Read the rest.

*** Quote of the Day may make you want to applaud, laugh or cry (or perhaps all three). It comes from Blackstone boss Stephen Schwarzman, speaking yesterday at the Goldman Sachs U.S. Financial Services Conference: “What we don’t want is to have too much money around and have the prices run up and then have the bozos able to do deals again. When every fool can get rich, it doesn’t work well for firms like ourselves.”

Top Three

EQT Partners remains the only financial player interested in buying German generic drugmaker Ratiopharm, which is being shopped with a €2.3 billion asking price. Firms that have dropped out include KKR, Permira, TPG Capital and a Goldman Sachs/Advent International pairing. Sources tell Reuters that the likely winner will be strategic.

MOL Global, an affiliate of Malaysian payments company MOL AccessPortal Berhad, hasagreed to acquiresocial networking company Friendster Inc. No financial terms were disclosed. Friendster had raised around $48 million in VC funding, from firms like Benchmark Capital, DAG Ventures, Founders Fund, Kleiner Perkins Cuafield & Byers and Siguler Guff & Co.

The Pennsylvania State Employees’ Retirement System reported private equity returns of 7.2% and venture capital returns of 0.1% (both through June 30). The $23.7 billion system also said that it has cut its long-term target allocation for alternatives from 14% to 12 percent. It has current alternatives exposure of 22.1 percent.

VC Deals, a Solana Beach, Calif.-based provider of on-demand IT service management solutions, has secured $41 million of a $66 million VC round, according to a regulatory filing. Sequoia Capital came aboard as a new backer. The company previously raisedover $5 million venture capital from JMI Equity. All of the round reportedly went to repurchase stock from company executives and employees.

Gowalla, a location-based social networking service, has raised $8.4 million in Series B funding. Greylock Partners led the round, and was joined by fellow new backers Shasta Ventures, Maples Investments, Ron Conway, Kevin Rose, Gary Vaynerchuk, Shervin Pishevar, Jason Calacanis and Chris Sacca. Returning investors included Alsop-Louie Partners and Founders Fund. Gowalla is based in Austin, Texas.

Gogii Inc., a Marina del Rey, Calif.-based developer of a free mobiletexting application, has raised $8.2 million in Series B funding. Matrix Partners led the round, and was joined by return backer Kleiner Perkins Caufield & Byers. The company previously raised around $5.2 million.

Pageonce, a Palo Alto, Calif.-based personal assistant in mobile finance and travel, has raised $6.5 million in Series A funding led by Pitango Venture Capital. The company had previously raised $3.5 million.

TruTouch Technologies, a Framingham, Mass.-based developer of non-invasive biometric intoxication detection systems, has raised $1.3 million in recap funding led by The Verge Fund.

Pfenex Inc. has raised $24 million in equity to spin out from Dow Chemical Co. as an independent company, according to a regulatory filing. The deal was announced last week, but without a dollar amount. Dow and Signet Healthcare Partners will serve as shareholders. San Diego-based Pfenex will develop proteins based on Dow Chemical’s fluorescens-based platform that uses high throughput, parallel processing methodologies.

Care Factor, a Canadian provider of IT infrastructure solutions, has raised an undisclosed amount of growth capital funding from Sverica International.

Buyouts Deals

Aurelius, a German investment group, reportedly is in talks to buy the Isochem civil chemicals business of SNPE, a French state-owned rocket propellant maker. No financial terms were disclosed.

The Carlyle Group is in talks to buy a 40% stake in Brazilian tour operator CVC for $600 million, according to a Sao Paulo newspaper. CVC also has considered a public offering.

Francisco Partners has agreed to acquire Cybit Holdings PLC for approximately £23 million. Cybit is a listed UK company with three business lines: Vehicle Telematics Solutions, Maritime Solutions and Private Mobile Radio-based tracking and precise positioning solutions.

GenNx360 Capital Partners has completed its tender offer forGVI Security Solutions Inc. (OTC BB: GVSS), for $0.3875 per share in cash. GVI is a Carrolton, Texas-based provider of video security surveillance solutions. Following the merger, it will be delisted from the OTC.

Goodman Global Inc., a Houston, Texas-based manufacturer of residential and light commercial heating, ventilation and air-conditioning equipment, said that it will offer $320 million worth of senior discount notes due 2014. The company was acquired last year by Hellman & Friedman.

Neiman Marcus Inc. reported sharply lower quarterly profit, and said that it expects the “c hallenging economic and retail environment” to persist for an “extended period of time.” The upscale retailer was acquired in late 2005 for $5.1 billion by TPG Capital and Warburg Pincus.

PE-Backed IPOs

Financial Engines, a Palo Alto, Calif.-based provider of technology-enabled portfolio management and investment services, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol FNGN, with Goldman Sachs serving as lead underwriter. Shareholders include Foundation Capital (17.4% pre-IPO stake), New Enterprise Associates (14.4%) and Oak Hill Capital Partners (9.3%). The company posted revenue of $58.8 million in the nine months ended September 30, up 12.6% from $52.3 million a year ago, and net income of $1.7 million, compared with a $1.5 million loss a year ago.

PE-Backed M&A

Telegraph Hill Partners has merged portfolio companies Nexus Biosystems Inc. and Aurora Biotechnologies. Nexus is a Poway, Calif.-based provider of automated sample management systems. Aurora is a Carlsbad, Calif.-based developer of microplates for use in sample storage, high-throughput screening and cellular imaging.

PE Exits

ModusLink Global Solutions Inc. (Nasdaq: MLNK) has acquired Tech for Less LLC from private equity firm Dixon Midland Company. No financial terms were disclosed. TFL is a -based acquirer and reburbisher of consumer electronics and business technology products. It and Dixon Midland were advised on the sale by Livingstone.

Firms & Funds

Ariya Capital Group Ltd., a UK-based investment firm, is raising $150 million for its debut private equity fund, which will focus on sustainable investments in Sub-Sahara Africa.

Azure Capital Partners is targeting $250 million for its third fund, according to a regulatory filing. The San Francisco-based firm officially focuses on early-stage IT investments, but also has been opportunistically seeking out later-stage “orphans” (i.e., companies whose VCs don’t want to invest in follow-on rounds).

Gilde Healthcare Partners is raising upwards of €50 million for a growth equity fund that would focus on European healthcare companies. It has already closed on an undisclosed amount of capital commitments.

Human Resources

Blake Hutcheson has joined OMERS as head of its real estate arm (Oxford Property Group). He previously had been with nascent private equity firm Mount Kellett Capital Management.

Rothschild has named Herve Sawko has joined as head of Middle East investment banking. He has been with the firm for 17 years, most recently based in New York with a focus on international transactions.

Karan Sampson has joined accounting firm Marcum LLP as director of business development for the firm’s alternative investment group. She previously ran her own consulting firm KSD Consulting.