peHUB Wire: Thursday, December 24, 2009

Ever since the Canopy Financial scandal broke last month, there has been lots of speculation about existing investors cashing out during the company’s July financing round. We’ve since learned that $40 million of the $62.5 million deal was used as liquidity for Granite Global Ventures, Canopy board member John Powers (CEO of Stanford Management Co.) and Canopy’s three co-founders. Of that, GGV took the lion’s share with around $27.5 million.

It’s time for them to give the money back.

As Deb reported yesterday, more than one thousand people claim to have had their Health Savings Accounts frozen because of the Canopy fraud. This mean sick people could be unable to access money saved for the purpose of paying medical bills, while others can’t utilize tax benefits of using the money before year-end. They may get the cash back eventually — via bankruptcy proceedings — but t! hat’s cold comfort to someone who wants or needs it now.

I’m told that one large healthcare administrator is making its clients good in the meantime, but it is an exception to the rule. Everyone else is just out of luck, and the FDIC doesn’t care because a failed bank isn’t involved.

GGV and Powers may ultimately be required to pay back the money via bankruptcy proceedings — given that the July investment was enabled by fraud — but they shouldn’t wait. At the very least, set up some sort of fund for those currently unable to access their accounts. It wouldn’t have to be an admission of wrongdoing, but rather an instance of doing right.

*** Around two years ago, I reported that an established venture capital firm had held talks with sovereign wealth funds about selling a piece of its management company. Kind of like what buyout firms Apollo and Carlyle had done.

Thing is, I also didn’t know the VC fir! m’s identity. My best guesses were DFJ or Sequoia, but I was wrong. Ye sterday, however, I followed up with the original source – and he was now willing to give up the goods (perhaps because the deal never actually happened).

The answer? New Enterprise Associates.

*** Data Point: Strong day for VC-backed exits, with $1.25 billion in announced deals. Around $575 million represented earnouts, but still…

*** Quote of the Day: Whole Foods CEO John Mackey, in reference to Leonard Green’s $425 million PIPE earlier this year: “It was more or less like we were buying an insurance policy. In case the worst-case scenario came about, we wanted to make sure we survived.”

*** Publishing Note This is the final peHUB Wire of 2009, with your morning missives set to begin anew on January 4, 2010. But I’m not actually taking next week off (nor are Erin or Deb), so the website will continue to be updated with news and analysis. If you want to be certain not to miss anything, be sure to sign up for our RSS or Twitter feeds (or both).

In the meantime, have a great rest of 2009. We’ll talk again soon…

Top Three

AstraZeneca has agreed to acquire Novexel, a French infection research company. The deal includes a $375 million up-front cash payment, plus up to $75 million in milestone payments. Novexel has raised around $127 million in VC funding since 2004, from firms like Atlas Venture, Abingworth Management, 3i Group, Goldman Sachs, Sofinnova Partners, Edmond de Rothschild Investment Partners, 123Venture, Daiwa SMBC Capital and Novo AS.

Telefónica has acquired JaJah Inc., a Menlo Park, Calif.-based Internet telephone company, for €145 million in cash. JaJah had raised nearly $28 million in VC funding, from firms like Globespan Capital Partners, Intel Capital, Deutsche Telekom and Sequoia Capital.

Vestar Capital Partners has completed its $1.3! billion sale of frozen vegetable producer Birds Eye Foods to Pinnacle Brands Corp., a portfolio company of The Blackstone Group. Birds Eye last month pulled registration for a $350 million IPO. It had reported around $935 million in revenue for the year ending June 30, 2009.

VC Deals

XDC, a Belgium-based provider of digital cinema distribution services, has raised €15.3 million in new VC funding from firms like GIMV and SRIW. Foundingbacker EVS Broadcast Equipmentremains the company’s largest shareholder.

ChaCha Search Inc., a Carmel, Ind.-based search startup, has raised $7 million in new equity funding, according to a regulatory filing. The company previously raised over $25 million from Morton Meyerson, Bezos Expeditions, Rod Canion (founding CEO of Compaq) and Jack Gill (partner at Maven Ventures). It also had secured a $2 million grant from 21st Century Technology Fund.

Curse Inc., a San Francisco-based gaming portal focused on MMOGs, has raised $6 million in Series B funding. Ventech and SoftTech VC were joined by return backer AGF Private Equity. Curse previously raised $5 million. According to our VentureXpert database, most of the Series B round closed in Q1

HyperMed Inc., a Burlington, Mass.-based provider of medical hyperspectral imaging, has filed for Chapter 11 bankruptcy protection. The company’s website says that it has “ceased operations.” HyperMed raised $6.6 million in VC funding led by GBP Capital, plus a $2 million bridge loan from GBP.

Buyouts Deals

The Carlyle Group confirmed that it has held talks with UK waste management company Shanks Group (LSE: SKS) about a possible buyout offer. Shanks had said earlier this month that it received a £536 million approach, but that it wanted at least £590 million.

Chemtura Corp. has agreed to sell its PVC Additives business to SK Capital Partners for approximately $45 million.

Pacific Capital Bancorp has signed a letter of intent to sell its tax division to an undisclosed private equity firm, for an undisclosed amount. The tax unit offers refund anticipation loans and refund transfer tax products.

Redwood Capital Investments has won the auction for Erickson Retirement Communities LLC, a bankrupt U.S. retirement community developer. No financial terms were disclosed. A rival bidding group had included KKR, Beecken Petty O’Keefe & Co. and CoastWood Senior Housing Partners.

Ripplewood Holdings is among five finalists in the auction to buy Daewoo Electronics, according to a South Korean media report. The other four are all strategics.

Valentino Fashion Group has agreed to a recapitalization that would reduce its debt by one-third, down to €1.5 billion. As part of the deal, existing Valentino shareholders Permira and the Marzotto family will invest €250 million in additional equity.

PE-Backed IPOs

Tengion Inc., an East Norriton, Penn.-based regenerative medicine company focused on replacement organs like bladders, has filed for a $40.25 million IPO. It plans to trade on the Nasdaq under ticker symbol TNGN, with Piper Jaffray serving as lead underwriter. Tengion has raised over $140 million in VC funding, fromOak Investment Partners (19.6% pre-IPO stake), HealthCap (14.3%) Johnson & Johnson Development Corp. (12.5%), Brookside Capital (8.6%), Bain Capital Ventures (8.5%), Quaker BioVentures (8.3%), L Capital Partners (6.4%), Deerfield Partners and Safeguard Scientifics.

PE-Backed M&A

Stonehenge Energy Resources, a portfolio company of Energy Spectrum Capital, has formed a midstream joint venture with Rex Energy Corp. (Nasdaq: REXX). The effort is called Keystone Midstream Services, with Stonehenge holding a 60% stake.

Twitter, a San Francisco-based micro-messaging service, has acquired Mixer Labs, makers of the GeoAPI geolocation-aware applications. No financial terms were disclosed. Twitter has raised over $150 million in VC funding, from firms like Benchmark Capital, Spark Capital, Insight Venture Partners, Institutional Venture Partners and Union Square Ventures.

PE Exits

Novartis has agreed to buy Corthera Inc., a San Mateo, Calif.-based drug company whose lead candidate is a potential treatment option for patients with acute decompensated heart failure. The deal includes a $120 million up-front payment, plus up to $500 million in milestone payments. Corthera has raised nearly $70 million in VC funding since 2003, from Domain Associates, Kleiner Perkins Caufield & Byers, Caxton Advantage Life Science Fund and Sears Capital Management.

Ripplewood Holdings has sold its remaining 4.7% stake in Egypt’s Commercial International Bank (CIB) “though the open market.” The deal was worth £764.5 million. Ripplewood had sold a 9.3% stake in CIB back in June, to private equity firm Actis.

Human Resources

John Clancy has joined Boston-based Schooner Capital as CEO-in-residence. He previously ran the digital business unit of Iron Mountain (NYSE: IRM).

Stephen Smith has been named a portfolio executive with Kodiak Venture Partners, where he is working fulltime on an interim basis with an undisclosed Kodiak portfolio company (according to his LinkedIn account). He previously was interim CEO of Rasmussen Reports, and before that was VP of digital products and services for McGraw Hill.