peHUB Wire: Thursday, December 3, 2009

This is Erin filling in for Dan for the rest of the week. Direct press releases, etc here.

Blackstone Group, the Misunderstood Teenager: Blackstone Group’s shares haven’t looked so hot since the firm went public in June 2007. No secret there. That’s due to a lot of things, including the fact that investors aren’t really sure what to make of the public private equity giant.

Steve and Tony have lodged a handful of “the market doesn’t understand us” comments, mostly in reference to leverage or mega-buyouts, but to their credit, they haven’t been crying us a river like some whiney CEOs I know. And why should they, when they’ve got analysts to do their dirty work?

Today Howard Chen of Credit Suisse took up the BX torch, penning a report titled “Ten Common Misconceptions about Blackstone.” The report is accompanied by an “Outperform” rating.

So what are the markets just not “getting” about Blackstone? Here are few highlights from Chen’s Blackstone 101 note:

The firm won’t be able to raise new funds. FALSE! The firm has raised all kinds of money since the credit crisis started! Just look at BCP VI, the fund that’s less than halfway to its (lowered) target after what, a mere two years in the market?

The firm only does private equity. FALSE! Blackstone does all kinds of real estate, hedge fund, and placement agent crap. Remember that whole meme about Blackstone turning into Goldman Sachs and Goldman Sachs turning into Blackstone? They didn’t get that rap for nothing (luckily they avoided the whole vampire squid rap). But we knew that.

The firm’s writedowns impact its fee stream. FALSE! Buyout firms get fees based on committed capital, not value. (Note: For the first four or five years. My understanding is that technically, once the investment period ends, most firms actually do calculate their fees based on write-ups and write-downs.)

Blackstone’s bad bets will hurt its balance sheet. Again, FALSE! Blackstone has two masters, its LPs (they’re the ones that get screwed by bad bets) and its shareholders. The firm will probably tell each group that its primary fiduciary duty is to that group, but technically its primary duty is still to the LPs of its funds.

And on and on. As The Fresh Prince once said, shareholders just don’t understand.

***Foundation Medical Partners is in the market raising $150 million to invest in medical device companies, according to a source familiar with the situation. The vehicle, Foundation Medical Partners 3, has closed on $63 million since its launch in 2008, according to a regulatory filing. Five million of that is the GP contribution. The Rowayton, Conn.-based firm has engaged Mallory Capital as its placement agent.

The firm hopes to hold a final close by the end of Q1. It’s already done two deals from fund three: a venture investment in Vertos Medical, which makes devices for spinal disease treatment, and a company called Smithtown Medical, the source said.

Foundation Medical has a unique profile because one of its largest LPs, Cleveland Clinic, is a bit of a strategic investor. The $5 billion non-profit hospital helps the firm with deal flow and due diligence on investment ideas. Senior Cleveland Clinic personnel typically sit in on Foundation Medical’s investment meeting and actively work with portfolio companies to develop products. The hospital, which President Obama often cites as an example of health care industry best practices, has invested $65 million across Foundation Medical’s three funds. Cleveland Clinic has around $5 billion in annual revenues and has not invested with any other buyout firm.

The firm recently sold Viseogen, a maker of cataract surgery products, to Abbot Labs for $400 million. The deal, which closed October 20, returned $20 million to fund two, posting an IRR of 65% and a 3.5x cash-on-cash return, the source said.

***Dear PR Firms: Merely saying a firm or company is “leading” doesn’t make it so. Yet it never fails–every single press release has it in there somewhere. The jig is up!

***I never imagined a day would come when, as a private equity reporter, I’d be covering a movie called Chooch. Today the Wall Street Journal is reporting that the Chairman of a VC firm, Elliot Brody, is being investigated for his investment in the movie. I implore you, readers, if anyone knows where to find a copy of this movie, please, let your friends at peHUB know.

Top Three

China Investment Corp, the country’s sovereign wealth fund, may invest up to 800 million euros ($1.2 billion) in British private equity firm Apax Partners, the Financial Times reported.

Elliot Broidy, chairman of Markstone Capital Partners, is being investigated for his involvement in the New York state pension fund play-to-play scandal. He is charged with investing $300,000 into the movie Chooch in exchange for a $200 million investment in one of his firm’s funds.

Golub Capital, a mid-market lender, has filed its registration for an IPO worth $150. The offering will use Wells Fargo Securities, LLC and UBS Securities LLC, as joint book-running managers of the offering, with Stifel, Nicolaus & Company, Incorporated and BMO Capital Markets Corp as co-managers.

VC Deals

TelaDoc Medical Services, a provider of telehealth medical consults, announces a $9M investment to fund its next phase of growth. Lead investor, HLM Venture Partners, was joined by healthcare specialist Cardinal Partners along with existing investor, Trident Capital.

Leader Ventures, has provided a $4 million term loan to DriveCam, a company which helps driver reduce risky driving habits. The San Diego-based company has previously secured more than $65 million in venture backing from Triangle Peak Partners Menlo Ventures, JMI Equity, Insight Venture Partners and Integral Capital Partners.

Motorola Ventures, Motorola’s venture capital arm, made an investment of undisclosed size in Sensitive Object, a platform developer spin-off from the French Science National Research Centre.

arGEN-X BV, a biopharmaceutical company focused on the discovery and development of human antibodies held a second closing of its Series A equity financing round. The Company raised an additional EUR 3.0 million (USD 4.5 million) from two life science investors, Credit Agricole Private Equity and VIB, a Flemish research institute.

Buyouts Deals

UK private equity firm Palamon Capital Partners acquired a majority stake in Associated Dental Practices for £136 million from Smith & Williamson, of Kaupthing Capital Partners, the former private equity arm of Kaupthing Bank, according to European Venture Capital Journal.

Maxam Opportunities Fund Limited Partnership and Maxam Opportunities Fund Limited Partnership commenced an all-cash offer to acquire C.A. Bancorp Inc., publicly traded Canadian merchant bank and alternative asset manager, at a price of $1.22 per share.

TPG, alongside American Airlines, could invest $1.1 billion in Japan Airlines Corp., the company said.

PE-Backed M&A

GTCR portfolio company Six3 Systems, Inc. has agreed to acquire BIT Systems, Inc., a signal processing systems data company. Six3 Systems, based in McLean, Virg., was formed by GTCR in April of this year to acquire government services providers which focus on national security.

PE Exits

Carlyle Group sold an office and commercial building in Hamburg to Deka Immobilien, Germany’s largest manager of property funds, for an undisclosed sum.

Ellora Energy Inc., a Boulder, Colo.-based oil and gas company backed by Yorktown Energy Partners, has hired Bank of America Merrill Lynch to help it explore strategic alternatives. Earlier this year the company re-filed its IPO plans after withdrawing registration without giving a reason. It plans to trade on the Nasdaq, with Merrill Lynch and Raymond James serving as co-lead underwriters.

Unilever is working with Goldman Sachs to sell its Italian frozen food business, which has attracted interest from Birds Eye Igloo, backed by Permira and long considered an IPO candidate, and Findus Italy, backed by Lion Capital, the FT reported.

Firms & Funds

AIC Ventures is nearing the completion of fundraising for its eighth fund, NL Ventures VIII, L.P. The fund has $100 million as its target and has held a close with 80% circled. AIC Ventures invests in real estate through sale-leaseback deals, mostly through private equity portfolio companies, and has done 14 transactions year to date.

Human Resources

Brown Brothers Harriman & Co. has appointed Douglas L. Maine as a Senior Advisor to the firm. Maine will work with BBH’s Investment Management division with specific emphasis on private equity investing and will also assist BBH’s M&A advisory business. Maine was formerly CFO of MCI Communication and IMB Corp.

Barclays Capital has appointed Tim Broadbent to lead its U.S. Leveraged Loan Syndicate team, according to an internal memo, filling a gap left when Bill Hughes departed to join Citigroup.

Golub Capital hired Christina Jamieson as co-head of its Broadly Syndicated Loan group alongside Mike Loehrke. She was previously Portfolio Manager and Co-Head of Senior Loans at Morgan Stanley/Van Kampen.