peHUB Wire: Thursday, June 25, 2009

Kohlberg Kravis Roberts & Co. yesterday announced that it will not proceed with the IPO it filed for two years ago (which we already knew). It also scotched a revised NYSE listing scheme proposed last year, which would have included the absorbtion of an Amsterdam-listed affiliate called KKR Private Equity Investors (a plan I’ve been referring to as KKR’s un-IPO).

Instead, KKR has come up with a third path to publichood: It wants to merge part of its management company with the Amsterdam-listed affiliate (KPE), but keep the combined entity trading Dutch for a little while longer. In other words, KKR would actually be going public (albeit on NYSE Euronext instead of NYSE proper).

There were some media reports yesterday that KKR was “dropping” or “abandoning” its Big Board listing ambitions (The FT was a major culprit), but it’s simply untrue. The new agreement would give KKR the option to float the combined entity in New York for the next 12 months, after which the option would be transferred to KPE. That deadline is really more a backstop than anything else, with KKR most likely to price in New York next spring (after IPOs for Dollar General and HCA, perhaps?).

Remember, some of the largest institutional shareholders in KPE are U.S.-based mutual funds, and they’re in it for the New York listing. No way they’d let the 12-month deadline slide (save for a Lehman-type event), and there’s even less chance that KKR would want to be publicly strong-armed into an exchange switch.

Under terms of the proposed deal, KPE shareholders would receive a 30% stake in the combined entity, compared to the 21% stake they would have received via the original merger. It’s this increased ownership that has convinced many of KPE’s institutional holders to indicate approval of the deal, including Black River Asset Management Franklin Templeton, Lexington Partners; Putnam Investments and RS Investments. Those investors hold around 44% of KPE’s outstanding units.

A source tells me that the proposed deal would value the combined entity at between $6.5 billion and $7.5 billion, with KKR itself being valued at between $4 billion and $5 billion. That’s a heady drop from the $16 billion to $18 billion that KKR originally expected the combined entity to be worth, but is in line with Blackstone Group’s drop in value (BX stock currently trading at around one-third of its IPO price).

It’s worth noting that the above valuation doesn’t mesh with KPE’s current market cap, but instead is based on a percentage of assets under management (to which KPE is trading at a significant discount). That percentage was derived by using Blackstone as a comp, after removing the value of Blackstone’s advisory business.

To sum up: KKR moved closer to an IPO yesterday, on the very day that it withdrew its IPO registration with the SEC. Not something you see too often…

Top Three

Medidata Solutions Inc., a New York-based provider of electronic data capture and data management software for clinical researchers, raised $88.2 million via an IPO. The company priced 6.3 million common shares at $14 per share (above its $11-$13 range), which gave it an initial market cap of approximately $313 million. It trade on the Nasdaq under ticker symbol MDSO, while Citi and Credit Suisse served as co-lead underwriters. Medidata had raised over $21 million in VC funding since 2002, from firms like Insight Venture Partners (33.9% pre-IPO stake), Milestone Venture Partners (7.6%), Stonehenge Capital Fund (6.1%), Greenhill SAVP (1.7%) and Globalnet Partners (1.4%).

ZeniMax Media Inc., a Rockville, Md.-based game publisher backed by Providence Equity Part! ners, hasacquired id Software, creator of games like DOOM and QUAKE. No financial terms were disclosed. Providence bought $300 million convertible preferred stock in ZeniMax 18 months ago, for around a 25% ownership stake.

Advent International has agreed to invest R$280 million (US$142m) into the parent company of Brazilian private education company Kroton Educacional SA (Bovespa: KROT11). Following the transaction, Advent would indirectly hold a 28% stake in Kroton.

VC Deals

Spiracur Inc., a Redwood City, Calif.-based developer of a medical device to help heal wounds, has raised $20.3 million in Series B funding, according to VentureWire. Kleiner Perkins Caufield & Byers and New Leaf Venture Partners co-led the round, and were joined by return backer De Novo Ventures. Spiracur previously raised $4 million, and is based on technology from Stanford University’s bio-design program.

TARIS Biomedical, a Lexington, Mass.-based drug/device convergence company formed by a team of MIT scientists, has raised $15 million in Series A funding. Backers include Flagship Ventures, Flybridge Capital Partners and Polaris Venture Partners.

Virsto Software, a Mountain View, Calif.-based provider of storage solutions for virtualized servers, has raised $7 million in Series A funding. August Capital led the round, and was joined by seed backer Canaan Partners.

Nokeena Networks,a Menlo Park, Calif.-based provider of video deliveryinfrastructure solutions,has raised $6.5 million in second-round funding. Mayfield Fund led the round, and was joined by undisclosed strategic investors and return backers Clearstone Venture Partners and Trinity Ventures. It previously raised $8.7 million.

ClickFuel Inc., a Boston-based provider of online marketing services to SMEs, has raised $2.5 million in Series A funding led by Baird Venture Partners. The company isrun by former Monster executive Steve Pogorzelski.

Yapta, a Seattle-based business that allows users to track airline ticket prices, has raised $2 million in Series B funding. Voyager Capital led the round, and was joined by fellow return backers Bay Partners, First Round Capital, Swiftsure Capital andW Media Ventures. It has now raised $7.7 million.

Buyouts Deals

Baxi, a UK boiler maker, has secured a standstill and waiver agreement on its leveraged loans, in order to avoid default. The deal would be structured as a share swap in which Baxi sponsors BC Partners and Electra Partners would invest around 100 million of additional equity, but become minority shareholders.

Legacy Reserves LP (Nasdaq: LGCY), a Midland, Texas-based oil and gas exploration company focused on the Permian Basin and mid-continent regions, said that it will terminate sale talks with Apollo Management. The two sides had been in discussions over a $14 per unitdeal that would have valued Legacy’s equity at $435 million.

Monier Group, a French roofing company, has reached a debt restructuring agreement with its lender, Reuters has learned. The deal would see debt-holders like Apollo Management, TowerBrook and York Capital take control of the company. Current equity owner PAI Partners had made a rival debt-for-equity proposal, but did not succeed in gaining approval.

Technitrol Inc. (NYSE: TNL) has completed the sale of its Denmark-based Medtech components business to Altor Equity for $200 million. The business generated $110 million in revenue last year, and includes the balanced armature receivers, high-end microphones and electromechanical devices for the hearing aid, high-end audio headset and medical device markets.

PE-Backed M&A

Consona Corp., Indianapolis-based provider of enterprise customer management and process solutions, has acquired the enterprise software business of (Nasdaq: SPRT). The all-cash deal was worth $20 million.Consona is owned by Battery Ventures and Thoma Cressey Equity Partners.

Fine Point Technologies Inc., a New York-based provider of tools for broadband network connectivity management, has acquired Pervenio Ltd., a Cork, Ireland-based maker of wireless device detection and management solutions for mobile communications providers. No financial terms were disclosed. Fine Point has raised VC funding from Edison Venture Fund.

Firms & Funds

AIG said that it will spin off two life insurance units, in a deal that could reduce its debt to the U.S. Fed under a credit facility from $40 billion to $15 billion. AIG would give the government equity in the two units — American International Assurance Co. and American Life Insurance Co. – and then put that equity into special purpose vehicles in preparation of IPOs.

Providence Equity Partnershas begun raising its second debt fund with a $1 billion target, just months after closing its inaugural debtfund with $1.1 billion, according to LBO Wire. The first fund reportedly is 75% invested.

Human Resources

Scott Beardsley and Michael Shalmi havebeen namedCopenhagen-based senior partners with Novo Growth Equity, a new Novo AS affiliate that is expecting to invest $200 million per year (first deal to come in six months). Beardsley previously ran JPMorgan’s West Coast pharma practice out of San Francisco, while Shalmi was in New York as corporate VP of global development and clinical operations. Christina Sylvester-Hvid has also joined Novo Growth Equity as a principal, after having been a partner with Wiborg Biotech Consulting.

KPMG has named Drew Koecher as head of its U.S. restructuring services group. He most recently was service leader for KPMG’s transaction services group and wasAmericas leader for global accounting advisory services.

Jim Lilly has joined Cowen Group Inc. as a managing director, with responsibility for leading the firm’s healthcare services I-banking practice. He previously was a managing director in Merrill Lynch’s global healthcare group.

UBS has named Chi-Won Yoon as chairman and head of its Asia-Pacific region. He succeeds Rory Tapner, who is leaving the bank after 25 years. Yoon previously served as head of equities and fixed income for Asia-Pacific.