peHUB Wire: Thursday, March 12, 2009

Want to insult a buyout pro? Don’t tell him that his fund was marked down. Tell him that it was marked down more than the typical venture fund was marked down. Ouch. Sting. Burn.

Cambridge Associates this week released new fund performance data, which shows that private equity firms (buyout, growth equity, mezz) lost more value for limited partners than did VC firms, during the first three quarters of 2008. Not just actual dollars — of which buyouts simply has more — but in terms of percentage (net of fees, carried interest and other expenses). And given what we know about Q4, it’s a reversal of fortune that can be expected to accelerate.

Specifically, non-VC private equity firms were down 8.9% through Q3 2008, compared to a negative 4.26% mark for VC funds. The gap is even more pronounced for one-year performance (Q3 07-Q3 08), where buyout firms are at -5.5% compared to -0.9% for VC funds. They both suck, of course, but VC sucks less.

Things flip around once you begin looking at three-year and five-year performance. Venture has the lead on 10-year, but expect that to disappear once the dotcom boom is time out.

The Cambridge Associates data is based on a sample of 748 private equity firms raised between 1986-2008, and 1,238 VC funds raised between 1981-2008. Also worth noting that Cambridge’s results are more favorable to the VC industry than are Venture Economics’ results. Not in terms of this specific issue of YTD buyouts vs. VC, but just in terms of overall VC benchmarks. Get a link to the docs here.

*** If Candover does go bust (and the betting line seems to favor it), what will that mean for the rest of European private equity? Does a firm like CVC become even more dominant? Do U.S. firms redouble efforts in the region, to exploit the void (perhaps by acquiring a publicly-traded entity like 3i Group)?

*** KKR is beginning to quietly talk to folks about a new fund. It will be very interesting to see what kind of response it gets from the State of Washington, now that Joe Dear is gone. Also will be interesting to see what kind of response it gets from existing LP CalPERS, now that Joe Dear is there.

*** Speaking of KKR, would it be out of the realm of possibility that some secondary firm – or rival LBO firm – tries to buy up a big piece of its Amsterdam-listed affiliated (KPE)? Imagine the secondary firm has good insight into the underlying assets via an LP stake in KKR’s private fund – and believes the KPE assets are too deeply discounted (I know, big assumption). Could be a quick and easy opportunity.

*** Old Business: During his quasi State of the Union address last month, President Obama said: “We’ll have plug-in hybrids rolling off our assembly lines, but with batteries made in Korea.” To the untrained ear, it would have sounded like no U.S. company has sigured out the technology yet. Must not have gone over too well in Watertown, Mass., where VC-backed A123 lost out on the Chevy Volt contract to South Korea’s LG Chem (which is likely the deal Obama was referring to).

*** Speaking of A123, did you know that its headquarters in on the grounds of an old arsenal, which leaked so much toxic materials that it later became the site of a massive Superfund cleanup. Something apropos about a cleantech company operating in such a space. More apropos if it could find an auto OEM customer.

*** Yes, the Walking Dead list is still coming. My goal is Monday. Trying to decide what to do with firms that are clearly out of new money, but which tell me that they’ve held otherwise-undisclosed first closes on new funds (or have cap commitments they can call down as needed). Basically, I need to decide if I believe them.

*** Clarification: Yesterday’s top news item was about $72 million in new VC funding for NorSun. The round was led by Good Energies, which I inexplicably forgot to include.

*** A Time to Shill: The Buyouts and VCJ Webinar on raising a new fund in 2009 is this Friday. Go here to register.

Top Three

CCC Information Services and Mitchell International Inc. have called off their $1.4 billion merger, after a federal court granted an FTC request for a preliminary injunction. According to Reuters, the FTC had argued that the merger would “in the market for electronic systems used to estimate how much repairs will cost after a collision and how to value totaled cars.” CCC is a Chicago-based portfolio company of Investcorp, while Mitchell is a San Diego-based portfolio company of Aurora Capital Group.

Quadriserv Inc., operator of a centrally-cleared marketplace for securities lending transactions, has raised $34 million in new VC funding. International Securities Exchange led the round, and was joined by Interactive Brokers Group, SunGard and return backers Bessemer Venture Partners, Renaissance Technologies and Round Table Investment Management. The company had previously raised around $17 million.

The Carlyle Group has reached a settlement with Russian steelmaker Novolipetsk, after the latter abandoned a deal to buy Carlyle portfolio company John Maneely for $3.5 billion. Under terms of the agreement, Novolipetsk will pay Carlyle $234 million.

VC Deals

GlobeRanger Inc., a Richardson, Texas–based provider of enterprise RFID edge solutions, has raised $8.3 million in Series C funding. Undisclosed new investors were joined by return backers Sevin Rosen Funds and CenterPoint Ventures. The company previously raised around $37 million.

Greystripe, a San Francisco-based distributor of ad-supported mobile games and applications, has raised $5.5 million in Series C funding. Incubic Venture Capital led the round, and was joined by fellow return backers Monitor Ventures and Steamboat Ventures. The company has now raised a total of $15.5 million.

DriverSide, a San Francisco-based operator of a website for automobile owners, has raised $5.3 million in Series B funding. Allegis Capital led the round, and was joined by return backer Catamount Ventures and the company’s founders.

Blade Games Inc., a provider of game development systems and outsourcing services, has raised $4 million in first-round funding led by California Technology Ventures. The company was formed earlier this year via the merger of Digini Inc. and Vyk Games. Digini had raised a small amount of funding from California Technology Ventures, while Vyk had raised capital from China Seed Ventures.

Buyout Deals

Aleris International Inc., a bankrupt maker of aluminum rolled products, said it would delay a court hearing to approve around $1 billion in DIP financing, in order to work out a deal with creditors. TPG Capital bought Aleris for $3.3 billion in 2006 (including assumption of $1.6b in debt).

Axsys Technologies (Nasdaq: AXYS), a manufacturer of defense surveillance and imaging systems, has put itself on the auction block. The company is asking for around $60 per share, which is more than double where the stock was trading before word on the sale process was reported. Jefferies is running the process.

Charlotte Russe Holding Inc. (Nasdaq: CHIC), a women’s apparel retailer, is recommending that its shareholders reject a slate of three board nominees made by Allan Karp of KarpReilly Capital Partners, because it could represent a conflict of interest. KarpReilly currently controls around 8.6% of the company, and has offered to buy out the remainder. In related news, Charlotte Russe announced that it has instructed financial advisor Cowen & Co. to initiate a sale process.

JLL Partners has submitted a formal offer to buy Patheon Inc. (TSX: PTI) for $2 per share. The move comes less than a month after Patheon said that such an offer “significantly undervalues” the company. JLL already holds a 30% stake in Patheon, which provides contract development and manufacturing services to the global pharmaceutical industry.

Quiksilver (NYSE: ZQN) reportedly has retained investment bank Peter J. Solomon to help find funding or an investor. The apparel maker’s current market cap is approximately $141 million.

PE-Backed Bankruptcy

Fleetwood Enterprises Inc., a Riverside, Calif.-based maker of motor homes and military barracks, has filed for Chapter 11 bankruptcy protection. The company’s international operations are not included in the filing. Major shareholders include Tennenbaum Capital Partners and Marathon Asset Management.

Milacron Inc., a Batavia, Ohio-based plastics processing and industrial fluidics company, has filed for Chapter 11 bankruptcy protection. Avenue Capital Group and DDJ Capital Management will provide an $80 million DIP term loan facility, and acquire the company’s assets. Bayside Capital had acquired a 29% stake in Milacron in 2007.

Firms & Funds

Baugur, an Icelandic investment group focused on the retail sector, has filed for bankruptcy protection.

Human Resources

Barclays Capital has named Gary Posternack as head of M&A in the Americas. He previously ran the firm’s natural resources M&A practice in the Americas.

Kendall Cooper has joined Mayfield Fund as chief financial officer. He previously served in the same role with Dominion Ventures.

Bruce Downey has agreed to join NewSpring Capital as a partner. He previously was chairman and CEO of Barr Pharmaceuticals Inc.

Kathleen Taradash has joined Northgate Capital as a principal, peHUB has learned. She previously was head of fund-of-funds and secondary research with Cambridge Associates.

George Horner has joined Sofinnova Ventures as an executive-in-residence, according to VentureWire. He is the former CEO of Prestwick Pharmaceuticals, a Sofinnova-backed company sold last year to Biovail Corp. for $100 million in cash.

Key Principal Partners has promoted Dan Kessler and Beth Laschinger to principals and Jon Leffers and Mike Mayon to associates.