peHUB Wire: Thursday, May 28, 2009

Two weeks ago we ran a blind item asking which PE-owned retail business was about to file for Chapter 11. Certainly the answer could have been “half of them,” but we gave the hint that this company’s sponsor is getting used to this sort of thing.

That company finally filed yesterday: It was Anchor Blue Retail Group, backed by Sun Capital Partners. For those of you counting, that’s Sun Capital’s seventh company to go under this year. It had six bankruptcies last year.

Of course, the firm’s response to this number is that Sun Capital pays so little for its acquisitions of struggling companies that the performance of its funds is not adversely affected by the bankruptcies. Well, this situation is no exception. Sun Capital actually made money on its investment in the now-bankrupt Anchor Blue Retail Group.

The firm invested a mere $2.32 million from its third fund in the company in 2003. In 2005, the firm took a dividend recap on Anchor Blue. In it, Sun Capital sold a 25% stake to Ares Management for $30 million. Ares also provided mezzanine debt to Anchor Blue. Sun invested an additional $16 million in the company, and all was going well until the economy tanked and Anchor Blue’s sales fell off. The company filed for Chapter 11 yesterday with a $20 million DIP loan from Wachovia.

After all is said and done the firm will come out with a decent return from the deal even though the company failed. In a time of populist outrage, one could argue that that looks kinda bad.

The dividend recap-turned-bankruptcy situation isn’t limited to Anchor Blue. It happened just last week with JLL Partners. The buyout firm had made 2x its money on structured settlement business J.G. Wentworth through dividend recaps, only to see the company fall into bankruptcy. At least in JLL Partners’ case, the firm injected $100 million of new equity into the company as part of the pre-packaged bankruptcy arrangement. I’m assuming the capital came from a different fund than the one benefitting from the recap, but either way it is a sign of good will in a potentially inflammatory situation. For the record, Sun Capital will also re-invest in Anchor Blue as part of the credit bid from lenders. It’s not clear how much the firm plans to chip in. Sun Capital made similar moves with other recent bankruptcies: The firm has plans to re-invest in Big 10 Tire Stores Inc.,! a bankrupt company that it purchased in 2006, and the firm has already re-acquired Fluid Routing, a portfolio company that went bankrupt in February.

Not long ago, Vyvyan Tenorio of The Deal took a look at the age-old dividend recap debate, noting that Moody’s Investor Services plans to search for evidence that dividend recaps lead to bankruptcies. The ratings agency has apparently singled out Apollo Management as one of the “most aggressive” takers of dividends. Surely between Apollo and the hordes of other firms taking dividends when capital was easy, Moody’s will have no shortage of examples to study.

Also at peHUB: past coverage of Sun Capital’s cross-funding strategy, and details on the firm’s equity investments.

Top Three

The Federal Deposit Insurance Corp, the U.S. agency that seizes failed banks, is crafting guidance on the role private equity firms can play when investing in troubled institutions, FDIC Chairman Sheila Bair said.

Australian blood products group CSL Ltd said it would fight a U.S. regulator’s move to block its planned $3.1 billion takeover of U.S. rival Talecris Biotherapeutics Holdings Corp. Talecris is backed by Cerberus Capital Management. The comments were in response to the FTC’s statement that it will sue to block the deal.

Pine Brook Road Partners, Goldman Sachs, J.P. Morgan, PartnerRe, and Renaissance Re have invested $500 million in equity funding to mortgage insurer Essent US Holdings, a Radnor, Penn.-based subsidiary of Essent Group.

VC Deals

The Ben Franklin Technology Partners of Northeastern Pennsylvania’s (BFTP/NEP) Board of Directors has approved the investment of $567,245 in support of regional economic development. The firm committed to InfraRed Imaging Systems, Penn Truss Systems, RantNetwork, Snake Creek Lasers, Third Eye Diagnostics, Hitachi Metals Automotive Components USA, LLC, Puritan Products, Inc., and Ward Manufacturing.

ActiveVideo Networks has agreed to acquire fellow cloud-based interactive TV platform Avinity Systems BV. ActiveVideo has received venture backing from Lauder Partners, and a media syndicate. Avinity Systems has raised money from VC firms Solid Ventures and Big Bang Ventures.

TeachStreet, a web site for teachers and students, announced an additional $1.2 million round of financing from existing investors and management team. Prior investors include Madrona Venture Group.

Gyminee, a Huntsville, Ala.-based fitness social network, secured $525,000 in seed funding from FF Angel LLC and a group of angel investors including StumbleUpon’s Garrett Camp, author Tim Ferriss. The company also announced it will change its name to DailyBurn.

Proteon Therapeutics, Inc., a biopharmaceutical company based in Waltham, Mass., completed a second closing of its Series B equity financing, securing an additional $12 million. The total equity capital raised in this round is now $50 million. The additional equity investment came primarily from Bessemer Venture Partners and Devon Park Bioventures, as well as from previous investors.

GreenRoad, a driving behavior service provider based in Redwood Shores, Calif., has raised $15 million in funding led by DAG Ventures with participation from existing investors Benchmark Capital, Virgin Green Fund, Amadeus Capital Partners and Balderton Capital.

GloStream, Bloomfield Hills, Mich.-based healthcare software company, has closed on a $7.5 million series B financing round co-led by Beringea and members of gloStream’s Executive Management Team.

Telesphere, a business phone and Internet services provider based in Phoenix, Ariz., has closed on more than $15 million in private equity funding. from current Telesphere investors, including Rally Capital, Hawkeye Investments LLC and Greenspun Corporation. The company was represented in the financing by Snell and Wilmer, LLP. .

OutSmart Power Systems, a building electrical infrastructure business launched by Manifold Products, completed a $2 million seed funding led by Bainco, The Clean Energy Venture Group (CEVG) and Manifold Products.

E-Band Communications Corporation, a developer of wireless transmission systems, raised a Series C financing round led by Hercules Technology Growth Capital, Inc., a specialty finance company. Avalon Ventures, a San Diego based venture capital firm joined the round. .

CardiAQ Valve Technologies has received $750,000 in seed or ‘translational’ funding from Broadview Ventures Inc. Total funding in the company is now $1.5 million.

Buyout Deals

HM Capital Partners, alongside Richard L Connor, are in talks to purchased Blethen Main Newspapers Inc., LBOWire reported. The business owns Portland Press Herald/Main Sunday Telegram and Mainetoday.com.

Sun Capital Partners plans to back the credit bid for Anchor Blue Retail Group, its apparel retail company that filed for Chapter 11 bankruptcy protection yesterday.

Fortress Investment Group is working with Crestview Partners and Lightyear Capital on a deal that would inject $800 million in fresh capital into Florida bank First Southern, the FT reported.

Mekong Capital has invested $9.4 million in Vietnam food maker Masan Food Corp. The investment comes from Ho Chi Mihn City-based Mekong Capital’s Vietnam Azelea Fund.

Oasis Holdings Limited, a Dublin-based records storage business, has been acquired by UK private equity firms Sverica International and Housatonic Partners.

Silver Point Capital is the frontrunner in the long-running auction of German sausage casing manufacturer Kalle Nalo by private equity firm Montagu Private Equity, two banking sources said. Pamplona Capital has also shown interest in buying the company, Reuters reported.

RHJ International SA, which owns a 60 percent stake in Asahi Tec, and private equity firm Carlyle Group, separately submitted letters of intent to purchase different portions of Metaldyne assets. Metaldyne filed for Chapter 11 yesterday.

Apollo Management, TowerBrook Capital and York Capital are preparing a bid for troubled French roofing company Monier Group. The firms are lenders to the company.

Entrust, Inc. today announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, in connection with the proposed acquisition of Entrust, Inc., by Thoma Bravo, LLC.

PE-Backed M&A

Trilliant Incorporated, a provider of energy efficiency services, acquired of Santa Clara-based SkyPilot Networks, Inc., a provider of long-range wireless mesh broadband equipment. Trilliant Incorporated has received $40 million in venture backing from MissionPoint Capital Partners and zouk ventures. SkyPilot has raised $71 million ($29 in 2000-2001, $18 in 2005, $21 in 2006, and $3M in 2008) from investors including Mobius Venture Capital, August Capital, INVESCO Private Capital, Softbank Asia Infrastructure Fund, Time Warner Investments, Nexit Ventures, Palo Alto Investors and Selby Venture Partners. !

NCO Group, Inc., a Harsham, Penn.-based provider of business process outsourcing services, completed the acquisition of Complete Credit Management Limited from Severn Trent Services Group through its pan-European subsidiary, NCO Europe Limited. NCPO Group is backed by One Equity Partners.

Toys R Us Inc. said on Wednesday it had acquired the FAO Schwarz brand for an undisclosed sum. Toys R Us is backed by KKR, Bain Capital and Vornado Real Estate Trust.

PE Exits

EMC Corporation has acquired Hopkinton, Mass.-based Configuresoft, Inc., a provider of server configuration, change and compliance management software which has received venture backing from JMI Equity.

Crosscheck Networks, Inc., Web services testing business, has acquired Forum Systems, a Web service security business. Forum Systems has received venture investments from GMG Capital Partners. Financial terms of the deal were not disclosed.

Pequot Capital told investors on Wednesday it will shut down because of a reopened government probe into possible insider trading.

Firms & Funds

OMERS Administration Corp, one of Canada’s biggest pension-fund managers, will likely adjust its asset mix as of 2010 to an even split between public and private markets, after favoring the former since about 2002. .

Harrah’s Operating Co’s new $1 billion note issue is expected to yield about 12 percent, IFR, a Thomson Reuters service, said on Wednesday. The company is backed by TPG and Apollo Management.

Human Resources

Orlando Mendoza has been promoted to Principal at Edison Venture Fund. Mendoza is based in Needham, Mass.

Steve Rattner, former head of Quadrangle Group and current head of the U.S. Treasury’s automotive team, is worth at least $188 million. He has investments in Cerberus Management, which is the majority owner of Chrysler LLC, according to financial disclosures obtained by media outlets.

H. Jeffrey Schwartz has joined the New York office of DLA Piper as Chair of the US Restructuring group. Schwartz joins the firm from Dechert LLP where he was co-leader of the global Business Restructuring and Reorganization practice group.

Geoffrey Harris has joined Broadpoint Capital’s Investment Banking Division as a Managing Director. The firm is a broker-dealer subsidiary of Broadpoint Securities Group, Inc. Harris has been Global Head of Healthcare Research at UBS, and a portfolio manager for Sirios Capital Management and Jefferies Asset Management, LLC.

Allison Dent has joined Global M&A, an investment bank based in Dusseldorf, as its CEO. Dent was previously Co-founder and Managing Partner of Global M&A’s Canadian partner firm Synergis Capital.