peHUB Wire: Tuesday, August 25, 2009

And then there was one…

Earlier this month, the Tennessee Consolidated Retirement System made its first-ever dip into private equity waters,committing a total of $150 million to funds managed by Hellman & Friedman, Khosla Ventures and TA Associates. The moves came approximately one year after the Tennessee legislature voted to approve alternative asset commitments, making Tennessee the 49thstate with such flexibility and/or historical exposure.

The lone holdout is Georgia, which doesn’t make alternative investments out of either its public employees’ pension system (ERSGA) or its treasury.I know that the state is deep red, but this seems to be taking conservatism a bit too seriously.

Bloomberg had a story last week about how alternative investments had hamstrung public pension systems in states like Oregon and Washington, due to outsized mega-fund commitments and disappearing distributions. All accurate, no doubt, but the article also pointed out that, over time,PE return benchmarks typically beat public equities indices. For example, the Washington State Investment Board told Bloomberg that its buyout portfolio produced an 8.2% average annual gain over the past decade, compared to a 3.9% drop in the S&P 500.

My basic point, therefore, is that Georgia is not doing its beneficiaries any favors. I’m not saying it should ramp up to a 15% allocation, or even a 10% allocation. But why not follow the Tennessee model, which is limited to the more traditional 5% ceiling? Isn’t diversification supposed to do a portfolio good?

Georgia needn’t even actually invest 5% of its monies in buyout and venture capital funds. Just that it should give itself the option. Alabama and Maine, for example, have virtually noalternative investments, but both have the flexibility to make some. Not quite able to pin down the situation in Wyoming, but there are some existing PE investments on its books.

I called the executive director of ERSGA, but her EA said that only the group’s investment division was allowed to discuss asset allocation issues. So I got forwarded over to someone in that division, who said ERSGA cannot invest in alternatives without action by the state legislature. I followed up by asking if he or others in ERGSA advocated such a change,! and he declined to comment.

*** Another Sextant searcher has landed.

Earlier this summer, executive search firm Sextant Search Partners began winding down, after Korn/Ferry successfully poached three of its partners (it wanted a couple more, but three’s not too shabby). Now, we’ve learned that ex-Sextant partner Holly Davidson has joined up with Lancor Partners, which focuses exclusively on senior level GP searches and C-level portfolio company searches.

Lancor was formed a few years back by a pair of Heidrick & Struggles vets, with offices in London and Brussels. Davidson will work out of San Francisco, while the firm also has hired two more U.S. partners in Chris Conti and Simon Francis (both were previously with CT Partners). That’s expected to be all for Lancor’s senior team, although there will ! be a handful of junior folks.

*** One of the top news items< /b> today is Tallwood Venture Capital investing $45 million into publicly-traded Ikanos Communications, as part of Ikanos’ acquisition of some assets from Conexant Systems. If Tallwood exercises its attached warrants, the investment would grow to over $55 million. That seems awfully steep for a firm whose current fund (including annex) is only around $260 million… I tried for early morning comment, but failed (Tallwood is west coast).

Top Three

Smith & Tinker Inc., a Bellevue, Wash.-based maker of hybrid online/tapletop games, has raised $29 million in Series B funding. DCM led the round, and was joined by return backersAlsop Louie Partners, Foundry Group, Leo Capital Holdings and Vulcan Capital.

TPG Capital has hired three banks to lead-manage an IPO of Myer Group, an Australian department store that would be valued at around US$2.1 billion. The company has around A$3 billion in annual turnover, and was bought for A$1.4 billion in 2006 by TPG, Blum Capital and company management.

Ikanos Communications Inc. (Nasdaq: IKAN), a provider of broadband semiconductor and software products for the digital home, has agreed to acquire the Broadband Access unit of Conexant ! Systems Inc. (Nasdaq: CNXT). The deal is valued at $54 million in cash, plus the assumption of certain liabilities. In conjunction with the transaction, Ikanos will sell 24 million shares of common stock to Tallwood Venture Capital for $42 million, or $1.75 per share. Tallwood also will receive warrants to purchase another 7.8 million shares at the same price. Were it to exercise those options, it would hold around a 45% equity stake in Ikanos.

VC Deals

Gloucester Pharmaceuticals, a Cambridge, Mass.-based developer of oncology drugs, has raised $29 million in Series D funding. Novo AS led the round, and was joined by return backers Apple Tree Partners, ProQuest Investments, Prospect Venture Partners and Rho Ventures. The company had previously raised over $100 million.

Cadent, a Carlstadt, N.J.-based provider of 3D digital solutions for the orthodontic and dental markets, has raised $15 million in new VC funding. Fortissimo Capital led the round, and was joined by return backers Apax Partners, Panorama Capital, STAR Ventures and SV Life Sciences.

Approva Corp., a Reston, Va.-based! provider of continuous controls monitoring software, has raised $14 million in new VC funding. Return backers include Columbia Capital, New Enterprise Associates, Novak Biddle, Sierra Ventures and Gold Hill Capital. The company previously raised around $30 million.

Appfolio Inc., a Goleta, Calif.-based online provider of property management solutions, has raised $8 million in third-round funding, according to a regulatory filing. The company previously raisedaround $22 million, from BV Capital, Cisco, the Investment Group of Santa Barbara and individual angels.

Zumbox, a Westlake Village, Calif.-based developer of a paperless postal system, has raised $8 million in Series A funding. Backers include Art Bilger (Shelter Capital Partners), Rick Braddock (Ch! airman and CEO of Fresh Direct and former chairman and CEO of Pricelin, Michael Eisner (founder of The Tornante Co. and former CEO of The Walt Disney Company), Bill Guthy (founding principal of Guthy-Renker) and Donn Rappaport (CEO of Zumbox and founder and chairman of ALC).

Surrey NanoSystems, a UK-based developer of a carbon nanotube growth process, has raised £2.5 million in VC funding. Octopus Ventures led the round, and was joined by return backers IP Group and The University of Surrey.

Tuusso Energy, a Seattle-based developer of utility-scale solar projects in the Western U.S., has raised $2 million in VC funding. Pivotal Investments led the round, and was joined by Akula Energy Ventures.

Buyouts Deals

Focus DIY, a UK home improvement retailer owned by Cerberus Capital Management, said that its creditors have approved a restructuring plan that involves reducing the company’s real estate exposure.

Tricor Pacific Capital has agreed to buy FabPro Oriented Polymers LLC from Polymer Group Inc. (OTC BB: POLGE). No financial terms were disclosed for the deal, which is expected to close within the next 30 days. FabPro is a Kingman, Kan.-based maker of performance polymers and synthetic fibers for the agricultural, construction and commercial segments.

Weyerhaeuser Co. has sold its Trus Joint Commercial division to Atlas Holdings f! or an undisclosed amount. The unit makes engineered wood products and building systems, and has been renamed RedBuilt.

York Label, an Omaha, Neb.-based provider of labeling and packaging solutions to the consumer products, pharma and food and beverage segments, said that it has purchased $32 million of its senior and subordinated debt, in partnership with existing sponsor Diamond Castle Holdings.

PE-Backed M&A

Camber Corp., a Huntsville, Ala.-based provider of IT, engineering and training services to federal government agencies like the DoD, has acquired i2S Inc., a Columbia, Md.-based intelligence analysis and solutions firm. No financial terms were disclosed. Camber Corp. is a portfolio company of New Mountain Capital.

China Pharma, a portfolio company of Morgan Stanley Private Equity Asia, has offered to acquire Singapore-listed Sihuan Pharmaceutical for S$458 million (US$318m).

Healthland, a provider of healthcare information solutionsfor small community and critical access hospitals, has acquired American Healthnet, an Omaha, Neb.-basedprovider of healthcare information systems for hospitals! . No financial terms were disclosed. Healthland is a portfolio company of Francisco Partners.

PE-Backed Busts

Consentry Networks, a Milpitas, Calif.-based developer of network access control solutions, has shut down after raising around $80 million in VC funding. News of the closure was first reported by ComputerWorld. Consentry backers included Accel Partners, DAG Ventures, Invesco Private Capital, Northgate Capital, Translink Capital, and Vedanta Capital. Its most recent fundraise was a $9.4 million infusion this past January.

The Reader’s Digest Association’s U.S. unit filed for Chapter 11 bankruptcy yesterday, as part of a restructuring that would turn over company control to a group of lenders. Existing equity sponsor Ripplewood Holdings would be wiped out.

Firms & Funds

Temasek has revised its charter to downplay its links to Singapore government policy and strategic interests, in a move aimed at acquiring more overseas assets.

Human Resources

Michael Buhr has joined Shasta Ventures as an entrepreneur-in-residence, with a focus on online discovery and mobile opportunities. He most recently served as general manager forStumbleUpon and, before that,was senior director of corporate strategy at eBay.

Debra Pedersen has joined The Carlyle Group as a managing director of global leveraged finance, with a focus on investor relations and fundraising. She previously was a managing director with Plainfield Asset Management.