PEHUB Wire: Tuesday, February 10, 2009

In less than one hour, Tim Geithner is expected to unveil a new bank bailout plan that will rely, in part, on the participation of private investors. The press conference is at 11am ET, and we’ll be live-blogging it over at peHUB (join us here).

I spent most of yesterday on the phone with various private equity pros, limited partners and individuals who were involved in the RTC during the 1980s. While we wait for Geithner, here are a few quick thoughts in no particular order:

*** Private equity firms are interested. Most private equity pros I spoke with expressed at least a mild level of interest in the “toxic assets” that Geithner is expected to push into some sort of bad bank structure. I was really expecting far more apprehension. Worth emphasizing, however, that I did not speak with folks at firms that would fall way outside of this bailiwick (e.g., retail-focused small-cap fund).

*** Many limited partners are far more, umm… circumspect. Said one endowment manager: “Murder. I will murder [my GPs] if they do this. It would be easier to face my trustees in handcuffs than with a few hundred million in these toxic assets.”

*** One of the big LP concerns is about big, simultaneous capital calls. Low PE deal volume has been a boon to cash-strapped LPs.

*** On the other hand, it isn’t expected that the first actual transactions could even begin this quarter or next. The Mellon process, for example, took three and a half months. And this is so much more complex…

*** The aforementioned PE firm interest is completely contingent on what types of guarantees Geithner comes up with. As I said yesterday, no one’s been clamoring to buy this stuff on the open market. General consensus is that Geithner won’t come out with too many specifics today, thus kicking the can a bit further down the road. But, in the end, this becomes a risk/reward numbers game.

*** One reason that Geithner is expected to use broad strokes this morning is that he doesn’t seem to have reached out to a large swath of potential buyers. I know of several large PE firms that have at least surface interest – big names, who’d be obvious for this sort of thing – but which have not been consulted by Treasury. Ditto for many of the folks who helped come up with the original bad bank concept in the ‘80s. I repeatedly heard the word “insular” to describe Treasury’s behavior so far. On the other hand, Geithner does have an old Blackstone hand – Matthew Kabaker – working with him…

*** A big question is how PE firms would structure these deals. Would they be pure fund investments? If so, many firms would need amended LPAs. One possibility is that firms would form platform acquisition companies to acquire the assets.

*** This will not be the last time private equity becomes a factor in bank bailout conversations. Just wait until Treasury tries to get a handle on all the securitization – including of leveraged loans – that went on over the past few years…

*** Again, we’ll discuss all this and more over at the live-blog.

*** Unrelated #1: Voting for the Buyouts Deals of the Year has begun. Get full details here.

*** Unrelated #2: Tomorrow afternoon I’ll be moderating an ACG panel discussion in Boston, about the state of private equity and private equity deal-making. This event had around 500 people last year, and we’re expecting another packed house. My panelists include Brooke Ablon of Fidelity Equity Partners, Chuck Brizius of THL Partners, Geoffrey Rehnert of Audax Group and Steve Tadler of Advent International. Get details here.

*** Unrelated #3: J and I need to be in Santa Cruz on Sunday for a wedding, which means we’re doing Valentine’s Day away from home. Any last-minute restaurant suggestions?

Top Three

H. Lundbeck AS has agreed to acquire Ovation Pharmaceuticals Inc. for up to $900 million in cash. The deal includes a $600 million up-front payment that is expected to come next month, with the remaining $300 million contingent on Ovation reaching certain clinical milestones within one year of closing. Ovation Pharmaceuticals is a Deerfield, Ill.-based company formed in 2000, to develop specialty compounds for the US market and for niche indications with high unmet medical needs. GTCR-Golder Rauner acquired a majority stake in Ovation in 2002 for approximately $150 million.

ZoomSystems, a San Francisco-based provider of automated retail solutions, has raised $20 million in Series E funding. Return backers include Sierra Ventures, Goldman Sachs Group, Inc., NeoCarta Ventures, Motorola Ventures and Starfish Ventures. The company previously raised over $82 million.

Siemens is forming a $200 million venture capital fund-of-funds, which is designed to invest globally. It already has secured around half its target, with participation of the German Siemens pension funds and two European insurers.

VC Deals

Mpex Pharmaceuticals Inc., a San Diego-based drug developer focused on antibiotic resistance, has held a $27.5 million first close on its Series D round that is targeting a total of $40 million. Investor Growth Capital led the tranche, and was joined by return backers investors SV Life Sciences, HBM BioVentures, Aberdare Ventures and Adams Street Partners.

SolFocus Inc., a Palo Alto, Calif.-based developer of solar concentrator photovoltaic systems, has raised $19.28 million in additional Series C funding, according to a regulatory filing. The round total is now $66.78 million, from firms like Apex Venture Partners, New Enterprise Associates and NGEN Partners. It is unclear if additional capital will be raised, or if the round is closed (it had been targeting between $60m and $70m). SolFocus previously raised nearly $100 million in its Series A and Series B rounds.

Pontis Ltd., an Israel-based maker of software marketing systems for communication service providers, has raised $19.65 million in new VC funding. Norwest Venture Partners led the round, and was joined by return backers Sequoia Capital, Accel Partners and Evergreen Venture Partners. The company previously raised around $24.2 million.

Teliris, a New York-based provider of interactive tele-presence solutions (think advanced videoconferencing), has raised $11 million in second-round funding. Return backers include Columbia Capital and Fidelity Ventures, while an undisclosed strategic investor also participated. Teliris previously sold a majority ownership position to Columbia and Fidelity, via a $40 million Series A round.

Omni-ID, a UK–based provider of passive ultra high frequency RFID technology, has raised £10 million in Series C funding from Cody Gate Ventures.

PivotLink, a San Francisco-based provider of on-demand business intelligence solutions, has raised $10 million in Series C funding. StarVest Partners led the round, and was joined by return backers Trident Capital and Emergence Capital Partners.

Alios BioPharma Inc., a South San Francisco-based drug startup, has raised $8.4 million in Series A funding, according to a regulatory filing. Backers include Novo AS, Novartis BioVentures and Roche Finance Ltd. The company says that it plans to “treat diseases in virology by activating pathways in the innate immune system.”, a Portland, Maine-based online retail and community site for dog owners, has raised $4 million in VC funding co-led by Borealis Capital Partners and Harbor Light Capital Partners.

HyPerformix Inc., an Austin, Texas-based provider of predictive IT management solutions, has secured $1.1 million of a $6.5 million Series D round, according to a regulatory filing. Return backers include M/C Venture Partners and Morgan Stanley Venture Partners. The company previously raised around $23 million.

Black Duck Software, a Waltham, Mass.-based provider of software compliance management solutions, has raised $5 million in fourth-round VC funding. Return backers include General Catalyst Partners, Fidelity Ventures, Flagship Ventures, Focus Ventures, Intel Capital, SAP Ventures and Red Hat. The company also secured $4.5 million in venture debt funding from Gold Hill Capital, and named former Tom Yeaton, former chief marketing officer of EqualLogic, as CEO.

Clearpace Software, a UK-based provider of database archiving software for the enterprise, has raised $4 million in a VC funding round led by Doughty Hanson.

HX Diagnostics Inc., an Emeryville, Calif.-based provider of rapid diagnostics for seasonal and emerging infectious diseases, has raised $3.12 million in Series A funding, according to a regulatory filing. Backers include Kleiner Perkins Caufield & Byers, Nanogen Inc. and Xiamen YST Biotech.

WhistleBox Inc., a Brooklyn, N.Y.-based developer of user-generated video communities for websites, has raised $2.3 million in Series A funding, according to a regulatory filing. No institutional investors were listed.

Loopfuse, a Peachtree City, Ga.-based provider of marketing automation and email marketing solutions, has raised around $1.4 million in Series A funding led by True Ventures, according to a regulatory filing.

Cake Financial Inc., a San Francisco-based provider of a free online social network for individual investors, has raised around $1.26 million of a $1.5 million Series A-2 round, according to a regulatory filing. Backers include Alsop Louie Partners and KPG Ventures.

Sierra Solar Inc., a Sunnyvale, Calif.-based developer of “affordable” thin-film photovoltaics, is set to close a $40 million Series B round later this month. It previously raised around $7 million from GSR Ventures and DragonTech Ventures.

Waer Systems, a provider of on-demand inventory management software, has raised an undisclosed amount of VC funding from Logispring. Waer Systems has offices in the UK, France and Illinois.

Buyout Deals

Cinven reportedly is in pile position to acquire Just Retirement, an AIM-listed provider of retirement-related services. Other bidders include General Atlantic and TPG Capital.

Kensington Capital Partners and Orchard Plainfield LLC have sponsored a recapitalization of Polymer Plainfield Holdings Inc., a Plainfield, Ill.-based maker of metal and injection molding components. No financial terms were disclosed.

Mill Road Capital is participating in a cash tender offer to purchase all outstanding shares of Galaxy Nutritional Foods Inc. (OTC BB: GXFY) for $0.36 per share.

Wilbur Ross and The Carlyle Group are considering a joint bid for BankUnited Financial Corp. (Nasdaq: BKUNA), according to The Financial Times.

PE Exits

Kosmos Energy LLC, a Dallas-based energy company backed by The Blackstone Group and Warburg Pincus, is soliciting buyers for its stakes in two West African oil fields, according to Dow Jones. The deal could be worth up to $3 billion.

PE-Backed M&A

Axell Wireless, a UK-based provider of wireless coverage solutions for the public safety sector, has acquired Israeli rival Dekolink. No financial terms were disclosed, except that Axell Wireless partially financed the deal via a new investment from existing sponsor ECI Partners.

Crane & Co. Inc., a provider of counterfeit-deterrent banknote papers, has acquired Nanoventions Holdings LLC from Visual Physics LLC. No financial terms were disclosed for the deal, which was facilitated by Brown Gibbons Lang & Co. Crane & Co. is a portfolio company of Lindsay Goldberg LLC.

Haggin Marketing, a San Francisco-based multichannel direct marketing services agency, has acquired Palo Alto, Calif.-based digital marketing agency SolutionSet. No pricing terms were disclosed. The deal was financed by Haggin Marketing sponsor Lake Capital. SolutionSet had raised venture capital from Fog City Fund.

StillSecure, a Superior, Colo.–based provider of secure network infrastructure solutions, has acquired ProtectPoint Security Inc., a Ft. Lauderdale, Fla.-based provider of managed security services. No financial terms were disclosed. StillSecure has raised nearly $30 million in VC funding from 3i Group, Meritage Private Equity Funds and Mobius Venture Capital. Late last year it also raised $5 million in venture debt funding from Silicon Valley Bank.

Firms & Funds

Milestone Partners has closed its third fund with $230 million in capital commitments. It had been targeting $200 million, and already has made four investments. The St. Davids, Penn.-based firm focuses on leveraged buyouts and recaps of lower middle-market companies.

Pinova Capital, a Munich-based private equity firm, has held a €50 million first close on its debut fund. Limited partners include Commerzbank and the European Investment Fund.

Quintana Capital Group is raising $650 million for its second fund, according to a regulatory filing. It already has secured over $180 million. The Houston, Texas-based firm makes control-oriented investments across the oil and gas, coal and power industries.

Human Resources

Chuck Hagel, former U.S. Senator from Nebraska, has agreed to join McCarthy Group’s private equity business as a senior advisor. He will maintain offices in Omaha and Washington, D.C.

Catherine Houghton has joined LDC as an investor director in the firm’s Manchester, UK office. She previously was with Bank of Scotland Integrated Finance.

Sandy Thompson has joined RoundTable Healthcare Partners as a senior transaction advisor. He previously led the global med-tech practice at Morgan Stanley, where he’ll continue on in an advisory role.

Richard Brail has joined Peter J. Solomon & Co. as a managing director, and head of the firm’s media and communications advisory practice. He previously was with Morgan Stanley.

Peter Maenhout has agreed to join GIMV as an executive vice president, with responsibilities for both the firm’s XL Fund and its Belgian buyout and growth capital activities. He previously was with Amber Capital.