peHUB Wire: Tuesday, February 23, 2010

This is Erin filling in for Dan. I can be reached at:

***If you can get past the annoying hedge fund mischaracterization, there are a few tidbits of useful info in this Defamer post about MGM. Author Edward Jay Epstein got his hands on the company’s sale memorandum and explains where its buyout barons (TPG, Providence Equity Partners, DLJ Merchant Banking Partners and Quadrangle Group) went wrong.

The main flaw in the LBO firms’ investment thesis, apparently, was its big bet on Blu-Ray. The firms took the gamble that DVD revenue would spike as people replaced their DVD players, and DVD collections, with high definition Blu-Ray players and collections. That simply hasn’t happened, and MGM’s DVD revenues actually fell thanks to fewer new releases from the studio, a worldwide decrease in DVD sales, and “price erosion” caused by video piracy and services like Netflix and Redbox. In other words, TPG, Providence, and the others missed the macro-trend boat, big time.

***Yesterday AMICAS Inc. responded to Merge Healthcare’s rival bid to Thoma Bravo, recommending that shareholders vote for the company’s previously agreed-upon Thoma Bravo merger instead of Merge’s higher offer.

This is the second time in a year that Thoma Bravo has been outbid on an agreed-upon deal with a publicly traded tech company. Is it bad luck, or is the firm lowballing shareholders in cahoots with management? That’s what some shareholders accused the firm of with its buyout of Entrust last July. But guess who ultimately won the deal, despite the company receiving three higher offers? It was Thoma Bravo.

Really the goal of any buyout firm is to get a good company at a bargain, so LPs can’t complain. The target company’s public shareholders, on the other hand, can vote against the deal, but unless there truly is shady management dealing involved, they aren’t likely to get much momentum. In the case of AMICAS, the company stated it rejected Merge Healthcare’s rival bid for $247 million because the company’s offer, which includes a $200 million bridge loan from Morgan Stanley, “is “illusory and risky” for AMICAS shareholders. Thoma Bravo’s $217 million offer, meanwhile, provides financial guarantees and “reasonable protections” for the company’s stockholders, the company said.

Also interesting here is that, while AMICAS is a tech company, it’s also a medical tech company. AMICAS provides imaging IT solutions for radiology practices, imaging centers and ambulatory care facilities. I wonder if this is a deal that Thoma Bravo spinout firm Cressey & Co. would have been interested in. Formerly known as Thoma Cressey Bravo, partner Brian Cressey spun out from the firms’ healthcare practice in 2007.

***This week GF Data Resources released M&A data from Q4. As we already knew, deals were slightly up for the quarter. Interesting were the deal multiples, which also rose ever so slightly: “Average pricing for transactions in 4Q remained low at 5.2x trailing twelve months adjusted EBITDA, compared to 5.1x in the prior quarter.”

***Correction: A Jan. 6 and Feb. 16 story on the fundraising efforts of Monomoy Capital Partners incorrectly stated the firm’s target as $250 million. The firm is targeting $350 million for its second fund, according to an SEC filing.

Top Three

Intel Corp. is planning to set up a $2 billion fund to invest in U.S. companies, the Wall Street Journal reported. The chipmaker, is speaking with venture capital firms for investment ideas and the investment plan would not require raising additional capital.

Morgan Stanley is in late stage talks to sell its stake in China International Capital Corp to Kohlberg Kravis Roberts & Co and TPG Capital for more than $1 billion, Reuters reported. Morgan Stanley has been exploring a sale of its 34.3 percent stake in CICC, which Morgan Stanley paid $37 million for in 1997.

Apollo Management is interested in acquiring a stake in Zale Corp., the struggling jewelry retailer which hired Peter J. Solomon to help it consider strategic alternatives, the Wall Street Journal reported.

VC Deals

Seahorse Bioscience, Inc., a Billerica, Mass.-based medical instrument company, closed a $5 million round of financing. Investors in the Series D round included Commonwealth Capital Ventures, FLIR Systems Inc, Rock Maple Ventures, Life Sciences Partners, Oxford Bioscience Partners, Healthcare Ventures, New Science Ventures and HLM Venture Partners.

Eseye Limited, a UK-based supplier of GPRS and 3G connectivity, secured a seed investment from an undisclosed syndicate of private investors.

Adura Technologies, a provider of wireless lighting control and energy management, today announced $12 million in new funding. NGEN Partners led the round, which includes return investors VantagePoint Venture Partners and Claremont Creek Ventures.

Pulmonx, an interventional pulmonology product developer, raised a new round of equity financing from an investment syndicate led by two new investors. This financing agreement includes a total of over $32M in equity capital and was co-led by two new investors: the European venture capital firm HealthCap, based in Stockholm, Sweden, and Kleiner Perkins Caufield & Byers, based in Menlo Park, California. The company’s existing investors, which include DeNovo Ventures, Latterell Venture Partners, MedVenture Associates, Montreux Equity Partners, and POSCO BioVentures, also pa! rticipated in the financing.

Domainex, a UK biotechnology company focused on oncology, has secured an undisclosed amount of financing from Longbow, The Capital Fund, and Takeda Research Investment, Inc. (TRI).

ngmoco, a publisher and developer for iPhone operating systems, has raised a new round of financing led by Institutional Venture Partners (IVP), along with the company’s previous investors, including Kleiner Perkins Caufield & Byers, Norwest Venture Partners and Maples Investments.

Buyouts Deals

Eureka Growth Capital recapitalization of Total Military Management, a Jacksonville-based business process outsourcing company focused on the U.S. military. Madison Capital Funding LLC provided senior debt and an equity co-investment to facilitate the recapitalization.

RedPrairie Holding, Inc., a logistics consultancy company based in Milwaukee, has agreed to be acquired by New Mountain Capital, L.L.C., a New York-based private equity firm, for an undisclosed amount. The company, owned by Francisco Partners, filed for a $172.5 million IPO in November 2009. The company had approximately $194 million in revenue for the first nine months of 2009, and net income of $12.45 million. Francisco Partners acquired RedPrairie in 2005, and currently holds an 89.7% equity position.

Nasdaq-listed AMICAS, Inc. an image and information management solutions company, responded Merge Healthcare Inc.’s acquisition proposal. AMICAS Board of Directors has considered and publicly rejected Merge’s acquisition proposal, and the company restated its support its previously agreed-upon deal to sell to Thoma Bravo for $217 million.

Navigation Capital Partners, an Atlanta-based middle market private equity firm, has acquired Specialized Technical Services, Inc., a provider of infrastructure upgrades and services to utilities. STS is the first in a series of acquisitions planned by the firm on this platform.

Bankrupt lodging chain Extended Stay America Inc said investment firms Centerbridge Partners LP and Paulson & Co Inc agreed to invest up to $450 million in the company once it exits Chapter 11.

PE-Backed M&A

FleetPride, Inc., an aftermarket distributor of heavy-duty truck and trailer parts backed by Investcorp., acquired the assets of Mandal Truck and Trailer, Inc. in Lathrop, California. The deal is FleetPride’s 14th acquisition since Investcorp purchased the company from Aurora Capital Group and Brentwood Associates in 2006 for $506 million. Bank of America also participated in the deal, which included $160 million term loan B, a $40 million first lien revolver, and $150 million senior bridge loan.

PE Exits

Iron Mountain, an information management company, acquired Mimosa Systems Inc., a Santa Clara, Calif.-based digital storage services company, for $112 million. Mimosa Services had raised over $50 million in VC funding, from August Capital, Clearstone Venture Partners, Focus Ventures JAFCO Ventures and Mayfield Fund.

Viamet Pharmaceuticals Inc., a Morrisville, N.C.-based biotech company targeting metalloenzymes, has signed a licensing option agreement with Novartis Option Fund. The deal could be worth upwards of $200 million, including an up-front payment and earnouts. Viamet previously raised around $24 million in VC funding, from Novartis Option Fund, Lilly Ventures, Intersouth Partners, Hatteras Venture Partners, Lurie Investment Fund and Astellas Venture Management.

Wal-Mart has agreed to acquire Vudu, a Santa Clara, Calif.-based provider of software for on-demand movie access via HD TVs and Blu-Ray players, according to The NY Times. No financial terms were disclosed. Vudu has raised around $21 million in VC funding from Benchmark Capital and Greylock Partners.

Reader’s Digest Association Inc emerged from bankruptcy after cutting debt by 75 percent. The company filed for Chapter 11 protection in August and has received $525 million in exit financing. Ripplewood Holdings, its private equity owner before bankruptcy, has lost its investment and stake in the company.

Blackstone Group is seeking to sell Gold Toe-Moretz, a sock maker, according to the New York Post. The firm seeks around $450 million.

Gordon Brothers Merchant Banking has sold Canadian chocolate maker Laura Secord to Nutriart Inc., a Quebec-based chocolate manufacturer, for $19.5 million. Gordon Brothers had paid $27.6 million for the company in 2004, according to local reports.

Firms & Fund

Foundation Energy Company is seeking $100 million in capital for its third fund, according to an SEC filing. The firm, based in Dallas, has raised $23 million in commitments to date. The firm’s second fund was closed in 2007.

Religare Enterprises Ltd, an Indian financial services group, agreed to take a controlling stake in private equity firm Northgate Capital, as part of a $1 billion plan to build a global asset management business.

Arcapita, a Bahrain-based Islamic investment house with offices in Atlanta, posted a $159 million second-quarter loss, Reuters reported. The loss was attributed to a slump in placement fee income and decreased asset valuations.

OrbiMed, a healthcare-focused venture capital firm based in New York, launched Caduceus Private Investments IV, LP, a venture capital fund, with $550 million in commitments. pproximately 80% of the new fund’s capital is from returning investors. The fund will invest primarily in venture-stage biopharmaceutical and medical device companies located in North America and Europe.

Human Resource

Fried, Frank, Harris, Shriver & Jacobson LLP announced that Steve Epstein has joined the Firm as a partner in the mergers and acquisitions practice group resident in New York. He was previously a partner at O’Melveny & Myers LLP.