peHUB Wire: Tuesday, January 12, 2010

Few quick notes to kick off your Tuesday:

*** A common VC refrain in the carried interest tax debate has been that very few VCs have actually seen carried interest in the past decade. I don’t exactly follow this line of argument (although I certainly don’t deny the premise).

Is it supposed to mean that a tax increase (or decrease) won’t have much tangible effect? If so, then the actual tax rate is irrelevant. Is it supposed to mean that certain folks have remained VCs in order to someday taste the fabled carrot? If so, doesn’t it mean that these “job-creators” have proven themselves unable to make successful investments? And, as a follow-on, does this mean such investors/firm might be better served by becoming ! official nonprofits?

In short, from a PR perspective: You shouldn’t call yourself an economic engine while, at the same time, proclaiming that you get negative miles per gallon.

*** Also, I may have asked this before, but let me ask it again: If a VC firm deserves capital gains treatment for carried interest, why can’t it claim capital loss for a busted deal?

*** Preqin released new data this morning showing that the PE universe’s worst-performing funds over the one-year, three-year and five-year horizons are mega-LBO funds ($4.5b+). Not too surprising, and is in line with past studies showing that the best percentage returns come from smaller funds (true of venture, too).

Only caveat worth noting is that percentages are only one return metric that LPs must consider. The other is cash-on-cash returns. Would you rather have a 25% ROI on a $100 million commitment to a $5 billion fund, or a 50% ROI on a $10 million commitment to a $150 million fund? The obvious answer is the former, unless you were! able to replicate the latter ten times over. At the same time, however, the same logic applies to cash-on-cash losses.

*** OneWest, the PE-backed bank formerly known as IndyMac, late last year acquired a failed bank called First Federal. A reader emailed to ask if the deal would require First Federal to meet FDIC guidelines for PE bank ownership. It’s a good question, and an FDIC spokesman tells me he’s looking into it.

The original OneWest transaction was grandfathered in, since it occurred before the guidelines were established last August. I’d assume that its add-on acquisition would be subject to the new regs but, if not, it’s a heck of a loophole.

Top Three

Dow Chemical Co. (NYSE: DOW) has received private equity interest for its Styron unit, which makes polystyrene, rubber and latex. Dow is hoping to sell the unit later this quarter for between $1 billion and $2 billion, with interested parties including Apollo Management, Bain Capital, Rhone and TPG Capital.

TeamHealth, a Zareba Systems Inc. (Nasdaq: ZRBA) has agreed to a reverse merger with Woodstream Corp., mouse trap and pet cage maker owned by Code Hennessey & Simmons and Brockway Moran & Partners. Under terms of the deal, Zareba would become a subsidiary of Woodstream, with Zareba stockholders to receive $9 per share (nearly a 100% premium to yesterday’s closing price). The total deal would be worth around $22.32 million.

Scott Minick has stepped down as a managing director with Arch Venture Partners, in order to become president and CEO of Arch portfolio company BIND Biosciences. In related news, BIND has raised $11 million in third-round funding, from Arch, Flagship Ventures, NanoDimension AG and Polaris Venture Partners.

VC Deals

VentiRx Pharmaceuticals Inc., a San Diego-based drug company initially focused on small molecule Toll-like receptor (TLR)-based therapeutics, has raised $25 million in additional Series A funding. The company previously announced $26.6 million in Series A funding nearly two years ago, which came on top of a $2.3 million seed round. MedImmune Ventures led the new tranche, and was joined by return backers Frazier Healthcare Ventures, ARCH Venture Partners and Domain Associates.

Siano Mobile Silicon, an Israel-based maker of mobile digital TV receiver chips, has raised $23.5 million in fourth-round funding. Return backers include JVP, DFJ-Tamir-Fishman, Star Ventures, Walden Israel and Bessemer Venture Partners. The company previously raised around $53 million since its 2004 formation.

Spiceworks Inc., an Austin, Texas-based provider of a social IT management application, has raised $16 million in Series C funding. Institutional Venture Partners led the round, and was joined by return backers Austin Ventures and Shasta Ventures. The company previously raised $13 million.

Molecular Biometrics Inc., a Norwood, Mass.-based developer of clinical diagnostic tools for applications in personalized medicine, has raised $12.5 million in Series B funding. Atlas Venture led the round, and was joined by return backers Safeguard Scientifics and Oxford Bioscience P! artners.

SpectraWatt Inc., a maker of PV cells for solar manufacturers, has secured $12 million of a $41.4 million funding around, according to a regulatory filing. The company was formed in 2008 as an independent spinout from Intel Corp., and received an initial $50 million in funding commitments led by Intel Capital. Other participants included Cogentrix Energy (subsidiary of Goldman Sachs), PCG Clean Energy and Technology Fund and Solon AG.

Flurry, a San Francisco-based mobile ! data analytics company, has raised $7 million in Series B funding. InterWest Partners led the round, and was joined by return backers Draper Fisher Jurvetson, Union Square Ventures, First Round Capital and Draper Richards. Late last year, Flurry agreed to merge with VC-backed Pinch Media.

Harvest Automation Inc., a Groton, Mass.-based developer of robotic solutions for material handling, has raised $4 million in Series A funding. Backers include Life Sciences Partners, MTDC and the Midpoint Food & Ag Fund.

SEDline, a neuromonitoring spinout of Hispira, has raised $3.5 million in strategic funding from Masimo (Nasdaq: MASI).

VigLink, a San Francisco-based developer of technology to monetize hyperlinks, has raised $800,000 in seed funding from Google Ventures, First Round Capital and angels like Reid Hoffman.

Dynadec, a Brown University spinout focused on optimization solutions, has raised $350,000 in VC funding from The Slater Technology Fund.

Buyouts Deals

Baird Venture Partners has acquired a “significant minority interest” in Fellon-McCord, a Louisville, Ky.-based energy consulting and management company. No financial terms were disclosed.

Primus Capital has sponsored a recapitalization of PathGroup, a Brentwood, Tenn.-based provider of diagnostic laboratory services. The deal also included $19.5 million in mezzanine debt led by Maranon Capital and a senior credit facility.

Seguin Partners has acquired a majority stake in B2B publisher CFO Publishing, with seller Economist Group retaining a minority position. No financial terms were disclosed. The Jordan, Edmiston Group advised Economist Group on the deal.

SHS Gesellschaft, a German private equity firm, has acquired a majority stake in TNI Medical AG, German maker ofdiagnostic and therapeutic equipment for breathing therapy.

TA Associates has acquired a majority stake in eCircle, a Munich, Germany-based provider of email marketing solutions, for more than €60 million.

TA Associates has invested $45 million for a minority stake in Micromax Informatics Ltd., the third-largest mobile handset provider in India.

Fyfe Group LLC, a maker and installer of fiber reinforced poly mer systems for use in structural retrofitting and rehabilitation of buildings, has raised $20 million in private equity funding from Bison Capital.

PE-Backed M&A

Kellwood Co., a clothing maker owned by Sun Capital Partners, has acquired ISIS, a maker of women’s performance and casual apparel. No financial terms were disclosed.

Secure Mission Solutions, a physical and cyber security company backed by Riordan, Lewis & Haden Equity Partners, has acquired Washington, D.C.-based competitor Sim-G Technologies Inc. No financial terms were disclosed. SC&H Capital advised Sim-G on the sale.

PE Exits

Quidel Corp. (Nasdaq: QDEL) has agreed to acquire Diagnostic Hybrids, an Athens, Ohio-based maker of direct fluorescent in vitro diagnostic assays. The deal is valued at approximately $130 million in cash. Diagnostic Hybrids raised around $10 million in 2004 from Summit Partners.

Microchip Technology Inc. (Nasdaq: MCHP) has acquired ZeroG Wireless Inc., a Sunnyvale, Calif.-based developer of low-power WiFi chips. No financial terms were disclosed, although VentureWire characterized the deal as a “fire sale” after ZeroG investors proved unwilling to keep backing the company. ZeroG raised around $30 million from Battery Ventures, Greylock Partners, Morgenthaler Ventures and Cisco Systems.

Shanda Games Ltd. (Nasda! q: GAME) has agreed to acquire Mochi Media Inc., a San Francisco-based provider of advertising solutions within Flash games. The deal is valued at $80 million, including $60 million in cash. Mochi Media has raised around $14 million in VC funding from Accel Partners and Shasta Ventures.

Firms & Funds

Buerk Dale Victor, a Seattle-based venture capital firm, has changed its name to Montlake Capital.

The Carlyle Group has signed a memorandum of understanding with China to launch a yuan-denominated fund in Beijing.

KKR Financial (NYSE: KFN) said it plans to sell $125 million worth of 6-year convertible notes. Proceeds would be used for working capital and to repurchase or repay a portion of existing senior debt.

Human Resources

Nilesh Parikh has joined Blue Wolf Capital Management as a vice president. He previously was with both GoldenTree Asset Management and American Capital Strategies.

Bill Choe has joined Morrison & Foerster as a Palo Alto-based partner in the firm’s corporate practice. He previously was a partner with Sonnenschein Nath & Rosenthal.

Lovell Minnick Partners has promoted Spencer Hoffman to the position of managing director. He originally joined the private equity firm after serving as a principal with Safeguard Scientifics and an associate with Mellon Ventures.