peHUB Wire: Tuesday, July 7, 2009

FDIC chair Shiela Bair yesterday held a five-hour, closed session with select members of the private equity industry, to discuss proposed rules that would govern future PE investment in banks. To say that these rules are unpopular with private equity pros would be an understatement, particularly the capital requirement and cross-guarantee provisions. As Wilbur Ross fairly told the WSJ last week, the guidelines are ”harsh and discriminatory.”

So it was with some surprise that Ross was even one of the 26 invitees to yesterday’s roundtable, let alone that he was asked to lead a section on capital requirements. He left with his strong objections intact, but also believing that the meeting was “highly productive.”

“Sheila Bair seems truly interested in getting people’s views,” Ross told me last night. “It was pretty obvious what my reaction had been, but she still had me chair part of the conv! ersation and seated me next to her at lunch. I think it shows that the proposals really are still proposals at this point, and that she and others at the FDIC are serious about wanting input from people in the private equity industry.”

Ross says that the private equity attendees were united in their opposition to the following three proposals:

1. PE-owned banks would be required to have a “Tier 1? leverage ratio of 15% for three years. “There’s no bank in the country with that ratio,” Ross says. “They should look at the stress tests they did, see what the ratios were there of ‘healthy’ banks, put in a bit of margin for cushion and then give us that number — which I bet wouldn’t even be half of 15%.”

2. Cross-Guarantees, which basically means that a PE firm with mutliple bank assets would be required to use its healthy banks to prop up its unhealthy ones. “I told them that our partnership documents would prohibit us from doing that, and that I’d think most other firms would have similar prohibitions,” Ross says. “They [the FDIC officials] seemed surprised by that.”

3. Ban on PE firms selling bank or taking it public in first three years after purchase. “I’m okay with some sort of holding period — you can’t turn around a bank in 10 days anyway — but why prevent the bank from being allowed to raise capital, if it’s available and helpful?”

Ross adds that he and many others were okay with several other proposed guidelines, including increased disclosure requirements, banning PE firms from bidding on one of their own failed banks and a prohibition against PE firms using their banks to support other portfolio companies (basically a buyside-flipside of the cross-guarantee scenario).

The meeting did not allow for formal recommendations, as those can only be made in open session. The FDIC has, however, opened a 30-day comment period on its proposals, and Ross says he expects most of yesterday’s attendees to submit formal letters.

“The FDIC didn’t have to even put any of this up for discussion,” he adds. “They could have just made it official and been done with it. The fact that they didn’t suggests to me that they’re interested in learning more and making better policy.”

Let’s hope he’s right.

Top Three

Roark Capital Group has agreed to acquire Pet Valu Inc. (TSX: PVC), a North American pet supplies retailer. The deal is valued at approximately C$143.7 million, or C$13.68 per Pet Valu share (4.8% premium to Friday’s closing trade).

The Paul Green School of Rock Music, operator of 49 performance-based rock music schools, has received a growth equity investment from Sterling Partners. No financial terms were disclosed.

Robin Hall has stepped down as managing partner of Cinven, after more than 20 years in the role. He will transition into the newly-created role of executive chairman, with Hugh Langmuir taking over the managing partner position.

VC Deals

Relievant Medsystems Inc., a Redwood City, Calif.-based developer of medical devices to treat chronic back pain, has raised $20 million in Series C funding. Morgenthaler Ventures led the round, and was joined by Emergent Medical Partners and return backers Canaan Partners and Onset Ventures. The company previously raised around $9 million.

Viamet Pharmaceuticals Inc., a Morrisville, N.C.-based biotech company targeting metalloenzymes, has raised $18 million in Series B funding. Novartis Option Fund and Lilly Ventures co-led the round, and were joined by return backers Intersouth Partners, Hatteras Venture Partners, Lurie Investment Fund and Astellas Venture Management.

inge watertechnologies AG! , a German provider of ultrafiltration membranes for water treatment solutions, has raised €5 million in new VC funding. BayTech Venture Capital led the round, and was joined by returnbackers Taprogge Watertech GmbH, Emerald Cleantech Fund I, Sustainable Performance Group, Siemens Venture Capital, StoneFund and Entrepreneurs Fund.

Metaversum GmbH, a German maker of a virtual world called Twinity, has raised €4.5 million in new VC funding. BFB BeteiligungsFonds Brandenburg and KfW were joined by return backers Balderton Capital and Grazia Equity.

Qliance Medical Management Inc., an operator of insurance-free direct primary care clinics in Washington State, has raised $4 million in VC funding. Second Avenue Partners led the round, and was joined ! by New Atlantic Ventures and Clear Fir Partners. The company had previ ously raised $3.5 million.

SouthWest NanoTechnologies Inc., a Normal, Okla.-based maker of single-wall carbon nanotubes and multiwall nanotubes, has raised up to $3 million in growth equity funding from Insight Technology Capital Partners.

Somaxon Pharmaceuticals Inc. (Nasdaq: SOMX), a San Diego-based drug company focused on CNS disorders,has agreed to raise $6 million via a PIPE. Participants include existing shareholders like MPM Capital, Montreux Equity Partners, Scale Venture Partners, Prospect Venture Partners and Domain Associates. Tavistock Life Sciences is also involved.

Buyouts Deals

Energy Investors Funds has acquired the largest equity stake in Astoria Energy II LLC, a company created to develop, construct, own and operate a new natural gas-fired power plant in the Astoria neighborhood of Queens. No financial terms were disclosed.

KKR has agreed to sell half the equity in South Korea’s Oriental Brewery to Affinity Equity Partners. KKR recently agreed to buy the company for $1.8 billion from Anheuser-Busch InBev, and expects to close the transaction later this quarter.

Pegasus Capital Advisors has acquired a 51% equity stake in Hain Pure Protein, with Hain Celestial Group Inc. (Nasdaq: HAIN) to retain the other 49 percent. Hain Pure Protein produces natural, organic and antibiotic-free chicken and turkey products.

Snow Phipps Group has acquired ITS Holding Co. from The Edgewater Funds. No financial terms were disclosed. ITS is a Silver Springs, Md.-based provider of IT services to the U.S. government civilian, national security, and intelligence agencies. ITS co-founder and CEO Stefan Lalos joined Snow Phipps on the deal, and will continue to lead the company.

Telegraph Hill Partners has acquired a majority stake in Nexus Biosystems Inc., a Poway, Calif.-based provider of automated sample management systems. No financial t! erms were disclosed.

The Tribune Co. has agreed to sell the Chicago Cubs baseball club to the Ricketts family for a bit less than $900 million.

BLI Messaging, a Providence, R.I.-based provider of email, voice, fax and text messaging marketing solutions, has raised an undisclosed amount of private funding from Catalyst Investors.

PE Exits

American Capital has agreed to sell People Media, operator of targeted dating websites, to, a unit of IAC (Nasdaq: IACI). The all-cash deal is valued at $80 million. People Media had $11.6 million in 2008 EBITDA.

OpenGate Capital has sold Global Star Solutions to company management, for an undisclosed amount. Global Star Solutions is a Canadian provider of supplier of network infrastructure products, which OpenGate originally bought from UTStarcom.

PAI Partners will take a €256 million hit on its investment in troubled French roofing group Monier, after a lender consortium won control of t! he company.

Other Stuff

Kainos Partners Holding Co., operator of 56 Dunkin’ Donuts franchises in New York, South Carolina and Nevada, has filed for Chapter 11 bankruptcy protection. Dunkin’ Donuts is a subsidiary of Dunkin’ Brands, which is owned by Bain Capital and THL Partners. Read more…

V&D, a Dutch department store chain, has asked staff to postpone a 3.3% wage increase until February 2010, in order to save jobs. The company is currently planning 500 layoffs, but says the raise delay could cut that figure to just 60 jobs. A Dutch labor union leader rejects what he considers to be a false choice. V&D is a subsidiary of Maxeda, which was bought in 2004 for 2.4 billion by Cinven, AlpInvest, KKR and Permira.

Firms & Funds

Excel Venture Management has closed its debut fund with $125 million in capital commitments. The Boston-based firm focuses on early-to-late-stage life sciences platform and technology companies. It was formedfollowing the 2007 split of CB Health Ventures, and represents most of that firm’s Boston office (the New York office became Health Enterprise Partners).

WHEB Venture Partners, a European VC firm focused on cleantech, has raised £90 million for its second fund, and plans to close on a total of £150 million by year-end.

Human Resources

Bank of America has promoted Steven Baronoff to chairman of global M&A and Stefan Selig to executive vice chairman of global corporate and investment banking.

Rob Day has joined Black Coral Capital, a private equity firm focused on clean energy technologies, as a partner.He previously was with @Ventures and, before that, was with Expansion Capital Partners. Rob also writes a cleantech investing blog for Greentech Media.

Antoine Lafargue has joined Falcon Gas Storage Co. as chief financial officer. He previously was with Falcon Gas sponsor Arcapita and, before that, was a member of Bank of America’s leveraged finance group.

Richard Wolman, a human resources consultant, has joined Palamon Capital Partners’ board of advisors.