peHUB Wire: Tuesday, March 3, 2009

The sun is shining the beloved (and PE-owned) Celtics are disgracing #8 and I’m (hopefully) flying over Cleveland by now. In other words, it’s time for some Tuesday Talkback. Leading us off were a few responses to yesterday’s column on layoffs at Sun Capital Partners:

Aidan: “For fairness, shouldn’t you also have written that Sun added lots of staff in 2007 and 2008? In context, the layoffs don’t look as severe?” Yes Aidan, I should have done so. But I would have added that Sun also raised far more money for its current fund than expected, which justified the additions. It’s still got the money…

Anon: “You finally nailed it on the Sun situation, but didn’t mention one thing… There are less portfolio fees because Sun is in default on so many of its credit agreements and is not able to collect… Aside from pricing and fees, lenders are becoming increasingly vigilant on reevaluating portfolio monitoring fees.”

Stanley: “This is just more evidence that most management fees are too high to begin with. Two or two and a half percent makes sense for a $100 million or even $500 million fund, but not for a $6 billion fund? The fee justifications just don’t scale like that.”

*** Randy on the seed/early-stage data showing that the actual number of such deals stayed fairly consistent through the end of 2008: “Interesting comments on the Money Tree stats, and completely consistent with what happened in our angel group. We did 40 deals between 2004 and 2008, and 16 of these were done in 2008… Having said that, the group hasn’t touched a company for five months now, so we will be lucky if we fund four seed deals this year. That represents a major turnaround, but I also believe that is consistent with the data.”

Josh demurs: “You can massage the stats however you’d like to, but I know what I see. It is harder to get seed capital today than at any time in the past ten years. I think the idea that seed investors are investing more today than in 2003 or 2004 would be news to them.”

*** I got a ton of email on that Tom Friedman column about giving auto bailout cash to VCs, and it came down about 50/50 on support or dissent from Friedman’s position (and by opposing extension, on my position). Just a couple:

Bruce: “My take wasn’t that Friedman was advocating a bailout of venture funds. Rather I saw it as advocating that money would be better utilized by deploying it via funding new businesses. Nor do I believe his opinion had a PE bent to it (e.g. your comment about a dearth of exits). I believe he was thinking about what seems to me as the sustained source of new jobs growth (on macro scale, regardless of industry) – new businesses, whether venture financed, or not. Other than healthcare and perhaps elements of government, I’m hard-pressed to come up with established traditional (US based) industries that have done anything other than show contracting employment figures over last couple of decades.”

Brenda: “[Friedman] does ‘misspeak’ or ‘miswrite’ about the top 20 firms being short of cash, but that isn’t really what he is trying to communicate. Friedman is trying to convince Congress and the President to let VC decide who the winners should be, not take on the task themselves. The column wasn’t about VC, it was about capitalism.He isn’t advocating a VC bailout, he is advocating a bailout by VCs.”

Paul: “Maybe Friedman should talk to some state pension fund managers about how those “Top 20” venture capital firms have actually done in recent years. Then he might not be so quick to put government money in their hands.

Joe: “I guess it’s safe to assume that Tom Friedman is not related to Milton.”

Top Three

Nancy! -Ann DeParle is stepping down as a managing director of CCMP Capital, in order to become director of the White House Office for Health Reform. She focused on healthcare investments at CCMP, before which she was administrator for what is now the Centers for Medicare and Medicaid Services.

Zayo Group, a Louisville, Colo.-based regional provider of fiber-based network services, has raised $128 million in Series B funding. This includes a new tranche led by Morgan Stanley Alternative Investment Partners, and a prior close announced last month. Charlesbank Capital Partners led the overall round, and was joined by Battery Ventures, Centennial Ventures, Columbia Capital, M/C Venture Partners and Oak Investment Partners. The company had previously raised $225 million.

The Carlyle Group has raised its second mezzanine fund with $553 million in equity commitments. The firm’s prior fund had $436 in commitments and closed in 2006.

VC Deals

Intranasal Therapeutics Inc. , a Lexington, Ky.-based maker nasally-delivered, preservative-free drug products, has raised $9 million in the second tranche of its Series B round, which now stands at $18 million. It also changed its name to Ikano Therapeutics. Backers include SV Life Sciences, Burrill & Co., Tullis-Dickerson, Fidelity Biosciences, ApjohnVentures, Fort Washington Capital, Commonwealth Seed Capital and Kentucky Co-Investment Partners (U Kentucky). Read more…

Tynt Multimedia, a Calgary-based provider of hosted solutions for online publishers, social networks and online communities, has raised C$5 million in VC funding from iNovia Capital, Alberta Value Added Corp. and individual angels.

FlexGen, a Dutch developer of microarray production technology, has raised an undisclosed amount of VC funding from BioGeneration Ventures and Crédit Agricole Private Equity.

Siimpel Inc., an Arcadia, Calif.-based maker of integrated optical microsystems, has raised an undisclosed amount of strategic funding from LG Innotek Co. Ltd. (South Korea). The company previously raised over $75 million from firms like Motorola Ventures, NTT DOCOMO, DFJ, Global Catalyst Partners, Portage Venture Partners, Scale Venture Partners, Sun America Ventures and Zone Venture Partners.

Buyout Deals

Charter Oak Equity and RFE Investment Partners have recapitalized Brook & Whittle Ltd., a North Branford, Conn.–based printer of decorative label solutions for beverage and personal care product companies. No financial terms were disclosed. Citi Capital Strategies advised Brook & Whittle on the deal.

Masonite International Inc, a Canadian door maker owned by private equity firm Kohlberg Kravis Roberts & Co., has reached an agreement in principle with committees representing its secured lenders and bondholders on terms of a restructuring plan, two sources familiar with the matter said on Monday.

Terra Firma Capital Partners has written down its investment in EMI, the music group that it bought in June 2007, by half.

Contrary to a Financial Times report, TPG has not asked the court or judge to intercede in its ability to join a group offering the DIP facility for its bankrupt portfolio company, Aleris, Reuters reports.

PhotoMedex, Inc., a publicly traded dermatological product developer, closed its acquisition of Photo Therapeutics Limited for $13 million with an additional $7 million based on performance. Perseus LLC, a Washington, D.C.-based merchant bank of private equity fund, invested $18 million in the company’s debt, $5 million of which supports working capital.

Rabo Equity Advisors, the agriculture and food sector focused private equity firm, has announced its debut investment. The firm said it would invest Rs 45 crore in Hyderabad based agri-biotech firm Sri Biotech Laboratories India Ltd. Sri Biotech is is involved in manufacturing and marketing of bio-organic agri inputs which are used for crop nutrition and crop protection.

The U.S. government may provide aid in the form of financing to the buyer of AIG’s ILFC group, Reuters reported. Rumored buyers have included Carlyle Group, Greenbriar Equity and Onex Partners.

Marfin Investment Group, a buyout firm based in Greece, expects to close a deal to acquire the troubled Olympic Airlines from the Greek government this week.

PE-Backed M&A

Access Intelligence, LLC, a Rockville, Md-based b-to-b information and marketing company backed by Veronis Suhler Stevenson, acquired Offshore Communications 2009 and EnergyOcean, two events companies, from Continental Shelf Associates, Inc.

PE Exits has acquired GreenNote Inc., a Menlo Park, Calif.-based micro finance and social networking company, according to VentureWire. No financial terms were disclosed. GreenNote had raised $4.2 million in 2007 from Menlo Ventures and GlenBrook Partners.

Workflow Management, a publishing company backed by Perseus LLC, has cancelled its plan to go public through a merger with Enterprise Acquisition Corp., a SPAC based in Boca Raton, Fla.

Firms & Funds

Index Ventures raised 350 million euros ($441 million) for Index Ventures V, its fifth early stage technology fund. The fund, raised primarily from existing LPs, will focus on early investments in the technology, biotechnology and clean technology sectors across Europe, the United States and Israel. Read more

American Capital and Allied Capital, both mid-market BDCs, received “going concern” warnings from its auditors after posting large quarterly losses. Allied CEO William Walton stepped down from his post but will remain Chairman. He will be replaced by John Scheurer.

Ares Capital, a mid-market BDC, reported a GAAP net loss of $110.5 million or $1.14 per share (basic and diluted).

Alterna Capital Partners, a buyout firm based in Wilton , Conn. , has held the first close on $229 million toward its debut infrastructure fund, called Alterna Core Capital Assets Fund LP, LBO Wire reported. The fund has a $1 billion target.

Rockley Group, a new VC firm formed by UK angel investors Andrew and Robert Rickman, is raising €100 million for its debut fund.

HSBC announced plans to shut most of its U.S. consumer lending business, which would result in 6,100 job cuts.

Apax Partners has ended discussions regarding a potential stake sale with Norinchukin Bank and is in discussion with other potential investors, Private Equity News reported. The firm last month 7.7% stake in its management company to Singaporean sovereign wealth fund unit GIC Special Investments and Australia’s state workers pension fund Future Fund.

Human Resources

Amanda McCrystal has joined HarbourVest Partners as head of investor relations and communications for HarbourVest Global Private Equity Ltd., a closed-end investment company listed on Euronext Amsterdam. She previously was with Bramdean Asset Management.

Joseph Walsh, a former managing director with Fortress Investment Group, has joined Amherst Holdings as president.

Less Lyall, a former COO of GrowthWorks Capital, has joined Kirchner Private Capital Goup as a Managing Partner of Kirchner Investment Management Corp, a Canadian venture firm. Read more

Michael Flynn and Thomas L’Helias have joined Fulbright & Jaworsky LLP. Both lawyers are formerly of Sonnenschein Nath & Rosenthal. Flynn represents private equity funds, venture capital funds and growth stage companies. L’Helias represents large financial institutions and funds in principal transactions.

The Blackstone Group has appointed Ambassador Gérard Errera as a Special Advisor to the firm. Errera will be based in Paris and focus on business development in France and Continental Europe.