peHUB Wire: Tuesday, November 17, 2009

When HP last week agreed to buy 3Com for $2.7 billion, we learned two things: (1) The deal announcement was preceded by brazen insider trading, and (2) 3Com is one of few publicly-traded tech companies whose value has risen more than 20% since last fall’s financial collapse (based on how much Bain Capital was planning to pay in 2007, before the feds intervened).

Yesterday we got updates on both issues.

Bloomberg reported that the SEC is investigating the insider trading situation, in which trading volume on $5 strike calls grew by 40x just hours before HP sent out its press releases.

It’s obviously a welcome development, and perhaps signals that the SEC is finally getting tough on an illicit epidemic that has gone untreated for years. Why the SEC never did anything during the buyout boomtimes of 2006 and 2007 — when option volume r! egularly bloomed before a take-private offer was made public — is beyond me, but perhaps Galleon really will be the beginning of something rather than a notable exception. If it’s primarily because the SEC is tired of getting egg on its face, so be it. The road to grace is filled with self preservation…

The second issue is that at least two groups of 3Com shareholders have filed class-action lawsuits against company management, arguing that the HP offer was too low to accept. TechCrunch reported on one in Delaware, while I found one filed in Massachusetts (download here). Never mind that the $7.90 offer price was 22% higher than what 3Com agreed to sell for just two years ago, or that the company’s stock hasn’t reached $7.90 since January 2004. As an example of t! he plaintiffs’ brilliance:

“The $7.90 per share offer price does not reflect the true inherent value of the Company that was known only to defendants, as directors and officers of 3Com, at the time the Proposed Acquisition was announced.”

So, let me get this straight: You don’t know how much the company is worth, except you know that HP offered a bum deal. Great. You now have the intellectual honesty of a cable talkshow host.

Whereas the SEC has been historically negligent, these folks are simply using the courts to satisfy their optimistic greed (not that they aren’t entitled to such self-indulgent endeavors as shareholders).

My best guess is that both of these situations will be resolved in the exact opposite manner to which they would have been two years ago: The SEC comes down with a hard enough hammer to disuade future scumbags, and 3Com/HP don’t bow to the class-action pressure. But that would require that sense prevails, which is rare when it comes to M&A…

Top Three

J.F. Lehman & Co. has agreed to sell Atlantic Inertial Systems to Goodrich Corp. (NYSE: GR), for approximately $375 million. AIS is a Cheshire, Conn.-based provider of mission-critical guidance, stabilization and navigation products and systems for the military and defense market.

Zynga, a San Francisco-based developer of social games like FarmVille, has raised $15.18 million in Series B-1 funding, according to a regulatory filing. No new investors were listed. Board members include William “Bing” Gordon of Kleiner Perkins, Brad Feld of Foundry Group and Reid Hoffman. The company previously raised around $40 million in VC funding from Kleiner Perkins, Foundry Group, Avalon Ventures, Institutional Venture Partners and Union Square Ventures.

CapitalSource Inc. (NYSE: CSE) has agreed to sell substantially all of i! ts healthcare net lease portfolio to Omega Healthcare Investors (NYSE: OHI). The deal includes $280 million of cash and $51 million of OHI stock, with Omega also expected to assume or pay off $529 million of assumed debt.

VC Deals

RockYou, a San Mateo, Calif.-based developer of social network advertising widgets, has raised $50 million in new VC funding from existing backer Softbank. The company previously raised, from Softbank, SK Telecom Ventures, DCM, Sequoia Capital and Lightspeed Venture Partners.

Entellus Medical Inc., a Maple Grove, Minn.-based developer of a system for treating chronic sinusitis, has raised $30 million in Series D funding. Essex Woodlands Health Ventures led the round, and was joined by return backers Split Rock Partners and SV Life Sciences. Montagu Newhall Associates, which led the company’s $15 million Series C round, was not listed as a Series D participant.

Chelsio Communications Inc., a Sunnyvale, Calif.-based provider of 10-gigabit Ethernet unified wire solutions, has raised $17 million in sixth-round VC funding. peHUB had previously reported on the round, based on a regulatory filing. Mobile Internet Capital was joined by return backers New Enterprise Associates, INVESCO Private Capital, Investor Growth Capital, LSI Corporation, NTT Finance, Vendanta Capital, Abacus Capital Group, Pacesetter Ca! pital Group andHorizon Ventures. Chelsiopreviously raised around $84 million., a China-based travel website, has raised $15 million in Series C funding. Granite Global Capital led the round, and was joined by return backersMayfield Fund, GSR Ventures and Tenaya Capital.

Bigfoot Networks Inc., an Austin, Texas-based maker of a hardware PC card that reduces in-game lag for video games, has raised $8 million in new Series B funding. Return backers include North Bridge Venture Partners, Palomar Ventures and Raven Venture Partners. The company has now raised $20.75 in total VC funding.

Glyde, operator of an online ecommerce platform for used goods, has raised $6 mi! llion in Series A funding from Charles River Ventures. Read more…

NextImage Medical Inc., a San Diego-based provider of services to the workers’ compensation market, has raised $5 million in Series A funding led by Chrysalis Ventures.

CambridgeSoft Corp., a Cambridge, Mass.-based maker of life science enterprise solutions like e-notebooks, has raised an undisclosed amount of private equity funding from Health Evolution Partners and return backer Goldman Sachs. The company previously raised over $26 million from Goldman and Edison Venture Funds.

DocuSign Inc., a Seattle-based provider of online document delivery and signature solutions, has raised an undisclosed amount of VC funding from ! Second Century Ventures, a VC group sponsored by the National Association of Realtors. DocuSign previously raised around $33 million from WestRiver Capital, Frazier Technology Ventures, Ignition Partners and Sigma Partners.

Lighting Retrofit International LLC, a provider of lighting and water building efficiency services, has raised an undisclosed amount of growth equity funding from Arborview Capital.

Buyouts Deals

Hopu Investment Management plans to invest up to $1 billion in China Minsheng Bank (600016.SS), a mid-sized lender aiming to raise $4.07 billion through an upcoming public offering in Hong Kong.

Odyssey Investment Partners has acquired Safway Groupfrom ThyssenKrupp AG, for an undisclosed amount. Safway is a provider of scaffolding services in the U.S. and Canada.

Sterling Partners has completed its $10 million investment in Select Comfort (Nasdaq: SCSS), in exchange for around an 8.9% ownership stake. In August, Select Comfort stockholders had rejected Sterling’s initial offer to invest around $35 million.

PE-Backed IPOs

PAI Partners is milling a 2010 IPO for portfolio company Chr.Hansen, which could generate upwards of €1 billion. Chr.Hansen is a Danish food ingredients company in 2005.

PE-Backed M&A

Saga Investments, a portfolio company of Polaris Venture Partners and Arch Venture Partners, has agreed to buy the assets of Icelandic genomics company of DeCODE Genetics, as part of a prepackaged Chapter 11 bankruptcy proceeding.

Punchbowl Software Inc., a Framingham, Mass.-based operator of an party-planning website, has acquired I’m In! (, a site for group travel and local trip ideas,from GroupGo LLC. No financial terms were disclosed. Punchbowl had raised over $2.1 million in VC funding from Contour Venture Partners, Intel Capital and eCoast Angels.

PE Exits

Charlesbank Capital Partners has retained North Point Advisors to help sell pizza chain Papa Murphy’s International Inc.

MySpace is in talks to acquire Imeem, a San Francisco-based music streaming company, as first reported by TechCrunch. Imeem has raised over $12 million, from firms like Morgenthaler Ventures, Sequoia Capital and DAG Ventures.

Thomson Reuters (NYSE: TRI) has agreed to acquire Sabrix Inc., a San Ramon, Calif.-based provider of transaction tax management software. No financial terms were disclosed. Sabrix has raised around $40 million in VC funding since 2000, from firms like Trinity Ventures, Mohr Davidow Ventures, GKM Ventures and VSP Capital.

Firms & Funds

CIMB Standard next year plans to raise $300 million for a new Southeast Asia infrastructure fund, and increase the target size of its Islamic infrastructure fund to $500 million. It also expects to open new offices in both Indonesia and Turkey.

Human Resources

Art Friedman, former president and CEO of Gold Coast Distributors, has joined Liber Capital as a managing director. Liber is a New York-based private equity firm focused on the beverage industry.

Adam Gale has joined Chadbourne & Parke LLP as counsel in the law firm’s corporate practice, with a focus on investment company and fund formation. He previously was with Orrick, Herrington & Sutcliffe LLP.

Susan Bihler has joined growth equity firm Catalyst Investors as an analyst. She previously was an analyst in CIT Group’s communications, media and entertainment group.