peHUB Wire: Tuesday, October 27, 2009

New Jersey does not have a long history of investing in private equity, making its first fund commitments just four years ago. But that doesn’t mean that private equity won’t become an issue in next week’s gubernatorial election, where incumbant John Corzine is struggling to fend off Republican challenger Chris Christie.

Christie needs to land just a few more body blows, and I hear that he may attempt to tar Corzine with the growing rash of pay-to-play scandals involving state pension systems and private equity.

To be clear, there have been no formal or informal allegations of wrongdoing against the New Jersey Investment Management Board, which had invested in 88 private equity funds through June 2008 (carrying value of $2.85 billion). What I’ve heard from two sources, however, is that Christie’s campaign may simply raise the specter of impropriety, in the hopes that the talking point sticks in voters’ minds on election day.

Specifically, Christie would focus on New Jersey’s decision to do business with three firms that have figured prominently in scandals elsewhere: Apollo Management, The Carlyle Group and The Quadrangle Group.

Apollo would be the most direct connection, because it used ARVCO to raise money from New Jersey. For the uninitiated, ARVCO founder Al Villalobos currently figures into a political corruption investigation in California (although he is not personally being investigated), and there were lots of questions raised last month when CalPERS released details of ARVO’s contractual arrangements with Apollo. It is important to note, however, that a peHUB search of New Jersey election records find no mention of Villalobos, ARVCO or other ARVCO employees contributing to New Jersey elected officials (and there are state laws in place to combat such palm-greasing).

The Carlyle and Quadrangle relationships hits closer to home, in that both firms used indicted pl! acement agent Hank Morris to secure business from the New York Common Retirement Fund. Carlyle even agreed to repay $20 million, without acknowledging any wrongdoing (I’m told that Quadrangle is interested in settling, but hamstrung by the obstinance of former partner Steve Rattner). Moreover, Morris’ reportedly firm used to employ ex-NJ Senator Bob Torricelli.

Tying New Jersey to that scandal, however, would be factually specious. Neither Carlyle nor Quadrangle used Hank Morris to secure business from New Jersey, according to a memo that can be found here (.pdf). Instead, Carlyle used its in-house marketing team, while Quadrangle used a reputable agent named The Monument Group.

Unsubstantiated attacks, however, are commonplace just before the final weekend of a campaign. In addition, Christie could legitmately point out that the investments in Apollo and Quadrangle are both underwater (he might also be able to claim ! it of the three Carlyle funds — Carlyle Mezzanine Partners, Carlyle Mezzanine Partners II and Carlyle Reality Partners V — but I’ve been unable to find recent performance data on them).

Hopefully Christie won’t play this card, but it’s at least being considered. His campaign did not return requests for comment.

Top Three

General Atlantic has agreed to invest $150 million into Quality Technology Services, a Suwanee, Ga.-based provider of data center facilities and managed services. Morgan Stanley advised QualityTech on the deal.

Cisco has agreed to acquire ScanSafe, a London-based provider of online security-as-a-service solutions, for approximately $183 million in cash and retention-based incentives. ScanSafe had raised around $43.5 million in VC funding, from firms like Montagu Newhall Associates, Balderton Capital and Scale Venture Partners.

Ares Capital Corp. (! Nasdaq: ARCC) has agreed to acquire Allied Capital Corp. (NYSE: ALD). The all-stock deal is valued at $648 million, or approximately $3.47 per Allied share (27.38% premium to Friday’s closing price).

VC Deals

Varicent Software Inc., a Toronto-based provider of sales performance management and incentive compensation management solutions, has raised US$35 million in new VC funding. FTV Capital led the round, and was joined by return backers RBC Venture Partners and EdgeStone Capital Partners.

Evolva SA, a Swiss biotech company that uses a genetic chemistry platform to developer small molecule drugs, has raised CHF28 million ($27.5m) in Series B funding. Wellington Partners and return backer Aravis co-led the round, and were joined by new investors Auriga Partners and Vinci Capital – Renaissance PME. The investment is a precursor to Evolva’s planned reverse merger with Arpida Ltd., which is listed on the Swiss stock exchange (SIX: ARPN). Evolva has raised around $20 million in VC fund! ing from firms like Novartis Venture, Aravis, Sunstone Capital and Dansk Innovationsinvestering.

DNP Green Technology, a supplier of bio-based succinic acid, has raised $12 million in new VC funding. Sofinnova Partners led the round, and was joined by Mitsui & Co. Venture Partners, Samsung Ventures Investment Corporation, the Cliffton Group and return backer AquaRIMCO. The company has offices in Princeton, N.J. and Montreal.

Metabolon Inc., a Durham, N.C.-based provider of biomarker discovery and analysis, has raised $6 million in additional Series C funding. The round total is now $12.3 million, and the company has raised over $25 mil! lion in total VC funding. Syngenta Ventures and Fletcher Spaght Ventur es were joined by return backers Sevin Rosen Funds, Aurora Funds, Harris and Harris Group, Fulcrum Financial Partners and Alexandria Equities.

ResponseLogix Inc., a Sunnyvale, Calif.-based provider of automotive digital response management software, has raised $5.6 million in new VC funding. Emergence Capital Partners led the round, and was joined by return backers GRP Ventures, Shasta Ventures, Belo Corp. and AH Belo Corp.

Unity Technologies, a San Francisco-based developer of a multi-platform game development platform, has raised $5.5 million in Series A funding. Sequoia Capital led the round, and was joined by Atari CEODavid Gardner and VMware founder Diane Greene. !

Axeda, a Foxboro, Mass.-based provider of on-demand remote service software, has raised $5 million in Series B funding from return backer JMI Equity. It also raised $4 million in venture debt from MMV Financial. JMI Equity formed Axeda in 2005 by acquiring the DRM business of ITA Holdings.

Netpulse, a San Francisco-based interactive media platform for fitness centers, has raised $3.1 million in Series A funding. Javelin Venture Partners led the round, and was joined by DFJ Frontier.

Skylon AS, a Denmark-based provider of tower solutions and blade components to the global wind power industry, has raised an undisclosed amount of private equity funding from EQT Partners .

Buyouts Deals

The Carlyle Group has agreed to sponsor a management buyout of Broadleaf Co., a Japanese maker of software for car maintenance facilities, from Olympus Corp (Tokyo: 7733). The deal is valued at approximately $212 million.

Madison Capital Partners has acquired the Filtran business unit of SPX Corp. (NYSE: SPW), for an undisclosed amount.

TPG Capital has bailed out of the auction for Greek mobile operator Wind Hellas, which is trying to secure a new cash investment as part of a debt restructuring arrangement. The remaining bidders are current owner Weather Investments and a group of subordinated bondholders led by Aladdin Capital.

Abraaj Capital said that it is in advanced talks to buy a multinational logistics company outside of the Gulf region, but did not identify the target.

PE-Backed IPOs

Cetip, a Brazilian clearing house for fixed income securities and over-the-counter derivatives, raised approximately $508 million in an IPO. Backer Advent International sold shares in the offering.

PE Exits

Sinopec has offered to make a joint bid with state-run Ghana National Petroleum Corp. for Kosmos Energy’s stake in the Jubilee oilfield in Ghana, according to The Wall Street Journal. Kosmos, which is backed by The Blackstone Group and Warburg Pincus, recently agreed to sell the stake to Exxon Mobile, but GNPC deemed the sale illegal.

SolarWinds (NYSE: SWI), an Austin, Texas-based provider of network management software for the SMB/SME market, has filed to sell 11.5 million shares via a secondary public offering. The company itself would sell 1.5 million shares, while the remainder would be offered by existing backers like Insight Venture Partners (approx. 2.5 million shares), Bain Capital Ventures (2m) and Austin Ventures (276k).! Each selling shareholder would retain an equity position in SolarWinds. SolarWinds stock closed Friday at $19.84per share, compared to a May IPO price of $12.50 per

PE-Backed M&A

Integrated A/V Systems LLC, a Houston-based portfolio company of Rock Hill Capital Group, has acquired a majority stake in Creative Presentations Inc., a New Orleans-based A/V integrator. No financial terms were disclosed.

TopTenReviews, an Ogden, Utah-based provider of expert tech and entertainment reviews, has acquired the consumer media division of Imaginova Inc. No financial terms were disclosed for the deal, which includes, and TopTenReviews raised $6 million in 2007 from Highway 12 Ventures and Village Ventures.

Firms & Funds

The Blackstone Group (NYSE: BX) recently won a dismissal of a class-action lawsuit aimed at holding the firm responsible for losses on its stock, but the plaintiffs are now appealing that dismissal.

The California Institute of Quantitative Biosciences has formed a $7.5 million VC funding to provide startup capital for UC bioscience entrepreneurs and a long-term endowment for Qb3. It is being called the Mission Bay Capital Fund.

Imperial Capital has opened a new office in Boston. It will be staffed by Chip Mellen and Diana Knightly, who are both joining as managing directors of high yield sales.

Samsung Electronics and VC-backed mobile app company Handmark are partnering to form a global venture capital fund that would invest in “market-changing game ideas for next generation Samsung mobile phones.” Each investment would be $250,000. Handmark backers include Apax Partners, Argnor Wireless Ventures, Borealis Ventures, Motorola Ventures and Village Ventures.