peHUB Wire: Wednesday, April 22, 2009

The Quadrangle Group has spent an uncomfortable week in the spotlight, following allegations that firm co-founder Steve Rattner may have used improper means to secure a fund commitment from New York’s state pension system. Yesterday, new allegations arose that Quadrangle may not have properly disclosed its placement agent relationships with pension funds in New York City. Bad times.

Things have gone a bit better behind the scenes, however, where Quadrangle has been working hard to preserve its own existence.

When Rattner left Quadrangle in February to oversee the nation’s auto industry, it left his remaining partners prone to investment impotence. Specifically, limited partners in the firm’s $2 billion second fund were automatically given the right to prevent Quadrangle from making any new investments — save for follow-ons with existing portfolio companies — because Rattner was termed a “key-man” in fund documents.

Not only would this erase most of the $500 million left in Quadrangle’s second fund (plus associated fees), but it also would effectively quash the firm’s hopes of ever raising a third fund. In other words, say goodbye Quadrangle (or at least to its private equity biz).

Limited partners have until this Friday to vote, but peHUB has learned that they are likely to let the deadline pass. In exchange, limited partners would be granted various concessions on existing fund terms, plus revised key-man agreements. We have not yet learned full details of what those concessions would be, but expect them to be substantial.

As one LP said: “I’d rather get a better deal on the 75% I’ve already put in and on the remaining 25%, than just getting that final 25% back and keeping the first 75% as is.”

It is important to stress that any agreements between Quadrangle and its LPs are still in principle, and subject to change or fall apart. For example, my reporting on this occurred before the New York City investigation became public. Moreover, LPs would still be required to approve fund amendments via a vote. So, for now, it’s safest to say that both sides are moving toward a deal, rather than that they have one in place.

A spokesman for Quadrangle declined to comment.

*** Yesterday I wrote that it’s time for public pension funds to begin tracking their fund-flow, and to publicly disclose such documentation. Here’s the idea, fleshed out a bit more.

*** People keep asking me if any actual private equity folks will face New York or SEC charges, in relation to the kickback scheme. I tell them that I have no idea, but then use the following vulgar analogy: In too many cases, prostitutes get arrested and johns get told to go home. That’s what seems to be happening here.

*** In January, we reported that Atlas Venture had made several personnel moves in the wake of closing its eighth fund well below target. One of those was that Boston-based IT partner Eric Hjerpe would transition into a venture partner role. Such an arrangement didn’t last long, as Hjerpe left the firm altogether last week. No word yet on his future plans, although Atlas partner Jeff Fagnan says the formal split was “amicable.”

*** Our peHUB All-Star softball squad will play against TD Banknorth on May 11, at Fenway Park (2:15pm). We still have a few spots left if you would like to participate, and are willing to make a $600 donation to ABCD (we’ve already raised over $8k). Email me if you’re interested.

Top Three

Radialpoint, a Canadian provider of! managed Internet security to ISPs, has acquired Casero Inc., a Toronto-based provider of white-label and Web 2.0 products for service providers. No pricing terms for the cash and stock deal were disclosed. TA Associates holds a minority stake in Radialpoint, while Casero has raised around $13 million from firms like Rembrandt Venture Partners, Argo Global Capital Partners, Highland Capital Partners and Casero co-founders Paul Atkinson and Kevin Kimsa. The round formally closed back in February.

NewPath Networks LLC, a Seattle-based wireless infrastructure company, has raised $30 million from Charterhouse Group ($20m) and Meritage Funds ($10m).

Kevin Macdonald has joined Morgenthaler as co-managing partner of the firm’s private equity team. He is a former managing partner with Monitor Clipper Partners.

VC Deals

iScience Interventional Inc., a Menlo Park, Calif.-based developer of microcatheter technology for the treatment of ophthalmologic conditions like glaucoma and age-related macular degeneration, has raised $20.5 million in Series F funding. Affinity Capital Management led the round, and was joined by Johnson & Johnson Development Corp., L Capital Partners and Clarian Health Ventures. Return backers included Prism VentureWorks, Three Arch Ventures, DeNovo Ventures and Asset Management Co. Piper Jaffray & Co. served as a placement agent. !

Beceem Communications, a Santa Clara, Calif.-based provider of mobile WiMAX chipsets, has raised $20 million in fifth-round funding. Motorola led the round, and was joined by return backers Global Catalyst Partners, Khosla Ventures, KTB Ventures, Walden International, Intel Capital, NEC, Mitsui and Samsung. The company has now raised $110 million in total VC funding since its 2003 inception.

DemandWare Inc., a Woburn, Mass.-based provider of on-demand ecommerce solutions, has raised $15 million in fourth-round funding, according to a regulatory filing. The company had previously raised around $44 million, from firms like General Catalyst Partners, North Bridge Venture Partners and T-Venture Holding

Glasses Direct, a UK-based online prescription glasses retailer, has raised £10 million in second-round funding. Acton Capital Partners led the round, and was joined by return backers Index Ventures and Highland Capital Partners.

Bright View Technologies Inc., a Morrisville, N.C.-based optical film manufacturer, has raised $4 million in VC funding led by Intersouth Partners.

Buyout Deals

Buxbaum Group, a corporate turnaround and retail liquidation firm, has acquired discount clothing retailer Filene’s Basement.

Cerberus is not interested in bidding on a stake for General Motors’ Opel business, according to Reuters.

Clearview Capital has completed its acquisition of Troy Industries Inc., a Trenton, N.J.-based maker of decorative films used in plastic lamination applications. No financial terms were disclosed.

Edgewater Capital Partners has acquired Gabriel Performance Products Inc., an Ashtabula, Ohio-based chemicals supplier, according to LBO Wire. Centerfield Capital Partners provided mezzanine and subordinated note financing.

Vandemoortele Group of Belgium will not have any private equity bidders in the final round of its auction for soya milk and yogurt maker Alpro Soya, after the financial firms were outbid by strategics.

PE-Backed IPOs

Ellora Energy Inc., a Boulder, Colo.-based oil and gas company, has re-filed for a $100 million IPO. Last week, the company withdrew registration for an IPO, without giving a reason. It plans to trade on the Nasdaq, with Merrill Lynch and Raymond James serving as co-lead underwriters. Yorktown Energy Partners holds a majority ownership stake.

PE-Backed M&A

Automattic Inc., creator of the WordPress blog platform, has acquired, a ping-update service that had been owned by Yahoo. No financial terms were disclosed. Automattic has raised around $30 million in VC funding from firms like Polaris Venture Partners, Radar Ventures, True Ventures and The New York Times Co.

Ikanos Communications (Nasdaq: IKAN) has agreed to acquire the Broadband Access product line of Conexant Systems (Nasdaq: CNXT), for $54 million in cash and the assumption of certain liabilities. Tallwood Venture Capital is helping to finance the deal, via a $42 million purchase of Ikanos common stock at $1.75 per share. Tallwood also will receive warrants to buy an additional 7.8 million Ikanos shares.

PlaySpan Inc., a Santa Clara, Calif.-based operator of an in-game commerce network, has agreed to acquire Spare Change, an online micropayments platform solution for social networks. No financial terms were disclosed. PlaySpan has raised around $28 million from firms like Easton Hunt Capital Partners, Menlo Ventures, STIC Investments and Novel TMT Ventures.

Portico Systems Inc., a Blue Bell, Pa.-based provider of software solutions for health insurance plans, has acquired a suite of health plan contracting solutions from Kryptiq. No financial terms were disclosed. Portico has raised around $13.7 million in VC funding from Edison Venture Fund and Safeguard Scientifics. Kryptiq has raised over $20 million from firms like Shelter Capital Partners, SmartForest Ventures and Voyager Capital.

Human Resources

Juha Lehtola has joined Finnish Industry Investment Ltd. as an investment manager. He previously was with Nordic Venture Partners.