PEHUB Wire: Wednesday, February 11, 2009

Yesterday, a reader named Scott wrote: “You’re spending way too much space on private equity’s role in the bank bailout. It will never be a big part of the PE pie. Let it go.”

For starters, Scott clearly doesn’t appreciate how much daily columnists value an ongoing story. It means we can build and build on the same initial information, rather than learning a brand new subject each morning. Sure it’s a bit lazy, but it’s also pragmatic.

For substance, I’m not so sure Scott is right that bailout-related investment won’t be a big part of overall PE activity. Maybe it wouldn’t be if we using 2007 volume as context, but we’re talking about sleepy 2009, where new deals are less common than a positive review of Tim Geithner’s speech (speaking of which, here’s my two cents on that subject). So let’s try to do some back-of-the-envelope math, with the giant caveat that we have no idea if Treasury will provide the types of guarantees needed to actually entice PE participation.

Estimates are that private equity firms are sitting on around $400 billion in dry powder. Let’s assume that one-third of that capital cannot even consider touching distressed financial assets. For example, a mid-cap firm focused on tech or retail has no business in this area. The one-third percentage is probably a bit low, but don’t be surprised if a few firms club up with more experienced shops, in order to put money to work (think non-tech PE firms joining the SunGard consortium).

So that leaves us with $268 billion, but not all of that money can go toward such investments. Not even close. Let’s assume that most firms would not invest more than 10% of their remaining dry powder on such assets, just like they wouldn’t invest more than 10% of a fund into a single company. That brings us down to around $27 billion available. That’s a pretty heady number, particularly once you pour some leverage on top (I know, insert irony here). For context, there was only around $235 billion of buyout deal volume last year, which included leverage.

So Scott, it may be fairer to use this formulation: Bailout-related investment may become a big part of the PE pie, but PE is unlikely to become a big part of the trillion-ish dollar bailout pie.

Of course, all of the above is super duper speculative. Just a way to pass the time before Treasury actually develops a plan…

*** Speaking of a plan, I still can’t find a big buyout firm that was consulted by Treasury prior to yesterday’s speech. Maybe Geithner believes he can get all the required insight from Matt Kabaker, the ex-Blackstone pro who recently joined his team. Or maybe he thought his plan would suffer crib death if it got a PE seal of pre-approval.

*** One of our competitors is making a big deal about how CalPERS is considering an investment into Vinod Khosla’s firm, Khosla Ventures. Pretty sure we began writing about this situation last summer. Yup, here it is (peHUB premium sub req).

*** Just a reminder that this afternoon I’ll be moderating a panel discussion about the state of private equity and private equity deal-making. This event had around 500 people last year, and we’re expecting another packed house. Takes place at Boston’s Park Plaza, beginning at 2pm. The panelists include Brooke Ablon of Fidelity Equity Partners, Chuck Brizius of THL Partners, Geoffrey Rehnert of Audax Group and Steve Tadler. Get more info on this event – and on other upcoming events I’ll be speaking at – right here.

*** Reason I love my readers #67: Lots of restaurant suggestions for Saturday night in Santa Cruz. Much appreciated.

Top Three

Altor Equity Partners and Bure Equity have agreed to acquire Max Matthiessen Holding AB, a Swedish insurance and financial advisor, from the Swedish National Debt Office. The deal is valued at SEK 500 million (approx $647m).

Livescribe Inc., an Oakland-based developer of a pen with an onboard computer, has raised $10.175 million in fourth-round funding co-led by return backers Lionhart Investments Ltd. and VantagePoint Venture Partners. The company previously raised around $35 million, from Lionhart, VantagePoint, Blueprint Ventures, Greenhouse Capital Partners and several family offices.

Muzak Holdings LLC, a provider of background music in stores and hotels, has filed for Chapter 11 bankruptcy protection, in an effort to restructure its debt. The company is majority-owned by ABRY Partners, and said it has sufficient means to support the business during the bankruptcy process.

VC Deals

ActoGeniX, a Dutch drug company whose lead candidate is focused on inflammatory bowel disease, has raised €13.5 million in second-round funding. Biovest was joined by return backers Gimv, Biotech Fund Flanders, Baekeland Fund, VIB, LSP, Aescap Venture and Ventech.

AlertEnterprise, a Fremont, Calif.–based provider of access controls and security technology, has raised $8 million in Series A funding from Opus Capital.

Majitek, an Australia-based provider of cloud computing software platforms, has raised $7.5 million in new VC funding. Cisco Systems led the round, and was joined by return backer Pierce & Pierce.

Oodle Inc., a San Mateo, Calif.-based online classifieds aggregator, has raised $5.6 million in new VC funding. Return backers include Greylock Partners, Jafco Ventures and Redpoint Ventures. The company has now raised around $21.6 million in total VC funding.

Conformiq Inc., a Saratoga, Calif.-based provider of software test design solutions, has raised €3 million in VC funding co-led by Nexit Ventures and Finnish Industry Investment Ltd.

Cerenis Therapeutics SA, a drug developer with operations in Toulouse, France and Ann Arbor, Mich., has raised €2.5 million from France-based OSEO., a New York-based provider of financial education courses, has raised $2 million from Five Elms Capital.

Buyout Deals

Anakam Inc., a San Diego-based provider of data security solutions, has raised an undisclosed investment from Huntington Capital, according to LBO Wire.

Faurecia SA (Paris: EPED), a French auto partners maker, has sued Chrysler for $110 million, alleging that the U.S. automaker failed to pay certain engineering costs. Chrysler is majority-owned by Cerberus Capital Management.

GOME Electrical Appliances (HK: 0493), a Chinese electronics retailer, has retained Cazenove to advise on a possible new share issuance to foreign investors. Reports suggest that private equity firms Bain Capital and Carlyle Group are among the interested buyers.

Hilco Consumer Capital has signed a deal with the family of Bob Marley, to handle licensing of the late singer’s likeness, trademarks and themes.

PE-Backed M&A

Boundless Network Inc., an Austin, Texas-based promotional merchandising company, has acquired Texas distributor Corporate Solutions. No financial terms were disclosed. Boundless has raised around $8.5 million in VC funding from firms like Austin Ventures and Silverton Partners.

Veritext, a court reporting firm owned by The Riverside Company, has acquired Delaware-based competitor Corbett Reporting. No financial terms were disclosed.

Firms & Funds

Aloe Private Equity is trying to raise up to $400 million over the next three years, to develop coal bed methane resources in China.

Credit Suisse posted its largest-ever annual loss, largely due to a $5.2 billion Q4 loss.

Human Resources

Pradeep Guha has joined Nexus India Capital as a venture advisor. He previously was CEO of Zee Network and, before that, was president of the Times of India Group.

Benjamin Rodman has joined Valor Equity Partners as a managing director. He previously was a managing director with BMO Capital Markets, in the private equity coverage group.

Jin Lee has joined Thayer Group Lodging as a managing director and chief investment officer. He previously ran M&A for HEI Hotels & Resorts.