peHUB Wire: Wednesday, June 10, 2009

At the beginning of yesterday’s LP Congress, I stood up and told attendees that everything they said would be strictly off-the-record. Not a promise I have any intention of breaking, although a few of the potential scoops are hurting my brain.

What I do want to say, however, is that the LP community is clearly in need of more accessible and confidential forums in which to share ideas and information. Both physical forums (like we helped provide yesterday) and virtual ones. The spirited conversations from yesterday – both in discussions sessions and during lunch – bore witness to that need, and it’s something I plan to give serious thought to over the upcoming weeks and months.

Much thanks to everyone who came yesterday, particularly those from Boston who sat on the Logan tarmac for a couple of hours in wait. Also, a final note of gratitude to sponsors C! oller Capital and Parish Capital, without whom the LP Congress would not have occurred. Now onto a bunch of LP-related items, although not from yesterday’s event.

*** Connie last night posted a Q&A with economist/pundit Paul Kedrosky, who has released a paper arguing that the VC industry must shrink in line with the decreasing capital requirements of the startups they fund. Much of the blame for the buildup, Paul says, goes to limited partners – who have agitated for access to top-tier firms (or at least ones that used to be top-tier), and who jumped at the opportunity to invest when the firms’ fund-sizes grew.

Paul is certainly correct in his historical assessment – just look at Kleiner’s rapid growth – but I’m not so sure that LPs are going to help the VC industry rightsize/downsize. After all, for every new ! LP dollar committed to VC funds over the past few years, there have be en a dozen LP dollars committed to buyout funds.

The result, in many cases, has been over-allocation to buyouts, which could cause some LPs to actually increase their attempts to invest in venture capital (to better balance things out). There obviously are other portfolio allocation strategies – including increased commitments to burgeoning segments like secondaries and distressed – but venture still seems to hold homerun appeal for many investors (even if 9-year returns don’t justify the risk).

*** CalPERS yesterday made headlines for proposing an increase to its private equity allocation from 10% to 14 percent. A vote is scheduled for the pension fund’s board meeting next week.

At first glance, the move seems to be a giant vote of confidence in private equity (venture, buyouts, etc.). But that gets tempered when one realizes that CalPERS is already at 13% exposure to the asset class, which makes the proposal loo! k more like reactionary CYA prompted by the denominator effect.

So which is it? According to sources close to the pension fund, it’s both. The allocation increase’s immediate affect would be to address the current exposure realities, but there also is a desire to “juice returns during the upcoming recovery.”

An improving economy would lift most asset classes (thus diminishing the denominator effect), so the added private equity exposure reflects CalPERS’ view that PE would outperform many other types of investments.

*** Imagine a mega-buyout firm is seeking to raise a new fund with a 30% carried interest structure. Then imagine that a dozen of the world’s largest LPs – which last time accounted for over 50% of the firm’s fund commitments – talk amongst themselves and present the following united front: “We’ll invest, but only at a 20% carried interest.”

A question for any lawyers out there: Are the LPs gui! lty of collusion?

*** Chicago Shindig: A reminder that peHUB returns to Chicago next Monday night. We sold more than 100 tickets so far, so go here to get yours today. Don’t sorry, the Cubs-ChiSox games don’t begin until Tuesday night…

Big thanks to event sponsors Bank of Ireland and Crowe Horwath.

Top Three

Tendril Networks Inc., a Boulder, Colo.-based maker of wireless sensors and networks for improving energy efficiency, has raised $30 million in Series C funding. VantagePoint Venture Partners led the round, and was joined by Good Energies and existing shareholders RRE Ventures and Vista Ventures. Past backers Access Venture Partners and Appian Ventures were not noted in the company’s press release.

Hilco Consumer Capital and CCMP Capital are circling retailer Eddie Bauer Holdings Inc., which is expected to file for bankruptcy protection within the next few weeks. Peter J. Solomon Co. is advising Eddie Bauer.

Southcross Energy LLC, a Dallas-based natural gas transportation and processing company, has agreed to buy the Mississippi, Alabama and South Texas assets of Crosstex Energy LP (Nasdaq: XTEX). The deal is valued at $220 million. Southcross Energy is a portfolio company of Charlesbank Capital Partners.

VC Deals

Ballista Holdings, a Chicago-based options block trading company, has sold a minority equity stake to Knight Capital Group, Morgan Stanley and Susquehanna Growth Equity. Dow Jones reports that the deal was worth $15 million., a UK-based provider of home energy saving systems, has raised £8 million in Series B funding. Backers include Good Energies, Index Ventures, SET Venture Partners and VantagePoint Venture Partners.

Semprius Inc., a Durham, ! N.C.-based developer of printing technology for the manufacture of advanced semiconductor devices, has raised $6.4 million in Series B funding. In-Q-Tel and GVC Investment Fund were joined by return backers Arch Venture Partners, Applied Ventures, Illinois Ventures and Intersouth Partners.

Embrella Cardiovascular, a Malvern, Penn.-based developer of a device for preventing dangerous debris from entering the brain during cardiovascular procedures, has raised $5.1 million in Series B funding. BioStar Ventures led the round, and was joined by Edwards Lifesciences Corp. and return backer MedFocus Fund.

Continuity Engine Inc., a Monroe, Conn.-based provider of an operations and governance SaaS platform for communit! y financial institutions has raised $1.5 million in seed funding. Back ers include Connecticut Innovations, LaunchCapital, company management and undisclosed individual angels.

AquaGenesis Inc., a San Francisco-based provider of water purification and conditioning for the residential and commercial markets, has raised an undisclosed amount of Series A funding led by Clean Pacific Ventures.

Savara Pharmaceuticals, an Austin, Texas-based developer of inhalation drug delivery solutions, has raised an undisclosed amount of Series A funding. A regulatory filing indicates that the company was raising $1.4 million. No investor information was disclosed.

Buyout Deals

Charterhouse Capital Partners is in exclusive talks to buy Wood Mackenzie, a UK-based energy research and consulting firm, from Candover. The deal would be valued at approximately £550 million.

Masonite International Inc., a Canadian doormaker that had been acquired by KKR in 2005, has emerged from bankruptcy protection after completin! g a financial restructuring.

Mercury Computer Systems Inc. (Nasdaq: MRCY) has sold its Visualization Sciences Group to France’s IRDI-ICSO Private Equity. The deal includes a $12 million upfront payment, plus up to $2.5 million in possible earn-outs.

OpenGate Capital has agreed to acquire Fleurus Presse and Junior Hebdo, the youth publication divisions of French media company Groupe Le Monde. No financial terms were disclosed.

PE-Backed M&A

Alteris Renewables, an integrator of renewable energy systems in the Northeastern U.S., has acquired substantially all the assets of Renewable Power Systems LLC, a provider of solar installation services in Upstate New York. No financial terms were disclosed. Alteris is a portfolio company of Riverside Partners.

Infiltrator Systems, a maker of makes plastic chambers for onsite wastewater management systems in the septic leach-field and storm-water markets, has acquired Ring Industrial Group, a maker of expanded polystyrene drainfield systems. No financial terms were disclosed. Infiltrator Systems is a portfolio company of Graham Partners.

Senior Care Centers of America,a portfolio company of Clearview Capital, has acquired Riverside Adult Day Center of Plains, Pennsylvania. No financial terms were disclosed.

PE Exits

CSL Ltd. (AX: CSL) has terminated its $3.1 billion merger agreement with Talecris Biotherapeutics Holdings Corp., due to pressure for U.S. antitrust regulators. Talecris operates blood plasma collection centers and manufacturing facilities. It was acquired by Cerberus Capital Management and Ampsersand Ventures in 2006, from Bayer AG. The sale would have represented around a 22x return on Cerberus and Ampersand’s original equity investmen! t.

Firms & Funds

Iron Capital, a venture-focused private equity services firm, has acquired EnviroTech Capital, a research, investment and consulting firm focused on the cleantech market. No financial terms were disclosed.

Oaktree Capital Management is seeking between $4 billion and $6 billion for a new distressed debt fund, according to LBO Wire.

Human Resources

David Wirdnam and Matt Traina have joined Piper Jaffray as managing directors. Wirdnam will provide debt advisory and origination services to the firm’s debt capital markets and financial restructuring groups. He previously was a managing direc! tor with Citigroup’s leveraged finance team. Traina will lead coverage of West Coast financial sponsors, and previously was in the financial sponsors group at Bank of America.

Pharos Capital Group has promoted Joseph Acevedo from associate to vice president and Ryan Shelton from analyst to associate. Pharos is a private equity firm with offices in Dallas and Nashville.