Back in 2008, Dow Jones reported that a group of large institutional investors had formed a lobbying group to collectively press for more LP-friendly fund terms. The story was later refuted by some of the reported participants (one Canadian pension plan rep called it “poppycock”), but not before I wondered if such an effort could be viewed as a form of collusion.
Fast forward to last week, when Private Equity International’s David Snow raised the “C” word in reference to the ILPA guidelines drafted last fall. This was followed up yesterday by WSJ scribe Peter Lattman, who reported that “at least three large private equity firms have retained outside counsel to examin! e potential antitrust issues.”
In other words, some general partners believe in an LP cartel, with the ILPA guidelines being used as the preferred means of intimidation. Let us count the reasons why they’re wrong:
1. The ILPA guidelines were designed as a set of best practices, not a hard-and-fast checklist. More importantly, I have yet to find any LP who is using them as the latter (including among those LPs who helped draft them). LPs have demonstrated over and over that they’ll budge on even the most fundamental ILPA guidelines if they believe it’s in the best interest of their financial performance. For example, on the same day that the ILPA guidelines were formally announced, turnaround firm KPS Capital Partners announced that it had raised $800 million in “top-off” commitments to its third fund. The new money flowed freely – indications were due just 16 days after initial request – despite a 25% carried interest structure and a 50/50 fee! split. If an LP tells you that he’s passing because your fund doesn’t meet all the ILPA guidelines, chances are that’s just his cowardly way of saying: “We don’t think your fund is going to do very well.”
2. There is virtually nothing in the ILPA guidelines that LPs haven’t been asking for since time immortal. Stronger alignment of interests, an end to transaction fee splits, etc. The only difference is that they’re now neatly organized in a 16-page PDF. That’s called codifying, not colluding.
3. GPs regularly talk about the “industry standard” of 2 and 20. Wouldn’t that be GP-side collusion, under the same thesis? If not, how are the ILPA guidelines anything other than an argument for revised industry standards?
4. The GP assumption here is that many institutional investors have banded together to force unsavory terms down the throat of body GP. This would presume that the LP community is at least mildly cohesive when, in reality, it most often resembles a third-grade ! basketball team. The bigger and more athletic kids sometimes talk to each other, but mostly are looking for their own shots. The smaller and less coordinated kids get court-time, but mill about aimlessly with perhaps just a touch or two per game. In short, it’s a mess.
LP communication has certainly improved a bit over the past year – and some LPs certainly have regular conversations with peers – but there are still no central forums (online or offline) in which the full spectrum of LPs can interact (even ILPA is exclusionary, banning the vast array of funds-of-funds). Moreover, LPs still like to keep things from one another – as evidenced last year when many large Quadrangle Group LPs didn’t know how their peers were planning to vote on the proposed (and failed) investment cycle stoppage.
5. Some GPs may have heard stories about how an early version of the ILPA guidelines were originally drafted by a group of large LPs who then brought ILPA o! n board to give them legal cover from possible collusion charges. It’s a timeline I’ve also heard from LP sources, albeit one that is strongly denied by ILPA. Even if accurate, LP intent hasn’t matched LP action (KPS is far from the only example). LPs are certainly investing in fewer funds today than in past years, but that is mostly due to larger economic concerns (possible double-dip, etc.) and overall PE/VC performance worries (debt-laden portfolios, middling returns, etc.). Yes, LPs have a bit of leverage on GPs right now, but that’s cyclical and will revert back. It always does (see 2002 compared to 2006).
To be clear, I am not an antitrust lawyer. Nor do I expect to ever play one on TV. But, to me, this charge of LP collusion just doesn’t pass the smell test. Per usual, I’m interested to hear your thoughts…
Top Three
Apax Partners is no longer in talks to buy videoconferencing company Polycom Inc. (Nasdaq: PLCM), according to Reuters. The two companies reportedly had been in talks on a deal that would have been worth more than $3 billion, but Apax never made a formal offer.
Maxlinea! r Inc., a Carlsbad, Calif.-based broadband chipmaker,has raised $90.2 million in its IPO. The company priced 6.4 million shares at $14 per share, compared to a planto offer 5.43 million shares at between $11 and $13 per share. MaxLinear will begin trading on the NYSE under ticker symbol MXL, whileMorgan Stanley and Deutsche Bank Securities served as co-lead underwriters. The company’snet revenue for 2009 was just over $51 million, with $4.33 million in net income. Maxlinearraised around $35 million in VC funding, from firms like U.S. Venture Partners (21.62% pre-IPO stake), Battery Ventures (13.75%), Mission Ventures (13.03%) and UMC Capital (7.09%). www.maxlinear.com
Greg Martin has left Redpoint Ventures, where he had been a partner in charge of the firm’s Los Angeles office. No explanation yet for his departure, which was first reported by Private Equity Insider.
VC Deals
Babyage Inc., a Hanover Township, Pa.-based online retailer of baby and children’s products, has raised $15 million in venture recap funding. Alumni Capital Network led the round, and was joined by return backerBrook Venture Partners.
Voltaix, a Branchburg, N.J.-based maker of of materials that enhance the performance of ICs and solar cells, has raised $10 million in VC funding from MissionPoint Capital Partners.
Abiquo, a provider of infrastructure management software for cloud computing environments, has raised $5.1 million in new VC funding. The company also announced that it will shift its headquarters from Spain to Silicon Valley. The round includes equity from Nauta Capital and Caja Navarra, a $1.36 million venture debt line from Kreos Capital and grants and soft loans from The State of Catalonia and the federal government.
KidZui, a San Diego-based of a kid-friendly Web browser, has raised $4 million in new VC funding, according to TechCrunch. Mission Ventures led the round, and was joined by return backers First Round Capital, Emergence Capital Partners and Maveron LLC. The company previously raised $10 million. www.kidzui.com
Lingotek, a Salt Lake City-based developer of collaborative translation technology, has raised an undisclosed amount of new funding from existing shareholder In-Q-Tel. The strategic deal also included an agreement in which In-Q-Tel will license additional enterprise versions of Lingotek’s Web-based product. Other Lingotek shareholders includeCanopy Ventures and Flywheel Ventures.
Buyouts Deals
Energy Capital Partners has agreed to buy three gas-fired power plants in Connecticut and Massachusetts from BG Group. The deal is valued at $450 million, with ECP operating partner Curt Morgan to run the newly-formed company.
Platinum Group has acquired the assets of Tiziani Golf Car of Minnesota Tiziani Golf Car of Minnesota, which will be renamed Superior Golf Cars. Thecompany will sell, service and lease new and used Club Car brand golf cars in eastern Minnesota and western Wisconsin.
PE-Backed IPOs
Calix Networks Inc., a Petaluma, Calif.-based provider of communications access systems and software, raised $82.3 million in its IPO. The company pricedaround 6.33 million sharesat $13 per share (high end of $11-$13 offering range). Its initial market cap is approximately $472 million. The company had raised around $220 million in VC funding from Foundation Capital, TeleSoft Partners, Azure Capital Partners, Meritech Capital Partners, Redpoint Ventures, Contrarian Capital Management, Credit Suisse, Kinetic Ventures, Menlo Ventures and Integral Capital Partners.
PAI Partners is expected to pick Credit Suisse, J.P. Morgan and Morgan Stanley to handle a $1 billion IPO for Danish bioscience company Chr.Hansen.
PE-Backed M&A
Astrodyne, a Mansfield, Mass.-based provider of power conversion solutions, has acquired the assets of RO Associates from Emrise Corp. (NYSE Arca: ERI) for approximately $1 million in cash plus the assumption of certain liabilities. RO provides standard and semi custom power supply products. Audax Group bought Astrodyne in 2008.
Great Expressions Dental Centers, a Bloomfield Hills, Mich.-basedoperator of 120 affiliated dental practices in seven states, has signed a long-term management agreement for the Jacksonville, Fla.-baseddental practice of Ramsey Salem DDS.No financial terms were disclosed. Great Expressions is owned by Audax Group.
Sandow Media, a portfolio company of Veronis Suhler Stevenson, has acquired a portfolio of Reed Business Information publications that serve the residential/commercial design, home furnishings and accessories industries. No financial terms were disclosed for the deal, which includes Interior Design magazine and the Furniture Today group of publications.
West Corp., an Omaha, Neb.-based provider of call center and conference call backend solutions, hasagreed to acquire SKT Business Communication Solutions, a Wichita, Kansas-based provider of unified communications and collaboration solutions. No financial terms were disclosed. West Corp. filed for a $500 million IPO last October, and is owned by THL Partners and Quadrangle Group.
PE Exits
Brantley Partners has completed its sale of Best Brands Corp., a Minnetonka, Minn.-based bakery manufacturer, to CSM Bakery Supplies North America.The deal was valued at $510 million in cash.
Synopsys Inc. (Nasdaq: SNPS) has acquired CoWare Inc., a San Jose, Calif.-based provider of EDA software and services. No financial terms were disclosed. CoWare had raised around $39 million in VC funding from firms that included Greylock Partners, GIMV, Cadence Design Systems and IT Partners (Belgium).
Human Resources
Murray Wilson has stepped down as a managing director with Cincinnati-based VC firm River Cities Capital Funds, as first reported by VentureWire.
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