peHUB Wire: Wednesday, September 8, 2010

Summer Reading

If he had been an investment banker, Charles Dickens might have begun A Tale of Two Cities: “It was the public bond markets, it was the public equity markets.”

That did seem to sum up the state of affairs in the capital markets as we swung into the Labor Day stretch. One set of investors was acting like retirees at a Golden Corral all-you-can-eat Sunday buffet, with the other behaving like dentists at a fluoridation convention.

We can hardly blame either party. As much as we tried getting away from it during our two-week August hiatus, the evidence for both bust and boom was all around us.

Of course, the nation’s housing difficulties led the headlines. Home sales dropped off precipitously in July, after the Fed’s stimulus package expired, raising concerns about the recovery’s sustainability. Spot checks late last month in our neighborhood on the Rhode Island coastline—never a hotbed of real estate activity—revealed realtors who had gone from cautious pessimism to doubledipsomania.

Mirroring this mood was the government’s downward revision of last quarter’s GDP from 2.4% to 1.6%. Coming off the 3.7% 1Q number, this was beginning to look less like slow growth—a boon to bond investors—and more like no growth. A! nd just a Bleak House away from negative growth.

But credit issuers are still packing the post-Labor Day pipeline with M&A (and other) flow. We know that because a) reports have suggested there’s at least one investment bank with a $20 billion backlog, and b) despite our efforts to keep a low vacation profile, bankers tracked us down anxiously seeking our reads on various deals in process.

Is there a note of desperation to this activity? A rush to the exits before the movie theatre burns down? That wasn’t the case when the summer started, but given the Scrooge-like climate in equities today, arrangers may have a growing sense of urgency to get deals wrapped before funky things start happening in October.

That’s good news for investors with cash. More supply and slightly less demand will keep a ceiling on secondary prices and a floor on spreads. And the timing couldn’t be better for those buyers (present company included) looking to make their 2010 budgets by topping off with some quality primary leveraged loan issues.

Just how much cash they will have depends on how much momentum the high-yield market can sustain over the next few months. Continued junk going to repay institutional investors like CLOs will keep the reinvestment cycle going. But if that production line stops for any reason, it’ll be Hard Times for market participants.

There’s no sign that bonds are headed for a fall, at least not for the next few weeks. We checked in with a few key market players from our beach-side perch last month. It’s clear that while some bankers have been lounging with lobster rolls, many have been working overtime to launch what is anticipated to be record issuance for the fourth quarter.

So regardless of whether you’re in the glass half-full or half-empty crowd, you should hope for a decent environment for deals this month. Call it Great Expectations.

Randy Schwimmer is senior managing director and head of capital markets at Churchill Financial, as well as columnist for its weekly “On the Left” newsletter. Reach him at rschwimmer@churchillnet.com.

*** peHub Wire spoke with Kevin Albert this morning to get a little color on his decision to leave Elevation Partners and Bono behind. This week he starts at fund-of-funds manager Pantheon as global head of corporate development. Prior to joining Elevation as head of investor relations in 2005, Albert had been a managing director and head of the private equity fund placement group at Merrill Lynch. Albert said he was proud of helping a first-time team pursuing a “brand new strategy and model” get its debut fund of $1.9 billion closed in 2005. But with the investment period on that pool expired, and plans for a second fund “a bit indeterminate,” in part due to a lack of realizations, Albert said he was eager to get back to raising money and developing new products. Said Albert: “I’m basically a fund-raiser—a ! capital-raiser—that’s what I’ve been my entire career.” At Pantheon, acquired earlier this year by Affiliated Managers Group, Albert will lead a roughly 20-person team of marketing and client services professionals in a newly created position that reports to London-based managing partner Alastair Bruce.

Top Three

National Venture Capital Association has formed the Medical Innovation and Competitiveness (MedIC) Coalition, an alliance comprised of both venture capital firms and their life sciences portfolio companies. The MedIC Coalition will lobby for policies and regulations that advance U.S. medical innovation and protect the country’s global leadership position in the life sciences industry. More here…

Foster’s Group Ltd, Australia’s largest brewer, said it rejected a private equity offer worth up to $2.5 billion for its wine unit as too cheap and would continue with the split of its beer and wine businesses. The bid for the wine unit surprised investors who had been focusing on potential buyers for the more lucrative beer business. The share price rose almost 6 percent on Wednesday to its highest since January 2008. Sales of Foster’s wine, including Beringer, Penfolds and Wolf Blass, have been hit by a deep U.S. recession and a trend away from low-end, bulk wines in Australia. The strong Aussie dollar has also been a drag, slashing the value of U.S. earnings. More here…

TowerBrook Capital and Gala Capital are considering holding an IPO for Jimmy Choo, Spanish newspaper Expansion reported. The two private equity firms own a majority stake in the upscale shoe designer. The IPO could value the firm at around £500 million ($768 million), Expansion quoted financial sources as saying. More here…

VC Deals

Kno Inc., a digital textbook maker, secured $46 million through an equity and debt financing. Andreessen Horowitz was the lead investor of the round. Silicon Valley Bank and TriplePoint Capital participated. Kno plans to use the capital for product innovation and to finance the initial shipments of its product, which is planned for later this year. More here…

Rhythm Pharmaceuticals completed its Series A financing at $40 million. The Boston, Mass.-based biotechnology company is developing therapies against metabolic diseases, such as diabetes. The round was led by MPM Capital and New Enterprise Associates. The two first held a first close on the Series A funding at $21 million earlier this year. Third Rock Ventures invested in Rhythm Pharmaceuticals. Lou Tartaglia, a partner at Third Rock, was named to Rhythm ! Pharmaceuticals’ board. More here…

iPierian Inc., a South San Francisco, Calif.-based biopharmaceutical company, closed its Series B equity financing at $28 million. GlaxoSmithKline’s healthcare venture capital arm SR One, Biogen Idec New Ventures and other investors participated in this closing. Existing investors (Kleiner! Perkins Caufield & Byers, Highland Capital Partners, MPM Capital, Google Ventures, FinTech Global Capital, Mitsubishi UFJ Capital and ATEL Ventures) also participated. More here…

Zyngenia Inc., a Gaithersburg, Md.-based biotherapeutics company that is developing antibody drugs, completed a $15 million Series A financing extension from New Enterprise Associates. More here…

Backupify, a Louisville, Ky.-based online data backup and storage startup, secured $4.5 million in a Series A round. The financing was co-led by Avalon Ventures and General Catalyst. First Round Capital and Lowercase Capital participated in the financing, which Backupify plans to use to accelerate its product development capabilities. Backupify also named Rich Levandov, a general partner of Avalon Ventures, to its board. More here…

Webalo raised $3 million from new and existing investors. The company has developed a mobile connectivity platform. Balch Hill Capital and J.L. Easton Ventures participated in the financing round. More here…

The global private equity firm AXA Private Equity has just announced a €3m investment in JIT Solaire, a photovoltaic energy company based in the Poitou-Charentes and Rhône-Alpes regions of France. More here…

North Bridge Growth Equity made an investment in Contact Solutions Inc. and will now hold a minority stake in the Reston, Va.-based provider of on-demand contact automation solutions including IVR, email/text messaging and web transactions, and call center analytics. North Bridge Growth Equity will also receive a seat on Contact Solutions’ board. More here…

Buyout Deals

Amedica Corp., a Salt Lake City, Utah-based orthopaedic implant company, completed a $30 million financing. Half comes in the form of private equity and the rest is from a debt facility. Zions First National Bank provided the debt facility. America plans to use the capital for expansion, mergers and acquisitions, sales and marketing support. More here…

Catterton Partners acquired a controlling stake in Alasko Foods Inc., a Montreal, Canada-based marketer of frozen fruits and vegetables. Financial terms were not disclosed. More here…

Graphite Capital is in talks to sell tire wholesaler Micheldever to Marubeni for about £200 million pounds ($309 million), two sources said. Graphite is involved in separate talks to buy back U-Pol, a car paint and body-filler company it previously sold to AAC Capital. The U-Pol deal is valued at about £130 million, sources said. More here…

Canadian private equity firm Onex Corp. agreed to acquire ResCare Inc., a U.S. provider of home care to the elderly and disabled. The cash deal values ResCare at $390 million. More here…

PE-Backed M&A

Red Bend Software Inc., a venture capital-financed company, acquired VirtualLogix, a Santa Clara, Calif.-based provider of real-time virtualization technology for mobile handsets. Financial terms were not disclosed. Carmel Ventures, Greylock Partners, Infinity Venture Capital, Pitango Venture Capital and Poalim Ventures are backers of Waltham, Mass.-based Red Bend Software. More here…

Associated Materials LLC signed an agreement to be acquired by affiliates of Hellman & Friedman LLC for about $1.3 billion. Associated Materials is majority owned by affiliates of Investcorp and Harvest Partners. It makes exterior residential building products. The deal is expected to close in the fourth quarter. More here…

Access Intelligence, a media and information company serving the chemical, energy, defense, aerospace and communications markets, just sold Chemical Week magazine, SRI Consulting, and The Energy Daily to publicly traded business information company IHS Inc. Terms of the transaction were not disclosed. Access is backed by the private equity firm Veronis Suhler Stevenson. More here…

PE Exits

An affiliate of Washington, D.C.-based ACON Investments LLC signed a definitive agreement to sell SAE Towers Holdings LLC to KEC International Ltd. of India for $95 million excluding working capital adjustments on a debt-free, cash free basis. The sale of SAE Towers to KEC will yield proceeds representing more than 3.6x ACON’s investment.SAE Towers is a Houston, Texas-based manufacturer of transmission towers. SAE Towers’ management team will remain with the business. More here…

Healthcare-oriented private equity firm RoundTable Healthcare Partners announced that it’s just completed the sale of Bioniche Pharma Holdings to pharmaceutical company Mylan for $550 million in cash. The sale marks the first portfolio realization for RoundTable’s second fund. More here…

Starwood Capital Group’s Groupe du Louvre affiliate sold Hotel Lutetia to Alrov. Financial terms were not disclosed. Hotel Lutetia is a 231-room property in the Saint-Germain-des-Pres neighborhood of Paris, France. More here…

Human Resources

Kevin Albert has left Elevation Partners to join Pantheon, a PE fund-of-funds investor. Albert will be a partner at Pantheon and global head of business development. Albert joined Elevation Partners in 2005 as an MD where he helped raise the firm’s first fund to invest in media and entertainment businesses. Affiliated Managers Group bought Pantheon in June. More here…

PineBridge Investments named E. Mervyn Davies, as non-executive chairman. Davies is Lord Davies of Abersoch. He joins PineBridge following his role as Minister of State for Trade, Investment and Small Business for the U.K. government. More here…

The London-based cleantech venture firm Zouk Ventures has brought aboard Sven Hansen as venture partner. Some of his past roles include Global Head of Environmental Risk Management at UBS and CIO of the London-based energy investment firm Good Energies. More here…

Institutional investor Parish Capital Advisors of Chapel Hill, N.C., has announced three promotions: Tracy Harris, who joined the firm in 2004, has been promoted to partner, and both Kate Sidebottom Simpson and Tim Weld have been promoted to director positions. Both Simpson and Weld joined the firm in 2006. More here…

Industry Ventures LLC named Victor Hwang as managing director. It also promoted Will Quist to managing director and Dan Stevens to associate. Hwang has worked for the San Francisco-based firm as a venture partner for more than a year. More here…

Sofinnova Ventures named Garheng Kong a general partner. Kong will invest in biopharmaceutical companies from the firm’s SVP VII fund. Kong was previously general partner at Intersouth Partners, where he worked for 10 years. More here…

Kramer Levin Naftalis & Frankel LLP hires James J. Moriarty and Russell J. Pinilis as partners in the firm’s New York office. The additions expand the firm’s private equity practice. Moriarty and Pinilis were previously partners at O’Melveny & Myers. More here…

Freeman & Co. LLC hired James Murray as a managing director in its New York office to expand its coverage in specialty finance and related areas. Murray’s investment banking experience spans 25 years. He has worked as a managing director at PaineWebber, as group head of North American corporate finance at Fox-Pitt Kelton and as group head of financial institutions at Houlihan Lokey. More here…