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    PE Week Wire -- Thursday, December 22


Tom Lee Unrivaled
I went to dinner at my mother’s house last night, and one of the first things my stepfather asked was about that “big private equity guy who’d quitting his own firm.” No offense intended to my stepfather, but if his first question isn’t about BC football (as in why I don’t care about it), there is something seriously askew.

All of this Tom Lee commotion, of course, was prompted by yesterday’s WSJ article, which made three main points: (1) Tom Lee is working out a separation agreement with Thomas H. Lee Partners; (2) The split is acrimonious; and (3) He will form a multibillion dollar rival private equity firm. So let’s take them point-by-point:

  1. As I wrote yesterday, this is no secret. Tom has been phasing himself out of day-to-day operations at Thomas H. Lee Partners for over five years, a succession plan had been well-publicized and limited partners were told that Tom would have neither management responsibilities nor economics in the new fund currently being raised ($8b target, first close expected in middle-to-end of Q1 2006). It also is worth noting that Tom is not giving up his existing economics in Funds IV or V.
  2. I don’t know. Tom Lee has a reputation as a love him or hate him sort of guy, and there certainly have been rumblings that he and the semi-new guard don’t see eye-to-eye on certain matters (both financial and strategic). He also spends most of his time in New York, which probably fueled speculation that he didn’t get along with his Boston-based partners. Thomas H. Lee Partners, however, vigorously disputed the existence of any acrimony during a PR offensive yesterday. Scott Schoen of TH Lee Partners told me that reports of severe tensions are outright false. Moreover, the firm released a letter written by Lee in response to the WSJ story, which said, in part: “While it is indeed true that I am currently negotiating the terms of a separation agreement with Thomas H. Lee Partners, our parting is very friendly… The Journal's characterization of my impending change of status as "acrimonious" is totally wrong... the truth is we are all close friends.”
  3. It is true that Tom Lee is forming a new private equity effort, but it is far too early to characterize it either as “multibillion dollar” or as a “rival” to Thomas H. Lee Partners. So far, Lee has hired just one senior manager – former Bain Capital principal Yoo Jin Kim – and is not close to any final decisions of fund size or even targeted industries. It is possible that he’ll try to raise billions of dollars for mega-buyouts, but it also remains possible that he’ll try to raise around $750 million or $1 billion for middle-market deals (which is the way most folks tell me he’s leaning). The operative word, according to those with knowledge of the situation, is that the WSJ claim was “premature.” One thing is certain, however. If Lee does choose to form a multibillion rival firm to Thomas H. Lee Partners, he’ll have to choose a new firm name. The current effort is called Thomas H. Lee Capital, and his likely separation agreement includes a provision that he can only use that brand for funds/endeavors non-competitive to Thomas H. Lee Partners. So a $750 million middle-market fund can be called Thomas H. Lee Capital. A $5 billion LBO fund could not.

Siemens Deceleration
Siemens yesterday said that it has sold its Siemens Acceleration in Communications portfolio to an undisclosed buyer, and that all of the SAC offices have been dissolved. This is a far cry from what a Siemens spokeswoman said two weeks ago, when she responded to my report of such an impending by writing: “As a matter of policy, we don't comment on rumor or speculation, which is what this is.”

So who’s the buyer? I’m not certain and, more amazingly, neither do the portfolio company CEOs. The top candidate had been the group’s Germany-based management team – run by Dietrich Ulmer – but many portfolio companies now are partially-owned by an anonymous entity. One portfolio company CEO didn’t even know the portfolio had been sold until I told him. Siemens says that the buying group expressed its preference to remain anonymous for an undisclosed period of time, and that Siemens therefore will allow the group to disclose its identity to portfolio companies at its leisure.

Call me easily-offended, but this is an egregious case of corporate irresponsibility. Siemens is the one that signed the investment agreements, so Siemens has an obligation to tell the other parties (i.e., portfolio companies) that the ownership has been shifted, and to whom. It may not be a legal obligation, but it is certainly a moral one. Chalk this up to just another reason why so many entrepreneurs are wary of corporate VCs.

Ohio Open Records Mess
I continue to assume that Ohio Bureau of Workers’ Compensation will ultimately back down, although the outside possibility remains that political pressures will come to bear in favor of total/damaging disclosure. In the meantime, let’s ask a new question: What expectation of confidentiality did OBWC general partners have when participating in the strategic review conducted by Ennis Knupp? I have received copies of the Phase I and Phase 2 questionnaires sent by Ennis Knupp to each general partnership. They make absolutely no promise – or even insinuation – of confidentiality. It is possible that such language did exist in other correspondence or conversation, but it has not yet reached my hands.

Every affected GP I’ve spoken with, however, insists that his firm believed that its information would be kept confidential, and that they would not have participated otherwise. Ennis Knupp was acting as an agent of OBWC, and most of the original partnership agreements included confidentiality clauses. Moreover, certain firms responded to the questionnaires by stamping “Confidential” on each document. It is certainly possible that some GPs were too trusting/naïve/inattentive, but it is equally true that Ennis Knupp and OBWC should have been clear that the report could be made publicly-available. If it didn’t know… well how could it not have known?

    Top Three

Ford Motor Co. (NYSE: F) has completed its sale of vehicle and equipment rental company The Hertzs Corp. to private equity firms Clayton, Dubilier & Rice, The Carlyle Group and Merrill Lynch Global Private Equity. The deal is valued at $15 billion, including $2.3 billion in equity (split evenly among the three firms), $5.6 billion in corporate debt, $4.8 billion in U.S. fleet debt and $2.1 billion in international fleet debt.

Acclarant Inc., a Menlo Park, Calif.-based developer of surgical devices for treating ear, nose and throat ailments, has raised around $25 million in Series B funding, according to a regulatory filing. Backers include New Enterprise Associates and Versant Ventures.

JLL Partners of New York has closed its fifth private equity fund with $1.5 billion in capital commitments. Limited partners include the Virginia Retirement System (which contributed $150 million), Harvard Management Co., New York State Teachers' Retirement System ($50 million) and the University of California ($50 million). CSFB served as placement agent.

    VC Deals

Intelliden Inc., a Colorado Springs, Colo.-based provider of standards-based network automation solutions, has raised $11 million in Series E funding. Matrix Partners led the deal, and was joined by return backers 3i Group, Granite Global, TELUS Ventures and Westbury Partners.

Revenue Science Inc., a Bellevue, Wash.-based provider of behavior-targeted online advertising solutions, has raised $24 million in fifth-round funding, according to The Seattle Post-Intelligencer. Backers include Mayfield, Mohr Davidow Ventures, Integral Capital Partners and Second Avenue Partners.

VoiceVault Inc., a Menlo Park, Calif.-based voice technology startup, has raised $3 million in Series A funding, according to a regulatory filing. Kleiner Perkins Caufield & Byers led the deal, with partner Randy Komisar taking a board seat. The company is led by onetime Handspring executives Greg Woock and Joseph Sipher.

Wichorus Inc., a Menlo Park, Calif.-based mobility software startup, has raised nearly $1 million in Series A funding led by Redpoint Ventures, according to a regulatory filing. Executives include Rehan Jalil and Wilson Sonsini partner Arthur Schneiderman.

Osiris Therapeutics Inc., a Baltimore-based biotech company focused on adult stem cell research, has raised $19 million in new private equity funding arranged by Friedli Corporate Finance. The company has now raised nearly $55 million in total private equity funding, plus at least $40 million in convertible debt.

    Buyout Deals

The Riverside Co. has acquired Canada Mayer, a Montreal-based manufacturer of metal and plastic indicative security seals. No financial terms were disclosed, except that GE Antares Capital provided senior debt. Riverside says that it will roll Canada Mayer into Stoffel Seals Corp., an existing portfolio company Riverside acquired in October 2004.

ABN Amro Capital has sold its 15% stake in Italian private hospital group Humanitas SpA to Technit Group and Centrobanca for an undisclosed amount.

Barclays Private Equity has agreed to sell UK–based engineering company CRP Group Ltd. to the engineered systems business of Trelleborg AB. The deal is valued at around $121.5 million in cash and the assumption of loan-repayment obligations. It is expected to close in January.

Brynwood Partners has agreed to acquire the Stella D'oro bakery business of Kraft Foods Inc. (NYSE: KFT). No financial terms were disclosed for the deal, which is expected to close in January. Kraft says that Stella D'oro will generate around $30 million in net 2005 revenue.

The Blackstone Group, CVC Capital Partners and BC Partners each have expressed interest in acquiring the Ladbrokes gaming business of Hilton Group PLC, according to multiple press reports. The unit could be worth anywhere from Gbp2 billion to Gbp3 billion.

American Fire Protection Group Inc., a portfolio company of Ridge Capital, has completed a recapitalization. The deal included $19 million in debt and equity from Golub Capital.

    PE-Backed IPOs

PixelPlus Company Ltd., a South Korea-based developer of CMOS image sensors for use in mobile camera phones, priced 4.5 million American depository shares at $8 per share (below $12.50-$14.50 range), for an IPO take of approximately $36 million. It will trade on the Nasdaq under ticker symbol PXPL, with Jefferies Broadview serving as lead underwriter. Shareholders include Jafco Asia Technology Fund, Postech Venture Capital and Korea Venture Fund.

Gerresheimer Glas AG, a German packaging company, is planning to go public in the second half of 2007, according to a Financial Times Deutschland report. Blackstone Group acquired the company last year from Investcorp and JPMorgan Partners.

    PE-Backed M&A

Unica Corp. (Nasdaq: UNCA) has acquired MarketSoft Software Corp., a Lexington, Mass.–based provider of lead management and event-detection solutions. The deal was valued at $7.25 million in cash. MarketSoft had raised over $67 million in total VC funding, including a $45 million fourth-round infusion in late 2000 at a post-money valuation of approximately $150 million. Backers included Advent International, Fidelity Ventures, American Express, Canaan Partners, Integral Capital Partners, J&W Seligman & Co., JPMorgan Partners and Prism Venture Partners.

    Firm & Fund News

Wexford Capital has raised $300 million for its eighth fund, according to a regulatory filing.

Seaboard Ventures
has put its inaugural fund-raising plans on indefinite hold, according to the Triangle Business Journal. The firm only was able to raise $15 million of its $30 million target, according to Seaboard managing director David Blivin, who previously had been a managing director with Southeast Interactive Technology Ventures.

Rockport Capital Partners has secured around $155 million in capital commitments for its Rockport Capital Partners II fund, according to a regulatory filing. The Boston-based venture capital firm is hoping to raise upwards of $250 million.

    Human Resources

Mark Worley has left WestAM, where he had been a partner in the firm’s private equity group.

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December 22, 2005

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