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    PE Week Wire -- Monday, June 19

Random Ramblings

Clayton, Dubilier & Rice is known for corporate carveouts of orphaned divisions, including last year’s monster deal for Hertz. But never before has it pulled off so novel a deal as today’s proposed $3 billion acquisition of a 47.5% stake in Sally Beauty Co., the beauty supply distribution business of Alberto-Culver Co. (NYSE: ACV).

The assets themselves are fairly pedestrian – salon product distributor and retailer – but the structure is unique in that that carved-out company will trade immediately on the New York Stock Exchange. This has occurred before in terms of corporations spinning out their own divisions, but not with private equity sponsorship that results in the buyout firm ending up as the new company’s single largest shareholder.

Under terms of the agreement, CD&R will invest around $575 million of equity into the new company, in exchange for a 47.5% stake. The deal also includes around $1.85 billion in leveraged financing, and a $25 special cash dividend for existing Alberto-Culver shareholders. These shareholders will retain a 52.5% equity position. The company will then list on the NYSE, with most CD&R shares being locked up for at least two years.

CD&R has been interested in Sally Beauty for some time, and moved in after a previously-agreed upon sale to Regis Corp. fell through. Rich Schnall, a CD&R partner, says that the deal structure – technically a Morris Trust deal – was based on Alberto-Culver’s desire for a tax-free transaction, save for the taxable dividend. He also insists that this is not an example of CD&R acting more like a friendly hedge fund than like a private equity firm, but CD&R really blurring the lines on this one. Not that it’s necessarily a bad thing, as shown by all the recent LP commitments to firms like Centerbridge and Sageview.

*** Howard Anderson – of Battery Ventures and Yankee Group fame -- last Friday spoke at TiECON East, and suggested that the next decade’s major economic battle will not be between India and the U.S. or between China and the U.S. Instead it will be between India and China, with the latter winning out. Why? Largely because of low-cost labor that will allow China to remain the world’s manufacturing plant, while also gaining an appreciation/ability to produce software in-country. This is obviously a short-term victory – rising economy eventually lifts all wages – but a victory nonetheless. A few notable quotes:

  • There are very few truisms, but one I’ll take to the grave is that IBM is always wrong.
  • Most VCs going to China will get clobbered. They will be robbed blind. And they know it… it’s the cost of joining the club.
  • China will care about intellectual property when it has some intellectual property of its own.
  • One way you know you’ve succeeded is when you get sued for antitrust.
  • China is building 40 airports, but we’ve built one – Denver – in the past 20 years. And some people are still waiting for their luggage.

Also, an interesting query during the Q&A, about the notion that China’s one-child rule will lead to a spoiled generation that doesn’t feel the need to work hard. This is the “old young” argument, and stands in stark contrast to India’s next working generation. Anderson acknowledged the potential problem, which is another reason for why the victory may not be permanent.

*** Formative Ventures is not planning to reopen fundraising for its inaugural institutional effort, despite its recent hire of Dino Vendetti as its third partner. When the Palo Alto, Calif.-based firm closed its inaugural fund last September at $77.5 million, partners Clint Chao and Brian Conners said they turned down another $23 million because they would have been stretched too thin. But they now feel that three partners is right for $77.5 million, and won’t hit up LPs until it’s time for a brand new vehicle.

In related news, Vendetti declined ample opportunity to knock his former colleagues at Bay Partners – opportunity supplied by your humble scribbler – but the reality is that Bay is running a bit low on personnel. The firm’s website lists six partners, but one is Vendetti and another is mostly-retired firm founder John Freidenrich. Bay promoted Atul Kapadia in 2004 , but all that did was fill the later void created by Loring Knoblauch’s departure. Bay has not responded to past inquiries of its partnership status, including last month when Vendetti was first reported to be leaving.

*** And now for something completely inappropriate: I could really use a pair of Red Sox tix for tomorrow night. My father is in town, and it would be a belated F-Day gift. Anyone have some spares for around face value?

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    Top Three

Clayton, Dubilier & Rice has agreed to acquire a 47.5% stake in Denton, Sally Beauty Co., the Denton, Texas-based beauty supply distribution business of Alberto-Culver Co. (NYSE: ACV). The $3 billion deal includes $575 million in equity from CD&R and around $1.85 billion in leveraged financing. As part of the deal, Alberto-Culver shareholders will receive a special cash dividend of $25 per share, and also will retain a collective 52.5% equity stake in Sally, which will become a new public company listed on the NYSE.

Mobius Venture Capital will not raise another fund, according to today’s print edition of PE Week.

Samir Kaul has joined Khosla Ventures as a partner, according to today’s print edition of PE Week. He previously was a venture partner with Flagship Ventures, and will focus on opportunities in the energy sector.

    VC Deals

Nitronex Corp., a Raleigh, N.C.-based provider of RF power transistors for the commercial and broadband wireless infrastructure markets, has raised $21.8 million in Series A-1 recap funding. Alloy Ventures led the deal, and was joined by Intersouth Partners, ARCH Venture Partners, Diamondhead Ventures and return backers VantagePoint Venture Partners and Contender Capital. Nitronex has raised nearly $90 million in total VC funding since its 1999 inception.

Reef Point Systems (f.k.a. Quarry Technologies), a Burlington, Mass.-based provider of security solutions for fixed mobile convergence networks, has raised $21 million in recap funding. American Capital Technology Group led the deal, and was joined by return backer Jerusalem Venture Partners.

Acopia Networks Inc., a Lowell, Mass.-based provider of intelligent fabric for data management, has raised $20 million in Series D funding. Meritech Capital Partners led the deal, and was joined by return backers like Accel Partners, Charles River Ventures, Goldman Sachs, Star Ventures and Vesbridge Partners. Acopia has raised $85.5 million in total VC funding since its 2002 inception.

Xoom Corp., a San Francisco-based money transfer company, has raised $15 million in Series D funding. Fidelity Ventures led the deal, and was joined by return backers Sequoia Capital, New Enterprise Associates and SVB Capital.

Nanoradio AB, a Stockholm, Sweden-based provider of low-power WiFi solutions, has raised $11.5 million in Series B funding. Backers include Nordic Venture Partners, Innovacom, Teknoinvest and Industrifonden.

Telelink AD, a provider of fixed and wireless telecommunication networks deployment and maintenance services in Bulgaria and Romania, has received €10 million in private funding from Mezzanine Management.

Kenet Inc., a Woburn, Mass.-based provider of analog mixed-signal products, has raised $10 million in additional Series B funding from existing backers Oak Investment Partners, Venrock Associates, Kopin Corporation and CP Group. The company has now raised $27 million in total VC funding since its 2002 inception.

SunEdison LLC, a Baltimore-based provider of financial solutions based on solar technologies, has raised more than $10 million in new VC funding. Goldman Sachs led the deal, and was joined by MissionPoint Capital Partners and Allco Finance Group.

ClickShift, a San Bruno, Calif.-based provider of online advertising profitability solutions, has raised $6 million in Series A funding from El Dorado Ventures and U.S. Venture Partners.

Piczo Inc., San Francisco-based provider of an online photo website builder and online community, has secured nearly $4 million of a $5.05 million Series B round, according to a regulatory filing. Backers include Sierra Ventures and Catamount Ventures.

ReVision Optics Inc., a Lake Forest, Calif.-based maker of a refractive surgery solution, has raised $3 million in additional Series C funding, according to a regulatory filing. The company originally raised $12 million in a 2004 Series C round, with returning shareholders including Canaan Partners and InterWest Partners.

Amorcyte Inc., a Hackensack, N.J.-based developer of cell therapy products to treat cardiovascular disease, has raised $4.2 million in first-round funding led by Colt Ventures.

NetPickle Inc., a Palo Alto, Calif.-based online photo slideshow company, has raised $1.5 million in first-round convertible financing, according to a regulatory filing. VentureWire reports that capital came from Sequoia Capital and Lightspeed Venture Partners.

ClassifEye Ltd., a Jerusalem, Israel-based provider of fingerprint authentication and identification using existing camera phones, has raised $1.2 million in funding from Nobska Ventures.

BandTel, a Newport Beach, Calif.-based provider of VoIP termination to the PSTN, has raised an undisclosed amount of Series B funding led by Seagrove LLC.

Burrp Inc., a local listings and review website focused on metropolitan India, has raised an undisclosed amount of angel funding.

    Buyout Deals

Kohlberg Kravis Roberts & Co. has agreed to acquire the Australian businesses of Cleanaway and Brambles Industrial Services from Brambles Industries (LSE: BI; ASX: BIL) for approximately Au$1.83 billion. Cleanaway is an Australian waste management company, while BIS is an Australia-based outsourced supplier of on-site and off-site materials handling and logistics services to the minerals, metals and coal mining sectors. O’Sullivan Pullini acted as the exclusive financial advisors to KKR on the transaction.

Falconhead Capital has acquired a majority stake in Extreme Fitness Holding Corp., a Toronto-based fitness club operator. No financial terms were disclosed for the deal, which included participation by company management.

Millburn Capital Group has acquired Allegheny Publishing, a Roanoke, Va.-based provider of customized sports products to high school, college, adult league and youth league baseball and softball teams throughout the United States. No financial terms were disclosed for the deal, which will result in Allegheny changing its name to Sports Information Media.

    PE-Backed IPOs

This week’s IPO calendar includes expected pricings from Techwell Inc. and Hexion Specialty Chemicals Inc.

    PE Exits

ACI Capital and MidOcean Partners have agreed to sell weight management company Jenny Craig to Nestle SA for approximately $600 million. The deal is expected to close in the third quarter. ACI and MidOcean acquired Jenny Craig in May 2002 in a public-to-private buyout. They were advised on the sale to Nestle by Goldman Sachs.

3i Group has sold its minority stake in JP Corey Group, a Belfast, Ireland-based builders’ merchant, to Saint-Gobain Building Distribution. No financial terms were disclosed.

EMC Corp. (Nasdaq: EMC) has agreed to acquire ProActivity Software Solutions Ltd., a Newton, Mass.–based provider of content management software for business process management. No financial terms were disclosed. ProActivity had raised around $20 million in VC funding from firms like Infinity Venture Capital, Israel Seed Partners, Vertex Management and Challenger Fund.

Focus Media Holding Ltd. (Nasdaq: FMCN), a China-based outdoor advertising company, raised around $365 million via a secondary share offering. Selling shareholders include Goldman Sachs, Softbank and Victory Venture Capital.

    PE-Backed M&A

NeoPhotonics Corp., San Jose, Calif.-based supplier of fiber optic component and module solutions for broadband networks has acquired both LightConnect Inc. and OpTun Inc. for undisclosed amounts. LightConnect is a Newark, Calif.-based manufacturer of MEMS-based components and modules for the fiber optic communications industry, and has raised over $33 million in VC funding from firms like Intel Capital, Morgenthaler Ventures, Optical Capital Group, Sevin Rosen Funds, U.S. Venture Partners and inCubic. OpTun is a Santa Clara, Calif. developer of PLC-based ROADMs, and has raised over $11 million from Benchmark Capital, Delta Ventures, Infineon Technologies and Seed Venture. NeoPhotonics has raised around $127 million in venture capital funding from firms like Venrock Associates, Institutional Venture Partners, Bay Partners, Draper Fisher Jurvetson, Nth Power, Oak Inv*stment Partners, SBV Ventures and Rockport Capital Partners.

XOS Technologies Inc., a Sanford, Fla.-based provider of multimedia technologies for professional and collegiate sports organizations, has acquired Envisage Software LLC, a Mebane, N.C.–based provider of athletic donor management software. No financial terms were disclosed. XOX has raised around $42 million in VC funding from firms like Beechtree Capital, Blue Chip Venture Co., Comcast Interactive Capital and Dorchester Capital.

    Firm & Fund News

Morgan Stanley Alternative Investment Partners has raised $1 billion in commitments for its third Private Markets Fund. The vehicle will buy primary fund interests, secondary fund interests and make co-investments.

HealthCap, a Switzerland-based VC firm focused on life sciences, is raising its fifth fund with a 350 million target, according to a regulatory filing. It already has secured commitments from LPs like Barclays Pension Funds Trustees, Skandia Life Insurance Co., Northwestern University and Vanderbilt University. MVision is serving as placement agent.

Northgate Capital is raising its third venture capital fund-of-funds with a $75 million target, according to a regulatory filing. It already has secured around $22 million in commitments from LPs like The Groton School, Fairfield University, The Skillman Foundation, Rogers Revocable Trust and The Robert & Myra Kraft Family Foundation.

The University Venture Fund of Salt Lake City has closed its inaugural fund with $18 million in capital commitments. Backers include UBS Bank, CapitalSource and Tim Draper. The student-run firm is a joint venture of University of Utah students, UU’s David Eccles School of Business and the professional inv*stment community.

JH Partners of San Francisco has closed its second private equity fund with $350 million in capital commitments. Limited partners include Harvard University, MIT, Princeton University, Stanford University and Yale University.

Dutch Royal Philips Electronics NV and chip equipment company ASML Holding NV are setting up a joint VC fund to back tech companies involved in nano-electronics and embedded systems, according to Het Financieele Dagblad. The fund is expected to disburse €50 million euros over the next two years.

The Alternative Investment Management Association has opened a Hong Kong office. It will be staffed by former assistant hedge fund manager Alice Lee, who is fluent in both Cantonese and Mandarin, and will cover Hong Kong, China, Taiwan and South Korea.

    Human Resources

Dino Vendetti has joined Formative Ventures as the firm’s third inv*sting partner. He previously served for six years as a general partner with Bay Partners and, before that, was with Vulcan Ventures.

Perseus Development Corp., an Austin, Texas-based developer of enterprise feedback software, has been acquired by Austin Ventures. A PE Week Wire item last week suggested that the company had received $25 million in Series A commitments led by Austin. Also, AV partner Chris Pacitti will not serve in an operating role, despite being listed as an executive officer in a regulatory filing.

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June 19, 2006

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