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    PE Week Wire -- Friday, March 24

Random Ramblings

Yesterday I received an email from one of my arch nemeses (ok, he’s just a rival reporter, but I like to think of myself as a superhero). It took issue with my Top Five deals of 2006, and basically argued that I was completely off save for the still-unannounced Amp’d deal. Upon further review, he was right and he was wrong. Let’s start with the wrong first, because it makes me feel better.

He argued that neither Salick Cardiovascular Centers nor Take Care Health Systems should qualify as VC deals, because they (A) Received all of their money from a single sponsor best categorized as generalist private equity (Warburg Pincus and Beecken Petty, respectively); and (B) Warburg took a majority stake in the Salick deal, and Beecken Petty probably did the same. My responses: (A) So what? (B) So what? Plenty of VC deals involve single sponsors that receive majority positions as part of Series A funding rounds. Sure these deals are a bit bigger than Sequoia investing $2 million into Web 2.0 Inc., but the same principal applies. As I’ve repeated ad nauseam, my feeling is that any company that raises private equity (literal definition) to launch a business out of whole cloth should be considered VC-backed. Doesn’t matter if it’s making security software or garden hoses (or software to improve the garden hose supply chain).

As for the right. He points out that (A) OrbComm closed its $110 million deal in late December and (B) That I completely missed a $100 million deal for ITA Software Inc., which was led by Battery Ventures. (A) Yup. (B) Yup. Our data was off, and for that I am sincerely sorry.

The result is that Amp’d now stands alone atop the Q1 2006 leader board, to date. Not that raising lots of capital is necessarily indicative of future success (take CLECs, or the opposite example of Google), but it nonetheless makes good journalistic fodder.

*** Moving on, let’s take a bit of a closer look at the Salick Cardiovascular Centers backstory. Like so many VC-backed companies, Salick was launched because its founder (Dr. Bernard Salick) saw a market dislocation. But unlike most VC-backed companies, this dislocation was discovered via personal calamity.

Salick is a nephrologist (i.e., kidney doc) by training, and in the late 1970s launched a series of outpatient dialysis centers. This might seem like commonplace today, but it was quite revolutionary at the time. In 1983, however, Salick’s 6-year-old daughter was diagnosed with cancer. He quickly discovered that being a cancer patient in 1983 often meant that you became a permanent hospital resident, with most tests and procedures done only on an inpatient basis. He soon quit the dialysis biz, and transferred his outpatient model to cancer. His daughter later recovered, and Salick’s business eventually was sold for $480 million to AstraZeneca.

After AstraZeneca changed its approach and basically pushed Salick out the door, he began looking to develop new cancer centers and also AIDS centers. But the effort was not well-received in the age of dotcoms. Near the end of that process, a friend suggested that Salick should take a nuclear stress test. The results were shocking, particularly since Salick believed that his heart was ticking along quite nicely. He learned that he had artery blockages, and almost immediately went under the knife for a successful bypass operation.

Like with his daughter’s cancer experience two decades earlier, Salick was amazed by how little cardiology was being practiced outside of in-patient facilities. And, again, he decided to transfer his outpatient model. The result is Salick Cardiovascular Centers, which actually had an HBS case study published about it in 2003. He believes that all sorts of interventional medicine, post-op procedures and soon even stenting can be done in centers that will be affiliated with major medical and/or academic institutions. For example, post-bypass patients require biopsies that can be done outside of the hospital.

So now he’s got $75 million, and Warburg Pincus is hoping Salick can turn it into another half a billion. So too should we.

March Madness Update
We’ve got co-leaders, halfway through the Sweet Sixteen round. Tied for first place with 64 points are: Brett Schobe of Austin Ventures and someone with the team name Cinderella Story (let me know who you are). In third place with 63 points is the once-anonymous SwampGators, who we now know to be Bill Kirk, CFO for Security Growth Fund. And in fourth place with 61 points with have Chris Graber of Chartwell Investments.

Continued good luck to all…

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    Top Three

General Motors Corp. (NYSE: GM) has sold a 78% stake in its GMAC Commercial Holding Corp. to Kohlberg Kravis Roberts & Co., Five Mile Capital Partners and Goldman Sachs Capital Partners. The deal is valued at approximately $9 billion, including $1.5 billion in cash and the repayment to GMAC of $7.3 million worth of inter-company loans. GMACCH has changed its name to Capmark Financial Group.

Montalvo Systems Inc., a Santa Clara, Calif.-based fabless semiconductor company developing low-power system-on-a-chips for mobile devices, has secured around $26.3 million of a $73.6 million Series B round, according to a regulatory filing. Participants include New Enterprise Associates, Bay Partners, U.S. Venture Partners and existing Montalvo backer NewPath Ventures.

Clayton Holdings Inc., a Shelton, Conn.-based provider of mortgage-related loan analysis services, priced 7.5 million common shares at $17 per share, for an IPO take of approximately $127.5 million. The company originally planned to sell just 6.25 million shares at between $15 and $17 per share. Clayton will trade on the Nasdaq under ticker symbol CLAY, while Piper Jaffray and William Blair & Co. serving as lead underwriters TA Associates has held a majority ownership position in the company since May 2004.

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    VC Deals Inc., a Palo Alto, Calif.-based software startup, has raised $4.75 million in Series B funding led by Sequoia Capital, according to a regulatory filing. Serial entrepreneur Randy Adams (AuctionDrop, AppSoft) is the company’s founder, while Sequoia board members include Mark Kvamme and Roelof Botha.

Rome Corp., an Austin, Texas-based provider of enterprise risk management solutions, has closed its $14 million Series B round co-led by Azure Capital Partners and Powershift Ventures.

Mometogen Pharmaceuticals Inc., a Montreal, Canada–based drug company focused on small-cell lung cancer and glaucoma, has raised an undisclosed amount of Series A funding. VIMAC Milestone Medica Fund led the deal, and was joined by return backer MSBi Capital.

Bus Radio Inc., a Needham, Mass.-based provider of a national radio show for broadcast on school buses, has secured $2.05 million of a $4.1 million Series A deal led by Sigma Partners, according to a regulatory filing.

MediaPhy Corp., a San Jose, Calif.-based fabless semiconductor company focused on mobile audio and video entertainment applications, has secured $4.1 million of an $8.12 million Series B round led by ATA Ventures, according to a regulatory filing.

Turn Inc., a startup from former AltaCVista CEO Jim Barnett, has raised nearly $20 million over two rounds of VC funding, according to No additional info was disclosed.

Visioneered Image Systems Inc., a Garden Grove, Calif.-based developer of LED technology for electronic billboards, has raised around $9 million in Series B funding from firms like Baker Capital, according to a regulatory filing.

F2G Ltd., a Manchester, UK-based antifungal drug discovery and development company, has raised £5 million in third-round funding. BankInvest led the deal, and was joined by firms like Astellas Venture Management.

    Buyout Deals

TA Associates has paid $90 million to acquire a majority position in Alma Lasers Ltd., an Israel-based provider of laser, light and radiofrequency-based systems to the aesthetic medical market. William Blair & Co. and Poalim Capital Markets advised Alma Lasers on the deal.

Corinthian Capital Group has acquired Audio & Video Labs Inc. (a.k.a. Disc Makers), a Pennsauken, N.J.-based provider of optical disc replication solutions to the independent music and film industries and corporate, government, educational and religious organizations. No financial terms were disclosed. Audio & Video Labs was represented by Goldsmith Agio Helms. This is Corinthian’s first deal since its three partners spun out of Lincolnshire Management last year.

Exponent Private Equity has agreed to acquire Discovery Group Ltd. (a.k.a. Durrants Media Monitoring) from August Equity (f.k.a. Kleinwort Capital) for £82 million. Discovery Group is a UK-based media monitoring and evaluation company. It was acquired by August via a £14 million management buy-in in 2000.

Vector Capital has paid $13.4 million to acquire a 9.4% stake in WatchGuard Technologies Inc. (Nasdaq: WGRD), a Seattle-based provider of enterprise network security solutions. Vector also has indicated its interest in acquiring the entire company.

    PE-Backed IPOs

E-Future Information Technology Ltd. priced 1.5 million shares at $6 per share, for an IPO take of approximately $9 million. It will trade on the Nasdaq SmallCap Market under ticker symbol EFUT, while Anderson & Strudwick served as lead underwriter. E-Future is a holding company for e-Future (Beijing) Tornado Information Technology Inc., a provider of integrated software and professional services for China’s supply chain front market. Shareholders include Shanghai NewMargin Ventures.

    PE-Related M&A

Warner Music Group Corp. (NYSE: WMG) has agreed to acquire Ryko Corp., a New York-based music and entertainment company, from an ownership group led by JPMorgan Partners. The deal is valued at $67.5 million.

Pharming Group NV (Euronext: PHARM) has agreed to acquire DNage BV, a Rotterdam-based drug company focused on ageing diseases and cancer. No financial terms were disclosed. DNAge was founded in 2004 as a spinout from the Erasmus Medical Center, and has raised VC funding from firms like Life Sciences Partners and Inventages.

Orange Broadband of Charlotte, N.C. has agreed to buy certain cable television systems in Nevada, Colorado, New Mexico and Utah from Charter Communications Inc. (Nasdaq: CHTR) for an undisclosed amount. Orange Broadband is an acquisition and operating platform for the cable and broadband industry, and is backed by M/C Venture Partners, Columbia Capital and Oak Investment Partners.

The Active Network Inc., a San Diego–based marketing and consumer promotions agency, has acquired Promote It International, a Denver, Colo.-based health club promotions agency. No financial terms were disclosed. The Active Network has raised over $70 million in VC funding since its 1998 inception, from firms like Austin Ventures, Kettle Partners, ABS Ventures, Canaan Partners, Charles River Ventures, DB Venture Partners, North Bridge Venture Partners, Enterprise Partners VC and Ticketmaster.

    Firm & Fund News

Indiana Gov. Mitch Daniels yesterday signed an economic development bill that authorizes counties, cities and towns receiving county economic development income taxes to form local and regional VC funds.

TCW has secured $510 million for its TCW Shared Opportunity Fund V, according to a regulatory filing. The fund will invest in distressed debt of middle-market companies at a discount to fundamental value.

Smart Technology Ventures has decided to wind down after it finishes investing its $175 million third fund (closed in 2000), according to VentureWire.

Foundation Capital today formally announced the $525 million Fund V close first reported here yesterday. It says that new limited partners include Stanford University and Purdue University, while returnees include Harvard, Yale and CalTech. It also confirmed that Kathryn Gould has transitioned from a general partner to a partner emeriti.

    Human Resources

Emmanuel Roubinowitz and Leo de Luna have joined San Francisco-based secondary firm Saints Capital as a vice president and associate, respectively. Roubinowitz previously was with Fondinvest, while de Luna was a biz dev manager in AMD’s flash memory group Spansion LLC.

Alexander Popov has joined Oaktree Capital Management as a vice president. He previously was with American Capital Strategies.

Edward Gander has rejoined Clifford Chance as a partner in the law firm’s private equity funds group, after having left in 2003 to become a co-founder and managing partner of ViaNova Capital.

Private Equity Week

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March 24, 2006

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