Random Ramblings

Some notes before I pack up, meet deadline for Buyouts Magazine and head back to Boston.

*** Lots of talk about patent infringement litigation this week, with most of the focus on whether or not eBay will be required by The Supreme Court to suspend its “Buy it Now” functionality. Interesting case whose amicus briefs pit drug companies against tech companies (i.e., stronger patent infringement enforcement vs. weaker). As for a less publicized – and less consequential – patent infringement case, a New York jury has ruled against Warburg Pincus portfolio company TradeCard Inc., which had accused Bank of America and S1 Corp. of using a purchase order processing system that allegedly infringed on TradeCard’s parent. Specifically, it said that no patent infringement had occurred, so there was no need to award damages or to issue an injunction. Just thought you might like to know.

*** The IPO calendar does not include any new buyout-backed IPOs to close before next week, which means that the Q1 tally is now finalized (the VC tally is waiting on Himax Technologies). Specifically, this tally relates to buyout-backed IPOs that priced on U.S. exchanges. There were 16 of them for a total take of around $3.7 billion. This easily bests the 10 IPOs for $1.38 billion in Q4 2005, but comes short of the $6.2 billion raised by 15 companies in Q1 2005. The quarter’s largest offering came from Dallas-based oil and gas company EXCO Resources Inc. ($650 million), which had been backed by Ares Management, Cerberus Capital Management, Oaktree Capital Management and Greenhill Capital Partners.

*** I’m beginning to reconsider my stance on the Illinois Sudan divestment regulations, due in part to the protestations of a particularly persuasive venture capitalist (dear editor, please deposit 50 alliteration points in my account). I’m also hearing rumblings that an exemption might be proposed for funds-of-funds, because one non-compliant underlying firm would scuttle the entire commitment (or course this isn’t much different than one underlying portfolio company for a direct investor). I just put calls in to the bill’s co-sponsors, so I’ll reserve final judgment for a little while longer.

*** Quiz Time: Can you name the private equity firm that just upped its fund-raising target to around $14 billion?

*** No, I have no idea what to make of this BusinessWeek report that Facebook turned down a $750 million buyout offer, or that it now fancies itself a $2 billion company. I’m also trying to reconcile it with what people are telling me about Facebook recently having returned to the VC market (which Rafat Ali of PaidContent.org also heard). I’d hate to think that the press is (again) being used to help inflate a company's perceived valuation, but I’d hate even more to think that someone is willing to pay $750 million – let alone $2 billion – for Facebook. The most amusing analysis comes from ValleyWag.

*** Finally, there have been reports that private equity firms are about to jump into the seaport operations market. Why? Because (A) Dubai Ports World has said that it will sell off the disputed U.S. ports it recently acquired; (B) Carlyle Group launched a public infrastructure fund; and (C) Goldman Sachs, Ontario Municipal Employees’ Retirement Fund and GIC Special Investments are expected to bid on Associated British Ports Holdings PLC, which is valued at around Gbp2.2 billion.

To me, the whole thing will hinge on whether or not the Associated British Ports deal gets done. Why? Because private equity firms are as independent as sheep. Once one deal gets done in a new sector – and this is a new sector for private equity, particularly since Cinven and CVC couldn’t get Mersey Docks last year – everyone else will roll in. As for a brief sector summation from a PE angle, a possible ports investor told me the following:

"Ports are like toll roads or other transportation facilities in that historically there had been relatively few that become available for private equity investment... thus precedent transactions for these purposes had not been there. We are now starting to see ports as more of a mainstream type of investment, but it is still unproven whether they will be ‘home runs’ in terms of private equity returns, or stable, predictable and diversifying."

In other words, ports are the exact opposite of Facebook.