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    PE Week Wire - Tuesday, December 7

CalPERS Discloses Management Fees (Sort Of) 

The California State Employees' Retirement System (CalPERS) has agreed to disclose the amount of management fees it pays its private equity and venture capital fund managers, following a September lawsuit by the California Free Press Coalition (see story here). No judicial ruling needed, which means that everyone soon will have access to individual management fees paid over the past several years to firms like Blackstone Group, Carlyle Group, MPM Capital and U.S. Venture Partners. CFAC has put a copy of the settlement on its website, plus management fee and related payments for all funds invested in by CalPERS between 2001 and 2003 (both in PDF format). It also has posted the ridiculous Wall Street Journal editorial from October, which explicitly suggested cronyism at CalPERS and ignorantly dismissed the J-curve.

I've only had about 15 minutes to read over the relevant documentation, but that's probably enough to make the following initial observations:

1. CalPERS has not yet released a statement - that apparently comes this afternoon (or this morning, for you Pacific timekeepers) - but my guess is that it will claim partial victory. Maybe even more than partial. Why? Because the disclosed management fee information only includes the dollar amounts paid to specific firms, and not the percentage of committed or called-down capital that those fees represent. Moreover, CalPERS does not distinguish management fees from transactional fees, or other such ancillary costs. It may be possible for folks like me to figure out the management fees based on some long division - given that CalPERS already has been disclosing committed and called-down capital data - but it will be tough. At best, we'll get a rough percentage. My gut reaction to this lack of specificity means that groups like CFAC will have a very tough time uncovering any cronyism or overpayments, unless it is particularly egregious. As such, I'm not sure what they've gained, save for the prevention of egregious actions.

2. Also not included in the disclosed information is the amount of carried interest paid to general partners. The settlement agreement suggests that CalPERS simply did not keep records of such things, which is a bit mind-numbing. How on earth did they not keep carried interest records as part of their distribution files? Isn't this the LP equivalent of balancing the checkbook so that the bank doesn't rip you off, intentionally or unintentionally? Hey other LPs: Is this common practice?

3. Included in this data are VC funds invested in by Grove Street Advisors on behalf of CalPERS. During an original disclosure settlement a few years back, this underlying data was exempted, although it later was disclosed. No such two-tiered system this time, as it's all out in the open.

4. CalPERS paid CFAC's legal bills. Just seems important, but I don't know why.

5. Matt Marshall of the Mercury News looks at this settlement from a slightly different angle: the recent ouster of Sean Harrigan as CalPERS president. Take a look here.

More on this as I learn, and read, more. Your thoughts are, as always, encouraged

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    Top Three

Onex Partners, the private equity arm of Onex Corp. (TSX: OCX), has agreed to acquire two subsidiaries of Laidlaw International Inc. (NYSE: LI): American Medical Response Inc. (AMR) and EmCare Inc. The deal is valued at approximately $980 million, including $260 million of equity. Certain limited partners of Onex Partners and company management also will be involved in the equity investment. AMR is a Denver-based provider of ambulance transport services, while EnCare is a Dallas, Texas-based provider of outsourced hospital emergency department physician staffing and management services. www.onex.com www.laidlaw.com

Endocyte Inc., a West Lafayette, Ind.-based biotech company focused on cancer and autoimmune diseases, has raised $22.6 million in Series C-2 funding. Burrill & Co. led the deal, and was joined by fellow new investors Blue Chip Venture Co., Triathlon Venture Partners and Twilight Venture Partners. Return backers included Sanderling Venture Partners, Cincinnati Financial Corp. and American Bailey Ventures. www.endocyte.com

Nokia Venture Partners has formed a $100 million mid-to-late-stage venture capital fund named Nokia Growth Partners. The new vehicle is designed to complement the firm's existing early-stage investing activities, and will be led by Markus Salolainen and Rob Trice, both of whom have been promoted to the position of general partner. www.nokiagrowthpartners.com

    VC Deals

Kontiki Inc., a Sunnyvale, Calif.-based provider of grid delivery solutions for video, software and digital content, has raised $8.6 million in third-round funding. MK Capital led the deal, and was joined by return backers Adobe Ventures, Barksdale Group, and Benchmark Capital. The company has raised over $42 million in total VC funding since its 2000 inception, including an $18 million Series B deal in 2002 at a post-money valuation of approximately $50 million. www.kontiki.com

Syntune AB, a Sweden-based developer of single-chip tunable lasers, has raised SEK42 million (approx. $6.35 million) in venture capital funding. InnovationsKapital led the deal, and was joined by Teknoinvest Management and Vision Capital. www.syntune.com

    Buyout Deals

Associated Materials Inc., a Cuyahoga Falls, Ohio-based distributor of exterior residential building products, has entered into a leveraged recapitalization agreement with Investcorp. Under terms of the deal, Investcorp and unnamed co-investors would purchase $150 million in convertible preferred stock in a new holding company from existing shareholders Harvest Partners and Weston Presidio. At the same time, AMI would increase its senior credit facility by $42 million and the holding company would issue $75 million in senior notes to pay approximately $118 million in the form of a dividend to management shareholders. Once completed at year-end, Investcorp and its co-investors would hold a 50% indirect equity ownership position in AMI, with Harvest Partners and Weston Presidio retaining the other 50%, on a filly-diluted basis. www.associatedmaterials.com

Francisco Partners and Thoma Cressey Equity Partners have agreed to acquire WRQ Inc., a Seattle-based developer of software for accessing and integrating legacy applications. No financial terms were disclosed for the deal, which is expected to close by year's end. www.wrq.com

Brentwood Associates has agreed to sell Bell Automotive Products Inc. to JH Partners and company management for approximately $60 million. Bell Automotive is a Scottsdale, Ariz.-based supplier of automotive convenience accessories, such as air fresheners, seat and steering wheel covers. www.bellautomotive.com

Resilience Capital Partners and The Dan T. Moore Co. have completed their joint acquisition of The XLO Group of Cos., including subsidiaries Excello Specialty Co. and XLO Jacksonville. No financial terms were disclosed. XLO is a 70-year-old manufacturer of die-cut and molded film and foam laminated water shields for the automotive industry. www.resiliencecapital.com

    PE-Backed M&A

Mer Telemanagement Solutions Ltd. (MTS) has agreed to acquire the assets and certain liabilities of TeleKnowledge Group Ltd., a Brookline, Mass.-based provider of carrier-class billing and rating solutions. Under terms of the deal, MTS will pay a maximum of $6.2 million, including approximately $2.6 million in cash and possible milestone payments totaling $3.6 million. The deal is expected to close in Q2 2005. TeleKnowledge has raised over $43 million in VC funding since its 1997 inception, from investors like 3i Group, JVP, Siemens Venture Capital, Merrill Lynch Capital Partners, Tamir Fishman Ventures, CDB Web Tech and Dain Rauscher Corp. www.mtsint.com www.teleknowledge.com

TechTarget, a Needham, Mass.-based IT media company, has agreed to acquire BitPipe Inc., a Boston-based distributor of IT white papers, for $40 million in cash. BitPipe has raised over $8 million in VC funding since its 1997 inception, from investors like Claflin Capital Management, CommonAngels, CNET, the Massachusetts Technology Development Corp., Masthead Venture Partners and RVC Europe Ltd. TechTarget has raised over $110 million from firms like Polaris Venture Partners and Technology Crossover Ventures. www.techtarget.com www.bitpipe.com

G&T Conveyor Co., a portfolio company of Brynwood Partners, has acquired The Horsley Co., a Salt Lake City-based manufacturer and installer of custom baggage conveyer systems. No financial terms were disclosed. www.gtconveyer.com www.horsleyco.com

    PE-Backed IPOs

Foundation Coal Holdings Inc., a Linthicum Heights, Md.-based coal producer, has amended its proposed IPO terms. The company still plans to offer 23.61 million common shares, but has raised the price range from $17-$19 per share to $19-$21 per share. Foundation Coal was formed on July 30, when RAG Coal International AG sold its RAG American Coal Holding Inc. subsidiary for $975 million to First Reserve Corp., The Blackstone Group and American Metals & Coal International Inc. www.rag-coalinter.de/index.shtml

Moulin International Holdings Ltd., a publicly-traded eyewear manufacturer in Asia, reportedly will consider floating Eye Care Centers of America Inc. within the next four years. Moulin agreed last week to acquire a 55% interest in ECCA from Thomas H. Lee Partners, with Golden Gate Capital and company management taking the remainder. www.ecca.com

    Firm & Fund News

Updata Partners, a Reston, Va.-based VC firm focused on early- and growth-stage technology companies, has closed its third fund with $154.5 million in limited partner commitments. New investors include the Virginia Retirement System, FLAG Capital Management and the University of Pittsburgh, while return backer Grove Street Advisors also participated, on behalf of the California Public Employees' Retirement System (CalPERS). Updata's previous fund was capped at $66 million in 2001. www.updata.com

Rho Ventures of New York has closed its fifth fund with $425 million in limited partner commitments. The firm's previous fund closed in 2001 with $435 million. www.rhoventures.com

Louisiana Fund I has held an initial closing with $17.8 million in limited partner commitments, including a $10 million anchor commitment from the Teachers' Retirement System of Louisiana. The investors included the LSU Foundation and the Baton Rouge Area Foundation. The Baton Rouge-based vehicle expects to raise another $10 million to $15 million by the middle of next year, and will invest in life sciences and technology companies based in Louisiana.

    Human Resources

Gordon McNair has joined UK-based buyout firm ECI Partners as an investment executive. He spent the past six years with Ernst & Young, including the past three years in its London-based private equity M&A team. www.ecipartners.com

Richard Erickson has joined Updata Partners as a venture partner in the firm's New Jersey office. He previously served as president and CEO of AlphaNet Solutions Inc. (Nasdaq: ALPHANET), a onetime Updata portfolio company. www.updata.com

Paul Stern, a co-founding partner of Arlington Capital Partners, has joined the board of ManTech International Corp. (Nasdaq: MANT). www.mantech.com


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December 7, 2004



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