Friday Feedback? The sun is shining, European retail shoppers are everywhere and Donald Rumsfeld is still at a loss for words. In other words, it's time for Friday Feedback (ok, I know it's not Friday, but I couldn't come up with a good alliteration for Thursday - and I'm running too late to write my own column). Almost all emails this week had to do with the CalPERS vs. CFAC settlement, which resulted in the disclosure of management fee and profit/loss information for all of CalPERS' private equity and venture capital partnerships. Specifically, folks took on my assertion that a 20% average carried interest doesn't make much sense. C writes: "I find it easy to believe that CalPERS is paying around 20% carried interest across its portfolio. This is still the level most funds are at. There are a handful of premier funds like Sequoia, Kleiner and InterWest that charge 25% or 30%, but these tend to be funds that don't take state money, so odds are that CalPERS is not in most funds charging a higher amount. Also, FYI that Warburg Pincus once raised a fund with a lower carry than 20%, although I don't know if they continued to do that." Steven adds: "After the market upheaval and issues with fundraising, almost everyone is at 20%, except if you can prove that you have a special market position unavailable with other funds. New funds and funds struggling to raise capital may cut carry deals with anchor or early investors to help fundraising activities; but since many institutional investors call for equal treatment under" most favored national" clauses, these discounts tend to be declining as well." To both C and Steven: I accept that 20% is the industry standard, despite firms like Accel Partners and ABRY Partners recently raising funds with 30% carries. But industry standards and industry averages are different. Were C's Warburg example not isolated, then I could see how CalPERS gets a 20% average, but it isn't. If you have most of your funds at 20%, and even just a small group at 25%/30%, how do you get an average of 20 percent? Moreover, lots of the CalPERs funds were bubble-era VC funds, which causes me to assume that the aforementioned small handful is actually kind of large. But, then again, both of you see a lot more term sheets than I do (given the info under your signatures). Finally, there is Tom, who agrees with me that the disclosed data doesn't necessarily lend itself to a conclusive analysis of carried interest: "I think that it is incorrect to assume an 'average carried interest' from profit by year numbers.Insome cases, these profits are offsetting prior losses.Carry is typically calculated on profits after a preferred return on the capital.In a rudimentary example, if afund calls$100 million for an investment and holds that deal for 4 years before exiting it at2x, $36 million of the $100 million in profit would go toward a preferred return (assuming 8% compounded).While the GP would still get $20 million of these profits (assuming 20% carry) due to catch-up provisions, there is no way to garner where each of the funds in CalPERS portfolio is based upon summary level data.Each GP handlesits carry calculationsin a somewhat unique matter - given the lack of consistency in partnership accounting practices across the industry, an assumption of standardization is not only inappropriate, but incorrect." He continues: "On the management fee side, no one seems to be talking about the fact that these fees are repaid before any carry/profit participation is considered. If an investor has a $100 million commitment and $90 million is invested while $10 million is paid to management fees, the GP must return $100 million to the investorbefore thepreferred return or carried interest are calculated.The assumption I get from reading various publications is that these fee dollars are expensed and gone (like on the public side), when that is not the case.Management fees paid are returned wheredistributions exceed paid in capital." Finally, an unrelated correction from yesterday: The DLJ Merchant Banking spinout firm will manage the three existing DLJ Merchant Banking funds on a sub-advisory role for CSFB.
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Teachers Private Capital, the private equity arm of the Ontario Teachers' Pension Plan, has agreed to purchase Alliance Landry Holdings LLC from Bain Capital and Bruckmann, Rosser, Sherrill & Co. for approximately $450 million. Alliance is a Ripon, Wis.-based provider of commercial laundry equipment. It filed for a $375 million IPO of income deposit securities (IDS) back in April, but yesterday withdrew its registration papers. Debevoise & Plimpton LLP is representing Teachers Private Capital on the deal. www.comlaundry.com Prospect Venture Partners, a Palo Alto, Calif.-based VC firm focused on medical technology and life sciences companies, has closed its third fund with $500 million in limited partner commitments. The firm's previous fund was raised in 2001, and also was capped at $500 million. www.prospectventures.com Foundation Coal Holdings Inc., a Linthicum Heights, Md.-based coal producer, will begin trading on the NYSE under ticker symbol FCL. The company priced 23.61 million common shares at $22 per share, for a total IPO take of approximately $519.42 million. It originally filed to raise just $250 million, and busted even its amended offering price range of $19 to $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.
Targacept Inc., a Winston Salem, N.C.-based drug company focused on the central nervous system, has raised $33 million. Noumra Phase4 Ventures led the deal. The company has received over $120 million in total VC funding since its 1997 inception, and currently is in registration for an $86.25 million IPO. Company shareholders include New Enterprise Associates, EuclidSR Partners, Nomura, Oxford Bioscience Partners, R.J. Reynolds Tobacco Holdings, Burrill & Co. and Advent International. www.targacept.com O21C Co. Ltd., a Santa Clara, Calif. and Seoul, South Korea-based fables semicondcutor company, has raised $8 million in new venture capital funding. Return backer Dragon Group was joined on the deal by KGIF LP, which is jointly managed by STIC Ventures, KDB Capital and SKFT (Israel). The company has raised $13 million in total VC funding. www.o21c.com IBSN Inc., a Denver, Colo.-based provider of order routing and integration solutions for the securities industry, has raised over $6.02 million in Series A funding. Vista Ventures led the deal, and was joined by OCA Ventures, Appian Ventures, SAP Ventures, and Grayhawk Venture Partners.Cascadia Capital advised IBSN on the transaction. www.ibsncentral.com Personeta Inc., a Naperville, Ill.-based developer of network service controllers, has raised $9 million in Series C funding. Return backer Lightspeed Venture Partners led the deal, and was joined by new investor Duchossois Technology Partners. The company has raised $17 million in total funding since its 2000 inception. www.personeta.com
Thomas H. Lee Partners and Texas Pacific Group have agreed to acquire a combined 25% position in Fidelity National Information Services Inc. (FNIS) for $500 million, as part of a leveraged recapitalization. Fidelity National Information Services is a subsidiary of Jacksonville, Fla.-based title insurer Fidelity National Financial Inc. The recap also includes FNIS issuing $2.8 billion in senior secured credit facilities, and is expected to close during the first quarter of 2005. www.fnf.com Ion Health Holdings Inc., an Erie, Pa.-based Medicaid managed healthcare company, has received a $200 million private equity commitment from new majority shareholder J.W. Childs Associates. HgCapital has acquired the Wales, UK-based Tir Mostyn wind farm from Windjen Power Ltd. for approximately GBP 21.6 million. HgCapital said the deal represents just the first in a planned series of investments in Western European renewable energy projects. www.hgcapital.com IBM Corp. has agreed to sell its personal computer unit for $1.75 billion to China-based computer supplier Lenovo. Various press reports suggest that buyout firm Texas Pacific Group was Lenovo's closest competitor for the deal. www.ibm.com The Blackstone Group has agreed to sell hotel chain AmeriSuites Inc. to Hyatt Corp. for an undisclosed amount. Once the transaction is closed in early January, Hyatt plans to invest more than $150 million in capital expenditures and related brand and marketing efforts for the company. www.amerisuites.com Electra Partners has acquired the automotive metal parts unit of ThyssenKrupp AG for 155 million euros. The Germany-based unit had sales of approximately 300 million euros in fiscal 2004, and is named ThyssenKrupp Fahrzeugguss. www.electraeurope.com Apptis Inc., a Chantilly, Va.-based IT services company, has received an additional $40 million in private equity funding from existing shareholder New Mountain Capital, according to The Deal. Part of the new funding will be used to finance Apptis' pending acquisition of Seta Corp. Apptis has raised a total of $144 million from New Mountain Capital. www.apptis.com VenGrowth Capital Partners has sponsored a Cdn$5.4 million buyout of CIF Furniture Ltd., a manufacturer of customer laboratory furniture, from founder Hans Kamin. www.vengrowth.com
TradeBeam Holdings Inc., a San Mateo, Calif.-based provider of global trade management software and content solutions, has acquired the assets of San Carlos, Calif.-based Open Harbor Inc. No financial terms were disclosed. TradeBeam has raised around 445 million in total VC funding since its 2000 inception, including an $18.25 million infusion last month from Carlyle Venture Partners, Sigma Partners, Enterprise Partners Venture Capital, Sprout Group and Silicon Valley Bancshares. Open Harbor had raised approximately $52 million since its 1999 inception, from investors like Alloy Ventures, New Enterprise Associates, Menlo Ventures, East river Ventures, Deutsche Post Ventures and W.R. Hambrecht & Co. www.tradebeam.com DSP Group Inc. (Nasdaq: DSPG) has acquired substantially all the assets of Bermai Inc., a Palo Alto, Calif.-based developer of WiFi technology, for approximately $5.42 million in DSP stock. Bermai had raised over $40 million in VC funding since its 2001 inception, from investors like Advanced Technology Ventures, Blueprint Ventures, Mobius Venture Capital, Brightstone Capital, STIC IT Venture Capital and Sherpa Partners. www.dspg.com
Symmetry Medical Inc., a Warsaw, Ind.-based provider of equipment for orthopedic medical device manufacturers, will begin trading on the NYSE under ticker symbol SMA. The company priced eight million common shares at $15 per share, for a total IPO take of $120 million. It originally had filed to raise $172.5 million, although its only proposed IPO terms included the eight million shares at a range of $13 to $15 per share. Symmetry Medical was acquired in October 2000 by funds affiliated with Olympus Partners. Windjammer Capital Management also was listed as a significant shareholder. www.symmetrymedical.com Consolidated Communications Illinois Holdings Inc., a Mattoon, Ill.-based rural local exchange carrier in Illinois and Texas, has filed to raise $400 million via an IPO of common stock on the NYSE. The company is owned, in equal parts, by Central Illinois Telephone, Providence Equity Partners and Spectrum Equity Investors. www.consolidated.com HouseValues Inc., a Bellevue, Wash.-based provider of online marketing solutions for residential real estate agents, has raised the its proposed IPO price range from $10 to $12 per common share, to $14 to $15 per common share. It still plans to sell 6.25 million common shares. The company has raised over $16 million in venture capital funding, with William Blair Capital Partners holding a 35% pre-IPO stake. www.housevalues.com
MTM Technologies Inc. (Nasdaq: MTMC), a Stamford, Conn.-based computer and communications technology management company, has raised $12.5 million in PIPE funding from Constellation Ventures and Pequot Ventures. www.mtm.com Intermix Media Inc. of Los Angeles has received a $4 million PIPE investment from Redpoint Ventures. The deal also includes a non-binding term sheet for Redpoint's investment in a newly-organized independent subsidiary of Intermix Media, called MySpace.com. www.intermix.com
Shankar Narayanan has joined The Carlyle Group as a managing director in India, where he will focus on venture capital and growth capital deals. He started his career with Citibank, was Managing Director and CEO of Hathway Investments in India and was then based in Hong Kong covering India for Deutsche Bank Capital Partners. www.carlyle.com
Sanderling Ventures of San Mateo, Calif. is in the midst of raising two funds, with a combined target capitalization of $400 million. The $200 million early-stage vehicle already has closed on $130.47 million, according to regulatory filings, while the $200 million latter-stage vehicle has closed on approximately $97 million. Limited partners include Leland Stanford Junior University, Teachers Private Capital and the Caisse de Depot et Placement du Quebec. www.sanderling.com
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December 9, 2004 
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