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    PE Week Wire -- Tuesday, July 18

Growing Pains: Changes at ACS

I was the first of my friends to get married, which prompted lots of questions about how I was handling my “new” life. “It’s just the same as it was before,” I said, “except I now have more plates.” After all, I had been living with my girlfriend/wife for several years (yes, slap me for sinfulness), and we each had become accustomed to the other’s quirks, annoying habits, and so on. Had we simply dated before getting married, my answer to my friends’ question probably would have been far more complex and, possibly, negative. Yes, I know there are studies suggesting just the opposite, but I’m trying to make a (long-winded and tedious) point: Long engagements don’t always produce a solid marriage.

Such is the case with Andy Fillat and American Capital Strategies. Fillat is the former VC chief of Advent International, who was hired by ACS earlier this year to launch and run a new venture capital program focused on the IT market. The move came after nearly three months of negotiations -- I held the story until papers were signed, although did offer a blind item – and resulted in what seemed like a well-planned and amicable partnership. Fillat already had experience as a venture capitalist within a buyout-focused firm, and genuinely dug the idea of an evergreen capital pool that didn’t have strict deal size/stage or industry cycle limitations. He also hired Tony Abate, a former Battery Ventures and Ironside Ventures pro with whom he earlier had been contemplating a private partnership.

But the long engagement was for naught. Boston-based Fillat was quietly sacked by ACS last month, after a series of contentious disagreements over investment philosophy and other “business culture” issues. Neither side is publicly commenting on the move, but multiple sources say that the fit was a bad one from day one. “You had two sides that knew how they wanted things done, and they just kept butting heads,” says someone familiar with the situation. “Everyone knew that ACS held the cards and that it wasn’t working out, although the firing was sudden and, I think, surprised everyone.”

Tony Abate almost immediately followed Fillat out the door, due to a combination of loyalty and the fact that he was one of “Andy’s guys.” Neither has yet signed on elsewhere.

It’s a bit hard to understand how this all happened, considering how long Fillat had been in discussions with ACS. Maybe it really is true that certain problems don’t appear until you’ve actually gotten married, or perhaps both sides mistakenly thought they could just agree to disagree on certain issues.

Before the final showdown, however, Fillat managed to recruit two managing directors to launch a new office in Palo Alto: Virginia Turezyn (formerly with Constellation Ventures) and Greg Smitherman (formerly with Advent International). This pair will continue running the show going forward, with help from new vice president David Hartwig (formerly with Battery Ventures) and remaining Boston principal Miles Arone. Turezyn says that the group has plans to continue staffing up on the West Coast, but that the Boston effort is at least temporarily on hold. She also says that deal-flow is strong, with one term sheet out and other transaction expected to close within a week.

Unlike in so many of these cases, there are no evil culprits here. Most folks pin a bit more of the blame on Fillat’s irascibility, but the realty is that the two sides realized it wasn’t working before the endeavor became entrenched. What ACS will have to do, however, is be more forthcoming with entrepreneurs than it was with me. It’s ok for ACS president and CEO Malon Wilkus to tell a reporter that the firm doesn’t comment on staffing matters. Not so with entrepreneurs.

Prospective portfolio companis have every right and need to know why two managing directors left just five months after joining. They often make VC decisions based more on individual investors (i.e. board members/advisors) than on term sheets or brand, and the smart ones already have instinctive concerns about taking cash from hierarchical corporate/financial venture arms. ACS is not AIG, but it still will need to reemphasize the point.

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    Top Three

Terra Firma has agreed to sell the waste disposal division of UK-based Waste Recycling Group to Spain’s Fomento de Construcciones y Contratas (FCC) for £1.4 billion.

Trinity BioSystems Inc., a Menlo Park, Calif.-based developer of a platform to produce vaccines and oral delivery of proteins and other peptide products, has raised $21 million in Series B funding. Amgen and S.R. One Ltd. were joined by return backers Sanderling Ventures and Tenex Greenhouse Ventures.

Viisage Technology Inc. (Nasdaq: VISG) has agreed to acquire Iridian Technologies Inc., a Moorestown, N.J.-based developer of iris recognition technology. The deal includes a $35 million cash payment to Iridian shareholders, and will be funded primarily by proceeds from an initial $100 million investment into Viisage by L-1 Investment Partners last December. Iridian raised $65 million between 1998 and 2000, from firms like GE Equity, J.P. Morgan Capital, Lehman Brothers, Merrill Lynch Capital Partners, NPM Capital, Penny Lane Partners, Perseus and Walden International.

    VC Deals

Omeros Corp., a Seattle-based drug company focused on receptor and enzyme therapeutics, has secured $44 million of a $75 million Series E round, according to a regulatory filing. The filing does not identify specific investors, although the company previously had raised a total of $45 million from firms like CSK Ventures, Encompass Ventures, Grosnovor Funds, Southern Cross Capital, Suez Ventures, TransCosmos USA, WRF Capital and 3V SourceOne Capital.

Virgo Engineers, a Pune, India-based maker of ball valve and valve automation systems, is close to raising $20 million from Tano Capital, according to The Economic Times of India.

Emphasys Medical Inc., a Redwood City, Calif.-based medical device company focused on emphysema, has secured $18.14 million in Series E funding. Return backers include Advanced Technology Ventures, Morgan Stanley Venture Partners, New Enterprise Associates and St. Paul Venture Capital. Emphasys Medical has raised around $63 million in total VC funding since its 2000 inception.

Availigent, a San Jose, Calif.-based provider of transparent and automatic application virtualization software for Linux platforms, has raised $12.2 million in Series B funding. Intel Capital led the deal, and was joined by return backers Diamondhead Ventures and Smart Technology Ventures.

VoiceObjects Inc., a San Mateo, Calif.-based, has raised $10.8 million in recap funding. Return backers include Telesoft Partners, Wellington Partners, SAP Ventures, Deutsche Telekom's T-Venture and Enjoyventure.

Calisolar Inc., a Sunnyvale, Calif.-based solar technology startup, has raised $9 million in first-round funding from Advanced Technology Ventures and Globespan Capital Partners.

WiChorus Inc., a San Jose, Calif.-based developer of mobile services and applications, has raised $8.5 million in Series B funding, according to a regulatory filing. Backers include Accel Partners and Redpoint Ventures.

ShopWiki, a New York-based online shopping search engine and buying guide, has raised $6.2 million from Generation Partners.

HotGigs, a Minneapolis-based provider of an on-demand staffing exchange for both contract and fulltime employees, has raised $5.3 million in Series A funding from Updata Partners.

Azteq Mobile Corp., a Walnut Creek, Calif.-based mobile technology company, has raised around $4.05 million in Series A1 funding. Backers include The Ignite Group, Japan-Asia Investment Co. and iSherpa Capital.

Zeugma Systems Inc., a Vancouver-based provider of broadband networking solutions, has raised US$2.25 million in additional second-round funding from BDC Venture Capital and company employees. This brings the round total to $15.75 million, including earlier participation from Granite Ventures, GrowthWorks, Ventures West and Yaletown Venture Partners.

Don’t Blink Media Inc., a Seattle-based provider of interactive advertising services, has raised an undisclosed amount of private equity funding from Highmark Investments LLC. Mercanti Securities served as financial advisor to Don’t Blink.

    Buyout Deals

Istithmar PJSC has completed its $300 million acquisition of New York-based fashion retailer Loehmann's Holdings from Arcapita.

Bridgepoint has agreed to acquire CVC Capital Partners’ stake in Spanish sports management and marketing company Dorna Sports SA. No financial terms were disclosed for the deal, which will make Bridgepoint the largest single Dornia shareholder.

The Riverside Co. has acquired the American Safety & Health Institute, a Holiday, Fla.–based professional safety and health certification company. No financial terms were disclosed, except that it was part of Riverside’s micro-cap strategy that focuses on companies with less than $3 million in EBITDA.

Greenbriar Equity Group has acquired a majority stake in Stag-Parkway Inc., an Atlanta–based distributor of recreational vehicle (RV) parts and accessories. No financial terms were disclosed. Allied Capital and Bank of America arranged financing for the transaction, while Stag-Parkway was advised by Brookwood Associates.

    PE-Backed IPOs

Cadence Pharmaceuticals Inc., a hospital-focused drug company based in San Diego, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol CADX, with Merrill Lynch serving as lead underwriter. IT has raised around $79 million in total VC funding, including a $53.8 million second-round deal earlier this year. Backers include Frazier Healthcare Ventures, Versant Ventures, Technology Partners, Domain Associates, ProQuest Investments, BB Biotech Ventures, CDIB BioScience Venture and Management.

GlobalStar Inc., a Milpitas, Calif.-based provider of voice and data communications services via satellite, has filed to raise $100 million via an IPO of common stock. Wachovia Securities is serving as lead underwriter. Shareholders include Thermo Funding Co., Columbia Ventures Corp., Banc of America Securities and Qualcomm.

Osiris Therapeutics Inc., a Baltimore-based stem cell therapeutics company focused on the inflammatory, orthopedic and cardiovascular areas, has set its proposed IPO terms to 3.5 million common shares being offered at between $11 and $13 per share. It plans to trade on the Nasdaq under ticker symbol OSIR, with Deutsche Bank Securities serving as lead underwriter. Osiris has raised around $50.3 million in VC funding from firms like Venturetec and Friedli Corporate Finance.

    PE Exits

Eurazeo, Credit Agricole and Pragma Capital are looking to sell French truck rental company Fraikin, according to The Financial Times. The deal could be valued at more than $2.5 billion.

3M (NYSE: MMM) has agreed to acquire UK-based Security Printing and Systems Ltd. from Authentos GmbH, for an undisclosed amount. Authentos is a German holding company controlled by Apax Partners.

    PE-Backed M&A

Motricity Inc., a Durham, N.C.-based provider of mobile marketplace management solutions, has acquired GoldPocket Wireless Inc., a Los Angeles–based provider of mobile interactivity and marketing solutions for media and entertainment companies, from Tandberg Television. No financial terms were disclosed. Motricity has raised more than $120 million in private funding since October 2004, from firms like Technology Crossover Ventures, New Enterprise Associates, Noro-Moseley Partners, Intel Capital and Advanced Equities. GoldPocket was acquired last year by UK-based Tandberg, after having raised around $65 million in VC funding.

Stonehouse Capital Partners has sponsored a management buyout of JHT Holdings Inc., a Kenosha, Wisc.–based specialty transportation and logistics company that focuses on the delivery of medium and heavy-duty trucks throughout North America. No financial terms were disclosed.

    Firm & Fund News

American Beacon Advisors of Ft. Worth, Texas has closed its second private equity fund-of-funds with $145.7 million in capital commitments. The new vehicle’s portfolio already includes Carlyle Partners IV, Oak Hill Capital Partners II, Yucaipa American Alliance Fund I, Bear Stearns Merchant Banking Partners III and Halifax Capital Partners II.

    Human Resources

Jake Nunn has joined New Enterprise Associates as a Menlo Park, Calif.-based partner focused on specialty pharmaceutical, biotech and medical device opportunities. He previously was a partner with MPM Capital.

Durant “Randy” Schwimmer has joined Churchill Financial as senior managing director and head of capital markets. He most recently served as a managing director and head of leveraged finance syndication for BNP Paribas.

Doug Cameron has joined Khosla Ventures as chief scientific officer. He previously was with Cargill, where he was recruited in 1998 to launch and lead the company’s corporate biotech R&D group -- now called the Biotechnology Development Center (BioTDC) – in Minneapolis.

Charlesbank Capital Partners has promoted Tami Nason to general counsel, and also promoted Ryan Carroll to vice president.

George Holder has joined middle-market M&A boutique The Silverfern Group as a managing director. He previously was a managing director with Citigroup Capital Strategies.

Summit Partners has promoted Vic Zelny to chief information officer. He joined the firm in 2000 as vice president of IT.

Lance Stier has joined Wellspring Capital as an associate. He previously was with Lehman Brothers.

Tony Lyons and Andy Scruton have joined FTI Consulting Inc. as senior managing directors. Lyons will work in the financial investigations and forensic accounting practice, after having worked at both the SEC and the Financial Accounting Standards Board and Emerging Issues Task Force. Scruton joins FTI’s corporate creditor rights practice, after previously serving as a founding managing director of Giuliani Capital Advisors.

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July 18, 2006

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