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    PE Week Wire -- Monday, November 21


Defensive Options

It seems that I am a bit naïve when it comes to legal expediency in Delaware. My original assumption was that Providence Equity Partners only had until next Thursday to respond to fraud charges from Abry Partners, because it would have been 20 business days from when Abry filed its complaint. But it turns out that Providence actually has an extra couple of weeks, because it wasn’t served with the summons until last Wednesday. So, while we wait for the response, let’s briefly consider three hypothetical possibilities (there probably are more, but let’s stick with these):

Option #1: Ladies and gentleman of the Wire readership, we Providence Equity Partners were wrong. We throw ourselves on your mercy (not to mention that of the court), and ask you to understand that we artificially inflated the sale price of F&W so that we could return more money to the working-class folks of Pensions X, Y and Z. We now regret our decision, and agree to rescind the deal, pay Abry Partners’ legal fees and not sell our SunGard stake until after every other private equity firm.”

Verdict? Ummmm… no. Sure, a last-minute out-of-court settlement is theoretically possible in the next few weeks, but I don’t see how it would get done with both firms saving face (which often is viewed as tantamount to saving dollars). Abry is extremely angry, and arguably has staked its reputation on this suit. Providence also has its own LP agreements/relationships to consider, and it already is on the record as denying any wrongdoing.

Option #2: Ladies and gentleman of the Wire readership, we Providence Equity Partners believe that Abry Partners doesn’t know its GP from its LP, and is simply making things up out of a misguided sense of buyer’s remorse. There was no channel-stuffing, no back-starting and the circulation/distribution technology system was running like the Pontiac when it was still trusty. We sold them a good company. Don’t blame us if they messed in up in just three months time.

Verdict? More likely than Option #1, less likely then Option #3 (which you haven’t seen yet, unless you skipped ahead). Actually, there could be a less absolutist scenario than the one I laid out, with Providence admitting certain lesser acts occurred, but that the big accusations are unfounded. The burden is obviously on Abry is this scenario, in that it must prove that things like channel-stuffing not only occurred, but were not standard practice for F&W. It also must validate the legitimacy/veracity of the alleged second set of books kept by an employee in the magazine unit.

Option #3: Ladies and gentleman of the Wire readership, we Providence Equity Partners acknowledge that various acts of fraud occurred, but it was perpetrated by overzealous F&W employees without our knowledge or consent. After all, if Abry didn’t discover such things during its exhaustive due diligence, how were we to know as cloud-riding board-sitters? This is regrettable, but we are not liable. It’s simply a case of private equity risk.

Verdict? Yahtzee! This is a tricky option, but by far the most likely defense tact. Company employees knew the company was for sale, and that it would be extremely important to hit quarterly targets (both for the sale and, perhaps, for being retained by new ownership). They over-reached, Providence could argue, and the results were subtle – and fast – enough that Providence didn’t notice. There is the obvious downside here of appearing to be absentee/passive owners, but it’s better than being intentionally duplicitous. My money would be on Option #3 to be in effect when the formal response is filed, although I don’t have much money, so it’s a small bet.

    Top Three

Technology Crossover Ventures has closed its sixth fund with $1.4 billion in capital commitments. Limited partners included the New York State Teachers’ Retirement System. The Palo Alto, Calif.-based firm will continue to back expansion and later-stage technology companies. It closed its $900 million fifth fund in early 2004.

The Blackstone Group and Lion Capital have agreed to acquire the European beverages division of Cadbury Schweppes PLC for approximately 1.85 billion euros. The deal is expected to close early next year, with Blackstone and Lion acting as equal partners. Leverage will be provided by JPMorgan, Citigroup and Bank of America.

Dan Avida has joined Opus Capital as a general partner. He most recently served as co-founder, president and CEO of storage company Decru Inc., which was acquired for $272.5 million by Network Appliance (Nasdaq: NTAP). Opus Capital is a new VC firm recently launched by former Lightspeed Venture Partners pros like Gill Cogan, Carl Showalter, Ken Elefant and Isaac Applebaum.


The 8th Annual MIT VC Conference
December 3rd, 2005

The MIT VCPE Club invites you to the 8 th Annual MIT Venture Capital Conference, “Capitalizing on a Flat World,” at the MIT Tang Center on Saturday, December 3.  This year's conference explores how to take advantage of the new ways that businesses create, communicate, and access data-rich content from anywhere, at any time. The keynote addresses will feature Jim Champy, Chairman of Perot Systems' Consulting Practice, and Jeremy Allaire, former CTO of Macromedia Inc. and founder of Brightcove Inc.

To register online, visit

    VC Deals

Endosense SA, a Geneva, Switzerland-based maker of an ablation catheter for use in the treatment of cardiac arrhythmias, has raised Chf26 million (approx $20 million) in Series A funding from 3i Group and NeoMed Management.

CardioOptics Inc., a Wilmington, Mass.-based developer of an infrared light technology that lets physicians see through flowing blood to examine tissue, has raised $21 million in Series B funding, according to VentureWire. Novo Ventures led the deal, and was joined by Hillman Co. and return backers Sequel Venture Partners, Primus Venture Partners and Cardinal Partners.

CoakTek Inc. of a Tucker, Ga. has raised $7.685 million in Series A funding, according to a regulatory filing. Backers include Warburg Pincus, Draper Fisher Jurvetson, Braemar Energy Ventures and Technology Partners. According to the DFJ website, Coaktek “utilizes a proprietary process technology to convert low rank, mine-run coals into high-rank, clean coal alternative fuels for use by coal-fired electric utilities.”

    Buyout Deals

AXA Private Equity has agreed to acquire France-based household cleaner company Eau Ecarlate from Natexis Industrie and Barclays Private Equity. No financial terms were disclosed for the deal, which is being done in concert with company management. Barclays Leveraged Finance is providing senior note facilities while European Capital is providing mezzanine funding.

KKR, Blackstone Group and Hellman & Friedman reportedly have teamed up to bid Gbp1.4 billion for UK broker Collins Stewart Tullett PLC.

Brazos Private Equity Partners has agreed to acquire Oklahoma-based ORS Nasco Inc. from Dublin, Ireland-based Unidare PLC. No financial terms were disclosed for the deal, which includes members of ORS Nasco’s management team as equity participants. Formed in 2003 through the merger of Oklahoma Rig & Supply and Nasco Inc. -- two wholesale suppliers serving distributors in the industrial, welding, safety, construction, rental, and oilfield services sectors – ORS Nasco provider of branded and private-label products and services to industrial customers in the industrial supplies

Falconhead Capital has acquired a majority stake in Escort Inc., a West Chester, Ohio-based provider of branded radar detection products, from American Capital Strategies. Company management and ACS will retain minority stakes. No financial terms were disclosed.

Vector Capital and BroadVision Inc. (Nasdaq: BVSN) have mutually agreed to terminate Vector’s proposed acquisition of BroadVision for $0.84 per share. Proxies received at the BroadVision stockholders' meeting were overwhelmingly in favor of the merger but insufficient to constitute a quorum. In connection with the termination, BroadVision has agreed to make a $980,000 expense reimbursement payment in January 2006.

The European Commission has approved the proposed buyout of publicly-traded UK supermarket chain Somerfield by Apax Partners, Barclays Bank and real estate mogul Robert Tchenguiz.

Hg Capital reportedly has pulled classical music publisher Boosey & Hawkes PLC from the auction block, according to The Daily Express. The article says that bids came in at around Gbp115 million from firms like Elevation Partners, Bertelsmann Music Publishing and Music Sales Group.

    PE-Backed IPOs

WiderThan Company Ltd., a Seoul, South Korea-based provider of mobile entertainment solutions for wireless carriers, has filed to raise $110.4 million via an IPO of 6 million American depository shares at between $14 and $16 per ADS. It plans to trade on the Nasdaq under ticker symbol WTHN, with Merrill Lynch and JP Morgan serving as lead underwriters. Shareholders include Nokia Venture Partners, i-Hatch Ventures, SAIF Capital, Apax Partners, General Atlantic and The Washington Dinner Club.

Scopus Video Networks Ltd., an Israel-based provider of digital video networking products, has filed to raise $62.1 million via an IPO of 4.5 million ordinary shares at between $10 and $12 per share. It plans to trade on the Nasdaq under ticker symbol SCOP, with Thomas Weisel Partners and CIBC World Markets serving as lead underwriters. Company shareholders include Koor Venture Capital, Pitango Venture Capital, Vertex Management Israel, Genesis Partners and Formula Ventures.

IntraLinks Inc., a New York-based provider of online secure workspaces, has opted not to pursue its planned IPO of 4 million common shares at between $14 and $16 per share, due to “market conditions.” JPMorgan and UBS had been serving as lead underwriters. Significant shareholders include Rho Ventures (32.8% pre-IPO stake), TowerBrook Investors (20.5%), Reuters (11.8%), Apax Partners (9.3%) and Canaan Partners (6.1%).

Actions Semiconductor Inc., a China-based chip design company, has reduced its proposed IPO terms to 10 million American depository shares (ADS) being offered at between $8 and $9 per ADS. It previously filed to offer 13 million ADS at between $9.50 and $11.50 per share. CSFB is serving as lead underwriter, and the company plans to trade on the Nasdaq under ticker symbol ACTS. Shareholders include Tetrad Ventures Ltd. and rich Dragon Consultants Ltd. Press reports have suggested that the company is closing in on $80 million in Series A funding -- largely from U.S.-based firms – but there is no mention of the funding in Actions’ amended S-1 filing. Inc., an Aliso Viejo, Calif.-based e-commerce company, has set its proposed IPO terms to around 4.17 million common shares to be offered at between $11 and $13 per share. The company originally went public in February 2000, after receiving VC support from firms like Mobius Venture Capital, but then returned to private status after a November 2001 merger. does not list any private equity or VC investors as significant shareholders.

    PE-Backed M&A

Vernalis PLC has agreed to acquire Cita NeuroPharmaceuticals Inc., an Ontario, Canada-based neuropharmaceutical company focused on small-molecule drug candidates. The deal includes an initial payment of $29.5 million, plus milestone-based earn-outs of up to an additional $35 million in additional share or cash (Vernalis’ option). Cita has raised VC funding from groups like Canadian Medical Discoveries Fund, VenGrowth, MedInnova Partners and Neuroscience Development Inc.

Code, Hennessy & Simmons has acquired a majority equity stake in Godfrey Conveyor Co., as part of Godfrey’s merger with existing CHS portfolio company Rinker Boat Co. Rinker Boats is a Syracuse, Ind.-based builder of express cruisers and runabouts, while Godfrey Conveyor is an Elkhart, Ind.-based builder of recreational and fishing boats. The combined company will be based in Elkhart.

nCipher PLC (LSE: NCH) shareholders have approved the proposed acquisition of a majority stake in Abridean Inc., a Westchester, Ill.–based provider of user management and provisioning solutions. The deal is worth up to $17.9 million, and is expected to close this week. Abridean has raised VC funding from Newbury Ventures, Empire Capital and Strategic Software Holdings.

    Firm & Fund News
Beecken Petty O’Keefe & Co., a Chicago-based middle-market private equity firm focused on the healthcare industry, has closed its second fund with $325 million in capital commitments. Limited partners include General Electric Pension Trust, Hamilton Lane Advisors, Honeywell International Inc., Huizenga Capital Management, Richard Horvitz Family, Lockheed Martin Corp. Master Retirement Trust, RDV Capital Management, AIG SunAmerica and THK Private Equities. CSFB served as fund placement agent.

Monument Group Inc., a Boston-based private equity fund placement agent, has opened a London office. It will be run by firm co-founder and managing director John McLaren, who will relocate.

KeyCorp (NYSE: KEY) has agreed to acquire the commercial mortgage backed securities servicing business of ORIX Capital Markets LLC.

    Human Resources

Daniel Furey has joined the New York office of Harbert Management Co., an Alabama-based alternative investment management firm. He previously has worked with Executive Wealth Management, UBS Global Asset Management and Merrill Lynch.

James Mahoney, co-founder of HLM Management Co. and current president of the Mahoney Group, has joined the board of PolyMedica Corp. (Nasdaq: PLMD).

Private Equity Week

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November 21, 2005

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