Random Ramblings

I almost copped out this morning and issued an “Every time the PE Week Wire adds another thousand subscribers…” message. But we’re only at 26,940, so here are a couple of notes as I figure out what to cover this week (Mondays always seem so full of possibilities)…

*** Best article to-date on the Refco debacle, courtesy of New York Times. Of particular interest are comments from Bill Atwood of the Illinois State Board of Investment, who says that TH Lee would be best served to postpone fund-raising until more questions about the original due diligence can be answered. I spoke briefly with Atwood this morning, and posed the following hypothetical: If TH Lee maintains plans to begin fund-raising in November (as I expect they will), would Illinois be comfortable making a commitment? Atwood replied that he dislikes replying to hypotheticals, but did say that Illinois would not make a commitment until it had completed extensive due diligence, which would have to include a better understanding of how/why TH Lee overlooked Refco’s missing money. “The question is at the prudence basis! ,” he explained.

I also asked Atwood if he’s concerned that public statement to the NYT (and to me, for that matter) could harm Illinois if/when TH Lee begins sorting through requested fund allocations. He acknowledged the possibility, but said that he oversees a public pension system, and that he therefore has a responsibility to provide a certain level of transparency on such issues.

*** The Refco situation also came up on Saturday, while I was painting and raking as part of the City Year Serve-A-Thon. My team members included a handful of Harvard Business School students with private equity work experience, including a PE Week Wire reader (who requested to remain anonymous, for obvious fear that her demonstrated intelligence would generate envy and resentment). Of particular note was someone who chatted buyout fund returns while we dumped leaves and a bicycle tire into waiting dump-trucks. He expressed concern that the LBO market might be set up for a major fall, and I agreed, citing high purchase price multiples recent lender hesitance in deals like Neiman Marcus and School Specialty (the latter of which apparently is still alive, given that LPs have not received return checks from their call-downs).

So just one question for you to ponder: If a current HBS student sees the warning signs, why don’t the LBO firms? Why don’t the LPs? Why why why?

*** You’ll notice below that KKR has closed its European buyout fund with 4.5 billion euros, which works out to around $5.39 billion. The firm also is expected to launch another North American fund next year, with an expected target of around $8 billion. If successful, KKR would take the silly money crown from Blackstone Group, even if Blackstone manages to grab $13 billion (unless, of course, the euro gets significantly devalued in the meantime).

Top Three

Heritage Partners has agreed to sell Skilled Healthcare Group Inc. to a holding company formed by Onex Partners and Skilled Healthcare management. The deal is valued at $640 million (including assumption of debt), and is expected to close within the next several months. Skilled Healthcare Group is a Foothill Ranch, Calif.–based operator of long-term care facilities and contract and hospice services. It was acquired by Heritage in 1997 for $50 million. www.heritagepartners.com www.skilledhealthcare.com

Kohlberg Kravis Roberts & Co. has closed its second European private equity fund with 4.5 billion euros in capital commitments. KKR executives committed 100 million euros, with the remainder coming from limited partners like CPP Investment Board, the Oregon Investment Council and the Los Angeles County Employees’ Retirement System. www.kkr.com

Alereon Inc., an Austin, Texas-based fabless semiconductor company developing ultrawideband wireless chipsets, has raised nearly $21.53 million in Series B funding at a post-money valuation of approximately $80 million. Return backers include Pharos Capital Partners, Austin Ventures, Centennial Capital Ventures, Duchossois Technology Ventures, PTV Sciences, eCentury Capital Partners and Genesis Campus. www.alereon.com