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    PE Week Wire -- Monday, October 31


Monday Mouth-Off

The Halloween sky is bright, J.C. Flowers reportedly remains interested in Refco and I’ve got to hop a plane to San Fran for the Buyouts Symposium West. In other words, it’s time for some Monday Mouth-Off.

First up are some notes on the Web 2.0 hype, which I succumbed to by asking for your participation in our Frappr-enabled PE Week Wire Map. Joshua writes: “I don’t really buy into the ‘Google is going to buy me’ idea that a lot of Web 2.0 folks seem to have. Yahoo might buy you, but Google has hundreds of really smart people… and they are probably already working on whatever it is you are wanting to eventually sell to them. For instance, a new Web 2.0 web browser is a cool idea, but I think Google is a step ahead.” Randy adds: “Entrepreneurs are treating Google and Yahoo like the Nasdaq of 1998-2000. The big difference is that Google and Yahoo only need one of everything, while the bubble-era Nasdaq was willing to take two, three and sometimes four of everything. If this is a bubble, it will be inflated by the VCs who overestimate what Google and Yahoo will buy, not the other way around.”

Then there is N, who opines: “Have you figured out the revenue model of all of these Web 2.0 consumer businesses? Customer acquisition at any cost (i.e., not charging for your product) seems awfully familiar. Oh yeah … we did that back in 2000. I was at the Early Stage Venture conference last week and confirmed that, for good reason, the VC community generally won’t fund consumer businesses that don’t have a critical mass of customers. How then does an early-stage Web 2.0 company get funding? Easy: Bootstrap the offshore development of a great product and then give it away for free. Get customers ... get funding. Are we structurally rewarding unsustainable business models?” Ummm… yes. By the way, Colette wrote on our Frappr map that the PE Week Wire is the People Magazine of private equity. Is that a good thing? Been trying to figure it out all morning….

Paul replies to Friday’s note about the perceived rise in I-bankers leaking their auction info: "As an M&A banker for a small boutique, leaking anything has the potential to kill deals. We don’t work by the hour like lawyers do, nor do we get paid for AUM, we get paid for completing deals, and that does not involve leaking confidential details of our clients…. Leaks most often come from people who have received the books but will not bid.Most likely from a quasi-competitor who actually has something to gain by the leak. By the way I-bankers seem to be a favorite target lately.While things are going well now, there were years that we worked on several transactions that resulted in a zero payday. The way to think about I-banking pay is like a farmer who has a bumper crop because of good rain.The next year he may just as likely experience a drought. To really know what we get paid follow an entire boom-bust cycle.You’ll find life isn’t so easy."

Finally, Steven writes: “How about some recognition to the 2005 World Series Champion Sox, even if they are white and not red?” Recognized… Hope to see a bunch of you in San Fran tomorrow. I'll stay on East Coast time, so the PE Week Wire will be published at its normal time.


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    Top Three

Susquehanna Pfaltzgraff Co. has agreed to sell Susquehanna Radio to Cumulus Media Inc. (Nasdaq: CMLS), Bain Capital, Blackstone Group and Thomas H. Lee Partners. The deal is valued at approximately $1.2 billion, and is expected to close in the first half of 2006. Debt financing for the transaction is being provided by Deutsche Bank, Merrill Lynch, Goldman Sachs and UBS. Susquehanna Radio is the largest privately-owned radio broadcasting company in the U.S., with 33 stations in eight markets. In other Susquehanna Pfaltzgraff news, the company has agreed to sell its cable television and broadband services division to Comcast Corp.

Surface Logix Inc., a Boston-based developer of drug optimization programs, recently held a $20 million third close on its $42 million Series C funding round. The company held earlier closes of $4 million (April) and $8 million (September), bringing its total call-down to $32 million. Return participants include Venrock Associates, Arch Venture Partners, CW Group, HBM Partners, TIAA-CREF, Healthcare Focus Fund, Intel Capital and Unilever Technology Ventures.

Kohlberg Kravis Roberts & Co. and Silver Lake Partners have agreed to sell the storage semiconductor business of Agilent Technologies Inc. (NYSE: A) to PMC-Sierra Inc. (Nasdaq: PMCS), once the two firms complete their previously-announced acquisition of Agilent’s overall semiconductor products group. The sale to PMC is worth approximately $425 million in cash, while KKR and Silver Lake’s buyout of the entire semiconductor products group is valued at approximately $2.66 billion.


Associate Sought

Lineage Capital, a Boston-based middle-market private equity firm focused on family-controlled and owner-managed businesses is seeking an Associate to assist in all aspects of the investment process.  Associates play a critical role in the evaluation, negotiation, structuring and monitoring of portfolio companies and work in small deal teams in an entrepreneurial environment.  Pre- and post-MBA candidates are welcome to apply.

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    VC Deals

H5 Technologies Inc., a San Francisco-based provider of information discovery, analytic and corporate content risk management solutions, has raised $15 million in Series C funding co-led by Institutional Venture Partners and WaldenVC. The company has raised $32 million in total VC funding since its 1999 inception, including $6.5 million in Series B funding from Draper Fisher Jurvetson.

TransOral Pharmaceuticals Inc., a San Rafael, Calif.-based drug company focused on sleep and migraine therapeuties, has raised $23 million in Series C funding. New Leaf Venture Partners led the deal, and was joined by InterWest Partners and return backers Montreux Equity Partners, Hamilton BioVentures, Vivo Ventures and Peninsula Equity Partners.

CloudShield Technologies Inc., a Sunnyvale, Calif.-based provider of deep packet inspection platforms, has raised $10 million in fourth-round funding. Return backers included TPG Ventures, ComVentures, Foundation Capital and Paladin Capital.

Digg Inc., a San Francisco-based social content website operator, has raised $2.8 million in first-round funding. Greylock Partners and Omidyar Network co-led the deal, and were joined by angel backers like Marc Andreessen, Reid Hoffman, Ron Conway, Mike Maples, Jr. and Al Avery.

Akimbi Systems Inc., a San Mateo, Calif.-based developer of infrastructure management solutions for use in software development and test organizations, has raised $8 million in Series B funding, according to a regulatory filing. Mayfield led the deal, and was joined by return backers like Hummer Winblad Venture Partners and Partech International.

Vycon Inc., a Cerritos, Calif.-based maker of flywheel systems, has raised $2.5 million in Series A funding, according to a regulatory filing. Company shareholders include BankInv*st, RWE Dynamics Venture Capital Management, Sumitomo Corp., Cooper Capital Partners and Tridus International.

CropSolution Inc., a Morrisville, N.C. maker of agro-chemicals for crop protection, has raised $2.9 million in Series C funding, according to a regulatory filing. Company shareholders include The Aurora Funds and ATP Capital.

Tethys Bioscience Inc., an Emeryville, Calif.-based drug company that utilizes biomarkers, has raised $5.35 million in Series A funding, according to a regulatory filing. Mohr, Davidow Ventures led by deal.

Xambala Inc., a San Jose, Calif.-based developer of “semantic processor” solutions, has raised $5.5 million in Series B funding, according to a regulatory filing. Return backers include TeleSoft Partners, Mohr, Davidow Ventures and Jafco Ventures.

AssistGuide Inc., a Kailua, Hawaii-based provider of an information network for people needing senior, long-term care and disability services, has raised an undisclosed amount of Series B funding. Palo Alto Venture Partners led the deal, and was joined by Advantage Capital Partners and return backers Start-Up Capital Ventures and the International Venture Fund.

    Buyout Deals Inc. (Nasdaq: RCOM) shareholders has approved a $7.81 per share acquisition proposal from Vector Capital. The total deal is valued at approximately $200 million, and is expected to close early next month.

J.C. Flowers & Co. LLC has completed its acquisition of Crump Group Inc., the U.S.-based wholesale broking operation of Marsh Inc., a unit of Marsh & McLennan Cos. (NYSE: MMC). No financial terms were disclosed. Banc of America Securities served as financial advisor to Marsh, while Lazard served in a similar capacity for J.C. Flowers.

Bridgepoint has agreed to acquire Environmental Resources Management PLC, a UK–based provider of environmental consulting services. The deal is valued at $535 million, and includes the 52% stake owned by 3i Group and the 48% stake held by ERM’s 400 employee shareholders. It is expected to close in December, and would be Bridgepoint’s first transaction out of the 2.5 billion euros third fund it raised earlier this year.

BNY Capital Markets Inc. has arranged a $282 million debt recapitalization for Patriot Media and Communications CNJ LLC, a Greenwich, Conn.-based cable television high-speed Internet services provider formed in 2002 by Steven Simmons and Spectrum Equity Investors. The recap includes a $25 million seven-year revolver, a $210 million seven-and-a half-year Term Loan B and a $47 million eight-year second lien term loan. Part of the recap proceeds will go to Spectrum.

    PE-Backed IPOs

Accentia Biopharmaceuticals Inc., a Tampa, Fla.-based drug company focused on respiratory disease and oncology, priced 2.4 million common shares at $8 per share, for an IPO take of approximately $19.2 million. The company originally planned to offer 6.25 million common shares at between $11 and $13 per share, but later reduced the terms to 2.5 million shares at between $8 and $10 per share. Jefferies & Co. served as lead underwriter, while significant shareholders include The Hopkins Capital Group, McKesson Corp. and Pharmaceutical Product Development Inc.

IntraLinks Inc., a New York-based provider of online secure workspaces, has set its proposed IPO terms to 4 million common shares being offered at between $14 and $16 per share. It plans to trade on the Nasdaq under ticker symbol ILNX, with JPMorgan and UBS serving as lead underwriters. Significant shareholders include Rho Ventures (32.8% pre-IPO stake), TowerBrook Inv*stors (20.5%), Reuters (11.8%), Apax Partners (9.3%) and Canaan Partners (6.1%).

Linn Energy LLC, a Pittsburgh, Pa.-based natural gas company, has raised its proposed IPO terms to 11.75 million common units being offered at between $19 and $21 per unit. It previously was planned to offer 8.7 million units. RBC Capital Markets and Lehman Brothers are serving as lead underwriters, while Quantum Energy Partners is a significant shareholder.

    Firm & Fund News

Prologue Technology Entrepreneurship has launched as a seed capital group focused on nanotechnology. It has offices in Israel and Silicon Valley, and is funded by Pitango Venture Capital.

Cambridge Associates has opened a new office in Dallas, Texas.

Panorama Capital has begun pre-marketing for its first independent fund, as first reported in this space last month.

    Human Resources

Gordon Holmes will join Quadrangle Group as a managing principal, effective November 21. He most recently served as a general partner with Forstmann Little & Co., where he worked closely on deals for companies like Citadel Broadcasting Corp. and 24 Hour Fitness.

Kari-Pekka Wilska has joined Austin Ventures as a venture partner. “K-P” recently retired from his post a president with Nokia Inc., after spending more than 30 years in various positions within the company.

Pål Reed has joined HitecVision Private Equity AS as a partner.

CMEA Ventures has promoted Rob McIntyre from associate to partner. He will continue to focus on opportunities in the nanotech, solar power, RF systems, wireless communications, consumer electronics and digital media spaces. Prior to joining CMEA, McIntyre spent three years with H.I.G. Capital.

Jim Toohey has joined M&A-focused I-bank Petsky Prunier LLC as a vice president. He most recently served as CFO of direct marketing company CC3.

Jeffrey Long has joined Vestar Capital Partners as a managing director in the firm’s Vestar Resources group. He has spent the past 12 years with McKinsey & Co.

HarbourVest Partners has promoted Peter Lipson, Alex Rogers and John Toomey to the position of principal. It also promoted Corentin du Roy and Amanda Outerbridge to associate.

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October 31, 2005

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