The Most Interesting SPAC Of All I recently was interviewed by the Boston Business Journal for an article on SPACs, those blank check acquisition companies discussed here and here. The reporter took particular interest in a SPAC called MDC Acquisition Partners, which prompted a conversation that went something like this:
Today, however, I’ve been educated, and believe that MDC’s success or failure could be a watershed for the private equity industry – particularly for firms that don’t expect to be able to raise follow-on funds due to poor performance or other nasty bugaboos. Typical SPACs involve operating executives who band together for the purpose of raising acquisition capital from the public markets (without having yet identified which companies will be acquired). Private equity firms sometimes participate in a minority investor/advisory role, but never as the primary managers. MDC Acquisition Partners, however, will be managed by – and only by -- private equity firm McCown De Leeuw & Co., a Menlo Park, Calif.-based middle-market buyout shop that has been in business since 1983. There are two non-McCown board members – including Jeff Drazen of Sierra Ventures – but this is McCown’s show. Why would a private equity firm form a SPAC? Because McCown would have a very tough time raising a fifth fund via “traditional” methods (its $750 million fourth fund is basically out of dry powder, and has just four remaining portfolio companies). I spoke yesterday with a pair of existing McCown LPs, who both say that Fund IV is underwater with only faint hope of returning more than 90% of committed capital. Fund III performed better – particularly thanks to a pending $1.6 billion acquisition of 24 Hour Fitness by Forstmann Little – but it still won’t be a top-quartile performer. Moreover, many of Fund III’s investment pros are no longer active with the firm. In fact, it’s safe to say that current McCown CEO Bob Hellman is the only selling point left (Hellman declined to comment for this article, citing SEC “quiet period” restrictions related to the SPAC filing). It did recently hire Matthew Carbone from Wit Capital, but that appears to have been specifically for the SPAC. George McCown is basically retired, and Jack Murphy now serves as an operating partner. Hellman did speak with placement agents last year about raising a fifth fund, but was mostly told not to waste his time. This left him with two options: Either shut down the firm or pig-headedly send out PPMs anyway. Bob, however, found a third way: Try to raise fund capital from the public markets via a SPAC. He enlisted Wedbush Morgan Securities to lead manage the offering, which is designed to raise $80 million within the next few weeks. If successful – both in terms of the IPO and eventual acquisitions -- McCown's SPAC could give the firm a new lease on life. Not only would it have enough investment capital to stay in business a while longer (despite lower management fees than with a “traditional” fund), but it also could generate a couple of profitable deals, thus improving the firm’s attractiveness to private equity LPs during a future “traditional” fund-raising drive. Of course, if it fails, expect McCown to go the way of the dodo. What is of macro importance here, however, is that other private equity firms may try to follow McCown’s lead. This is specifically true of other groups in the lower-to-middle-market buyout space, for two reasons: (1) Its fund-raising market is saturated; and (2) Lower-middle-market deals are the bread-and-butter of SPACs. This isn’t to say that such offerings will necessarily be successful – particularly since SPAC volume is likely cyclical/dependent on hedge fund interest – but they almost certainly will be tried. No matter how McCown ends up, it at least could be called an innovator.
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Biolex Therapeutics Inc., a Pittsboro, N.C.-based protein therapeutics company, has raised $36 million in Series B funding. Polaris Venture Partners led the deal, and was joined by return backers Intersouth Partners, Quaker BioVentures, Johnson & Johnson Development Corp., Mitsui & Co. Venture Partners and Kitty Hawk Capital. The company has raised over $68 million in total VC funding since its 1997 inception, including a $24.4 million Series AA recap round in 2003. www.biolex.com Woodside Petroleum Ltd. of Insider Pages Inc., a Pasadena, Calif.-based Internet search company, just over $8.52 million in Series B funding, according to a regulatory filing. Backers include Sequoia Capital and Idealab. www.insiderpages.com
TargeGen Inc., a San Diego-based drug company, has raised $30 million in Series C funding. BB Biotech Ventures led the deal and wsas joined by H&Q Healthcare Capital Management and return backers Forward Ventures, Enterprise Partners, William Blair Capital Partners/Chicago Growth Partners, CDP Capital Technology Ventures, VantagePoint Venture Partners, China Development Industrial Bank and A.M. Pappas & Associates. TargeGen now has raised $70 million in total VC funding since its 2001 inception. It focuses on small molecule kinase inhibitors for the treatment of edema and angiogenesis-related diseases. PacketMotion Inc., a San Mateo, Calif.-based provider of enterprise network security solutions, has raised just over $14 million in Series B funding, according to a regulatory filing. Intel Capital was joined on the deal by return backers Mohr, Davidow Ventures and Onset Venture Partners. www.packetmotion.com LGC Wireless Inc., a San Jose, Calif.-based provider of in-building wireless networking solutions, has raised $2 million in additional Series B-1 funding. The tranche was led by GunnAllen Venture Partners, and brings the round total to $13 million. LGC Wireless has raised $93 million in total private funding since its 1996 inception. www.lgcwireless.com ISTO Technologies Inc., a St. Louis-based ortho-biologics company, has raised $10.8 million in Series D funding. The deal includes equity and debt, with Zimmer Holdings serving as lead inv*stor. Other participants included Alafi Capital Co., Life Science Partners and Mid-America Transplant Services. www.istotech.com Q Inc., a San Francisco-based provider of network quality monitoring solutions, has raised an undisclosed amount of venture funding from Target Partners. It is the company’s first capital infusion since completing a management buyout earlier this month. www.q-hq.com
Haggar Corp. (NYSE: HGGR), a Dallas-based apparel company, has agreed to be acquired by Infinity Associates, Perseus LLC and Symphony Holdings Ltd. The deal is valued at $212 million in cash, or $29 per share. www.haggar.com CVC Capital Partners has agreed to acquire Belgium-based shoe repair and key-cutting services chain Mister Minit from UBS Capital Partners. No financial terms were disclosed for the deal, which originally was expected to be valued at between 150 million euros and 200 million euros. Temasek, the inv*stment arm of the ABN AMRO Capital has sponsored a 230 million euros management buyout of the Loparex Group from publicly-traded UPM-Kymmene of
The Ares Corporate Opportunities Fund (Ares Management) and Teachers’ Private Capital (Ontario Teachers’ Pension Plan) have completed their acquisition of National Bedding Co., the Itasca, Ill.–based maker of Serta mattresses. No financial terms were disclosed, except that company founders Burt Kaplan and Richard Yulman retained equity positions and board seats. www.serta.com
General Atlantic and Quadrangle Group have completed their acquisition of Dice Inc., a New York-based provider of online recruiting services for tech, engineering and security-cleared professionals. No financial terms were disclosed for the deal, which results in GA and Quadrangle each holding an equal ownership position. The Wall Street Journal, however, reported in June that the price-tag was approximately $200 million. www.dice.com Cadbury Schweppes PLC confirmed that it has put its European beverages unit on the block, in an auction expected to net up to Gbp1.3 billion. Interested bidders are reported to include The Carlyle Group, Cinven and Lion Capital (f.k.a. Hicks Muse Europe), although strategic buyers like PepsiCo also could be in the mix. www.cadburyschweppes.com ABN AMRO Capital has received European Commission approval for its pending buyout of Dutch specialty chemical company IMCD Group. www.abnamro.com
Phoenix India Acquisition Corp., a New York–based blank check acquisition company focused on the IT market, has filed to raise $100 million via an IPO. It plans to trade on the OTC Bulletin Board, with Rodman & Renshaw serving as sole book manager. Executives include: Rohit Phansalkar, executive vice president and onetime CEO of Newbridge Capital; and Raju Panjwani, chairman, who previously served as a managing director of Morgan Stanley, where he helped establish the firm’s presence in Alpha Security Group Corp., a New York-based blank check acquisition company focused on the IT market, has filed to raise $64 million via an IPO. It plans to trade on the OTC Bulletin Board, with Maxim Group serving as sole book manager. Executives include: Steven Wasserman, CEO, president and co-chairman, who also serves as managing partner of AMT Ventures; and Gary Johnson, co-chairman, and managing director of venture capital group High Beta of New Mexico. VeriFone Holdings Inc. (NYSE: PAY) has filed to raise approximately $248 million via a secondary share offering. The company will sell 2.5 million shares, while current shareholders (including some members of management) will sell 8.5 million shares. No other details of the selling shareholders were disclosed, although GTCR Golder-Rauner currently maintains a 49% ownership position (31.9 million shares) and TCW/Crescent Mezzanine Partners holds a 4.8% position (3.14 million shares). Tipp24 AG, a Germany-based Internet lottery company, reportedly is planning an IPO within the next year. Earlybird Venture Capital holds a 49% stake in the company. www.tipp24.de SAIC Inc., a San Diego-based provider of scientific, engineering, systems integration and technical services to government and select commercial users, has filed to raise $1.725 billion via an IPO of common stock. One of SAIC’s subsidiaries is SAIC Venture Capital Corp. www.saic.com
Multicom Security AB, a Sweden-based provider of secure communications services for monitored alarm ands mobile data applications, has acquired Eureka Networks has completed its merger with InfoHighway Communications Corp., creating a telecom service provider serving approximately 14,000 small and medium business owners in the
Rabobank has sold off its Gilde private equity unit to Gilde management for an unsiclosed amount. Gilde currently has approximately 1.5 billion euros under management. www.rabobank.com
Ellie Antrim and Patrick Deem have joined Probitas Partners as associates. Antrim previously was a healthcare rep for Pfizer Pharmaceuticals and, before that, an analyst for Bank of America’s corporate finance and syndications groups. Deem was an analyst in Bank of America’s financial sponsors group. www.probitaspartners.com Michael Hagan has joined Morrison & Foerster LLP as a partner in the firm’s corporate finance group. He previously practiced with Coudert Brothers. www.mofo.com
John C. Wilson has joined i2 Telecom International Inc. (OTC BB: ITUI) has CFO and executive vice president. He most recently served as managing principal of Wentworth Advisors and, before that, was an I-banker in Credit Suisse First Boston’s global media and telecom group. www.i2telecom.com
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September 1, 2005 
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