Up and Down

Let’s take a look at two firms that have nothing in common, except that one is having a very good day, while the other is having (yet another) very bad day. Actually, that’s more of a difference than a commonality, but I digress..

On the upside is Greenwich, Conn.-based private equity shop General Atlantic:

• The New York Mercantile Exchange has twice reaffirmed last week’s agreement to sell a 10% stake to GA for $135 million. GA originally competed for the deal against the tandem of Blackstone Group and Battery Ventures, and won. Then came word that former NYMEX chairman Michael Marks was offering $140 million, but the exchange said yesterday that it would not consider the bid (i.e., reaffirmation #1). This morning, NYMEX indicated that it also would not accept a revised $75 million-for-5% bid from Battery Ventures, acting alone (i.e., reaffirmation #2). So far, GA has scored a three-peat victory.
  
• This morning’s NY Post leads with the all-important news that Donald Trump’s new wife is pregnant, but the biz section reports that Bain Capital and The Blackstone Group offered to buy 30% of the New York Stock Exchange in late June for either $3.3 million cash per seat, or $4.4 million in stock and cash. The deal was fairly similar to an existing agreement whereby Archipelago Holdings Inc. would pay $3.3 million cash per NYSE seat, in exchange for a 30% stake, except that the resulting NYSE would not include Archipelago’s electronic exchange solutions. According to the NY Post, NYSE honcho said no to Bain and Blackstone, thus keeping Archipelago in the game. More important for our purposes, it also kept GA in the game, since it still owns a significant piece of Archipelago.
  
• Finally, India-based business process outsourcing company Genpac (f.k.a. Gecis Global) said today that it has signed 12 new clients – totaling $160 million – since January 1, and that it expects $1 billion in annual revenue by 2007-2008. General Atlantic and Oak Hill Capital Partners each acquired a 30% stake in Genpac at the end of last year for a total of $500 million, including $375 million in equity split evenly. Original owner General Electric retained the other 40 percent.

Now to the down-side, which involves (who else) VSP Capital.

Remaining VSP partners Joanna Rees-Gallanter and John Hamm have filed suit against former partners Matt Crisp and Vince Vannelli, alleging breach of fiduciary duty, constructive fraud and misrepresentation and deceit (as first reported by VentureWire). I’ll get into a lot of the case specifics in the next print edition of PE Week, but here are a few quick points:

Joanna and John essentially believe that the downfall of their firm was caused by Crisp and Vannelli, rather than by their own actions. As Joanna wrote to me in an email yesterday: “The lawsuit was filed after an investigation had uncovered substantial evidence of misconduct by the defendants, including emails, agreements, competing business plans, concealed stock transfers, and so forth. The complaint alleges a substantial pattern of conspiracy and breach of fiduciary duty by the defendants. We will seek additional evidence through the discovery process regarding the course of conduct engaged in by the defendants Crisp and Vannelli.”

In short, they believe that a court win would validate their “It was Matt and Vince’s fault” position, and help revive their professional reputations.

This sounds fine in the abstract, but not in the specifics (which is why I suggest that VSP is having a bad day). This filing will do two things that do nothing to help VSP or the reputations of its remaining partners: (1) It keeps the story going. I wrote last week that the VSP saga was over, but that is no longer the case. It will stay in the public – or at least trade – spotlight for some time to come. (2) It will almost certainly prompt a countersuit from Crisp and/or Vannelli. This is bad news for VSP, because any countersuit would almost have to include mention of sensitive goings-on at VSP prior to its collapse. From what I understand, such charges -- if borne out -- will do far more harm than help to Joanna and John’s professional reps.

Finally, one note of interest on the suit is that VSP is not being represented by longtime counsel Cooley Godward. Instead, they got an independent attorney named Michael Q. Eagan. I asked Hamm about the shift, which he said was caused by a conflict of interest (Cooley repping the actual funds) and the fact that Cooley didn’t have litigators, "so we got a litigator.” I can’t speak to the first point, but the first one makes no sense, given that Cooley has a giant litigation department, including a sub-practice focused on VC litigation. I'll give him the benefit of the doubt, which would involve him saying that VSP's specific Cooley attorneys aren't litigators, which is why they hired someone else.

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Top Three

Berkshire Partners and Weston Presidio have agreed to acquire party goods chain Party City Corp. (Nasdaq: PCTY) for $17.50 per share in cash. The total transaction is valued at approximately $360 million, which includes the cash-out of employee stock options and warrants. Once closed, Party City will be merged with Amscan, a company that Goldman Sachs took private for $290 million in 1997, before Berkshire, Weston Presidio and company management recapped it in April 2004. www.partycity.com

ViVotech Inc., a Santa Clara, Calif.-based supplier of “contactless” payment solutions, has raised $18.25 million in Series B funding. Draper Fisher Jurvetson led the round, and was joined by Nokia Growth Partners, DFJ Gotham and return backer Alloy Ventures. www.vivotech.com

Sunesis Pharmaceuticals Inc., a South San Francisco-based drug company focused on oncology and inflammatory diseases, priced six million common shares at $7 per share (below $9-$11 ranged as lead underwriters. Sunesis had raised over $93 million in total VC funding since its 1998 inception, from significant shareholders like Abingworth Management, CSFB Private Equity, Mayfield, Venrock Associates and Warburg Pincus. www.sunesis.com