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From:
"Dan Primack"
Name:
Dan Primack
Email Address:
Dan_Primack@fortune.chtah.com
Subject:
Date:
11-11-2010 15:14:42
Message
Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington
Random Ramblings
While I was out, it seems the big private equity story was a return of dividend recaps. HCA, Dunkin Brands,
Burlington Coat Factories, Ascend Learning, Getty Images, Pelican Products, Petco and more.
For the uninitiated, a dividend recap occurs when a private equity firm raises new debt for one of its
portfolio companies, and then pockets at least part of the proceeds. Not something that could really be
done during the credit crunch, but more than $40 billion worth have been announced so far in 2010,
according to S&P. Around one-quarter of that total involves junk bonds, and the overall volume now rivals
2005 and is closer to 2006/2007 than to 2008/2009.
In theory, I dont mind dividend recaps. A private equity firms primary responsibility is to its limited partners,
and these deals help provide up-front protection in case deals go bad. Think of it like an afternoon at the
blackjack table: You sit down with $100 of chips, and quickly see your stack rise to $140. You then ask
your dealer to color up that initial $100, and promise yourself that it wont return to the circle. Such a move
might diminish your future winnings, but it completely eliminates the possibility of financial loss.
What I do mind, however, is when private equity firms try to have it both ways on value creation.
PE firms and their hired apologists constantly talk about how private equity firms strengthen their
portfolio companies, and how charges of financial engineering are unfair. Well, dividend recaps not only
dont increase a portfolio companys value, but they typically diminish it. They remove company cash for
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the benefit of shareholders who usually control the companys board of directors (furthering the blackjack
analogy imagine if I was both a player and cashier).
So keep doing your dividend recaps, in order to shield investors from possible losses (and to pull some upfront carry for yourselves). But be honest about why youre doing it. And if one of those dividend recapped
companies later fails (think Simmons, KB Toys, etc.), dont pretend it was inevitable. Admit that you took
gains when the going was good, so that you could cut bait easier when the going went bad.
*** There were some Twitter rumors yesterday that Oxford Bioscience Partners had raised a new fund
(with some sort of emphasis on Korea), which would be the firms sixth. It also would be a surprise to many,
including yours truly, who had written off the firms future prospects due to personnel turnover and past
fundraising troubles.
So I emailed Oxford boss Jonathan Fleming, who said that the rumor is a bit premature. Not a denial, so
stay tuned on this one
*** Yesterdays edition had a whopping three mistakes. Not sure if I was overtired, out of practice or just
sloppy. Either way, major apologies and gratitude to readers for letting me know: (1) The venture
capitalist I quoted/profiled was Ben Horowitz, not Brad Horowitz (whos a VP as Google); (2) Ikaria not only
cut the number of IPO shares being offered, but also its planned price range. Kind of irrelevant now, since
the company has pulled the offering all together; (3) Leonard Green acquired its stake in BJs Wholesale
Club via purchases from third parties, not via a PIPE.
*** Speaking of Leonard Green, expect the Los Angeles-based firm to begin raising a new fund in 2011.
The firms current vehicle, a $5.3 billion fund raised in 2006, is approximately 2/3 invested.
*** I had a brief conversation yesterday with Enrique Salem, CEO of computer security software maker
Symantec. Specifically, I wanted his thoughts on reports that activists were buying up Symantec shares, in
order to force a breakup of his company (which currently is valued at over $13.6 billion).
He acknowledged that some new hedge funds will be listed in regulatory filings next Monday, adding: "No
one has told me that they want to break us up into lots of little pieces, but that isn't to say that someone
won't want to."
I also asked Salem if he thought private equity could play a white knight role, or if his company's large
market cap made that unlikely. He suggested (correctly) that I was jumping ahead a few steps, but that he
believed the PE environment is frothy enough -- in terms of both equity and debt -- to do a deal of
Symantec's size.
Pre-Marketing, including a return to Pittsburgh, how Bernanke is like Jigsaw, Phil Falcone's big
problem, more Madoff auction items and why VCs are scared of hospitals.
Joshua Steiner: Consumer debt won't return anytime soon
Adam Lashinsky: Charles Simonyi's out-of-this-world plan to change the way software is made
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SpaceX, the Hawthorne, Calif.-based provider of private space launch services, has raised $50.2 million in
new equity funding, according to a regulatory filing. Return backers include Draper Fisher Jurvetson,
Founders Fund and company founder Elon Musk. The round brings the companys overall venture
capitalization to around $200 million. www.spacex.com
VC Deals
MyShape, a Pasadena, Calif.-based online womens apparel retailer, has raised $5.5 million in new VC
funding. Backers include Draper Fisher Jurvetson, DFJ Growth Fund and Tenaya Captial. The company
previously raised around $28 million. www.myshape.com
Turbulenz Ltd., a UK-based online game creation and publishing platform, has raised over $5 million in
VC funding. No investor information was disclosed. Company COO Gavin Shields previously worked with
Summit Partners. www.turbulenz.com
Mixed Media Labs, maker of social photo-sharing site Picplz, has raised $5 million in Series A funding
from Andreessen Horowitz. www.picplz.com
DataPop, a Los Angeles-based optimizer of copy for online advertisers, has raised $1.7 million in firstround funding. Rincon Venture Partners led the round, and was joined by IA Ventures, Momentum
Ventures and Accelerator Ventures. www.datapop.com
PE-backed IPOs
Ikaria Inc., a Clinton, N.J.-based biopharma company, reportedly has withdrawn registration for its IPO.
The company originally planned to offer 10 million at between $15 and $17 per share,but later reduced the
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terms. Goldman Sachs and Morgan Stanley were serving as co-lead underwriters. Shareholders include
New Mountain Capital (50.98% pre-IPO position), Linde (17.1%), ARCH Venture Partners (10.13%),
Venrock (10.1%), 5AM Ventures, Alexandria Equities, Altitude Life Science Ventures and Washington
Research Foundation. New Mountain and Linde joined in 2007, when New Mountain invested $200 million
to fund Ikarias $670 million acquisition of gaseous drugmaker INO Therapeutics from Linde.
www.ikariainc.com.
Exits
EMC Corp. (NYSE: EMC) has acquired Bus-Tech, a Bedford, Mass.-based provider of virtual tape library
solutions for storing and retrieving mainframe tape data. No financial terms were disclosed. Bus-Tech
backers included Still River Funds. www.emc.com
KKR has agreed to sell German waste management company Duales System Deutschland GmbH to
company management, which is being backed by British private equity firm Solidus, according to Reuters.
No financial terms were disclosed. www.kkr.com
Other Deals
Borrego Solar Systems Inc., an El Cajon, Calif.-based maker and installer of grid-tied solar
power systems, has raised new project financing from U.S. Bank and East West Bank. The
capital will be used to fund approximately $36 million worth of projects, including systems at
Madera Community Hospital and at the San Diego County Water Authority.
Primus Telecommunications Group Inc. (OTC: PMUG) has agreed to acquire Arbinet Corp. (Nasdaq:
ARBX), a Herndon, Va.-based provider of voice, data and managed communications services for fixed,
mobile and wholesale carriers. The deal is valued at $28 million in stock. www.arbinet.com
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