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From:

"Dan Primack"

Name:

Dan Primack

Email Address:

Dan_Primack@fortune.chtah.com

Subject:

Term Sheet -- Wednesday, November 3

Date:

03-11-2010 14:32:39
Message

Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington

The Term Sheet by Katie Benner

Wednesday -- November 3, 2010
Email Katie | Follow Dan on Twitter | Subscribe

Debt and deals (and cov-lite is back?)

The Republicans won the House, the Democrats kept the Senate, and the Tea Party fizzled.
Perhaps this will quiet some of the Sarah Palin 2012 speculation that will drive us all to madness
if it becomes the only political conversation for two long (boring) years. Apparently Mike
Bloomberg 2012 is what captures the imaginations of Term Sheet readers, a few of whom sent
in messages of support.****
But what will really drive dealmaking is not the rise and fall of Nancy Pelosi, but the continuation
of low interest rates, which may also wipe away the potential for big returns.
Consider if you will the classic formula for why private equity does so well after a bust. A study
by Andrea Auerbach over at Cambridge Associates that says buyout firms tend to make more
profitable acquisitions after a meltdown because loans are hard to get, growth slows, and firms
can make acquisitions at low multiples of low corporate cash flows. Then they can sell when the
market turns higher. Funds raised in 2001, 2002, and 2003 returned 33%, 29%, and 31%,
respectively, after fees, the best three years in her 20-year survey.
But Fed easing rates could be messing with the formula to the detriment of the LPs. I spoke
with Auerbach yesterday and she notes that not only is leverage easy to come by, but that it is
probably enabling the latest rise in transaction volume. She adds that the environment is so
easy that were even seeing those infamous words covenant lite re-enter the dealmaking
lexicon.

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It makes me wonder if that moment of opportunity following a period o recession has passed
to make huge returns, she says. It feels like there has been a snap back from 09 to 10 in
terms of the availability of leverage and purchase prices that we didnt expect to see so early.
Anecdotally, she says that when her group hears talk about buyout firms bidding for deals, the
winning bid is often characterized now as being priced at a 15% return for the firm. Compare
that to the average return in the 2001-2002 time frame when the net to LPs was over 20%,
she says.
*In other news, everyone is obsessed with GMs possible $45.4 billion tax break, calling it
another way in which the bailed out automaker will be getting a handout from we the taxpayer.
I get the outrage, but keep in mind that companies like General Electric have famously found
ways to avoid the US taxman for ages, similarly depriving Americans from the tax dollars we
could really use right now.
**EMI/Guy Hands/Citi has trumped MGM/Icahn and BHP/Potash to win the title of biggest
clown in dealmakings current three ring circus. Did we really have to drag Michael Moore into
this? Yes, yes we did. And the offending juror was dismissed. Peter Lattman over that the
NYTimes Dealbook has been all over the story. The layers-upon-layers of absurdity are enough
to make a grown man weep in the courthouse mens room. Take heart. Closing arguments
should begin Wednesday.
*** The venture capital industry is being hit by shrinking returns as it continues to struggle
to recover from the financial crisis, according to a new study by Cambridge Associates and the
National Venture Capital Association. The 10-year return, seen as the most reliable benchmark
for the industry, was negative 4.2 percent at the end of the second quarter, compared with a
positive 14.3 percent during the same period last year. While we have seen increased exit
volumes in 2010, the number of I.P.O.s and acquisitions have not translated to improved
venture returns yet, Mark Heesen, president of the National Venture Capital Association said in
a statement.
****An astute reader points out that while Mike Bloomberg and his $18 billion net worth
may be able to eclipse the $4 billion spent on campaigns this year, that Mitt Romney, with his
more modest $200 million net worth could not.
*****BREAKING: Emma Josephine Primack was born at 12:44am this morning, weighing
7lbs 3oz. Dan reports that Mother and daughter are healthy and happy, although only one
seems interested in sleep.
Ill be filling in for Dan while hes away on paternity leave. Feel free to ping him to say
congratulations, and please send all work related emails (news, tips, scoops, corrections) to me
at Katie_benner@fortune.com

6 things you should read @Fortune.com

Dan Primack: The other guy behind Andreeson Horowitz

Shawn Tully: Paul Ryan'sbig plans for a small budget

Tory Newmyer: A new day for Wall Street

Meet Bob Kraft: Football's true Patriot

Did a shortseller down on for-profit education overstep his boundaries?

Geoff Colvin: As Europe cuts, America spends

The Big Deal

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BlackRock, the worlds largest asset manager, announced that Bank of America will sell at least
34.5 million shares it holds in the firm and that PNC Financial Services will sell up to 7.5 million
of its BlackRock shares. Bank of America may also sell the rest of its 6.3 million shares in the
overallotment option, but it would still own preferred shares in BlackRock. This would shrink its
stake down from 33.9% to 12.6%. PNC's stake would fall from 24.3% to 20.3%.
This is a big deal because shares of BlackRock are owned primarily by three banks: Bank of
America, PNC Financial Services, and Barclays. They have a total interest of 79% and 44% of
the firms voting rights. According to a recently published story
http://www.efinancialnews.com/story/2010-11-01/between-a-blackrock-and-a-hard-place in
Financial News, their stakes are so large that BlackRocks float is too small for it to secure a slot
in the S&P 500 index, the bellwether index tracked by legions of mutual funds, exchange-traded
funds, and pension funds. http://www2.blackrock.com/global/home/index.htm

VC Deals

LiveU, an Israeli company that enables wireless video transmissions, completed an $11 million
financing round led by Pitango Venture Capital. Carmel Ventures and Canaan Partners also
contributed money. The company hopes to expand sales and develop products. LiveU has raised
more than $23 million. http://www.liveu.tv/
Intersect ENT, a Palo Alto-based medical device company, closed a $30 million Series C
financing round led by Medtronic. Investors also include Kleiner Perkins Caufield & Byers, PTV
Sciences, and U.S. Venture Partners. Intersect ENT, formerly Sinexus, makes therapies for ear,
nose, and throat surgeons. http://www.intersectent.com/
RingCentral, based in San Mateo, CA, raised $10 million in a Series C financing round led by
Cisco. Formerly known as Winportal Technologies, RingCentral offers a cloud-based business
phone system that allows employees to work from anywhere. http://www.ringcentral.com/
SpiderCloud Wireless raised $14.1 million from unnamed investors. The companys
enterprise radio access network (E-RAN) can expand the bandwidth capacity of mobile phone
networks. It has previously raised $40 million from Charles River Ventures, Matrix Partners,
Opus Capital, and Shasta Ventures. http://www.spidercloud.com/
Curse, a San Francisco-based company that makes add-ons for multi-player online games,
raised $12.4 million. It previously raised $11 million from Ventech, SoftTech VC, AGF Private
Equity, and angel investors.
Urban Airship, a Portland, OR-based provider of mobile apps, raised $5.4 million in a Series B
funding round. Foundry Group led the financing, joined by True Ventures and Founders Co-op.
http://urbanairship.com/
Cloud Sherpas, an Atlanta, GA-based cloud computing company, secured $1.6 million in
Series A-1 financing. The round was led by Syncarpha Capital, Vento Security Holdings and
Hallett Capital. Cloud Sherpas will use the new capital to accelerate the adoption of Google Apps
across major industries. www.cloudsherpas.com
PathCentral, an Irvine, CA-based anatomic pathology services company, raised $10 million in
Series B financing. Okapi Venture Capital, Arboretum Ventures, and Baird Venture Partners coled the round. The proceeds will be used to support company growth initiatives.
http://pathcentral.net

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Anatole, a Parisian telecom expense management software maker, raised about $2.8 million
from private investment firm A Plus Finance. The money will be used to expand in Europe and
to improve R&D. www.anatole.net/en
Electrolytic Ozone, a Boston-based developer of ozone-generating technology, raised an
undisclosed amount in Series A funding. www.eoi-ozone.com

Private Equity
Kohlberg Kravis Roberts saw its profits fall 61% to $317.3 million in the third quarter of
2010, compared with the same period last year. www.kkr.com
Permira is among the bidders for Dometic, a Swedish refrigerator maker, reports Dow Jones.
Lenders took control of Domestic after its owner BC Partners failed to make payments on debt,
and now they are putting the company up for sale. According to reports, the deal could be
worth as much as $1.6 billion. http://www.permira.com/
Goldman Sachs may try to takeover Paternoster, a UK pension benefits provider, for $480
million, according to reports in the British press. A potential deal would merge Paternoster with
Goldmans pension buyout business. http://www.paternoster.uk.com/content/
CORE Business Credit has been acquired by NewStar Financial for about $25 million. CORE
Business Credit is the asset-based lending business of CORE Financial Holdings, which is a
portfolio company of American Capital Strategies, a Bethesda, MD-based private equity firm.
http://www.corebc.com/
Home Brands, Inc., a Portsmouth, NH company that makes wooden outdoor storage
products, is being acquired by Backyard Leisure Holdings, a portfolio company of Baird Capital
Partners. Terms of the deal were not disclosed. The deal combines the No. 1 wooden play set
maker with the No. 3 wooden shed manufacturer, creating the global leader in the wooden
backyard products industry. The terms of the deal were not disclosed.
http://www.shedsusa.com/
Arismore, a French IT company, sold an 11% stake to AXA Private Equity, based in Paris.
Financial terms were not disclosed. http://www.arismore.fr/
Dent Wizard International Corporation, a St. Louis based company that provides cosmetic
automobile repairs, has been bought by H.I.G. Capital from Manheim. Terms of the deal were
not disclosed. http://www.dentwizard.com/
Salter Labs, a medical device manufacturer, sold a majority stake to RoundTable Healthcare
Partners, a firm that focuses on healthcare. Financial terms werent disclosed.
http://www.salterlabs.com/

IPOs
Xueda Education Group, a Beijing-based tutoring company, raised $128 million in an initial
public offering. Shares also made big gains on their first day trading on the New York Stock
Exchange. Trading under the ticker, XUE, Xueda shares opened at $14.30, up 51% from the
initial public offering price of $9.50. Shares closed at $12.50. Goldman Sachs managed Xueda's
IPO. http://www.xueda.com/english/index.shtml
Skype is planning an initial public offering for next year, according to Reuters, which could
value the company at as much as $1 billion. http://www.skype.com/intl/en-us/home

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China Construction Bank, Chinas second largest lender, seeks to raise $9.2 billion (61.62
billion yuan) by holding a rights issue this month in Shanghai and Hong Kong. This is less than
the bank originally sought to raise. The money should help strengthen the banks balance sheet.
http://www.ccb.com/en/home/index.html
SodaStream, which makes the leading at-home soda maker, priced at the high end of its
range and raised over $100 million. The company will list on the NASDAQ today under the ticker
SODA, and ring the closing bell at the NASDAQ marketsite. http://www.sodastreamusa.com/
QR National, an Australian railroad, is hoping to raise just over $5 billion in an IPO. The road
comes to Boston on Thursday. If investors do pay that much, it will represent more than 21
times forward 2011 earnings estimates. According to the Wall Street Journal, thats about twice
the valuation of the average Australian stock. http://www.qrnational.com.au/Pages/Home.aspx

Exits
The California Public Employees Retirement System (Calpers) sold its stake in two
property funds to the Blackstone Group in a deal valued at $225 million in debt and equity, the
Wall Street Journal reports. The residential real estate funds are both managed by CityView,
based in Los Angeles. Noting that Calpers has been trying to exit non-core businesses like real
estate, CityView chief executive told the paper: We went out and found Blackstone as a new
partner who really understands residential real estate and has the vision and the capital to see
the investment through." http://www.cityview.com/
Keane Inc., a Boston-based IT services provider, was acquired by NTT Data of Japan from
Citigroup Venture Capital International. Terms of the deal were not disclosed. Citigroup Venture
Capital International is a private equity firm within Citigroup. http://www.keane.com/
Citigroup also wants to sell $500 million worth of private equity investments it made with CVC
Partners, reports the Financial Times, including stakes in companies owned by CVC and in funds
managed by the buyout group. The CVC investments are among Citi Holdings approximately $2
billion in private equity investments. Citi Holdings has about $421 billion in assets, and the bank
has been working to shrink this division as a part of an ongoing effort to shed non-core
businesses. http://www.citigroup.com/citi/homepage/
New Mountain Capital is selling its investment in MailSouth to private equity firm Court
Square Capital. Terms of the deal were not disclosed. New Mountain originally paid about $100
million for the direct mail and marketing company in 2005. This week New Mountains Ikarioa
biotech platform also announced the terms of a planned IPO. http://www.mailsouth.com/
Air Medical Group Holdings, a Lewisville, TX-based provider of air ambulance services, will
be acquired by Bain Capital in a deal worth $1 billion in equity and debt. Bain purchased Air
Medical from private equity owners MVP Capital Partners and Brockway Moran & Partners in a
secondary buyout. http://www.mvpcapitalpartners.com/portfolio/portfolio.asp?fund=66
Charlesbank Capital Partners sold its portfolio company Blacksmith Brands Holdings to
Prestige Brands Holdings for $190 million, plus a $13.4 million working capital adjustment.
www.charlesbank.com

Other Deals
Art Technology Group, a Cambridge, MA-ased e-commerce software provider, will be bought
by Oracle for about $1 billion, or 46% more than Art Technology's closing stock price on

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Monday. Art Technology also reported earnings on Tuesday of $4.2 million in net income. This is
Oracle's first deal announcement since hiring Mark Hurd. www.atg.com
Apple and Google are both potential suitors for Boku, a mobile payment startup company that
has raised $25 million in venture capital, TechCrunch reports. Boku is valued at $100 million and
is backed by by Andreessen Horowitz, Khosla Ventures, Benchmark Capital, DAG Ventures, and
Index Ventures. The report says that Apple is interested in buying Boku, while Google would be
more inclined to partner. http://www.boku.com/
Boomi, a Berwyn, PA-based company that provides cloud computing software and services, will
be acquired by Dell. Terms of the deal were not disclosed. Customers use Boomi to integrate
cloud-based services into their businesses, and its customers include Salesforce.com.
http://www.boomi.com/
The Washington Times, an ailing Washington DC newspaper, was sold for $1 to a group
backed by its founder, Unification Church leader Rev. Sun Myung Moon.
http://www.washingtontimes.com/
Airgas' chairman said that his company would be open to holding deal talks with Air Products
provided it would get at least $78 a share, according to a report by the New York Times.
Art Technology Group, a Cambridge, MA-based company that helps businesses interact with
online shoppers, will be purchased by Oracle in a $1 billion all-cash deal. ATG works with
customers like AT&T and Best Buy to improve their websites and make it easier to buy products
online. It also analyzes visitor the behavior of customers who visit company websites. The $6per-share purchase price is 46% hither than ATGs closing price on Monday.
http://www.atg.com/
Geckotech, a Chicago-based VoIP phone system provider, is being acquired by rival M5
Networks in a deal valued at $8 million. http://www.geckotechllc.com/
Green Bank, a unit of Houston-based Green Bancorp, completed its acquisition of the Dallas
branch of the former La Jolla Bank from OneWest Bank, FSB. www.greenbank.com

Firms & Funds

Andreessen Horowitz, formed by Netscape co-founder Marc Andreessen and entrepreneur
Ben Horowitz, has raised $650 million for its second fund. http://a16z.com/
Hopu Investment Management, a private equity fund started by Chinese investors, is set to
wind down, according to a report by the Financial Times. Hopu, created by former Goldman
Sachs bankers, has told investors that the fund is exiting its remaining businesses and that two
of its three founding partner are retiring. Hopu had the support of Singapores Temasek, and it
raised $2.5 billion in one of the largest first-time fund-raisings in Asia.
Kayne Anderson Capital Advisors, bases in Los Angeles, has raised $600 million for its firstever mezzanine fund, which will e run by Ed Cerny and David Petrucco in New York. Cerny and
Petrucco previously worked at Blackstone Group as managing directors in the corporate-debt
group. Kayne Anderson beat its $500 million fund raising target, and the fund has a 10-year
time span. Kayne Anderson has $9.9 billion in assets under management.
http://www.kaynecapital.com/index.php
GTCR, based in Chicago, plans to raise its tenth buyout fund with a goal of $3 billion. The
Teachers Retirement System of Illinois has disclosed that it committed up to $100 million for

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GTCR Fund X. GTCR focuses on investments in technology, healthcare, and financial services.
http://www.gtcr.com/
Wellspring Capital Management closed on WellspringCapital Partners V with capital
commitments totaling $1.2 billion. http://www.wellspringcapital.com/

Moving In, Up and On

Abu Dhabi Investment Authority, the sovereign wealth fund of Abu Dhabi, has named
James Kester to the post of chief investment officer for private equity, Reuters reported.
http://www.adia.ae/
DE Shaws Julius Gaudio will move from New York to Hong Kong to build out the firms
presence in Asia. Gaudio is one of the firms six executive committee members. D.E. Shaw has
$20 billion in assets under management, and recently laid off 150 people. Gaudio joined DE
Shaw in 1993. http://www.deshaw.com/
CVC Capital Partners appointed Ignatius Chan Tze Ching as a senior adviser to support the
private equity firms activities in Asia. Chan is a senior adviser to the Bank of East Asia and
serves as a non-executive director Hong Kong Exchanges and Clearing board. Previously, he was
head of corporate and investment banking for Greater China at Citi.
http://www.cvc.com/Content/EN/General/Home.aspx
Ben McQuhae has joined Jones Day as an energy partner in its Hong Kong office. McQuhae,
who has been based in Hong Kong since 2001, comes from the Hong Kong office of Fulbright &
Jaworski, where he was a partner in that firms energy practice. http://www.jonesday.com/

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