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From:

"Dan Primack"

Name:

Dan Primack

Email Address:

Dan_Primack@fortune.chtah.com

Subject:

Term Sheet --Monday, December 6

Date:

06-12-2010 15:10:17
Message

Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington

The Term Sheet by Dan Primack

Monday -- December 6, 2010
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Random Ramblings
On November 5, 2008, I wrote a column titled: The Carried Interest Debate Is Over. This was the lead:
Remember that big debate over how the IRS should treat carried interest, in which certain agitators
(hello mirror) argued that such profits more closely resemble ordinary income than capital gains?
Well, it effectively ended last night at 11pm ET, when Barack Obama corralled his 270th electoral
vote.
Momentum for such a change stalled late last year, due largely to vocal opposition from President
Bush and GOP Congressman Tom Reynolds. It also didnt hurt that private equity was wiped off the
front pages by credit concerns, but this was more about political power than political posturing.
Now, however, the playing field has been dramatically altered. Bush will be replaced by Obama,
who signaled 18 months ago that he supports a change to carried interest tax treatment. The
retiring Reynolds will be succeeded by another Republican (Chris Lee), but not by one with nearly
the same seniority or influence. Plus, the Democrats will have much stronger majorities in both
houses of Congress.
The response was swift and, in some cases, furious. One prominent industry lobbyist screamed via
telephone that I had no idea what I was talking about and that such projections were irresponsible.

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Turns out he was right. I was wrong.

The Senate today will vote on a tax cut extension bill that no longer includes the carried interest provision.
There is still a small chance that the change will reemerge in whatever grand bargain is struck between
Obama and Republicans, or perhaps next year if/when real tax code reform is broached. But dont bet on it,
since most House Republicans have metastasized around the idea that any tax hike even if its closing a
loophole or being matched by spending cuts is a non-starter (as such, also dont expect real tax code
reform).
I am humbled by my poor prediction. My fatal flaw was in badly underestimating the cowardice and
incompetence of Congressional Democrats.
This was a no-brainer. It would have taxed private equity investors the same way the rest of us are taxed:
Ordinary income rates on fees for service, capital gains rates on money that we ourselves have put at risk.
But somehow Democrats were cowed by industry arguments that this was class warfare, or that private
equity investment and VC investment, in particular would dry up. Never mind that not a single
significant PE or VC investor threatened to retire were the change exacted. Never mind that VC investment
totals were higher when capital gains rates were higher. Never mind the intrinsic inequity of the current
construct.
Never mind any of it. Because now the carried interest debate is truly over.
*** Radio silence from Groupon boss Andrew Mason on Friday, vis--vis our dollhouse conversation.
Seems like he might have had some other things on his mind (like spurning Googles $6 billion offer).
As an aside, a bunch of you have asked about the very concept of miniature dollhouses, given that
dollhouses are miniatures by definition. My guess is Mason is talking about dollhouse miniatures, which are
the furnishings and other accoutrements that go within a dollhouse.
*** The Reuters homepage this morning has been topped with a story about how AOL is actively exploring
a breakup involving a complicated series of transactions that may lead to a merger with Yahoo Inc. Wow.
That would be a big deal. Only problem is that Yahoo has not yet been contacted.
In related news, Im actively exploring the possibility of calling offensive plays for the Patriots tonight. Just
need to ring that Belichick guy

6 things to read @Fortune.com

Pre-Marketing, including six reasons why the Goo-Pon failure is good for the universe, Treasury
Dep't gets social, new info on the final days of WaMu, troubling news for Upper Crust pizza
fans and Bernanke on 60 Minutes.

Michael Lazerow: How to raise venture capital (without losing your soul)
Colin Barr: Financial stress index rises

Marc Gunther: Waste Management's new direction

Paul Smalera: Google's Groupon groping reveals shifting power in Web world

Dan Primack: Recovery alert: Covenant relief activity is falling fast

The Big Deal

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Pershing Square Capital Management, the Bill Ackman-managed hedge fund whose
holdings include Borders Group, has offered to finance a $960 million takeover offer for Barnes
& Noble. The plan was first revealed in a regulatory filing, in which Pershing Square would
sponsor a $16 per share offer, which would represent a 20% premium to Fridays closing price
for B&N stock.

VC Deals
FleetMatics, a Boston-based provider of GPS tracking applications for commercial fleets, has raised $68
million in growth equity funding. Institutional Venture Partners was joined by New World Ventures and
return backer Investcorp Technology Partners. www.fleetmatics.com
Shoutlet Inc., a Madison, Wis.-based social media marketing platform, has raised $6 million in Series B
funding. American Family Insurance led the round, and was joined by return backers shareholders Origin
Ventures and Leo Capital Holdings. www.shoutlet.com
Monetate, a Philadelphia-based provider of testing, targeting, and personalization for website, has raised
$5.1 million from firms like First Round Capital and Floodgate. www.monetate.com
Taulia, a San Francisco-based provider of dynamic discounting solutions and self-service vendor portals,
has raised $3.2 million in new VC funding. Matrix Partners and Trinity Ventures were joined by return
backer The Angels Forum. www.taulia.com
PacketMotion, a San Jose, Calif.-based provider of user activity management solutions for IT audit and
compliance efficiency, has raised $2.7 million in new Series C funding. The round now stands at $7.7
million, including a $5 million first close last month. Athenian Venture Partners led the new infususion,
and was joined by return backers Reservoir Venture Partners, Intel Capital, Mohr Davidow Ventures and
Onset Ventures. www.packetmotion.com
Zynga has acquired mobile social game developer Newtoy Inc. No financial terms were disclosed. Zynga
has raised around $390 million in total VC funding, from Softbank, Digital Sky Technologies, Andreessen
Horowitz, Tiger Global, Institutional Venture Partners, Kleiner Perkins Caufield & Byers, Union Square
Ventures, Foundry Group and Avalon Ventures. www.zynga.com

Private Equity Deals

The Blackstone Group is expected to bid on Spanish can-maker Mivisa SA, according to Dow Jones.
The comp any is expected to generate bids of approximately 1 billion, with Crown Holdings (NYSE: CCK)
also reported to have interest.
Choice Cable, a Puerto Rican cable operator owned by HM Capital Partners and Spectrum Equity
Investors, is launching a $105 million dividend recap loan, according to S&P. www.choicecable.com
EQT Partners has acquired a 30% stake in Modern Metal & Precision Holdings Ltd., a Chinese
aluminum die casting manufacturer. No financial terms were disclosed. Modern Metal had approximately
$75 million in sales for the fiscal year ending March 31, 2010. www.eqt.se
EQT Partners and Nordic Capital are among possible bidders for Dometic Group, a Swiss maker of
portable refrigerators, according to Dow Jones. The deal could be valued at around $1.6 billion. Dometic
was a BC Partners portfolio company that last year was taken over by its lenders.

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Permira is the leading suitor for Israels Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS),
according to Globes Online. Apax Partners also is reported to have interest. www.permira.com
Gilde Buy Out Partners is in talks to buy listed Dutch conveyor belt maker Gamma Holdings NV,
according to Bloomberg. The deal could value Gamma at around 218 million. www.gilde.nl
Phones 4U, a UK mobile phone retailer owned by Providence Equity Partners, is expecting first-rounds
takeover bids next week, according to The Financial Times. BC Partners is among potential bidders, with
offers expected to come in between 600 million and 700 million. www.provequity.com

PE-backed IPOs
Sagent Pharmaceuticals Inc., a Schaumburg, Ill.-based developer of injectible drugs, has filed for 1 $100
million IPO. It plans to trade on the Nasdaq under ticker symbol SGNT, with Morgan Stanley, BoA Merrill
Lynch and Jefferies & Co. serving as co-lead underwriters. The company reports a $20.88 million net loss
for the first nine months of 2010, on over $40 million in revenue. The company has raised over $150 million
in VC funding from Vivo Ventures (43.4% pre-IPO stake), Morgan Stanley (20.8%), Key Gate Investments
(16%), CNF Investments (5.4%) and Zhejiang Hisun Pharmaceutical Co. www.sagentpharma.com
Fluidigm, a South San Francisco-based provider of integrated fluidic circuits for the life sciences market,
has filed for an $86.25 million IPO offering. It plans to trade on the Nasdaq under ticker symbol FLDM, with
Deutsche Bank Securities and Piper Jaffray serving as co-lead underwriters. The company originally filed
for an IPO in early 2008, but canceled the offering later that same year. It has raised over $200 million in
private financing, from firms like Bio*One Capital, Versant Ventures, EuclidSR Partners, InterWest
Partners, Alloy Ventures, InterWest Venture Partners and Lilly Ventures.www.fluidigm.com

Exits

BroadSoft Inc. (Nasdaq: BSFT), a Gaithersburg, Md.-based provider of VoIP application software to the
telecom industry, has filed for a secondary offering of five million common shares. It closed trading last
Thursday at $24.70 per share. The company raised $67.5 million in an IPO earlier this year, at $9 per
share. Specific selling shareholders are not listed, but existing backers include Bessemer Venture Partners,
Grotech Ventures, Charles River Ventures and Columbia Capital. www.broadsoft.com
BMC Software (Nasdaq: BMC) has acquired GridApp Systems Inc., a company focused on automating
database provisioning, patching and administration. No financial terms were disclosed. GridApp has raised
over $5 million in VC funding from Advantage Capital Partners, Ascend Venture Group, Gefinor Ventures
and Rand Capital. www.gridapp.com
Google has acquired WideVine Technologies Inc., a Seattle-based provider of digital entertainment
delivery solutions. No financial terms were disclosed. WideVine had raised over $67 million in VC funding
from Liberty Global, Samsung Ventures, Constellation Ventures and VantagePoint Venture Partners.
www.widevine.com

Groupon, a Chicago-based group buying site, reportedly has rejected a $6 billion buyout offer
from Google. Groupon will remain a private company, having raised over $165 million in VC
funding from Digital Sky Technologies, Battery Ventures, Accel Partners and New Enterprise
Associates . www.groupon.com .

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One Equity Partners is planning to sell Columbian Chemicals Co., a Marietta, Ga.-based manufacturer of
carbon black used in tires and synthetic rubber, according to Bloomberg. The deal could be valued at more
than $500 million, with possible bidders including Germanys Evonik Industries and Indias Aditya Birla
Group. www.oneequity.com

Other Deals
DigitalTown Inc. (OTC BB: DGTW), a Burnsville, Minn.-based developer of a nationwide social media
network of local online communities, has secured $10 million in equity financing from Boston-based
Auctus Private Equity Fund. Northland Capital Markets advised DigitalTown on the deal.
www.digitaltown.com

Firms & Funds

Apollo Global Management has formed a strategic partnership with Lighthouse Investment Partners, a
fund-of-hedge funds manager with $4.5 billion in assets under management. As part of the deal, Apollo will
make a $75 million convertible note investment into HFA Holdings Limited (ASX: HFA), the parent
company of Lighthouse. www.lighthousepartners.com
Razors Edge Fund, a new venture capital group, is raising upwards of $40 million for its debut fund,
according to an SEC filing. So far it has secured more than $23 million in capital commitments. The Razors
Edge management team comes from Blackbird Technologies, a company that helps solve challenging
problems for customers in the defense, intelligence and law enforcement communities.
www.blackbirdtech.com

Moving In, Up and On

Admiral Inman, managing director of Gefinor Ventures and Limestone Ventures, has been named nonexecutive director of Massey Energy Co. (NYSE: MEE). He is an existing Massey board member, and
succeeds Don Blankenship, who also is retiring as company CEO. www.masseyenergyco.com
Praesidian Capital has promoted Glenn Harrison to managing director and James Heyer to vice
president. Harrison joined the mezzanine firm three years ago from Merrill Lynch Middle Market Finance,
while Heyer joined two years ago from Goldman Sachs. www.praesidian.com

Jonathan Quigley has resigned from the board of Schroder Private Equity Fund of Funds,
for business reasons. He will be succeeded by Gerald Brady, former Country Head of Northern
Trust in Ireland

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