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From:

"Dan Primack"

Name:

Dan Primack

Email Address:

Dan_Primack@fortune.chtah.com

Subject:

The Term Sheet - - Monday, September 19

Date:

20-09-2010 14:06:27
Message

Fortune Finance

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The Term Sheet by Dan Primack

Monday -- September 20, 2010

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Random Ramblings
Hellman & Friedman this morning announced that it has agreed to buy Internet Brands, the online publisher that began life 12 years ago
as Idealab-backed CarsDirect.com. I plan to delve deeper into the actual deal later today, but right now just a quick note on Hellman &
Friedman's participation.
It would appear that H&F will do this deal out of its sixth fund, an $8.4 billion vehicle closed in 2006. Makes sense, until you remember that
the firm also raised an $8.8 billion pool in late 2009.
According to data from CalPERS, H&F VI was only around 70% called through the end of Q1. That would mean around $2.52 billion left in
dry powder (yes, I'm ignoring the possibility that CalPERS' cash-in figure includes annual management fees). Since then, it has
announced three deal: Internet Brands ($640m), Associated Materials ($1.3 billion) and Sedgwick Claims Management Services Inc. ($1.1
billion, together with Stone Point Capital).
Let's assume that each of those deals included a 40% equity check from H&F (or 20% in the case of SCMS, because the equity was
syndicated). That would mean around $776 million in new equity commitments, bringing the remaining dry powder to around $1.75 billion.
The firm probably wants to hold onto at least $750 million for follow-ons or other special situations, which means there is about $1 billion
to go. Sounds to me like Fund VII won't see its first deal until at least the first quarter of 2011, or 15 months after it closed. Guess this was
the mega-fund to invest in if you were having liquidity troubles
*** CalPERS recently updated the fund-by-fund performance data on its website, so I figured it was worth a quick look to see the five
best -- and five worst -- performing funds within the pension giant's portfolio.
Because private equity is a long-term asset class characterized by J-curvature, I've only included funds raised before 2007. The relevant
metric is net IRR, and all data is through March 31. Here goes:

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THE BEST:
1.
2.
3.
4.
5.

Clearstone Venture Partners 1-B (1999): 154.7%

T3 Partners II (2001): 95.6%
GCP California Fund (2003): 91.9%
WLR Recovery Fund II (2002): 79.5%
Permira Europe I (1997): 74.5%

THE WORST
1.
2.
3.
4.
5.

Aberdare II Annex Fund (2006): -46.6%

Exxel Capital Partners V (1998): -41.7%
Opportunity Capital Partners IV: -28.9%
Convergence Ventures II (1999): -28.5%
Richardson Capital Private Equity 2 (2006): -28.1%

*** Alsop Louie Partners has hit the $86 million mark for its second fund, according to a regulatory filing. I emailed (the normallyloquacious) Stewart Alsop to ask if this represented a final close - ALP's debut fund capped out at $75 million - and he responded with the
following: ":-)"
I have no idea if that's a confirmation or denial, nor if it's proper journalism to put emoticons in quotation marks. I leave all of it up to your
interpretation
*** Quiz Time: There's another Silicon Valley VC firm that has quietly closed its second fund with a bit more than it raised the first time
around. Hint: The formal announcement has been held up for reasons that have nothing to do with business.
*** Apparently this is very old news, but I was unaware that Fuse Capital's Baris Karadogan had become fulltime CEO of Hip Digital
Media. I'm told that he remains a partner with Fuse (fka ComVentures).
*** Well, it seems that Revis Island did indeed close. Unfortunately, there were plenty of other attractions...

Five things you should read @Fortune.com

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a little inflation might do us some good.
The bull market in baby-wearing
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David Kirkpatrick: For-profit colleges get a bum deal
Which cloud computing companies could get snapped up next?

The Big Deal

Solve Media has raised more than $5 million in VC funding. Backers include First Round Capital, New Atlantic Ventures, AOL Ventures,
Felicis Ventures, Chris Dixon and Roger Ehrenberg.
It's not a big deal because of dollars, but because of idea. The New York-based company is looking to transform "captchas" - those
barely-readable word jumbles that websites often use to authenticate the submission of sensitive data. More specifically, it wants to turn
captchas into ad space. For example, why copy "fseafg fgfge" when you can copy "Coca-Cola tastes great."
To me, it's one of those "d'oh, why didn't I think of that" business plans

VC Deals

Mbaobao.com, a Jiaxing, China-based designer and online detail of bags and accessories, has raised $30 million in first-round funding
from DCM and Legend Capital. www.mgaobao.com

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Cirtas Systems, a San Jose, Calif.-based maker of cloud storage hardware, has raised $10 million in Series A funding. Backers include
New Enterprise Associates, Lightspeed Venture Partners and Amazon. www.cirtas.com
BA Insight Inc., a White Plains, N.Y.-based maker of enterprise search software, has raised $6 million in VC funding. Milestone Venture
Partners led the round, and was joined by Paladin Capital Group and Osage Venture Partners. www.ba-insight.com

Buyouts Deals
Bain Capital, The Carlyle Group, KKR and TPG Capital are in talks to acquire around a 15% stake in Indian motorcycle maker Hero
Honda Motors, according to Bloomberg. Honda Motor Corp. is believed to value the stake at around $1.1 billion. www.honda.com
Battery Ventures has agreed to acquire RAE Systems Inc. (AMEX: RAE), a San Jose, Calif.-based maker of gas detection systems.
The deal values RAE at approximately $95 million, or $1.60 per share (53.8% premium to Friday's closing stock price).
www.raesystems.com
BC Partners is in talks to buy back some debt in Foxtons from lender BoA Merrill Lynch, according to the FT. BC Partners lost control
of the UK real estate agency in 2009, via a debt-for-equity restructuring.
Brit Insurance (LSE: BRE) has agreed to be acquired for 850 million by Apollo Management and CVC Capital Partners.
www.britinsurance.com
Clorox Co. (NYSE: CLX) is in advanced talks to sell its STP and Armor All auto-care brands to Avista Capital Partners for between
$750 million and $800 million, according to Bloomberg. The assets have been on the block since April, and had received attention from
such firms as Blackstone Group, Castle Harlan and Golden Gate Capital. www.avistacap.com
Cinven reportedly has taken pole position in the auction for UK hospital and care-home operator Priory Group, which is being sold by
Royal Bank of Scotland for approximately 1 billion. Other bidders include Advent International, Bain Capital and The Blackstone Group.
www.priorygroup.com
Dynegy Inc. (NYSE: DYN) set October 1 as the date by which shareholders must vote on a possible buyout by The Blackstone Group.
A 40-day "go-shop" period ends on September 22. www.dynegy.com
Hellman & Friedman has agreed to acquire online media company Internet Brands Inc. (Nasdaq: INET). The deal is valued at
approximately $640 million, or $13.35 per share (46.5% premium to Friday's closing price). www.internetbrands.com
Oaktree Capital Management has bought Energy Solutions International Inc., a provider of software for oil and gas pipelines and
terminals, from Inverness Graham Investments. No financial terms were disclosed. Oaktree transacted the deal via its GFI Energy Group.
www.energy-solutions.com
KKR and TPG Capital are in talks to partner on a bid for the wine unit of Australian brewer Foster's (AX: FGL), according to the
Australian Financial Review. Foster's recently turned down a $2.5 billion offer for the unit, saying it was too low. www.kkr.com
Silver Lake Sumeru has agreed to acquire a minority stake in Locaweb, a Brazilian web hosting company. No financial terms were
disclosed. www.silverlake.com

PE-Backed IPOs
Pandora, a Danish jewelry maker, plans to raise upwards of $2.16 billion via an IPO on the Copenhagen stock exchange. The company is
owned by Axcel. www.pandora.net
Spirit Airlines Inc., a Miramar, Fla.-based, has filed for a $300 million IPO. Citi and Morgan Stanley are serving as co-lead underwriters.
The company reports $357 million in revenue for the first six months of 2010, with $21 million in operating income. Oaktree Capital
Management holds a 33.8% ownership stake. www.spiritair.com
UTAC, a microchip testing company owned by Affinity Equity Partners and TPG Capital, is planning to raise upwards of $600 million via a
flotation in Singapore, according to Reuters. www.utacgroup.com

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Exits
Boston Scientific Corp. (NYSE: BSX) has agreed to acquire Asthmatx Inc., a Sunnyvale, Calif.-based maker of catheter-based devices
for the treatment of asthma. The deal is valued at up to $443.5 million, including a $193.5 million upfront payment. Asthmatx has raised
$92.5 million in VC funding, from firms like Olympus Medical Systems Corp. (Tokyo: 7733), Polaris Venture Partners, Menlo Ventures,
MedVenture Associates, HBM BioVentures, Montreux Equity Partners and Vanguard Ventures.
Charlesbank Capital Partners has agreed to sell Blacksmith Brands to Prestige Brands Holdings Inc. (NYSE: PBH) for $190 million
in cash. Blacksmith owns give consumer OTC brands, including Efferdent, Luden's and PediaCare. www.charlesbank.com
General Atlantic reportedly has put digital ad agency AKQA on the block, according to Ad Age. Morgan Stanley is managing the process.
General Atlantic acquired a majority stake in AKQA three years ago. www.akqa.com

Other Deals
IBM (NYSE: IBM) has agreed to acquire Netezza (NYSE: NZ), a Marlborough, Mass.-based provider of data analytics solutions. The deal
is valued at approximately $1.7 billion in cash, or $27 per share (9.8% premium to Friday's closing price). www.ibm.com
SK Telecom said that it is in talks to invest in LightSquared a Reston, Va.-based company that is building an open wireless broadband
network. LightSquared already has secured $2.9 billion in assets from Harbinger Capital Partners, plus $1.75 billion in additional debt and
equity financing. www.lightsquared.com

Firms & Funds

HSBC Holdings has agreed to sell an 80.1% interest in HSBC Private Equity (Asia) to firm management, which is operating under the
name Foci Holdings. www.hsbcnet.com/pi/asia

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