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Term Sheet — Tuesday, November 25

Random Ramblings

Steve Judge, CEO of the Private Equity Growth Capital Council, last month wrote a post for peHUB titled “Confidentiality of limited partnership agreements is paramount.” The goal was to counteract growing calls for additional transparency, particularly for private equity funds whose limited partners include public pension systems.

Here was the key part of Judge’s argument:

“Like Coke’s secret recipe, LPAs contain proprietary and commercially sensitive trade secret information that, if disclosed, could undermine a private equity fund’s ability to invest and generate high returns for its limited partners. Overnight, competitors would have access to sensitive information, like the fund’s investment strategy, investment limitations, and key personnel that competitors could use to outbid the fund on a deal or otherwise disadvantage it in competitive negotiations.”

All of this would make sense, if only the underlying facts were legitimate.

The big problem for Judge and others making similar cases is that a set of limited partnership agreements has leaked out into the public sphere, including from such big-name sponsors as Blackstone, Cerberus, KKR, New Mountain Partners and TPG Capital. And they don’t seem to contain the sorts of “secret recipes” that Judge is worried about being revealed.

For example, take the LPA for Blackstone Capital Partners V, a $21.7 billion global private equity fund raised before the financial crisis. In the 134 pages, I can find only a few paragraphs that specifically lay out the fund’s investment strategy — which is basically all-encompassing: “Investments may include, for example, shares of common stock, partnership interests, shares of convertible preferred stock, convertible or non-convertible debt obligations, shares of preferred equity or debt obligations together with equity securities or warrants, rights or options to purchase equity securities, or other like arrangements.”

Yes, Blackstone does lay out a few limitations. For example, it will not participate in tender offers for control stakes of listed companies if a majority of the company’s board of directors opposes the acquisition (save for bankruptcy proceedings). There also are some fairly common restrictions on the amount of fund capital that can be invested in a single portfolio company, and on certain types of debt transactions. But none of this is terribly uncommon, nor is it the sort of information that a Blackstone competitor could reasonably use to gain competitive advantage.

Then there is the issue of “key personnel.” Of Blackstone’s 2,000+ employees, only two are named in the LPA: CEO Steve Schwarzman and president Tony James. They are keymen, meaning that LPs could vote to vend the fund if both of them quit or get run over by a bus. All private equity funds have keymen, and it wouldn’t shock anyone to find out that Schwarmzan and James are Blackstone’s. Again, Schwarzman and James are the firm’s top two executives.

The real secret sauce in private equity partnership agreements are the dozens and dozens of pages about tax and fee structures. That’s what firms don’t want publicly disclosed. The sooner private equity’s spokesmen are honest about this, the sooner we can have a real conversation about how to move forward.

• Update: Michael Dell wrote an op-ed for the WSJ, extolling the virtues of having taken his company private:

“In Dell’s formative years, public markets provided capital enabling us to grow and thrive, as is the case for many companies. The problem is when customer and shareholder interests diverge. At Dell, we faced a confluence of factors in making the decision to end a 25-year run as a publicly traded company. These factors included the big opportunities ahead, the required pace of innovation and investment, and an affliction of short-term thinking that drove a wedge between our customer and investor priorities.”

One thing Dell doesn’t address, however, is the end-game. Won’t Dell eventually return to the public markets? And, if so, will it signal to perspective investors that the company plans to slow its pace of innovation and investment? It’s a common rhetorical conundrum for private equity, which values privacy above all else — until it doesn’t. At least for Michael Dell, there is a possible out: He has enough money to buy out Silver Lake and its co-investors, thus keeping Dell private indefinitely. No word, however, on if that’s something he’d consider.

• Oops: If you see some reporters milling around outside of Twitter’s headquarters on Dec. 15 or 16, that’s probably because company CFO Anthony Noto yesterday had a major DM fail, making the following Twitter message public before quickly deleting it:

“I still think we should buy them. He is on your schedule for Dec. 15 or 16 — we will need to sell him. I have a plan.”

On the upside, it’s always good to see C-level executives using their company’s products.

• Deal size inflation isn’t just an IT thing: The size of early-stage investments for healthcare companies hit a two-year high in October, according to CB Insights. Full data set here.

• Turn up your radio: For those of you in New York, I’ll be appearing at 10:25 this morning on WNYC’s Brian Lehrer show, to discuss the various pension and investment issues in New Jersey. My co-guest is former Pando Daily writer David Sirota, who… ummm… hasn’t always been the biggest fan of my work. Yes, let’s leave it there. Until 10.25.


• Bayer AG (DB: BAYN) has hired Credit Suisse to explore a sale of its diabetes unit, which could be worth between €1 billion and €2 billion, according to Reuters. Suitors may include Cinven, EQT Partners and Triton Advisors. Read more.


• Elance-oDesk, a Mountain View, Calif.-based platform for freelance talent, has raised $30 million in its first venture round since being formed via merger nearly one year ago. Benchmark led the round, and was joined by fellow return backers NEA, FirstMark Capital, Sigma West, Stripes Group and T. Rowe Price.

• News Corp. (Nasdaq: NWSA) has invested $30 million for a minority stake in Indian real estate portal Read more.

• Promethera Biosciences, a Belgian developer of therapies for the treatment of in-born errors of metabolism and acquired liver diseases, has raised €25.33 million in Series C funding. SFPI-FPIM and SMS Investments were joined by return backers Vesalius Biocapital, Boehringer Ingelheim Venture Fund, SRIW, Shire, Mitsui Global Investment, Pall-ATMI LifeSciences and Vives-Louvain Technology Transfer Office Fund.

• Kensho, a New York-based developer of intelligent computer systems “capable of answering complex financial and market research questions posed in natural language,” has raised $15 million in new VC funding led by Goldman Sachs. The company previously raised $10 million in seed funding from General Catalyst, NEA, Accel Partners, Google Ventures and Devonshire Investors.

• Accounting SaaS Japan Co. Ltd., a Japanese provider of cloud-based accounting software, has raised approximately $8.7 million in Series B funding. Fidelity Growth Partners Japan, Arbor Ventures and i Mercury Capital were joined by return backer Mobile Internet Capital. Return backers include GREE Ventures, and SMBC Venture Capital.

• Memoir, a New York–based social network focused on “shared experiences and private sharing,” has raised $5.5 million in Series B funding. Redpoint Ventures led the round, and was joined by Thrive Capital, Founder Collective, Box Group, Lerer Hippeau Ventures and Joel Spolsky.

 Creo Medical Ltd., a UK-based developer of electrosurgical devices, has raised £3.5 million in new VC funding. Backers include Finance Wales and the AngelCoFund.

• Wealth-X, a Singapore-based ultra high net worth “intelligence and prospecting firm,” has raised an undisclosed amount of funding from Insight Venture Partners.


 Advanced Integration Technology, a Plano, Texas–based provider of automation, tooling and maintenance services to the aerospace market, has raised an undisclosed amount of private equity funding from Onex Partners.

• The Carlyle Group has invested $147 million for a minority stake in listed Nigerian commercial lender Diamond Bank.

• The Carlyle Group and Old Mutual PLC have agreed to acquire a stake in South African tire dealer Tiger Wheel & Tyre from Ethos Private Equity, according to Reuters. Read more.

• Eyemart Express, a Farms Branch, Texas–based optical retailer, has secured an undisclosed amount of growth equity funding from

• Gryphon Investors has sponsored a recapitalization of ECG Management Consultants Inc., a Seattle-based healthcare consulting firm. No financial terms were disclosed. Clearsight Advisors managed the process for ECG.

• Kelso & Co. and Estancia Capital Management have agreed to acquire the parent company of American Beacon Advisors Inc., a Fort Worth, Texas-based fund-of-funds manager. No financial terms were disclosed. Sellers include TPG Capital and Pharos Capital Group.

• Lindsay Goldberg has acquired Dealer Tire LLC, a Cleveland-based provider of tire replacement programs for OEMs, from TA Associates. No financial terms were disclosed.

• Nellson Nutraceutical, an Irwindale, Calif.-based maker of branded and private-label nutritional bar and functional powder products, has agreed to acquire Le Groupe Multibar Inc., a Montreal-based maker of nutritional and snack bars. No financial terms were disclosed. Nellson is a portfolio company of Kohlberg & Co.

• The Ontario Teachers’ Pension Plan and Public Sector Pension Investment Board are nearing a $7 billion deal to purchase Canadian satellite company Telesat Holdings Inc., according to Bloomberg. Read more.

• Palladium Equity Partners has acquired a majority stake in Daniel’s Jewelers, a Culver City, Calif.-based specialty jewelry retailer. No financial terms were disclosed.

• Providence Equity Partners is considering a takeover offer for Swiss sports marketing group Infront Sports & Media AG, which currently is owned by European private equity firm Bridgepoint, according to the FT. A deal could be valued at around €900 million, with a pair of Chinese suitors also reported to have interest.

• Sandbridge Capital has acquired a minority equity stake in BackJoy Orthotics LLC, a Van Nuys, Calif.–based provider of branded posture support products. No financial terms were disclosed.

• Vista Equity Partners has agreed to acquire Advanced Computer Software Group (AIM: ASW), a UK-based provider of business and healthcare software, for £725 million. The £1.40 per share deal represents a 17% premium to Monday’s closing price. Read more.


• Vyrix Pharmaceuticals Inc., a Greenwood Village, Colo.-based maker of drugs for men’s sexual dysfunction, has withdrawn registration for a $28.75 million IPO, due to “market conditions.” Aegis Capital and Fordham Financial Management had been serving as lead underwriters. The company is a wholly-owned subsidiary of Ampio Pharmaceuticals Inc. (AMEX: AMPE).


• Cressey & Co. has agreed to sell Encompass Home Health and Hospice, a Dallas-based provider of Medicare-focused home health services with 140 locations across 13 states, to HealthSouth Corp. (NYSE: HLS) for approximately $750 million.

• Energy Investors Funds have sold MoGas Pipeline LLC, owner and operator of a 263-mile natural gas pipeline from St. Louis and into central Missouri, to CorEnergy Infrastructure Trust Inc. (NYSE: CORR) for $125 million.

• Headland Capital Partners is seeking a buyer for Young Toys Inc., a South Korean toymaker that could be worth more than $250 million, according to Dow Jones. Read more.

• Yahoo Inc. (Nasdaq: YHOO) has acquired Cooliris Inc., a Palo Alto, Calif.-based developer of a mobile app for finding photos across social networks. No financial terms were disclosed. Cooliris had raised around $28 million in VC funding from Kleiner Perkins Caufield & Byers, Deutsche Telekom’s T-Venture, DAG Ventures and The Westly Group.


• RenaissanceRe Holdings Ltd. (NYSE: RNR) has agreed to buy fellow Bermuda-based reinsurer Platinum Underwriters Holdings Ltd. (NYSE: PTP) for approximately $1.9 billion in cash and stock. The $76 per share purchase price represents around a 24% premium to last Friday’s closing price for Platinum Underwriters stock.

• Steinhoff International Holdings (Johannesburg: SHF) has agreed to acquire a majority stake in Pepkor, a South African holding company that owns retailer Pep, for approximately $5.7 billion in cash and stock. Read more.


• Alcentra, a unit of BNY Mellon, has raised €850 million for its first pan-European direct lending fund. Read more.

• Bee Partners, a San Francisco-based seed-stage venture firm, is raising upwards of $20 million for its second fund, according to a regulatory filing.


• Jose Antonio Alvarez has been named CEO of Banco Santander SA, following the ouster of Javier Marin. Alvarez had been serving as the Spanish bank’s finance chief. Read more.

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