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Term Sheet — Wednesday, April 8

April 8, 2015, 1:48 PM UTC

Random Ramblings

Andrew Bowden is leaving the SEC at the end of April, in order to "return to the private sector." Bowden is the SEC's compliance director who made private equity waves last May by saying: "When we have examined how fees and expenses are handled by advisers to private equity funds, we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time."

Among Bowden's particular gripes were private equity's rampant use (and mischaracterization) of operating partners and accelerated monitoring fees.

No word yet on where Bowden is heading – he spent 17 years with Legg Mason Capital Management prior to joining the SEC in late 2011 – but his departure may signal that the SEC feels the first part of its dive into private equity is largely complete. The question now, of course, is if Bowden’s findings will lead to a significant number of enforcement actions.

To date there have been a few settlements (e.g., Lincolnshire), reports of a few Wells notices sent (e.g., Fenway Partners) and at least one ongoing settlement negotiation (KKR). But that’s just a few drops in what Bowden suggested was a very large pool. Remember: “violations of law or material weaknesses in controls over 50% of the time.”

Sources close to the process suggest that the lack of visible litigation is less about regulatory permissiveness and more about the SEC’s natural lag between inspection and enforcement. But, until we see visible evidence, there will be speculation that the SEC is satisfied so long as firms modify bad behavior going forward. Bowden let us know there was a problem. His (soon to be former) colleagues will have to show that there are consequences.

 Deal scoop: Lion Capital has quietly acquired Spence Diamonds, a 27 year-old Canadian diamond retailer known for an inventory-light business model in which most of the showroom goods are actually cubic zirconia. Word is that the deal was valued at $125 million -- all equity, including a minority co-investment from IVEST Consumer Partners -- with company founder Sean Jones to retain an ownership position and board seat.

Consumer-focused Lion Capital has experience in this space before, with partner Lyndon Lea having served on the board of New York-based jeweler Harry Winston. The basic investment strategy for Spence around is growth, with expectations that Spence Diamonds can expand from its current seven stores to upwards of 20 in Canada (further expansion into U.S. is possible, but it’s a much more saturated market). Expect that expansion capital could come from new loans (the company doesn’t have any debt on the books) rather than from extra working capital from its PE sponsors.

 Deal data: We previously discussed the marked drop in private equity deals between Q1 2014 and Q1 2015, but Pitchbook has released one additional downward data point: 2015 is on track to record the fewest number of platform buyouts (i.e., non bolt-ons) since 2009. It’s the sort of thing that could have activity impact down the line, as fewer platform buyouts today means fewer bolt-on acquisitions tomorrow…

 Correspondence: Today's Term Sheet is coming to you from 30k feet, as I'm flying out to San Francisco for this evening's Brainstorm Tech dinner (at which I'll interview Marc Andreessen). One thing that means is that I can't check my work email for the next 6 hours so, if you want to get in touch, please use either Twitter (@danprimack) or Thanks in advance...


 Royal Dutch Shell (Amsterdam: RDSA) has agreed to buy UK–based rival BG Group (LSE: BG) for $70 billion, or around 1,350 pence per share (more than a 50% premium to yesterday’s closing price). Read more.


 Netera Inc., a San Carlos, Calif.-based provider of non-invasive genetic testing solutions, has raised $55.5 million in new VC funding. Sofinnova Ventures led the round, and was joined by Capital Research and Management, Franklin Templeton Investments, Jennison Associates, RA Capital Management, Healthcor Partners and OrbiMed Advisors.

 MobiKwik, an India-based digital wallet service, has raised $25 million in Series B funding. Tree Line Asia led the round, and was joined by Cisco Systems, American Express and return backer Sequoia Capital. According to TechCrunch, the company plans to raise a $100 million Series C round later this year. Read more.

 FirstFuel Software, a Lexington, Mass.-based provider of customer intelligence solutions for energy providers, has raised $23 million in Series C funding. Next World Capital led the round, and was joined by Electranova Capital and return backers Battery Ventures, Rockport Capital, Nth Power and E.ON.

 EBR Systems Inc., a Sunnyvale, Calif.-based maker of wireless cardiac pacing system for heart failure, has raised $20 million in new VC funding. Emergent Medical Partners led the round, and was joined by return backers Split Rock Partners, SV Life Sciences, Delphi Ventures and St. Paul Venture Capital.

 D3O, a UK–based maker of “smart materials” with shock absorbing properties, has raised $19 million in new equity funding led by Beringea.

 Palerra, a Santa Clara, Calif.-based cloud security automation company, has raised $17 million in Series B funding. August Capital led the round, and was joined by return backers Norwest Venture Partners, Wing Venture Capital and Engineering Capital.

 AssetAvenue, a Los Angeles-based online platform for commercial real estate loans, has raised $11 million in Series A funding. DCM Ventures led the round, and was joined by NetEase and Matrix Partners.

 TriPlay, a New York-based personal cloud startup, has raised $11 million in new funding led by affiliates of Fortress Investment Group.

 Alzheon Inc., a Framingham, Mass.-based biopharma startup focused on brain health, memory and aging, has raised $10 million in Series A funding led by Ally Bridge Group.

 VUV Analytics Inc., an Austin, Texas–based maker of a vacuum ultraviolet detector, has raised $9 million in Series A equity and debt funding led by S3 Ventures.

 WaterSmart Software, a San Francisco-based customer engagement platform for water utilities, has raised $7 million in Series B funding. An undisclosed family office led the round, and was joined by return backers The Westly Group, Apsara Capital, Physic Ventures and Draper Fisher Jurvetson.

 DealStruck, a San Diego-based online direct lender for small businesses, has raised $8.3 million in new VC funding led by Trinity Ventures. It also secured a new $50 million credit facility led by Brevet Capital.

 Custora, a New York-based predictive marketing platform for ecommerce, has raised $6.5 million in Series A funding. Foundation Capital led the round, and was joined by Greycroft Partners and Valhalla Ventures.

 RefMe, a London-based barcode-scanning app for bibliographies and academic reference materials, has raised $5 million in seed funding led by GEMS Global (a subsidiary of Varkey Group). Read more.


 The Blackstone Group and Corsair Capital are in talks to acquire “a major stake” in New York-based First Eagle Investment Management at an enterprise value of around $4 billion (including debt), according to Reuters. First Eagle backers include TA Associates, which holds around a 25% position. Read more.

 New Mountain Capital has agreed to acquire Zep Inc. (NYSE: ZEP), an Atlanta–based maker of cleaning and maintenance producers, for around $692 million (including debt). The $20.05 per share deal represents a 17% premium over yesterday’s closing price.

 Providence Equity Partners is among four U.S. bidders for South Korean pay-television company C&M Co., according to local press reports. C&M is currently owned by MBK Partners. Read more.


No IPO news this morning.


 Singapore Telecommunications Ltd. (Singtel) has agreed to acquire Trustwave Holdings, a Chicago-based information security company, for $810 million. Trustwave shareholders include FTV Capital and First Analysis Funds. Read more.


 iSight Partners, a Dallas–based provider of cyber threat intelligence solutions for global enterprises, has acquired Critical Intelligence, an Idaho Falls, Iowa-based provider of cyber situational awareness and threat intelligence for industrial control systems owners and operators. No financial terms were disclosed. iSight Partners recently raised $30 million in Series C funding from Bessemer Venture Partners.

 Vivendi is exploring a possible takeover bid for British pay-television group Sky, according to Reuters. A deal could be valued at nearly $42 billion (including debt). Read more.

 The Weinstein Company is in talks to sell its television unit to UK broadcaster ITV for upwards of $950 million (including a $400m upfront payment), according to The Wrap. Read more.


EnCap Investments, a Houston-based private equity firm focused on the oil and gas markets, has closed its tenth fund with $6.5 billion in capital commitments.


 Eric Hanno has joined AlpInvest, a unit of The Carlyle Group, as a principal. He previously was with Partners Group as a senior vice president of direct and primary investments.

 George Jaber has joined Thoma Bravo as an associate. He previously was with investment bank Dean Bradley Osborne.

 Michel Maupu has joined Quilvest Private Equity as a senior advisor, working out of both London and Paris. He is a former operating partner with 3i Group.

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