For over a year, we’ve been talking about SEC investigations into private equity. Now we may be moving into the enforcement phase.
Kohlberg Kravis Roberts & Co. yesterday agreed to pay nearly $30 million to settle SEC charges that it breached fiduciary duty to investors in its flagship private equity funds between 2006 and 2011. The settlement includes a $10 million penalty, $14 million in disgorgement (some of which it had previously repaid) and more than $4.5 million in prejudgment interest.
At issue was KKR’s history of charging “broken deal” expenses to limited partners in its funds, but not to affiliated co-investors (which included KKR executives) — an arrangement that was not adequately disclosed to LPs. The result was that LPs inappropriately assumed most of the expense burden for such failed transactions (KKR itself paid 20% of such fees, so the LP piece was 80%).
KKR had first disclosed the existence of an SEC investigation in its 2014 annual report.
“This is the first SEC case to charge a private equity adviser with misallocating broken deal expenses,” Andrew Ceresney, director of the SEC Enforcement Division, said in a prepared statement. “Although KKR raised billions of dollars of deal capital from co-investors, it unfairly required the funds to shoulder the cost for nearly all of the expenses incurred to explore potential investment opportunities that were pursued but ultimately not completed.”
This one-sided arrangement lasted for a six-year period ending in 2011.
KKR, which neither admitted nor denied the SEC’s findings as part of the settlement, issued the following statement: “This resolution, which relates to historical expense allocation disclosures and policies and not to any current practices, allows us to focus on delivering value for those who invest with us. We take our fiduciary responsibilities seriously and have strived to adapt our policies and practices to the changing nature of the industry, market and our business. KKR is firmly committed to upholding the highest governance and transparency standards, and we remain dedicated to continually enhancing our practices on behalf of our fund investors.”
In market #1: Venture capital firm Foundry Group is out raising its fourth fund, according to a regulatory filing, with plans to again solicit around $225 million. The Colorado-based shop’s existing funds have an overall blended IRR of around 35% through the end of February 2015, per data from limited partner UTIMCO. Chances are that number has risen substantially since the successful IPO of Fitbit, in which Foundry was the largest outside shareholder.
In market #2: Advance Vixeid Partners, a new growth equity firm affiliated with Advance Publications, is raising upwards of $400 million for its debut fund, according to a regulatory filing. The group’s founding principals are David IbnAle (ex-TPG Growth, ex-Augusta Columbia Capital), Andrew Siegel (head of M&A for Advance Publications), John Murray (ex-GCA Savvian Advisors) and Courtney Robinson (ex-Amex Ventures). IbnAle declined comment, natch.
Biotech bump: VC firms that abandoned life sciences after the financial crisis must be feeling a bit like institutional investors who abandoned VC prior to the financial crisis (hint: it’s a bad feeling). Today’s reason for regret is Juno Therapeutics (Nasdaq: JUNO), which has seen its stock surge more than 20% since announcing a strategic partnership with Celegene that includes around a $1 billion equity investment.
The stock price bump means that Juno is now valued at more than $5 billion. Not too shabby for a listed company formed less than two years ago, in which many of its VC backers remain major shareholders… For example, Arch Venture Partners held a Juno stake at market open that was valued at $684 million — compared to the $400 million size of its last two funds.
THE BIG DEAL
• Adaptive Insights, a Palo Alto, Calif.-based provider of cloud corporate performance management solutions, has raised $75 million in new VC funding. JMI Equity was joined by return backers Norwest Venture Partners, ONSET Ventures, Bessemer Venture Partners, Cardinal Venture Capital, Monitor Ventures, and Information Venture Partners. www.adaptiveinsights.com
VENTURE CAPITAL DEALS
• Spire, a San Francisco-based “satellite-powered data company,” has raised $40 million in Series B funding. Promus Ventures led the round, and was joined by Bessemer Venture Partners, Jump Capital and return backers like RRE Ventures and Lemnos Labs. www.spire.com
• Venafi, a Salt Lake City-based cybersecurity company, has raised $39 million in new funding. QuestMark Partners led the round, and was joined by Intel Capital, Silver Lake Waterman and return backers like Foundation Capital. www.venafi.com
• Shapeways, a New York–based 3D printing services marketplace, has raised $30 million in new VC funding. INKEF Capital led the round, and was joined by Hewlett Packard Ventures, Presidio Ventures and return backers Andreessen Horowitz, Union Square Ventures, Index Ventures and Lux Capital. www.shapeways.com
• Distil Networks Inc., a San Francisco-based provider of bot detection and mitigation, has raised $21 million in Series B funding. Bessemer Venture Partners led the round, and was joined by return backers Foundry Group, TechStars, ff Venture Capital, Idea Fund and Correlation Ventures. www.distilnetworks.com
• HomeHero, a care-giving marketplace focused on seniors, has raised $20 million in new VC funding. Graham Holdings led the round, and was joined by Tencent, Social+Capital Partnership, the Launch Fund and return backer Science Inc. Read more.
• Inari Medical Inc., an Irvine, Calif.-based developer of a system for the interventional treatment of vascular thrombus and emboli, has raised $12.4 million in Series B funding. Return backers include Versant Ventures and US Venture Partners. www.inarimedical.com
• Flytxt, a Dutch provider of big data analytics for communication service providers, has raised $11 million in new VC funding co-led by Sunrise Capital and Big Data Investments. www.flytxt.com
• Airtable, a San Francisco-based “modern database” startup, has raised $7.6 million in new VC funding. CRV led the round, and was joined by Caffeinated Capital, Crunchfund, Data Collective, Founder Collective, Freestyle Capital and individual angels. www.airtable.com
• Unikrn, a Seattle-based gaming and e-sports startup, has raised $7 million in new VC funding led by Binary Capital. Read more.
• MangoPlate, a South Korean restaurant discovery service, has raised $6.1 million in new VC funding. Qualcomm Ventures led the round, and was joined by SoftBank Ventures Korea and YJ Capital. www.mangoplate.com
• Flatchat, an Indian mobile platform for finding roommates in India, has raised $2.5 million in seed funding from CommonFloor, an Indian real estate listing site backed by Accel Partners, Google Capital and Tiger Global Management. Read more.
• Mondo, a British full-stack banking startup, has raised £2 million in funding from Passion Capital, according to TechCrunch. The company plans to raise between £15 million and £20 million before launch. Read more.
• Kuldat, a London-based big data platform that uses AI to improve sales and marketing, has raised $1.5 million in Series A funding from United Ventures. www.kuldat.com
• Soundtrap, a Palo Alto, Calif.-based online music collaboration startup, has raised $1 million in seed funding led by Lars Bergstrom. www.soundtrap.com
• MachineMetrics Inc., a Northampton, Mass.-based developer of production monitoring software for the manufacturing industry, has raised an undisclosed amount of VC funding led by Long River Ventures. www.machinemetrics.com
PRIVATE EQUITY DEALS
• Activate Healthcare, an Indianapolis–based provider of workplace health clinics, has raised an undisclosed amount of growth equity funding from Spring Mountain Capital. www.activatehealthcare.com
• American Achievement Corp., an Austin, Texas–based provider of commemorative jewelry and recognition products like class rings and letter jackets, has agreed to acquire Gaspard LP, a Winnipeg–based maker of academic regalia, clergy vestments, choral robes, and legal and judicial attire. No financial terms were disclosed. American Achievement is a portfolio company of Fenway Partners, while Gaspard backers include Ironbridge Equity Partners and Westerkirk Capital. www.balfour.com
The Carlyle Group and TPG Capital each have submitted offers to buy Australian auto-leasing company Esanda, which could garnet upwards of US$1.6 billion, according to the NY Times. Macquarie Group also is bidding. Read more.
• Monomoy Capital Partners has merged two of its portfolio companies: Escort Inc., a West Chester, Ohio-based maker of automotive radar detectors, and Cobra Electronics Corp., a Chicago-based maker of marine radios, two-way radios, citizen band radios, dash cams, radar detectors and other consumer electronics. The combined company will be known as Cedar Electronics Holdings Corp., with the merger creating a “substantial” cash dividend for Monomoy investors. www.mcpfunds.com
• QDiscovery LLC, a New London, Conn.–based provider of electronic discovery and forensic technology services, has raised an undisclosed amount of growth equity funding from Bridge Investments and Starboard Capital Partners. www.qdiscovery.com
• Wendel has agreed to acquire AlliedBarton, a Conshohocken, Penn.-based security services provider, from The Blackstone Group for approximately $1.67 billion. Credit Suisse managed the process. www.alliedbarton.com
• NEP Group Inc., a Pittsburgh-based provider of broadcast and live event service, has filed for a $100 million IPO. It plans to trade on the NYSE under ticker symbol NEPG, with Barclays and Morgan Stanley serving as lead underwriters. The company is owned by Crestview Partners, and reports nearly a $50 million loss on $443 million in revenue for 2014. www.nepinc.com
• Amphenol Corp. (NYSE: APH) has offered to acquire FCI Asia Pte Ltd., a Singapore-based electronic connectors manufacturer owned by Bain Capital, for $1.28 billion. Read more.
• Aviation Industry Corp. of China has agreed to acquire Henniges Automotive Holdings Inc., an Auburn Hills, Mich.–based auto parts supplier, from Littlejohn & Co. for around $800 million. Read more.
• BelHealth Investment Partners has sold Aureus Health Services, a Pittsburgh-based specialty pharmacy and healthcare management organization, to Michigan-based retailer Meijer. No financial terms were disclosed. www.aureushealthservices.com
• China Investment Corp. is among the bidders for Tank & Rast, a German highway rest area and fuel station company that is being sold for around $3.35 billion by Terra Firma Capital Partners and RREEF, according to the WSJ. Read more.
• Gryphon Investors has completed its previously-announced sale of Sheplers Inc., a Wichita, Kansas-based retailer of western wear, to Boot Barn Holdings Inc. (NYSE: BOOT) for an undisclosed amount. www.sheplers.com
• HgCapital has agreed to sell SimonsVoss, a Germany–based provider of electronic battery-powered locking and access control systems, to Allegion PLC (NYSE: ALLE). The deal is valued at €210 million. www.simons-voss.de
• AOL has agreed to acquire a majority of Microsoft’s ad sales business, in a strategic deal that will see AOL drop Google search in favor of Microsoft’s Bing. Read more.
• Uber has agreed to acquire certain mapping assets from Microsoft’s Bing unit, in a deal that would include around 100 Microsoft employees who were responsible for getting image data into Bing. No financial terms were disclosed. Read more.
• Willis Group Holdings (NYSE: WSH), a London-based insurance broker and risk advisor, has agreed to merge with Arlington, Va.–based professional services firm Towers Watson (Nasdaq: TW) in an all-stock deal that would value the combined company at around $18 billion. Read more.
FIRMS & FUNDS
• Benhamou Global Ventures has closed its second early-stage VC fund with $72 million in capital commitments. www.benhamouglobalventures.com
General Electric (NYSE: GE) has agreed to sell its European sponsor finance business to an affiliate of Sumitomo Mitsui Banking Corp. for approximately $2.2 billion. www.ge.com
MOVING IN, UP, ON & OUT
• Michael Denham has been named president of the Business Development Bank of Canada, effective August 10. He currently serves as president of AquaTerra, and previously was president and senior managing director of Accenture PLC. www.bdc.ca
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