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Is the MAC attack back?

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Alibaba Group plans to take Hong Kong Unit Private

(Reuters) – Chinese e-commerce company Alibaba Group plans to take its Hong Kong-listed unit, Alibaba.com, private, two sources familiar with the matter told Reuters.

Under the yet-to-be-finalized deal, Alibaba would use borrowed money and internal cash as well as an asset swap to buy back most of a 40 percent stake that Yahoo owns in Alibaba Group, the sources said.

Alibaba.com shares were halted from trading on Thursday pending an announcement regarding its parent.

Yahoo’s stake in Alibaba Group has an estimated value of $14 billion. Under the plans being discussed, Alibaba Group wants to buy back about 25 percent of its stake. Alibaba Group plans to pay one-third of the consideration through a stake in one of its operating assets and the rest through cash.

Alibaba.com is the most likely operating unit in which Yahoo may be offered a stake, one of the sources said. Both parties have an understanding on this arrangement, but have not signed any formal deal yet, the source added.

The sources declined to be identified as the discussions were private. An Alibaba Group spokesman declined to comment.

Yahoo is choosing this route as it wants to achieve tax efficiencies, sources have said previously.

Alibaba Group, founded by former English teacher and now billionaire Jack Ma, is looking to raise a loan of about $3 billion, which will be partly used to fund the buyback and the privatization.

Alibaba Group currently owns about 73 percent in Alibaba.com, which has a market value of nearly $6 billion.

(Reporting by Prakash Chakravarti; Additional reporting by Stephen Aldred, Kazunori Takada, Saeed Azhar and Melanie Lee; Writing by Denny Thomas; Editing by Mark Bendeich and Muralikumar Anantharaman)


Strategic Titans Validate Cloud Model—But Will it Work for Them?

SAP and Oracle are on a cloud buying spree. While that’s exciting for Wall Street it belies a bigger epiphany for the software industry. Thursday’s announcement of Oracle’s $1.9B acquisition of Taleo follows a pair of other big cloud deals: Oracle’s $1.5 billion purchase of RightNow and SAP’s play for SuccessFactors. By making these acquisitions, both of these traditional companies have validated that the cloud is the future of enterprise software. I believe that when we look back two years from now, we’ll say that the Taleo, RightNow and SuccessFactors acquisitions were the tipping point in the enterprise software industry finally shifting in earnest to the cloud.

Starting with salesforce.com, the business of building and selling business software fundamentally changed. Cloud based-vendors such as salesforce.com, Workday and, my company, Zuora, are stealing market share from traditional, on-premise software companies such as Oracle and SAP that they are finding uncomfortable. These old school enterprise providers know the power has shifted from the IT department to functional heads (e.g. insiders at SAP told industry analyst Dennis Howlett that 11 of its top customer CIOs have disappeared). They know that customers are choosing “on-demand” computing in lieu of traditional, on-promise software. They know that innovation in cloud-based software is measured in weeks while on-premise “innovation” creeps along at a glacial pace. And they know that customers don’t want to pay exorbitant, up front licensing fees for software that will become dated in a matter of months.

So what’s a big enterprise software company to do? In the early 2000s, ERP players tried building and marketing their own cloud apps, such as SAP’s “Business by Design” product. But in five years, SAP has signed on 1,000 Business by Design customers, less than half of 1% of its install base. Conversely, the significantly smaller SuccessFactors had racked up 3,500 customers in the cloud, representing 15 million subscription seats for its human resources solution. More importantly, SuccessFactors’ growth is off the charts, with 77 percent year over year revenue in the third quarter of 2011 and 59 percent year over year revenue for the first nine months of 2011. Rather than continuing to fight a losing battle, SAP elected to simply purchase SuccessFactors. Call it an attempt at cloud innovation via acquisition.

Oracle seemingly purchased RightNow for a similar reason. Salesforce.com has been taking CRM market share from Oracle (and Siebel, PeopleSoft and JD Edwards for that matter) for years. Apparently, Oracle believes scooping up RightNow will allow it to grab a bigger piece of the growing market for cloud-based CRM. But it’s yet another acquisition in a confusing mix of solutions, and one that flies right in the face of Oracle’s “private cloud” vision, which, as salesforce.com CEO Marc Benioff explains, “goes hand-in-hand with selling proprietary mainframes.”

Of course, Oracle and SAP aren’t the first monolithic, on premise companies who have tried to compete in the cloud via acquisition. In 2003, before being acquired by Oracle, Siebel gobbled up SaaS CRM vendor, Upshot, and subsequently launched its own line of cloud-based CRM. In that one stroke, Siebel signaled that on-demand computing was the preferred model for CRM.

But here’s the irony: Siebel had the right idea – realizing that the cloud was the future of computing – the company that most benefited from the acquisition was Salesforce.com. By buying Upshot, Siebel validated cloud-based CRM and, by default, Salesforce.com. Almost overnight, Salesforce.com was catapulted from a laggard position to the leader in cloud-based CRM. Needless to say, it has grown its position of dominance in the intervening years.

So why should anyone believe that today’s acquisition of Taleo presents any more of a threat to Salesforce?

The fact is that Oracle, SAP and Siebel each felt forced to buy SaaS companies to kick-start their own cloud efforts. They all acted in response to the market shift, not in a strategic, market-building way. They are admitting that they can’t compete against a better business model and against a better delivery model that customers prefer. SAP and Oracle were the prevailing figures of yesteryear and can’t simply acquire their way to success. They have to find another way to successfully compete – and be relevant – in the new era of the cloud. Because right now, who benefits most from today’s Taleo acquisition remains unclear, but I’d bet it won’t be Oracle.

Tien Tzuo is CEO of Zuora, a subscription commerce company based in Silicon Valley. Previously, he was the chief strategy officer and chief marketing officer at Salesforce.com. Opinions expressed here are entirely his own.


Oracle Strikes Taleo Deal as Cloud Wars Gain Momentum

(Reuters) – Oracle Corp agreed to buy Taleo Corp, a maker of Web-based software for recruiting employees, for about $1.9 billion, as technology giants battle for the top spot in the fast-growing cloud computing market.

It is the latest big investment in cloud computing by Oracle, the world’s No. 2 maker of business management software, and a quick response to larger rival SAP AG’s pending plan to buy SuccessFactors Inc for $3.4 billion.

Oracle’s offer price for Taleo is 6.5 times trailing 12-month sales, a bit more than half the 12 times multiple that SAP will pay for SuccessFactors, according to Evercore Partners.

While Oracle lags SAP in selling traditional software that customers install on their computer systems, its billionaire CEO Larry Ellison has been aggressive in adding cloud-based software offerings over the past few years.

Last month, Oracle paid $1.5 billion to purchase established cloud player RightNow Technologies, whose software helps companies provide customer service.

Oracle and SAP are both trying to catch up with cloud leader Salesforce.com Inc, which was started over a decade ago by former Oracle executive Marc Benioff.

Oracle’s Ellison was an early investor in Saleforce, but Benioff ousted him from the board when he felt Oracle got too aggressive in competing with the firm.

Cloud computing refers to providing software, storage, computing power and other services to customers from remote data centers over the Web. Demand for cloud-based software is rising rapidly because the approach allows companies to start using new programs faster and at lower costs than traditional products that are installed at a customer’s own data center.

Revenue from cloud-based enterprise software is expected to be $17.32 billion in 2013, 5.7 percent of total enterprise software revenue, up from $5.31 billion in 2009, according to data from Gartner.

The online recruitment software market, an important category within the software-as-service industry itself, may grow more than 15 percent this year, according to independent market research firm Bersin & Associates.

Last year, Oracle launched Web-based versions of several of its new line of business management software programs known as Fusion Apps, which analysts say are still in the early stages of winning market acceptance.

Despite the acquisitions, it is early days for Oracle and SAP when it comes to cloud computing, as many corporate technology buyers remain skeptical that their home-brewed cloud products will hold up against products from Salesforce.com.

“SAP and Oracle are still perceived as the old guard on premise and they are not ‘with it’ in cloud,” Nomura Securities analyst Rick Sherlund said.

“They want to own this space. They want to reinvent themselves for the cloud … They are buying a position in the cloud through consolidation.”

Some analysts also questioned the rationale of the target companies in selling out since the transition to cloud-based enterprise applications is still not far along.

“We wonder if these vendors were motivated by a belief that either their core market segments were too highly penetrated and that the cost of expanding was simply too high,” BMO Capital Markets analyst Karl Keirstead said.

Large enterprises increasingly looking to acquire their more mature “edge” applications from vendors such as SAP and Oracle may also be a reason for the target companies to sell themselves, he said.

Analysts said that the Fusion Apps cloud products introduced last year already provide a fairly broad array of business management programs, which means that Oracle is under less pressure to do acquisitions to build out its portfolio than SAP, which has fewer Web-based offerings.

Taleo fills one of the few obvious gaps in Oracle’s line-up, said Morgan Keegan analyst Michael Nemeroff.

“They did not have a recruitment package. They always needed to develop or buy it, and now they have done it,” he said.

The RightNow buy filled another hole in Oracle’s portfolio.

Nemeroff said that Oracle may still be looking to purchase a company that provides Web-based payroll software, such as Ultimate Software Group Inc.

Officials with Oracle declined comment.

SAP spokesman Jim Dever said his company would discuss its strategy for expanding its cloud offerings in several weeks, after the close of the SuccessFactors deal.

“SAP is coming off the biggest year in its 40-year history. We are in an excellent strategic position to keep winning in the market, including the cloud,” he said.

The Taleo deal value of $46 a share offers an 18 percent premium to Taleo’s Wednesday close of $38.94.

Taleo shares surged 17 percent to $45.62 in afternoon trading, while Oracle gained 0.2 percent to $28.79.

Other makers of cloud-based software also rose on the news, with Kenexa Corp climbing over 2 percent to $28.71. Cornerstone OnDemand Inc 0.8 percent to $17.93 and Ultimate Software Group 0.7 percent to $66.45. All had traded much higher earlier in the session, when the Nasdaq Composite Index flirted with its highest levels in over a decade.

(Reporting by Jim Finkle in Boston and Sayantani Ghosh in Bangalore; Editing by Derek Caneyand Gerald E. McCormick)


Guggenheim, Macquarie Still Vying for Deutsche Bank AM as State Street Reportedly Drops Out

The auction of Deutsche Bank Asset Management has apparently hit some roadblocks.

The Financial Times is reporting that State Street has withdrawn from the bidding for Deutsche Bank AM. Bloomberg reportedly earlier this week that JP Morgan pulled out.

Ameriprise is also balking at the price and could be next out, the FT says.

What does this mean? It’s more likely that Deutsche Bank will likely have to break up the business to get any sale done, the story says. The auction has been going on since November when Deutsche Bank announced it was reviewing its global asset management business. The review excludes DWS’ franchise in Germany, Europe and Asia. However, the sale does include DWS Americas as well as RREEF Alternatives, DB Advisors and Deutsche Insurance Asset Management.

The deadline for bids is this week, Bloomberg said. Bidders included Guggenheim Partners, Power Corp. of Canada, Macquarie Group and Apax Partners, according to the story.

I’m hearing that there are only two bidders left in the running for all of Deutsche Bank AM: Guggenheim Partners and Macquarie Group. There are also still bidders for pieces of Deutsche Bank AM, sources say. Power Corp., which invests in financial services, could also still be involved, one PE exec says.

In November, Deutsche Bank’s asset management had €515.63 billion (US$697.16 billion) in assets under management. Deutsche Bank reportedly wants to sell off the unit as a whole and is seeking $2 billion. But the FT says the unit will likely fetch about $1.2 billion.

Some doubt whether Guggenheim has the funds to buy all of Deutsche Bank. Guggenheim in January sold Toronto-based Claymore Investments, the ETF provider, to BlackRock in January. It was unclear how much Claymore fetched.

“Guggenheim couldn’t afford Deutsche Bank Asset Management if they had ever nickel to buy it,” an industry source says. The most natural buyer of DB AM would be a “mega buyer of scale” like Western Asset Management Co., the person says.

Guggenheim, which manages more than $125 billion of assets, would need outside help to buy DB AM, a banking source says. This would likely be a private equity firm, the banker says. “Deutsche Bank could trade on terms of revenue 3 to 4 times,” the source says.

However, two sources say Guggenheim is fundraising. One person says this is for a CLO. Another banker says that Guggenheim “can come up with the money,”

Officials for Deutsche Bank couldn’t be reached for comment. Guggenheim declined comment.


Cequel to Make $440 Mln Payout to Investors including Quadrangle, GS Capital and Oaktree

The Quadrangle Group is getting some good news.

Today, Cequel Communications Holdings I said that it plans to refinance an existing $2.525 billion loan with a new $2.7 billion credit facility. The new loan will consist of a $500 million revolver and a $2.2 billion term loan B. Proceeds will be used to fund a $370 million distribution in March PLUS another payout of $70 million in May, according to the statement.

Moody’s Investors Service says the $70 million will be an “incremental sponsor dividend” that will use a combination of balance sheet cash and revolver borrowings. All of Cequel’s investors–which include Quadrangle, Goldman Sachs Capital Partners, Oaktree Capital  and company management–will get a chunk of the $440 million, one person familiar with the situation said.

“This is a reflection of [Cequel] growing very strongly and they’re generating lots of free cash flow,” the source says.

St. Louis-based Cequel Communications does business as Suddenlink Communications.  The company provides digital TV, high-speed Internet and telephone services to consumers and businesses. It generated revenues of approximately $1.8 billion for the 12 months ended Sept. 30, 2011, Moody’s said.

Moody’s affirmed Cequel’s B1 corporate family rating, probability of default and stable outlook. The refinancing increases Cequel’s leverage by about half a turn to 6X debt-to-EBITDA, Moody’s said.

This would be second payout from Cequel. In 2011, Cequel took part in a dividend recap that it used to fund an acquisition as well as a payout, the source says.

With the two dividends, Quadrangle will have returned nearly all, or 85%, of the money it invested in Cequel, the person says. The investment came from Quadrangle’s second fund, which raised $2 billion in 2005. The pool has an 8.56% IRR since inception, according to March 31, 2011 data from CalSTRS.

Officials for Cequel couldn’t be reached for comment. Oaktree declined comment.


Thomas H. Lee, Bain to Invest Up to $300 Mln in Ryan Seacrest Media–UPDATED

Ryan Seacrest has gone private equity.

Thomas H. Lee Partners and Bain Capital have committed to invest up to $300 million in Ryan Seacrest Media, the investment company from the “American Idol” host. RSM will use the funds to “identify, acquire and develop innovative” media company, media content and other properties.

Clear Channel, which is also owned by THL and Bain, has also bought a minority stake in Ryan Seacrest Productions, according to the statement . RSP is the entertainment company known for producing such shows like “Keeping Up with the Kardashians,” “Kourtney and Kim Take New York,” “Khloe and Lamar,” and “Kourtney and Khloe Take Miami.”

Seacrest, who is executive chairman of RSP, will retain a majority stake in the company, the statement said. RSP will collaborate with Clear Channel to produce and distribute scripted and unscripted TV programming.

The deals attest to the backstage ambitions for Seacrest, who is apparently building a diversified media company, according to the New York Times.

One thing we do know? Seacrest is busy. He is a radio host, is relaunching Mark Cuban’s HDNET as AXS TV, and has even been rumored to be the possible successor to Matt Lauer on the “Today” show. Oh and his contract with “American Idol” will expire this spring but will likely be renewed, the NY Times said.

UPDATE: The Seacrest investment was derided by some. But Mike LaSalle, a Shamrock Capital Advisors partner, says he can see why THL and Bain decided to bet on Seacrest.

“He has proven to be smart in leveraging his celebrity into real business success and opportunity,” says LaSalle. “Consumers of entertainment don’t really see that side of him, but the media/entertainment industries appreciate that not every person can do that. I will venture to guess that the amount of money made in producing the Kardashian shows dwarfs his American Idol success.”


Rocket Software to Pay $260 Mln Dividend to Court Square, Management

Are the good times back for private equity?

They apparently are for Court Square Capital Partners. Rocket Software is issuing a three part loan, totaling $430 million, that it will use to refinance existing debt and pay a $260 million dividend to shareholders, according to Moody’s Investors Service.

The payout comes more than two years after Court Square invested in the IT management software provider.

Rocket Software, of Newton, Mass., was founded in 1990 and initially provided software to IBM mainframe customers, according to Boston.com. In 2009, Court Square bought $92 million in Rocket Software stock. Rocket’s management is also an investor.

Moody’s, on Monday, assigned a “B2″ corporate family rating to Rocket Software because of the company’s small size relative to its infrastructure peers, its acquisition appetite and aggressive financial policies. Rocket Software generates approximately $230 million in revenues, pro forma for recent acquisitions, Moody’s said. Rocket Software’s ratings outlook is stable.

“The company has modest organic growth prospects and the company looks to strategic acquisitions for growth and improved market position,” Moody’s said.

Closing leverage will be moderate at closing, just under 4X debt to EBITDA on Moody’s adjusted basis pro forma.

Court Square Capital was formed in 2006 by former members of Citigroup Venture Capital Equity Partners, including Bill Comfort. Calls to Court Square and Rocket Software were not immediately returned.


Access Point Financial Secures Stone Point Investment, Wells Fargo Capital Facility

Access Point Financial has closed on a senior secured credit facility with Wells Fargo Capital Finance, part of Wells Fargo & Co. Stone Point Capital, a Greenwich, Conn. PE firm, has also made a “substantial” equity investment in Access Point, according to a statement. Access Point, formed by APF management and Stone Point, is a lender and advisory company focused on the hospitality industry.

PRESS RELEASE

Officials with Access Point Financial, Inc., a full-service lending and advisory company focused on the hospitality industry, today announced that they have closed on a senior secured credit facility with Wells Fargo Capital Finance, part of Wells Fargo & Company (NYSE: WFC). The facility, combined with a substantial equity investment in Access Point by Stone Point Capital, LLC, puts the company on track to place $1 billion in loans for hotel improvement/bridge financing by 2015, in line with its initial projections.

“We are pleased to have established a relationship with Access Point Financial,” said Andrea Petro, division manager of the Lender Finance division of Wells Fargo Capital Finance. “We look forward to supporting Jon Wright and his company’s senior management team in its plans for the successful growth of their business.”

“We are in the early stages of seeing meaningful debt funding return to the hotel industry,” said Jon S. Wright, president and CEO of Access Point. “At this stage of the rebound, only the most experienced lenders and hoteliers are active, and we applaud Wells Fargo for its continued leadership in the hotel industry. This infusion from Wells Fargo Capital Finance, along with continued improvements in the hotel economy, will help us accelerate and facilitate the much needed flow of capital to the hotel industry. This credit facility will allow us to further execute our growth plans and achieve our initial target of placing $1 billion in loans in our first three years.”

Access Point is a direct lender providing loans starting from $200,000 for CapEx up to $40 million for brand sponsored construction programs. Hotels that are executing renovation programs also can combine low-leveraged first mortgages with Access Point’s capital expenditure financing.

“We have helped our clients through every economic cycle since the savings and loan crisis of the 1990s, and that industry perspective is one of the most important things we bring to our clients,” Wright said. “Most senior hotel debt today is locked up in CMBS loans, and new debt remains difficult to obtain. Because we understand the industry and have the backing of Wells Fargo, one of the nation’s largest banks, we can help hoteliers tap into their liquidity and improve their properties, with rates and terms that reflect the value of their assets and the owner’s credit worthiness.”

In addition to sourcing new funding, Access Point recently was awarded Platinum status by the IHG Owners Association, and was appointed as an Associate Member of the Association of Starwood Franchisees and Owners North America (ASFONA) with Jon Wright serving as an Honorary Board Member.

“IHG owners continue to invest in upgrading and repositioning their brands,” said Eva Ferguson, president of IHG Owners Association. “Having a strong relationship with the leading diversified hospitality lender benefits our owners by providing knowledgeable, experienced lending experts that understand the needs of the hotel industry.”

“The credit markets remain somewhat restrained,” said John A. Shingler, president of ASFONA. “With the industry in recovery, however, funding is slowly becoming more available. Having this alliance with Access Point will help our owners keep abreast of what’s happening in the financial community, and give them direct access to a lender that thoroughly understands our business.”

About Wells Fargo Capital Finance

Wells Fargo Capital Finance is the trade name for certain asset-based lending, accounts receivable and purchase order finance services of Wells Fargo & Company and its subsidiaries, and provides traditional asset-based lending, specialized senior secured financing, accounts receivable financing, purchase order financing and channel finance to companies across the United States and Canada. Dedicated teams within Wells Fargo Capital Finance provide financing solutions for companies in specific industries such as retail, software publishing and high-technology, commercial finance, staffing, government contracting and others. For more information, visit wellsfargocapitalfinance.com.

About the IHG Owners Association

The IHG Owners Association represents the interests of owners and operators of more than 3,100 InterContinental Hotels Group (IHG) hotels worldwide in the United States, Europe, the Middle East, Africa, Canada, Mexico and Latin America. The IHG family of brands includes InterContinental® Hotels & Resorts, Crowne Plaza® Hotels and Resorts, Hotel Indigo™, Holiday Inn® Hotels and Resorts, Holiday Inn Express®, Staybridge Suites® and Candlewood Suites®. For additional information, visit: www.owners.org or contact 770-604-5555.

About ASFONA - Association of Starwood Franchisees & Owners – North America

The mandate of ASFONA is to provide an effective line of communication between Starwood and its franchisees, owners and hotel management companies doing business in North America. The association provides Starwood the opportunity to seek the council and opinion of the franchise and ownership community on policy and standard operating procedures that can influence the owners’ businesses and the cost of doing business.

ASFONA’s Board of Directors is charged with providing the leadership required to build strong working relationships between Starwood and its franchisees and owners. The primary goal of ASFONA is to ensure that all ownership groups, and specifically those in membership, have a solid platform upon which both ASFONA and Starwood Hotels & Resorts’ management can work together in building the best and most successful brands in the hotel industry. For more information, please visit www.asfona.com.

About Stone Point Capital

Stone Point Capital LLC is a global private equity firm based in Greenwich, Connecticut, that has a 25-year record of making successful investments in the financial services industry. Stone Point Capital serves as the manager of the Trident Funds, which have raised more than $9 billion in committed capital to make investments in lending, banking, asset management and other financial services companies. For further information about Stone Point Capital, see www.stonepoint.com.

About Access Point Financial

Access Point Financial, Inc., is a partnership formed by Stone Point Capital LLC and APF management and is a global private equity firm based in Greenwich, Connecticut, that has a 25-year record of making successful investments in the financial services industry. Access Point, founded earlier this year, is a full-service lending and advisory platform servicing franchisees of the major branded hotels in the U.S. Additional information about the company may be found at the company’s website: www.accesspointfinancial.com.

Contacts


peHUB Second Opinion 1.27

Apple Cares, Really: Tim Cook responds to claims of factory worker mistreatment.

A Tribute: Here’s every Dr. Who story since 1963 in a 9 minute video and the Daleks haven’t changed at all.

Celebration: Happy national Chocolate Cake Day! And here’s 10 recipes.

Updated Policies: Twitter will censor tweets deemed illegal or harmful in other countries.

We’ve done Trailmix for the Cloud: Sh*t startup people say.

Still Impartial? Page rage escalates as Google cancels Twitter Android meeting.

Who Wins: Peter Thiel and Accel among investors to make fortunes off the Facebook IPO. And, can regular investors get a piece of Facebook?

A Matter of [REALLY BAD] Taste: Contestants on “Fear Factor” this Monday drink donkey semen.

Say It Ain’t So: Is it time to say goodbye to Siri? Vote here.

Contrarian view: Traditional Hollywood is dead. New Hollywood takes over.

Epicurean Dealmaker: John Carney gives us the best alternative financial blogs.


Advantage Partners to Take Yasuragi Private

Japanese private equity fund manager Advantage Partners will buy shares in home builder Yasuragi for 13 billion yen ($166 million) and take the company private, according to a statement issued by Yasuragi, writes Reuters. The Japanese buyout firm will pay 627 yen per share, a 60.8 percent premium to Thursday’s close of 390 yen.

Reuters - Advantage Partners, one of Japan’s largest private equity fund managers, will buy shares in home builder Yasuragi for 13 billion yen ($166 million) and take the company private, according to a statement issued by Yasuragi.

Advantage Partners, through a fund it manages, will buy the shares in Yasuragi from its shareholders as well as from the market. The Japanese buyout firm will pay 627 yen per share, a 60.8 percent premium to Thursday’s close of 390 yen.

Yasuragi, which specialises in renovating houses and is based in Kiryu city in Gunma prefecture, north of Tokyo, expects to post a net profit of 280 million yen for the year ending this month, up 33 percent from the previous year.

It would be Advantage Partners’ first major transaction since its buyout of Guam-based telecoms carrier GTA Teleguam last year. ($1 = 78.2250 Japanese yen) (Reporting by Junko Fujita; Editing by Michael Watson)


peHUB Second Opinion 1.25

How Big Is It? Mobile app usage far exceeds web usage.

Disrupting Traditional VC: Matt Mullenweg on the evolution of investing.

Total Embarrassment: The most humiliating accidental status updates ever posted on Facebook.

Endearing: President Obama intentionally made that “spilled milk” joke.

We Believe It: Apple sold more iPhones in its fiscal Q1 than babies born on Earth.

Blowback: Why you should be very afraid of a private equity president.

More Common than Adultery: Nagging is hard to stop and is a marriage killer.

Solving Problems: How to judge whether a new venture has a future in 15 seconds.

Really that Happy? Romenesko tries to determine what Target thinks of those recurring SNL sketches.


Slideshow: Smart Grid, Smart Play?

Smart grid investing isn’t going away, and it’s not even taking a break. If anything, it’s going to pick up, just in smaller dollar volumes.

A recent sad-face report from Mercom Capital Group declared the state of investing in the nascent space “anemic,” but that’s only after some startups that chowed down on late-stage rounds from 2008 to 2010 were unloaded in multi billion dollar deals to strategic acquirers, such as Toshiba and Siemens. PeHUB tracked some of the last 12 months’ worth of deals, both huge and wee—some of which could turn into mega-returns for VCs if they can find a buyer.

[slideshow]

[slide title="iControl Networks"]


iControl Networks, the California-based home monitoring company that expanded into the energy control space, had a busy 2011. The company packed on a big new round and took on a new CEO, but with approximately $90 million on the table, VCs including Charles River Ventures, Cisco, Comcast Ventures, Intel Capital, Kleiner Perkins Caufield & Byers iFund, Rogers Communications and Tyco International must be looking toward the exits.

[slide title="SmartSynch"]


SmartSynch was equally busy last year. The company charted a course to China and Silicon Valley and took on more than $20 million in new capital, to boot. SmartSynch has boldface backers, including Kinetic Ventures; JP Morgan; Endeavor Capital Management; Siemens Venture Capital; Lime Rock Partners; Battelle Ventures; Innovation Valley Partners.

[slide title="GridPoint”]


In the well-funded smart grid space, GridPoint’s backing would make even Mark Cuban blush. The company has packed on about a quarter-billion dollars, but along the way its M&A strategy has also been building up, hopefully to a big payoff for high-flying investors including Goldman Sachs, Perella Weinberg, Altria Group and Skypoint Capital.

[slide title="Silver Spring Networks"]


Speaking of well-funded companies, another member of the $200M+ club, Silver Spring Networks, is quickly becoming the poster child for the smart grid and home energy management business as it prepares to go public. However, taking on a listing exposes the company to the harsh realities of public markets. Let’s see how long Foundation Capital and Kleiner Perkins hang in there after the lockup expires.

[slide title=" JouleX"]


JouleX is one of the newer startups to the scene in the smart grid and home energy management space, but with investors like Intel Capital, look for the Georgia-based startup to keep developing verticals. Having just taken on $17 million in the capital-intensive space, VCs can look for future investing opportunities here.

[slide title=" CURRENT"]


Another recipient of the almighty Goldman dollar, CURRENT, a Maryland-based smart grid developer, has $13 million with which to work. The startup counts Landis+Gyr, the smart meter company that was bought for $2.3 billion, among its partners. So things are looking bright.

[slide title=" Clean Urban Energy"]


There are still early stage plays out there. Clean Urban Energy, the Chicago-based maker of energy storage and smart grid performance optimization technology, bagged $7 million in its Series A from investors including Battery Ventures and Rho Ventures.

[slide title="PlotWatt"]


Right down to the smallest deal, VCs are eager to make smart grid bets. Felicis Ventures backed PlotWatt, the North Carolina-based smart grid company, when it raised $1 million last summer.

[slide title="Payday!"]


Take a look at some of the eye-popping exits that have been made recently, it’s no wonder VCs keep piling cash into smart grid startups. Landis+Gyr, the international power meter company, was snapped up for $2.3 billion by Toshiba and eMeter was acquired for terms undisclosed. Cleantech VCs can be expected to keep piling their bets up on the smart grid.

[/slideshow]


Global PE M&A does well in 2011

Private equity mergers and acqusitions (M&A) was up by 32% compared to 2010, according to Thomson Reuters Mergers & Acquisitions Review Year End 2011. Boosted by a strong fourth quarter, worldwide private equity-backed M&A activity totalled US$306.3 billion for the full year 2011. Private equity deal making in the US accounted for 47.7% of M&A activity during full year 2011, followed by the United Kingdom, France and Sweden. PE-backed M&A accounted for 11.9% of worldwide announced M&A during full year 2011.

Total global M&A figures didnt fare as well as private equity-backed activity. The value of worldwide M&A totalled US$2.6 trillion during full year 2011, a 7% increase from comparable 2010 levels. By number of deals, M&A activity fell 5.5% compared to last year with just over 40,000 announced deals. For the second half of the year M&A activity totalled US$1.1 trillion, down 23.9% from the first half of the year. Fourth quarter activity totalled US $543.8 billion and marked the third consecutive quarterly decline for worldwide M&A since the first quarter of 2011.

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[slide title="Worldwide Completed M&A by Region"]

[slide title="Woldwide Announced M&A Target Industry by Value"]

[slide title="Asian M&A by Target Industry ($bn)"]

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Partners Group Bullish on 2012 Secondaries Market, Not So Sure About Fundraising

The crash of cash into the PE secondaries market will lead to another strong year in 2012 after two years of record setting transaction volumes, Partners Group experts say.

At the close of 2011, bid-ask spreads for secondaries widened on public market volatility. Trading in 2012 looks like it will bring more of the same, said Scott Higbee, head investment solutions Americas at Partners Group, an international investment management firm.

Meanwhile, deal flow in secondaries is expected to be bolstered by pensions and financial institutions that have flooded the marketplace with cash. Partners, for instance, acknowledged in a published report that it did $1.7 billion in secondary deals last year.

Sources that spoke separately with peHUB acknowledged that pricing of secondary assets have been approaching peak rates in recent deals on the strength of the sheer buying power and appetite. However, Partners wasn’t as bullish on the next batch of funds, if they even come at all, despite the money in the market.

“Low fundraising numbers reflect ongoing challenges in exit markets,” the firm’s report stated. “Until investors begin to see a sustainable flow of quality IPOs leading to significant distributions,” VCs shouldn’t expect any new big commitment checks.

Private equity could feel the burn, too. The Partners Group report predicted—but for different reasons – that the asset class will suffer from more expensive and increasingly scarce debt, especially for large deals, as European banks and others try to shrink balance sheets to meet new requirements.

“In the large cap segment of the market, it’s tough right now,” Higbee said.

Not that mid- and small-cap managers will have it much better when they try to raise new funds, he acknowledged.

Still, not all PE managers should despair, Higbee said. While debt will be more difficult to amass and rising wages and competitive investors hamper the quality of opportunities in places such as China, both he and his firm are bullish on corporate governance progress made in Latin America, particularly Chile and Brazil.


Mayfield and Venrock See Quick Exit from Redbeacon

Just 17 months after they invested, Mayfield Fund and Venrock Associates have exited Redbeacon, an online home services site acquired by Home Depot for an undisclosed amount.

Redbeacon announced the sale on its blog today.

Mayfield, Venrock and an undisclosed venture firm invested $7.4 million in the company in August 2010, according to Thomson Reuters (publisher of peHUB). Mayfield put up $4.73 million from Mayfield XIII, while Venrock put up $1.34 million from an undisclosed fund, and an undisclosed firm put up the remaining $1.34 million, Thomson Reuters reports.

“As we continue to make strides towards our vision of changing the way consumers find and book home services, we are happy to announce that today Redbeacon has been acquired by The Home Depot,” Redbeacon wrote in its blog. “In our opinion, The Home Depot is the perfect place for Redbeacon to achieve our vision even faster.”

Red Beacon was co-founded by Yaron Binur, its president, and Aaron Lee, its chief technology officer. Prior to Redbeacon, Binur was a product manager at Google, where he led the product development of Google News, according to his Redbeacon bio. Lee was previously a founding engineer for Google Video and the “Tech Lead” for monetizing YouTube, his bio states.

Image credit: Screenshot from Redbeacon blog


Audax Deals Cinelease

Cinelease, the motion-picture lighting and grip equipment rental service, has been dealt from Boston-based private equity firm Audax Group to Hertz Global Holdings. Houlihan Lokey, Inc. advised Cinelease. Kirkland & Ellis LLP represented Audax Group. Specifics on the deal were not publicized.

PRESS RELEASE:

BOSTON, Jan 19, 2012 — Audax Group announced it has completed the sale of Cinelease, Inc. (”Cinelease”) to a subsidiary of Hertz Global Holdings, Inc.HTZ -0.92% . Headquartered in Los Angeles, California, Cinelease is a leading supplier of motion-picture lighting and grip equipment for rent to the television, feature film, commercial, and music video industries, with a reputation for carrying a broad selection of well-maintained equipment with superior customer service and dependability. Audax acquired Cinelease in March 2007 and subsequently divested its Theatrical Event Lighting division, allowing the company to focus on its core motion picture lighting and grip equipment business.
Geoffrey S. Rehnert, Co-CEO of Audax Group, said “The Cinelease management team did a terrific job working with us to build the company through geographic expansion and operational improvements. We expanded Cinelease’s national footprint with the addition of seven facilities across six states, while implementing company-wide lean initiatives to optimize equipment utilization. We wish the entire Cinelease team continued success.”
Steve M. Ortiz, President of Cinelease, said “Audax Group has been a great partner for us. Their operational expertise and successful track-record working with equipment rental companies were key assets as we grew our company.”
Houlihan Lokey, Inc. advised Cinelease. Kirkland & Ellis LLP represented Audax Group.
ABOUT AUDAX GROUP
Audax Group, founded in 1999, is a leading investor in lower-middle market companies. With offices in Boston and New York, Audax has raised in excess of $5.0 billion of equity, mezzanine debt, and senior loan capital. For more information visit the Audax Group website www.audaxgroup.com .
SOURCE: Audax Group


peHUB First Read

Get it First, Get it Best: The Daily peHUB Wire, packed with news and scoops on private equity and venture capital

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Deal Time in the luggage biz?

No, Dummy that’s not how ya use social media

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VC Deals down South, way south

Nothing Freudian Here: Rubenstein supports Washington Monument reconstruction

In Conclusion… Hey! It’s Blackrock’s numbers!


David Finnigan: Cotton Industry Provides Intriguing Investment Opportunities for Private Equity

When global yarn spinning equipment manufacturers say that the US is the lowest cost producer of open-end cotton yarns in the world, listeners scratch their heads in disbelief. People normally think of textile manufacturing as the domain of low labor cost countries. But, due to low labor requirements of highly automated yarn manufacturing plants, the low costs of US electrical power, and the proximity to the most efficient and effective cotton growers in the world, American yarn manufacturers are the low-cost model for the world.

Roughly 75 percent of US-produced cotton and blended yarns are exported to Central America, Mexico, South America, Korea and China. In many cases, these yarns are made into socks, T-shirts, underwear, and jeans, and returned to the American consumer.

As the world’s third-largest cotton producer, the US holds considerable sway over an industry that is highly automated and among the most quality-oriented in the world. The US Department of Agriculture projects that the nation’s cotton crop will be more than 16.5 million bales in 2011, trailing only China – the world’s top producer – and India.

Because of its global status, the US cotton industry is of interest to strategic investors but also presents attractive opportunities for private equity firms experienced in developing underperforming and growing businesses. The sector’s long-term stability has been a major selling point, especially within the US, which has consistently been among the world’s biggest cotton producers and exporters. Foreign competition is limited — according to the National Cotton Council of America, just 10,000 bales of cotton were expected to be imported to the US in 2011 — due in large part to prohibitive costs associated with shipping bales overseas.

Foreign entrants to the US market face other barriers. Positioning a business for success in the cotton industry requires considerable capital expenditures to acquire, maintain and reinvest in state-of-the-art equipment in order to meet demand. The cost is often too high for many to consider competing in the space. Even for businesses that can afford the steep expenses, the industry is characterized by a high concentration of a few sizable clothing manufacturers that drive demand, and a larger number of smaller customers also supplying US retail outlets.

For private equity firms eying opportunities in the cotton industry, these are all factors to consider. Cotton-spinning companies with key customer relationships are attractive, as are those that use federal Farm Bill incentives to invest in expanded capacity and improvements to manufacturing facilities and distribution capabilities.

These desirable traits were in place in 2008 when an affiliate of Sun Capital Partners acquired Frontier Spinning Mills. Founded in 1996 with a single facility, the Sanford, NC-based company was an established industry player by the time that Sun Capital took ownership, but the acquisition was made with future growth and operational enhancements in mind. This has been done in part by embracing leading-edge technologies such as vortex spinning, which is used to spin fine yarns with less “hairiness,” and one which allows spinners to run multiple SKUs on a single machine. Also, federal Farm Bill Incentives of more than $15 million annually have been used to keep Frontier’s manufacturing and distribution operations up-to-date.

Other measures implemented to improve Frontier’s global market position included bringing in a new chief executive officer, John Bakane, and a seasoned cotton commodities risk manager and introducing a metrics-based approach to measuring and tracking performance across the business, and generating significant cost savings. The creation of the commodities risk manager position has allowed Frontier to lock in favorable prices and provided the company with additional stability in what has recently been a volatile market.

As a result of key operational improvements and its ability to maneuver volatile commodity markets, Frontier has become the second-largest cotton spinner in the US Between 2009 and 2010, sales and EBITDA grew an unprecedented 34 percent and 84.1 percent respectively. As a supplier of yarns to some of the clothing industry’s biggest manufacturers, Frontier has grown with them in the various channels they serve. More importantly, by abandoning a typical textile approach for one that embraces a cotton merchant’s view of the industry, Frontier set a new benchmark in the spinning industry for cotton commodity management. It enables the company to stay abreast of cotton production levels and global supply and demand. Frontier’s decision to lock in cotton prices gained importance in the past year, as normally predictable cotton prices began to rise. Adjusted for inflation, cotton prices have been at levels not seen in a decade, thanks in part to increased demand from growing countries such as China. Despite being the world’s largest cotton producer, China is also the No. 1 importer. Prices in China have outpaced those in the US, and even with transportation and import costs factored in, it is still cheaper for Chinese customers to buy US cotton.

The more unpredictable nature of the market environment in the past couple years and its impact on demand reinforces the need for a strategic approach to doing business in the cotton industry. This may include product and geographic diversification. Asia, for example, represents a viable expansion opportunity for Frontier and other cotton spinners. Those countries are already importing cotton because they find it cheaper to import bales from the US, where manufacturing and electricity costs are much lower. In addition to China’s steady demand for cotton, the other top importers on the NCC’s 2011 rankings are – in order — Bangladesh, Turkey, Indonesia, Thailand, Vietnam, and Pakistan. While the region is known for growing cotton, the demand of those countries easily outweighs other regions of the world, and provides US cotton spinners with additional markets to pursue.

The challenges of running a commodity-driven business have certainly increased during the ongoing economic downturn, and while there is hope that the price swings of the past year will become less frequent and less significant, they remain a significant issue. However, using the industry’s historical stability as a guide, cotton spinning in the US remains attractive to those investors who can identify worthwhile opportunities and who are willing to make the capital expenditures needed to take advantage of new technologies.

David F. Finnigan is managing director of operations with Sun European Partners. From 2003 to 2007, he also served as president and CEO of Elan Nutrition, a Sun Capital Partners portfolio company.


Say Cheese! TPG Eyes Olympus

(Reuters) - Private equity firm TPG Capital is willing to invest about $1 billion in Japan’s Olympus Corp in a joint deal with Sony Corp or another suitor circling the scandal-hit firm, a person familiar with TPG’s thinking said.

TPG has informed executives at Sony, Canon Inc, Fujifilm Holdings and Panasonic Corp of its interest in providing capital and expertise to help revive the maker of medical equipment and cameras, the person said.

Olympus has been seeking a friendly investor to make a minority investment and help its business recover from a $1.7 billion accounting scandal that has crushed its stock price and left a big dent in its balance sheet.

Electronics firms such as Sony, Canon and Panasonic are keen on Olympus’ diagnostic endoscope business as part of their strategies to expand into healthcare, while Fujifilm is already in the profitable endoscope market, banking sources have said.

So far, TPG has not received any indication from these strategic suitors that they would be willing to work with the private equity firm on a transaction, the person said, speaking on condition of anonymity due to the sensitivity of the matter.

But TPG believes it could be an effective partner by putting up capital, offering its experience in management, restructuring and the healthcare field, and by taking over parts of the company the strategic investor does not want, the person said.

A TPG spokesman declined to comment.

“My impression is that the chance of private equity getting involved in Olympus is 50-50,” said Tetsuro Ii, chief executive of Commons Asset Management.

“The strategic partner would need to eventually buy out the fund at a higher price. But the fact is Olympus has made a lot of acquisitions to date, much of which will need to be disposed of or restructured. It probably makes more sense to work with a value-up fund to get that done.”

The list of potential suitors is long and was thought to include Samsung Electronics, though the South Korean technology giant ruled out on Friday any chance of an equity investment in the firm.

Sony, Canon, Fujifilm and Panasonic are seen as strong candidates to invest in and form an alliance with Olympus, attracted by its medical equipment business, the company’s crown jewel boasting operating profit margins of about 20 percent.

Canon said it was not considering an alliance with Olympus. Panasonic declined to comment. Fujifilm said it had not been contacted by TPG, while Sony said it had no comment.

Nearly all of Olympus’ profits are generated from its dominant 70 percent share of the global market for flexible diagnostic endoscopes. The steady cash flow from that business has allowed it to prop up its digital camera business, which is on course to lose money for a second straight year.

TPG would consider taking over the other less desirable parts of the firm to facilitate a deal. This could include the digital camera operation, which is in need of a major overhaul, including job cuts, the person said.

TPG is one of the world’s largest private equity firms, with about $48 billion of assets under management. It has considerable experience in healthcare, including a leading role in the $4 billion buyout of data provider IMS Health in 2009.

It is also one of several parties interested in bidding for AMR Corp, the bankrupt parent of American Airlines, sources familiar with the matter told Reuters.

Olympus’ medical business appears to have weathered the scandal, but its stock is down 40 percent since the fraud was brought to light in mid-October and the situation remains fluid, adding to the difficulty in getting a deal done.

Samsung Electronics Chief Executive Choi Gee-sung dismissed suggestions his firm, a global leader in smartphones, televisions and memory chips, would want to buy Olympus’ assets or at least invest as an equity partner in the business.

“We’re not interested in what others are already doing very well. Samsung will do what we can do better,” Choi told Reuters on the sidelines of the Consumer Electronics Show in Las Vegas.

An executive at parent Samsung Group, however, said Samsung Electronics was interested in a more modest, non-equity alliance, though he declined to give details.

“We are not that interested in Olympus … Olympus is in a very difficult situation. It may want more than just an alliance or cooperation,” the executive said on condition of anonymity as he was not authorized to speak to the media.

Any major foreign investment in Olympus could run into opposition in Japan, where the firm’s endoscope technology is seen as strategic, in part because of the country’s high incidence of stomach cancer.

Medical endoscopes are used to peer inside patients to help diagnose cancer, ulcers and other conditions. Olympus endoscope technology also has strategic industrial applications, such as looking inside dangerously radioactive parts of Japan’s crippled Fukushima nuclear power plant.

The Japanese government can halt an investment of 10 percent or more in a listed firm, or 1 percent or more in an unlisted company, if foreign ownership would affect national security, a regulation some say might be applied to optical technology.

An analyst in Hong Kong said optical technology was potentially of interest to Samsung Electronics.
“Optical technology is one of the areas where it has not caught up with Japan,” said Hwang Min-seong, a technology analyst at Samsung Securities.

Olympus remains a thorny takeover target for potential bidders because the multinational remains under investigation by police, prosecutors and regulators at home as well as by law-enforcement agencies in the United States and Britain.

Its disgraced senior management and board is also in disarray, with shareholders not expected to vote in a new board, including chairman and chief executive, until March or April when Olympus has said it will convene an extraordinary meeting.

Olympus’ listing status is also under a cloud, though risks of it being delisted from the Tokyo Stock Exchange appear to be fading with public broadcaster NHK reporting on Friday that the exchange was set to decide to keep Olympus on its boards.

The exchange is likely to hold an extraordinary executive meeting to decide Olympus’ fate as early as January 20, NHK added. The exchange said in a statement that nothing had been decided.

Olympus shares closed down 2.7 percent at 1,236 yen, valuing the company at around $4.4 billion.

The stock’s fall was due to investors keen to close out positions ahead of the weekend and lock in gains earlier in the week on growing expectations that it would keep its listing, a trader at a Japanese broker said.

($1 = 76.7550 Japanese yen)

(By Nathan Layne; additional reporting by Miyoung Kim in LAS VEGAS, Hyunjoo Jin in SEOUL and Yoko Kubota, Mari Saito and Isabel Reynolds in TOKYO; Editing by Mark Bendeich, Neil Fullick and Ian Geoghegan)