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"Dan Primack"


Dan Primack

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Term Sheet -- Wednesday, October 27


27-10-2010 14:03:49

Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington

The Term Sheet by Dan Primack

Wednesday -- October 27, 2010
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Random Ramblings
KKR yesterday announced that it has sponsored the formation of RPM Energy, a new platform that will
partner with exploration and development companies in the unconventional resource space (read: shale).
Not only is this the latest in a series of oil & gas deals for KKR, but also is part of a much broader M&A
According to data from Thomson Reuters, there already has been $196 billion of M&A in the U.S. power
and energy sector this year. Thats significantly more than the dollar volume for 2008 and 2009 combined
(entire years, not just through October), and is higher than any other year in the requested data set (which
went back to 2000).
The private equity-sponsored tallies arent quite in record territory, but thats only because of a pair of
record deals in 2006 (Kinder Morgan) and 2007 (TXU). If you pull out those transactions yes, an
admittedly specious data exercise then PE-backed dollar volume in the sector is topped only by 2006.
To learn whats driving all of this activity, I rang the heads of energy investing at a couple of large private
equity firms. They basically identified three macro trends:
1. Crude price equilibrium: Remember all that talk about oil price volatility, with barrels going for around
$30 in 2002 and over $125 in 2007? Well, the price actually has settled into a steady groove over the past
year hanging out in the $75-$85 range. This seems to be a place where both buyers and sellers feel



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Sellers got scared when prices went below $50 per barrel, and buyers didnt want to touch anything when
prices were above $100 per barrel, said one of the execs. He added that the perfect calm could be broken
if prices dip below $60 or rise above $90 (which they did, briefly, in April).
2. The rise of unconventional resources: If youve been reading Fortune lately, you know that the
American power industry has gone gaga over shale, a plentiful type of sedimentary rock that houses a ton
of natural gas. It used to be thought that shale was too dense to be drilled, but a horizontal hydraulic drilling
process called fracking seems to have solved that problem.
Not only does shale represent opportunities for direct investment in exploration and gathering companies,
but also for the variety of infrastructure plays that serve such companies. One buyout exec estimated that
around $10 billion of new infrastructure per year is needed to support the burgeoning shale market.
One downside here is potential regulatory restrictions. The government has basically played catch-up on
fracking, which has raised some environmental hackles due to its alleged potential for contaminating well
water (the reality of such contamination is hotly contested on both sides). But, so far, investors are valuing
profit potential over potential cost increases.
3. Global energy demand: The more economies grow, the more energy they require. So if you believe
that Brazil, China, India, etc. are going to keep rising, then U.S. energy producers have a growing market to
which they can export.
*** There was a major personnel move in the fund-of-funds world this week, as Maria Boyazny left
Siguler Guff in order to launch a new firm called MB Global Partners. The New York-based effort is being
done in partnership with G2 Investment Group, and will focus on credit-related funds.
Her most recent distressed fund at Siguler Guff closed last year on nearly $2.5 billion (unlevered), and I
hear that shell target around the same amount for her debut fund at MB. Pretty heady ambition, but
Boyazny has lots of champions in the institutional investor community (particularly among Australian LPs,
which provided around 25% of that last Siguler Guff fund).
Only question is if those past backers will be upset that Boyazny decided to hang her shingle so soon after
raising a new vehicle at Siguler Guff. My best guess is that they'll forgive...

6 things you should read

Pre-Marketing, including Eric Schmidt's creepiest TV moments, European buyout prices rebound,
new research takes a bite out of the seed-investing boom and why the U.S. Chamber of Commerce
is not the same thing as American business.
40 reasons why it's great to be a biz leader under 40
Dan Primack: Google travel spat causes even more conflict
Jon Fortt: Cisco's online video gamble
J.P. Mangalindan: What's next for post-Ozzie Microsoft?
Colin Barr: Don't underestimate the risk foreclosuregate poses to the financial system

The Big Deal

OPI Products, a Hollywood-based nail polish company, is in talks to sell itself to a private equity firm or



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beauty care company, as first reported by Bloomberg. Suitors include Advent International, Bain Capital
and perfume-maker Coty.
This is a big deal not only because it could generate $1 billion, but also because it could convert some PE
pros into heroes among their teenage daughters. OPI happens to make Justin Beibers new line of nail
polish (yes, it exists), and Id imagine that the deal winners might set up a meet-and-greet. Not that anyone
would big a few extra bucks for that reason (right?)

VC Deals
aTyr Pharma, a San Diego-based developer of physiocrine therapeutics, has raised $26 million in Series C
funding. Domain Associates led the round, and was joined by return backers Alta Partners, Cardinal
Partners and Polaris Ventures.
Kiha Software, a Seattle-based company whose debut product is designed to simplify your mobile life,
has raised $20 million in VC funding from Microsoft co-founder Paul Allen. The investment came directly
from Allen, not via his Vulcan Capital operation. News of the funding was first reported by the NYT Bits
Appcelerator, a Mountain View, Calif.based platform for developing mobile applications, has raised $9
million in Series B funding. Sierra Ventures led the round, and was joined by eBay Inc. and return backer
Storm Ventures. In related news, Appcelerator announced a strategic partnership with PayPal, an eBay
business unit.
Zuberance, a San Carlos, Calif.-based provider of a word-of-mouth advertising platform, has raised $8
million in Series B funding. Canaan Partners led the round, and was joined by return backers Emergence
Capital Partners and Correlation Ventures.
Nanosys Inc., a Palo Alto, Calif.-based advanced materials company, has raised $6 million in new Series
E funding. This brings the round total to $31 million, including a first close announced over the summer.
Backers include Samsung Ventures, Arch Venture Partners, El Dorado Ventures, Polaris Venture Capital
and Venrock. Nanosys previously raised around $94 million since 2001.
VetCentric Inc., a Glen Burnie, Md.-based provider of home delivery solutions for pet medications, has
raised $3 million in new Series B funding. Backers included Sherbrooke Capital and Nestle Venture Capital
Riptano Inc., an Austin, Texas-based provider of software and support for the Apache Cassandra open
source database, has raised $2.7 million in Series A funding. Lightspeed Venture Partners led the round,
and was joined by Sequoia Capital and Jason Calacanis.
Spotlight Ticket Management, a Woodland Hills, Calif.-based provider of a platform for managing sports
and entertainment tickets, has raised $2.5 million in Series A funding led by Point Judith Capital.

Private Equity Deals

The Blackstone Group and PAI Partners are having troubles selling British snack-maker United Biscuits
to Chinas Bright Food Group, according to Reuters. The report says that talks are near collapse,
perhaps because Bright has turned its attentions toward buying GNC Holdings. The United Biscuits deal



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was expected to generate more than 2 billion.

Charlesbank Capital Partners has acquired a 50% stake in the general partner of Blueknight Energy
Partners LP (OTC BB: BKEP), a Tulsa, Okla.-based midstream energy company. No financial terms were
disclosed. Charlesbank purchased the stake from an affiliate of Vitol Holding NV, which will retain the
remaining 50% position.
CommScope Inc. (NYSE: CTV) said that it has agreed to a $3.9 billion buyout offer from The Carlyle
Group. CommScope stockholders would receive $31.50 per share, which represents a 36% premium to
Fridays closing share price.
First Reserve and Pamplona Capital Management have tabled a debt restructuring proposal to lenders
of UK oil rig services company KCA Deutag, according to the FT. The firms took KCA Deutag private in
2007 for 906 million, but the company has had difficulties meeting its debt obligations.
Francisco Partners has acquired Source Photonics Inc., the optical communications components
business of MRV Communications (OTC BB: MRVC). The deal is valued at around $146 million, including
$113 million in cash and $33 million in assumed debt and certain deductions.
ITSolutions, a Silver Spring, Md.-based provider of IT services to U.S. government civilian, national
security and intelligence agencies, has acquired the IT services business of Rockville, Md.-based NetStar1 Holdings LLC. No financial terms were disclosed. ITSolutions is a portfolio company of Snow Phipps
Marlin Equity Partners has acquired Inc., a provider of reward solutions and gift
products for both the corporate and consumer markets. No financial terms were disclosed. Sellers include
SCP Partners.
MF Global Holdings Ltd. (NYSE: MF), a commodities broker-dealer backed by J.C. Flowers & Co., has
agreed to acquire Washington Research Group, a policy-focused equity research firm that serves large
institutional investors. No financial terms were disclosed.

PE-backed IPOs

Ikaria Inc., a Clinton, N.J.-based biopharma company, has set its IPO terms to 10 million common shares
being offered at between $15 and $17 per share. It would have an initial market cap of approximately $755
million, were it to price at the high end of its range. Ikaria trade on the Nasdaq under ticker symbol IKAR,
with Goldman Sachs and Morgan Stanley serving as co-lead underwriters. Shareholders include New
Mountain Capital (50.98% pre-IPO position), Linde (17.1%), ARCH Venture Partners (10.13%), Venrock
(10.1%), 5AM Ventures, Alexandria Equities, Altitude Life Science Ventures and Washington Research
Foundation. New Mountain and Linde joined in 2007, when New Mountain invested $200 million to fund
Ikaria's $670 million acquisition of gaseous drugmaker INO Therapeutics from Linde.
Pacific Biosciences, a Menlo Park, Calif.-based DNA gene sequencing company, raised around $200
million in its IPO. The company priced 12.5 million common shares at $16 per share ($15-$17 range),
which gave it an initial market cap of approximately $802 million. It will trade on the Nasdaq under ticker
symbol PACB, whiled J.P. Morgan and Morgan Stanley served as co-lead underwriters. Pacific
Biosciences had raised over $460 million in VC funding, from Mohr Davidow Ventures (12.02% pre-IPO
position), Kleiner Perkins Caufield and Byers (9.66%), Maverick Capital (9.13%), Gen-Probe Inc. (8.57%),



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Alloy Ventures (6.89%), Blackstone Cleantech Venture Partners (6.3%), Deerfield Management (5.29%) ,
Monsanto, the Wellcome Trust, Sutter Hill Ventures, Intel Capital, Morgan Stanley, Redmile Group, T.
Rowe Price, AllianceBernstein, DAG Ventures and Teachers Private Capital.

Broadcom Corp. (Nasdaq: BRCM) has agreed to acquire Percello Ltd., an Israel-based fabless
developer of baseband processors for the 3G and LTE femtocell markets. The deal is valued at
approximately $86 million in cash. Percello has raised around $18 million in VC funding from Granite
Ventures, Vertex Venture Capital, 7-Main Ltd. and T-Mobile Venture Fund.
JEN Partners has sold a portfolio of retirement areas in Arizona and Florida to Avatar Holdings Inc.
(Nasdaq: AVTR). The deal is valued at up to $70 million, including an $8 million earn-out.

Other Deals
Grupo Bimbo SAB, a Mexico-based break-maker, is in the lead to acquire Sara Lee Corp.s North
American bakery business, according to Bloomberg. The deal could be worth in excess of $1 billion.
World Heart Corp. (Nasdaq: WHRT), a Salt Lake City-based developer of mechanical circulatory systems,
has raised $25.3 million via a private placement of common stock and warrants. Return backers include
New Leaf Venture Partners, Venrock and Special Situations Funds. Lazard Capital Markets and Wedbush
PacGrow Life Sciences served as placement agents.

Firms & Funds

GMB Mezzanine Capital is raising $125 million for its second fund, according to a regulatory filing. It
already has secured $25 million. The Minneapolis-based firm provides mezzanine capital to middle-market
companies throughout the U.S.

Moving In, Up and On

Bertram Capital, a San Mateo, Calif.-based growth equity firm, has promoted Ryan Craig and Stephanie
Ho to the position of principal. Craig joined the firm in 2006, and focuses on the healthcare and consumer
sectors. Ho joined in 2007, and focuses on healthcare.
Niranjan Nagar has joined Trinity Ventures as an entrepreneur-in-residence, with a focus on the social
media and online gaming markets. He previously was COO of Outspark and, before that, was vice
president of The Sims group at Electronic Arts.
John Sider has joined Ben Franklin Technology Partners as managing director for statewide initiatives.
He previously served as deputy secretary for technology investment for the Pennsylvania Department of
Community and Economic Development (DCED).

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