Home » October, 2011 Entries posted on “October, 2011”

Exclusive: Morgenthaler and ATV do the splits

A big shakeup in the world of early-stage healthcare investing.

The life sciences investment teams of Morgenthaler Ventures and Advanced Technology Ventures are leaving their respective firms, Fortune has learned from multiple sources. The two groups will merge to form a new firm, with plans to begin raising a new fund by early next year.

For Morgenthaler, this is really the natural evolution of a process that began several years ago. When originally formed, the firm invested in both venture capital and general private equity out of a single fund. In 2007 it raised a $400 million fund to invest in venture capital, while the PE team kept operating as a quasi-independent entity (it has not yet raised a new fund, but still plans to try).

Even within the VC group, however, there were separations. For example, Morgenthaler’s IT and healthcare investment teams each benchmarked themselves against other IT or healthcare funds, rather than against general funds.

A decision was eventually made for the IT and healthcare venture teams to each raise separate funds, with the healthcare team expected to go out first (it had committed its allocation faster than had the IT team, which plans to raise its own fund next year). In early discussions, some of the Morgenthaler healthcare investors learned that their counterparts at ATV were talking about a cleavage from their IT colleagues, thus leading to the merger talks.

The first point of contact remains unclear, but Morgenthaler and ATV have co-invested in a number of deals. Most notable was Ardian, a Mountain View, Calif.-based maker of catheter-based therapies for hypertension, which was sold earlier this year to Medtronic (MDT) for $800 million in cash plus possible earn-outs that could push the deal past $1 billion.

The ATV partner on that deal was Mike Carusi, who also recently sold cancer drug developer Plexxikon to Japan’s Daiichi Sankyo for up to $935 million. He will be among those leaving ATV, alongside fellow healthcare partner Jean George. It’s currently unclear if fellow partner Tom Rogers and ATV’s three healthcare-focused venture partners also are joining the new group (at least five Morgenthaler pros are joining, and possibly more).

Earlier this year, ATV dismissed all investment staff below the partner level. At the time, Carusi told Fortune that ATV’s $300 million eighth fund was just under 60% committed, which meant the bi-coastal firm would begin raising a successor fund of similar size in the next 12 to 18 months. It is unclear if the remaining ATV team still plans to raise its own fund.

Also unclear is what will happen to the existing life sciences portfolios at Morgenthaler and ATV, although one source says to expect the departing teams to continue managing their legacy investments.

A Morgenthaler spokeswoman declined comment, while messages left for ATV’s Silicon Valley office have not yet been returned (no receptionist is answering at ATV’s Boston-area office, and its dial-by-name system is busted).

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Filed under: Term Sheet, Venture Capital Deals

October 31 2011 | Posted in Finance Blog | Read More »

3 biggest holes in Europe’s debt deal

The European debt plan is a step in the right direction, but there are still too many unanswered questions. Investors are sobering up to that reality.

By Cyrus Sanati, contributor

Angela Merkel Nicolas Sarkozy

Pulling the purse strings

FORTUNE — The magic seems to be fading on Europe’s latest efforts to bring an end to its long-running sovereign debt crisis. The controversial deal reached last week initially sent markets soaring. But a lack of specifics in key areas of the deal seems to be sinking in, putting a real damper on the celebrations. While the plan is a positive step in the right direction, there are a number of holes that need to be filled in to bring about a sustained recovery.

The markets took the weekend to digest the European’s latest controversial rescue plan to save the euro zone and by Monday, investors sent a signal to the Europeans that more is needed. Italian and Spanish bond prices rose, while equity markets around the continent fell, led by large percentage drops in bank stocks. Both are indicators that the market fears further contagion spreading to the big economies of the euro zone, which is exactly what the plan was supposed to quell.

The bigger the better

The first big hole in the plan seems to be a lack of firepower behind the rescue effort. The European bailout fund, the European Financial Stability Facility, is set to get larger in the plan thanks to some clever financial engineering, going from 440 billion euros to around 1 trillion euros. The fund would be levered up by offering a kind of state-sanctioned risk insurance on euro zone bonds, which would cover the first 20% of losses if it defaults. It should be noted that this is for new bonds, not existing bonds already in trouble. The second objective would be to arrange a special purpose vehicle to help the private sector buy bonds.

Both are a good ideas and match similar programs implemented successfully in the U.S. at the height of the mortgage meltdown, but they are still limited to in their size and scope to the principal raised in the bailout fund. The European Central Bank will not be backstopping the fund with unlimited cash, which has made some investors nervous that the EFSF could ultimately run out of money.

Europe takes a page from U.S. bailout playbook

A trillion euros seems like a lot of money, but it can be spent very quickly given the large scope of the crisis. The markets seem to be very worried about the fund’s ability in propping up the Italian and Spanish bond markets. The ECB took emergency action in August to keep those markets functioning by intervening directly in the secondary bond market. In just three short months the ECB has had to purchase a whopping 170 billion euros of Italian and Spanish debt. The deal announced last week would have the ECB transferring those bond-buying duties to the EFSF. Without the ECB back, it is clear how quickly that 1 trillion euros can be soaked up.

As good as your credit

That leads to the second big hole in this plan: Credit worthiness. The EFSF will issue bonds that are ultimately backed by the credit ratings of the 17-member nations of the euro zone. Since euro zone countries can’t print money like the ECB can, the bond’s credit worthiness will be based solely on the fiscal outlook of the member nations. That’s scary given the economic outlook for the euro zone. Eurosat announced this morning that unemployment in the euro zone broke into the double digits at 10.2%, surprising analysts. Unemployment in Spain rose the fastest at 0.4% to a mind-blowing 22.6%.

Moody’s issued a warning last week that the EFSF plan is a “negative” for the nations in the euro zone that have a triple-A credit rating, since it will ultimately be their tax dollars that will be counted on to hold this entire bailout together. The “negative” warning from Moody’s (MCO) could lead to downgrades in some countries, which would increase their cost of funding, plunging them further into debt. This is especially a concern for France, which has an unemployment rate of 9.9%. S&P said last week that the country is already in danger of losing its triple-A rating as a result of its weak fiscal situation. The loss of that rating, which is widely expected to occur when France comes up for review by S&P in December, will mean that the EFSF bonds could take a credit rating hit, forcing the Europeans to offer a higher yield to attract investors.

This all may be a moot point if S&P follows through with a promise that could crush the EFSF entirely. Earlier this summer, the credit rating agency said that any “combined credit facility” would carry the rating of the lowest, not the highest, member contributing to the fund. Since all 17-members are contributing, including Greece, the bonds should have a junk credit rating. The Europeans are in talks with the ratings agencies over this key issue, but no agreement was forged last week.

A junk rating may not be an issue if foreign governments just snap up the bonds in a show of solidarity with Europe. But while China has said it would consider investing in the EFSF, other nations like Brazil, Australia and Russia have stayed mum on the situation. Until there is more clarity on the credit situation, this deal remains locked.

Greek haircut

The last major hole in the deal is surrounding the Greek haircut. The deal calls for banks to accept a “voluntary” 50% haircut on their Greek debt. How this would be accomplished wasn’t explained but it would probably force banks to swap their current bonds for ones that have a long maturity. While there has been some agreement with banks over the haircut, nothing is official, so they can still refuse to participate.

The 50% haircut is massive and will force banks to raise capital at a precarious time. Without strong buy-in from the banks, the deal could trigger a credit event that could set off Greek credit default swaps. That could crush banks and hedge funds that are long Greek debt, creating a potential financial panic. But it is hard to tell which banks are long Greek debt and which are shorting it. That is helping fuel the drop in European banks stocks today.

In addition, the plan hopes to bring the Greek debt to GDP ratio to around 120% by 2020. That is still a really high level of debt and excludes the possibility that the Greek economy will get worse. Banks could ultimately need to write off all that Greek debt if the country is unable to get their act together. Further weakness in the Greek economy could also lead to cascading defaults of private loans, threatening to bring down many European banks that issued private loans to the Greek public during the boom years.

There are many things to like about the European plan, but there are still too many unanswered questions. The markets seem to be sobering up to that reality today. Until the Europeans get specific and fill in these holes, volatility will continue in the markets.


Filed under: Contributors, Term Sheet

October 31 2011 | Posted in Finance Blog | Read More »

Blackstone Group gets energized

While I was on vacation last week, a bunch of media outlets reported that The Blackstone Group (BX) is raising up to $3 billion for a new fund dedicated to energy investments. Seems that Blackstone president Tony James mentioned it during the firm’s Q3 earnings call.

Pretty sure this is the same fund that Term Sheet first reported on back in April. The one that will co-invest equally on energy deals with Blackstone’s general private equity fund. Let me check… Yup, it is.

James mentioned it during the earnings call because the fund recently held a first close and has begun making investments (i.e., he was legally obligated to do so).

If Blackstone hits its target, this would be the firm’s second successful fundraising for a sector-specific vehicle. The first was a $2 billion media and communications fund raised in 2000, while subsequent failures have included an infrastructure fund and a cleantech fund (which fell well short of target, and was later shut down). There also were rumors in early 2008 that Blackstone might launch a fund dedicated to the financial services sector, but nothing came of it.

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Filed under: Private Equity Deals, Term Sheet

October 31 2011 | Posted in Finance Blog | Read More »

M&A

DuPont Co. (NYSE: DD) is looking to sell its performance-coatings unit, which reports annual revenue of around $3.8 billion. Credit Suisse is managing the process. www.dupont.com

Charles Schwab Corp. (NYSE:SCHW) has agreed to acquire Compliance11 Inc., a Chicago-based provider of cloud-based, regulatory compliance software. No financial terms were disclosed. Compliance11 raised around $7 million in VC funding from KVG Partners and Talon Capital Partners.www.compliance11.com

6Waves Lolapps, a Hong Kong-based social gaming company, has acquired Beijing-based rivalSmartron5. No financial terms were disclosed. 6Waves Lolapps shareholders include Insight Venture Partners and Nexon Co. www.6waves.com

Pershing Square Capital Management has acquired a 12.2% stake in Canadian Pacific Railway (NYSE: CP). In an SEC filing that disclosed the position, Pershing Square manager William Ackman said that Canadian Pacific’s shares “are undervalued and are an attractive investment.”

Get last week’s M&A news


Filed under: Term Sheet

October 31 2011 | Posted in Finance Blog | Read More »

Private equity deals

Kinetic Concepts Inc. (NYSE: KCI) shareholders have approved a $68.50 per share buyout offer from Apax Partners and affiliates of Canada Pension Plan Investment Board and the Public Sector Pension Investment Board. The deal is expected to close in early November, and is valued at $6.3 billion (including assumed debt). www.kci1.com

BlackEagle Partners has acquired the Midwestern operations of Lyman Lumber Co., an Excelsior, Minn.-based provider of building materials and services to homebuilders and professional remodelers. No financial terms were disclosed. www.blackeaglepartners.com

CVC Capital Partners has offered to acquire British motor insurer RBS Insurance from Royal Bank of Scotland for around $6.5 billion, according to the Sunday Mail.

KPS Capital Partners has agreed to acquire American & Efird Inc. from Ruddick Corp. (NYSE: RDK) for $180 million. A&E is a Mt. Holly, N.C.-based maker of industrial sewing thread, embroidery thread and technical textiles. www.amefird.com

Sterling Partners has agreed to acquire Canadian tech IP company Mosaid Technologies (TSX: MSD) for C$46 per share, or approximately C$590 million. This represents an improvement over the existing C$42 per share acquisition offer for Mosaid from Wi-Lan Inc. www.mosaid.com

Trilantic Capital Partners and Sagard are the leading bidders for Sara Lee Corp.’s French bakery unit, according to Reuters. The deal is expected to be worth just over $200 million. www.saralee.com

Welsh, Carson, Anderson & Stowe has acquired Matrix Medical Network, a Scottsdale, Ariz.-based prospective health assessments for Medicare Advantage health plans. No financial terms were disclosed. Matrix Medical had raised VC funding from firms like Ballast Point Ventures and Spring Bay Capital.www.wcas.com

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Filed under: Private Equity Deals, Term Sheet

October 31 2011 | Posted in Finance Blog | Read More »

Venture Capital deals

Mendix, a Boston-based provider of enterprise platform-as-a-service solutions, has raised $13 million in Series A funding. Prime Ventures led the round, and was joined by seed backer HENQ Invest.www.mendix.com

Kaixin001, a Chinese social networking site, has raised an undisclosed among of strategic funding from Tencent Holdings, as part of a larger agreement. Existing Kaixin001 shareholders include Qiming Venture Partners, Ceyuan Ventures and Northern Light Venture Capital. www.kaixin001.com

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Filed under: Term Sheet, Venture Capital Deals

October 31 2011 | Posted in Finance Blog | Read More »

Why Occupy Dallas is different

The Texas city not only tolerates the local Occupy movement, it hosts it at City Hall.

By Rob Curran, contributor

Occupy Dallas

Occupy Dallas

FORTUNE – As the Occupy Wall Street movement has spread to cities around the country, a couple of things have become clear: No two Occupy movements are the same, and some of them have almost nothing to do with Wall Street.

While each event is styled after the original in Zuccotti Park and each rallies around the same call for a more equitable capitalism, the original Occupy Wall Street effort is more of an inspiration than a headquarters. Local political and cultural scenes, local issues and – most significantly – the response of local authorities have shaped Occupy Dallas, Occupy Oakland and the protests in other cities as much as their solidarity with Occupy Wall Street.

Occupy Dallas is not only tolerated by the city, it’s hosted by City Hall. While there were arrests during a protest last week, Dallas police have also helped campers on the city property retrieve stolen sleeping bags, and the protesters have marched in solidarity with the police. Dallas, one of the last major cities in the nation to desegregate its schools, seems determined to show its tolerant side.

Other cities have taken a harder line. Last Tuesday night, Oakland city police dispersed crowds of occupiers by firing tear gas, critically injuring Iraq veteran Scott Olsen, who was hit by a canister.

There are murmurs of a centralized, national organization of some kind, but the closest thing to a policymaking body at each camp currently is the internal “General Assembly.”

“The groups stand together, but nobody stands over the groups,” says Michael Prestonise, a freelance Web designer and volunteer chess teacher who acts as a spokesman for Occupy Dallas and is one of the more active members. Young and optimistic, Prestonise appears driven by the hope of creating something new rather than the desire to tear down something old.

The 100 or so people who are camping on the grounds of the cantilevered Dallas City Hall are a cross-section of North Texas society – racially, politically, age- and career-wise. Some are homeless and many are unemployed, but there are also professionals from the information-technology sector.

Twice a day, the Dallas group meets for General Assembly. As in 5th century B.C. Athens, and as in most of the roughly 400 protests using the Occupy name worldwide, the General Assembly is the key instrument of a “direct democracy” in which every resident has a right to bring issues to the attention of the community. In Dallas, these issues can be as minor as a missing cell phone or as major as manifestos of demands.

Occupy Wall Street: Where’s our share?

Almost everything is debated. And no wonder: the Dallas campers I interviewed were all over the political spectrum. On the left there was Kooper Caraway, an intense young Bazarov figure, who called for the unionization of Dallas city workers; on the Libertarian right, there was Jack, a Jeffersonian anarchist who would only give his first name and objected to “big government” ideas. And then there was Atticus Neff, who described himself as a “big audit-the-Fed kind of guy,” referring to a signature issue of Texas Republican Congressman Ron Paul (Paul would probably fare well in a straw poll at Occupy Dallas).

Their reasons for attending were also diverse: Goran Maric, a veteran of the Yugoslav conflict, mourned the abandonment of the U.S. Constitution, and compared the tyranny of personal debt to his experience at war. One woman said she came because the movement seemed to address all her grievances, and that she stayed because she enjoyed it. Another man railed against “bureaucracy,” in the form of speeding tickets that had impeded his career as a driver.

The only common thread was the disenfranchisement of the “99%,” what the protesters describe as the hijacking of U.S. democracy by corporate and moneyed interests. No one I met in Dallas mentioned Wall Street banks.

At least, nobody mentioned a Wall Street bank until 23 of the protesters were arrested outside one. Those protesters, including Caraway, blocked the entrance to a downtown Dallas Chase (JPM) bank last Monday, linking arms and refusing to move until police began carrying them – like “logs,” according to one Twitter account – into vans. They were all charged with Criminal Trespass, a Class B misdemeanor. The City of Dallas said a police officer sustained a minor injury to his leg during the incident.

This was the Dallas group’s first recognized act of civil disobedience, a tactic that many other Occupy protests have employed. The Dallas protest is unique in that the campers, helped by lawyer Jonathan Winocour who worked pro bono, negotiated an extended permit with the city authorities. Under the terms of the permit, which the city shared with Fortune, the campers will stay on the grounds of City Hall until at least Dec. 14. The city even collects the protesters’ trash, though it resisted demands for on-site Porta-potties.

“Dallas is a great example of how a city could respond to its citizens,” says Prestonise.

In Oakland, Chicago, Boston, and in Fort Worth, about 40 miles down the road from Dallas, the authorities have responded by making mass arrests, and in some cases tore down their tents. In Dallas, city authorities went through the courts in an effort to remove campers from their original location in a downtown green area called Pioneer Park. Before the two sides faced off in court, the city floated the idea of moving the protest away from the park and the showpiece convention center. After a reportedly intense debate at the General Assembly, the occupiers voted 47 to 21 to accept the city’s proposal.

Will the disparate regional groups coalesce around a common agenda? The “leaderless” aspect of the movement would likely have to change. After all, even Athens elected a representative council to make decisions. The first step will likely be the emergence of local leadership and a local agenda, at least on a de facto basis. Prestonise said he has talked with members of Occupy Boston about establishing a “national press corps” to coordinate the message of the Occupy movement.

What all the occupiers seem to agree on – that money must be taken out of politics – may sound naive and unattainable. But they can point to their own experiment as a model. Here are communities of very different people who have found a way to make democratic decisions without involving money.


Filed under: Contributors, Term Sheet

October 31 2011 | Posted in Finance Blog | Read More »

MF Global: Too small to bail

Jon Corzine

MF Global makes its failure official.

MF Global (MF), the broker-dealer run by former Goldman Sachs (GS) chief executive Jon Corzine, today filed for Chapter 11 bankruptcy protection.

The firm had spent the past weekend seeking a buyer, and apparently struck a deal to sell at least some of its assets to Interactive Brokers via the bankruptcy process. Its shares were suspended from trading earlier this morning, while the Federal Reserve Bank of New York  said it would no longer do business with MF Global until the firm was “fully capable of discharging the responsibilities set out in the New York Fed’s policy.”

In its bankruptcy petition, MF Global lists assets of between $100 million and $500 million. It also claims liabilities of between $10 million and $50 million, with between 25,000 and 50,000 creditors. The leading unsecured creditor is JPMorgan at $1.2 billion, while others include Deutsche Bank, CNBC and Oracle Corp.

Corzine reportedly will receive around $12 million in severance, although he may forego that if he still cares at all about his own reputation.

Below is a copy of the Chapter 11 petition:

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Filed under: Term Sheet

October 31 2011 | Posted in Finance Blog | Read More »

How consumer tech is transforming IT

Users are asking for more consumer-like technology experiences at work. That means big changes for CIOs and enterprise technology providers.

By Christopher Lochhead, contributor

ipad

Fun.

FORTUNE — Today, business users are demanding a consumer-like experience at work. People are asking, “How come the technology in my person life is so great but, at work, it sucks so much?” Meet the new class of business technology consumers. You could call them “bizumers.”

Where did they come from? Over the last five years, we’ve witnessed a consumer technology revolution led by Apple (AAPL), Facebook, Google (GOOG), Netflix (NFLX) and Flipboard — among many others. As consumers, we are enjoying big breakthroughs in mobile devices, Web 2.0 services and, generally, simpler user experiences. Technology has never been more fun or effective.

Except at work. Enterprise technology seems bankrupt where simplicity and elegance are concerned. (There’s no doubt the raw power and capability of enterprise technology — from massive server farms to sophisticated algorithms — is greater than at any other time.) The result has been the creation of a massive gulf between our personal and professional experience with technology.

outlook

Not fun.

Consider the typical knowledge worker’s daily experience: a brick of a laptop, a lousy intranet, legacy ERP and CRP applications and … Microsoft (MSFT) Office. Or, consider how bad old-line email is for collaboration relative to Facebook or Twitter’s social experiences. (It’s little surprise that the biggest innovation in e-mail in the last decade — nested conversations — came from a consumer application, Gmail, and only recently found its way into Office.) Even worse, at work it can be hard to get simple stuff done, like getting a travel request approved, an expense report paid, finding the right data, document, person, conference room, report or chart.

The average employee knows that consumer apps are user-friendly, easy to ramp up and do more to help them create — all for less money than traditional enterprise IT. While CIOs have talked about the “consumerization” of IT, few have made inroads on this agenda. And yet, employees are demanding:

*Tablets
*Smartphones
*App stores filled with hundreds of small, lightweight, disposable, zero-training, mobile-style apps
*The ability to choose and use cloud-based “free-mium apps”
*Social collaboration

Forward-leaning IT organizations are re-structuring their architecture to reflect these desires by embracing new mobile platforms and cloud computing, while creating custom bizumer apps housed inside enterprise app stores. They are also letting people choose (or even bring in) their own smart phones, tablets and laptops. But to survive in the future, legacy enterprise vendors will have to atomize their monolithic modules into hundreds of smaller, more usable apps. Imagine a refashioned an accounting system like SAP (SAP) or Oracle (ORCL) as hundreds of enjoyable-to-use iPad-style apps.

These transformations are already happening. Services include:

*YouSendIt, which replaces the FTP site with a simple-to-use, web-based file-sharing service.
*Evernote, which stores docs, photos, pdfs and Web clippings on a mobile-accessible cloud.
*Egnyte (where I’m an advisor), a file-storage that is cloud-based an accessible across platforms.
*Chatter, a collaboration app from Salesforce.com, which uses a familiar social-media interface.

And there are many more. They more or less share important common characteristics:

*They are cloud-based, with a small footprint
*They are streamlined, with 3-5 major functions
*They require zero IT support
*They are the future

The bizumer revolution is on. With tech-savvy Millennials entering the workforce, resistance is futile. They are using a new style of consumer-like business apps to drive the biggest, button-up change in business computing in a decade. All inspired by how they use technology in their personal lives. It’s not a matter of “if” it will happen, but “when.”

Christopher Lochhead is former technology executive, now strategy advisor & partner with Play Bigger Advisors.


Filed under: Contributors

October 31 2011 | Posted in Tech Blog | Read More »

S&P 500 November 1200 Put Option Analysis

October 31 2011 | Posted in Stock Charts | Read More »