Jeff Pelline's Sierra Foothills Report

Editor’s note: As San Francisco-based Francisco Partners gets closer to acquiring Thomson Grass Valley by year-end, I am reposting my analysis of why the deal is a good fit:

I worked in Silicon Valley for over a decade as a technology editor, covering the IPOs of Netscape and Yahoo, Apple Computer’s re-emergence from its darkest days, the Microsoft antitrust trial — and participated in an IPO myself, at CNET. (CNET has since been sold to CBS for nearly $2 billion).

Based on my experience and knowledge, I can tell you with great certainty that Thomson Grass Valley’s buyer — San Francisco-based Francisco Partners — is a blue-chip private equity firm that can be expected to keep the big high-tech firm intact and lend needed stability to its operations. The deal — expected to close by year-end — also could help raise our area’s stature in tech, with some key Silicon Valley connections. Here’s why:

Founded in 1999, Francisco is literally a “who’s who” of Silicon Valley’s most successful luminaries. Its founders include “Sandy” Robertson, an investment banking guru going back to the ’70s who is the champion of high tech.

And here’s the kicker: Francisco’s strategic partner is Sequoia Capital, one of Silicon Valley’s most storied venture capital firms. Among others, Sequoia has helped take Google, Yahoo and Cisco public — among tech’s most famous firms. (I know one of its chief partners, Michael Moritz, going back to my days as a “stringer” or freelancer for Time magazine in the early ’80s; Michael, now a famous VC, was a Time correspondent then. We worked in the L.A. and S.F. bureaus. Michael wrote a book about Apple.)

To be sure, there are risks to Francisco’s acquisition of Thomson Grass Valley: the video technology business faces many challenges. Its biggest customers include network television companies, which have struggled through the recession.

The stakes are high — not just for “The Group,” founded in 1959 as a tiny R&D firm by Donald Hare, but for our community: The firm, which still will be called “Grass Valley” going forward, employs hundreds of people and is one of Nevada City’s largest tax providers. Losing the firm would be a major blow to our area — in employment and tax receipts.

For its part, Francisco Partners specializes in investments in information technology. It was founded at the height of the tech boom.

With a staff of 30 investment professionals, Francisco combs the world for well-performing businesses often trapped inside much larger companies that no longer want the ventures they snapped up during the buyout binge of the ’90s. “The Group,” being sold by French conglomerate Thomson, is just that sort of venture. Thomson, facing deep financial problems, put the firm up for sale in February 2009.

At $100 million, the buyout fits within the sweet spot of Francisco’s transaction range of “$30 million to $2 billion.” All told, Francisco has about $5 billion invested in a porfolio of about 40 businesses, including hardware and systems, software, service and semiconductor related businesses. A list of its investments is here.

“The whole idea of Francisco Partners is to find good companies in information and communications technology, which have a good predictable market position,” according to a case study of the firm. “This is a crucial difference with the VC funds, where selection of IT companies is quite random, because no one can predict whether a company will succeed or fail.”

All the founding partners of Francisco have broad experience in technology and investing activities, as well as specifics of technology business, as the case study notes.

Francisco also enjoys a “preferred, long-term relationship” with Sequoia, which provides a source of investment ideas and strategic council. More information on Sequoia Capital is here.

The timing of the deal could be a good one for Francisco. As Francisco’s David Golob told The Wall Street Journal: “2010 is likely to witness improving fundamentals. In my opinion, the capital markets are already discounting a significant improvement in fundamentals in 2010, so, in a reversal of the 2009 dynamic, I would expect any further gains in the capital markets to lag the improvement in fundamentals in 2010.

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