We’re thrilled to announce that Intel Capital has joined the investment syndicate at our portfolio company, IP Commerce. The Company and Intel announced the financing earlier today.

We’ve worked with Intel in a number of other investments, including our co-investment at Crisp Media, and introduced them to IPC several months ago. They, like us, were immediately intrigued by IP Commerce’s platform as a service (“PAAS”) approach to electronic payments. Ultimately, Intel concluded that the Company is the clear leader in its space and that the Company’s approach to integrating value added services into the payment process stream is unique and incredibly valuable to payment application developers.

I’m personally excited to be working with Intel here as we’ve developed a valuable repeat relationship with them. In particular, I’m pleased to once again be working with Bavanipratap Rana, my colleague from Intel at Crisp Media, and Vibhor Rastogi, who together will represent Intel on this investment. Rana and Vibhor have a keen understanding of the Company’s opportunity and will work hard to bring the full resources of Intel along to support the Company’s efforts. Welcome to the team and congratulations to IP Commerce on completing this important financing.

Congratulations to the Masergy Communications team on signing a definitive purchase agreement with ABRY Partners! Masergy is the last remaining investment in Meritage Fund I’s portfolio and we are delighted that the proceeds from this sale will put this Fund in the top quartile of communication-oriented funds of its vintage year.

For more information about this transaction, read Masergy’s press release here.

We’re pleased to let you know that our portfolio company, Crisp Media, has completed a $6 million growth equity financing led by EDB Investments (“EDBI”). You can read Crisp’s full release here and TechCrunch’s reporting on the financing is here. Based in Singapore, EDBI is a leading strategic investor focused on assisting operating companies in their efforts to expand into the Asian Pacific (”APAC”) region.

Over the past year, Crisp has established itself as the leading mobile rich media vendor in North America. The Company has struck strategic relationships with nearly every major online publisher in North America, including Yahoo!, CNN, The Weather Channel, ESPN, The Wall Street Journal, MSN (Microsoft). In addition, the Company has established a strong reputation within the agency and advertiser communities for its ability to deliver large mobile rich media buys, that are served from a single technology platform reaching smartphones, tablets and other connected devices. The Company’s outstanding campaign execution has resulted in repeat advertising buys from some of the largest brands in the world including Toyota, Ford, Sprint and others.

Many of Crisp’s customers (both publishers and agencies) market globally. To date, Crisp has executed a number of global campaigns, serving these campaigns from the Company’s North American operations. With increasing global demand for Crisp’s platform, particularly in APAC, the Company embarked on a plan to establish operations in the APAC region, culminating in EDBI’s strategic investment. EDBI’s investment will not only provide Crisp with the capital to facilitate this expansion, but will also offer the Company critical contacts in the APAC region, accelerating the Company’s market entry.

We welcome EDBI in joining Meritage and Intel Capital in Crisp’s investment syndicate and look forward to working with both EDBI and management to establish Crisp as the leading global mobile rich media platform.

Separately, the Internet Advertising Bureau (”IAB”) mobile working group has decided that its work to standardize how rich media advertising is integrated into mobile application environments will be based on ORMMA.  ORMMA (open rich media mobile advertising) is an open standards initiative of which Crisp Media is a founding member.  Xavier Facon, Crisp’s CTO, has been instrumental in launching ORMMA and establishing this vendor-agnostic approach to delivering in-app rich media ads as an industry standard in very short order.  This emerging standard will serve all participants in the mobile ecosystem well, including publishers, advertisers, and rich media vendors like Crisp.  Kudos to the ORMMA members for doing something that is good for everyone in the industry.

Meritage is a private equity firm having raised just over $600 million in committed capital since formation. We typically make two to four new investments per year. At the start of 2010, we had a total of eleven portfolio companies. During the year, we sold three of our companies - Diveo, NuVox and NewPath - to strategic buyers. We were delighted with each of these transactions.

In the case of Diveo and NuVox, our exit was frankly overdue as our Fund I made its initial investments in these companies in 1999. In an ideal world, these companies would have been sold as early as 2007 and certainly by 2008, as both were strongly EBITDA positive with excellent growth. As we all know well, strategic buyers had limited appetite for acquisitions in the 2008-09 timeframe, and the timing of our 2010 exits was due in large part to the return of strategic buyers with pent-up demand to the marketplace.

Both NuVox and Diveo were formed in frothy markets where debt and equity funding was readily available for capital-intensive projects, and both companies had large, unwieldy investment syndicates. As these companies started to mature, they encountered perhaps the most difficult markets (both financial and operational) in the history of the communications industry. While many larger and better-known enterprises failed in this market, NuVox and Diveo survived by virtue of significant restructurings and excellent leadership. In the case of NuVox, Meritage partner David Solomon was the Chief Executive Officer and led the company not only through a significant restructuring, but also through two major acquisitions. Under David’s stewardship, NuVox grew from a few hundred thousand dollars in revenue in 1999 to well over $500 million in revenue at the time of its sale. Interestingly, there were investors in NuVox who chose not to participate in the restructuring, and therefore did not benefit from David’s work. In the case of Diveo, Bob Goad stepped in and provided the operational and strategic leadership necessary to build the company into a strongly EBITDA-positive entity following its restructuring.

NuVox was purchased by Windstream Communications in February for approximately $650 million, and Diveo was purchased by Universo Online in December for approximately $475 million. We at Meritage take great pleasure in having been part of building these two significant enterprises. Both companies were started in the best of times, and both weathering the worst of times. NuVox and Diveo are now in the hands of significantly larger enterprises where they will be important earnings contributors going forward.

The third company we sold in 2010 was NewPath Networks, a Fund III portfolio company. NewPath was an altogether different story, as the sale of this company occurred only 16 months from the date of our original investment. We invested in NewPath alongside Charterhouse Group in April of 2009, believing that the company’s distributed antenna system (“DAS”) networks represented the next generation in communications tower infrastructure for high-density markets. We also believed that NewPath’s management team, led by Mike Kavanagh, was the best management team in the sector. NewPath was the smallest of the three “pure play” DAS operators by size but had achieved strong market positioning as a result of its strategy of building systems with high lease-up potential.

When we participated in the company’s $30 million institutional financing, we believed NewPath had adequate capital to build a significant footprint and make needed operational gains. Shortly after the closing, however, the industry landscape changed dramatically. First, our largest competitor was purchased by a large private equity firm, which made available significant additional capital (rumored to be $150 million) to this competitor. Our second largest competitor responded by raising $128 million in a significant equity financing. All of a sudden, NewPath’s $30 million looked quite modest! We quickly initiated a financing effort to raise at least $75 million, despite our concerns about dilution. Soon after hiring an investment banker, NewPath was contacted by both of its pure-play DAS competitors as well as several major tower operators, all seeking to purchase NewPath rather than have us raise additional capital. The company’s pure-play DAS competitors had the most to gain from an acquisition but proved to be “flat footed” in the process, thus setting the stage for the ultimate acquirer, Crown Castle, to become the dominant force in the sector.

Crown Castle purchased NewPath in September 2010 in a transaction that valued the company at approximately $115 million. By combining its communications towers and capital with NewPath’s DAS capabilities and know-how, Crown is now extremely well positioned. Although we would have liked to have grown NewPath into a much larger company, we realized that given the limited resources of the NewPath investors and the enormous dilution that was in store if we proceeded to raise more capital, we were ultimately on a precarious path. Therefore, from a portfolio management perspective, this was an excellent transaction.

Our success in 2010 demonstrates that the strategic buyer is alive and well for services companies. Buyers are seeking scale and/or seeking to fill specific strategic needs. This means that there continues to be an enormous role for private equity investors to grow their portfolio companies both organically and inorganically to take advantage of the current appetite of strategic buyers. Of course, the downside of an improving market is the impact on pricing of new investments. As we have learned on more than one occasion during the past ten years, private equity investors must be disciplined from a valuation perspective in order to generate attractive returns.

In a recent conversation with one of our limited partners, we learned that their 2010 distributions exceeded their internal forecast by 2.5 times, illustrating that our strong 2010 liquidations was an industry-wide occurrence. While the volume of activity will likely not match the 2010 level, we at Meritage believe that 2011 will continue to offer a robust environment to sell strong, profitable and growing companies.

Crown Castle International Corp. (NYSE:CCI) announced that it has completed its acquisition of NewPath Networks, Inc. (”NewPath”), one of the leading providers of distributed antenna systems (”DAS”). DAS is a network of antennas connected by fiber to a communications hub designed to facilitate wireless communications services for multiple operators. In connection with the acquisition, Mike Kavanagh, co-founder and Chief Executive Officer of NewPath, has joined Crown Castle’s U.S. operations as President of DAS operations.

“We are pleased to be combining the NewPath and Crown Castle DAS teams to capture opportunities in the market and provide customized infrastructure solutions to wireless carriers,” stated Mr. Kavanagh.

“Increasingly, we believe that distributed antenna systems will be an important complement to traditional tower installations,” said Ben Moreland, Crown Castle President and Chief Executive Officer. “We are pleased with our acquisition of NewPath, which furthers our ability to extend wireless infrastructure beyond those areas served by traditional towers, thereby broadening our service offering in this growing market.”

Meritage is pleased to announce its investment in Access Media 3 (”AM3″). Meritage was joined by co-investor WP Global in this transaction. AM3 provides triple-play media services (high-speed Internet, satellite TV and voice) to the multiple dwelling unit (“MDU”) market. AM3 is highly focused on converting the large majority of its customers to bulk billing relationships with approximately 80% of its customers today falling into that category.

The capital raised by AM3 will quickly be used to execute on the Company’s aggressive strategy to grow through acquisitions and organic growth. AM3 is positioning itself as an intermediate aggregator. There are a significant number of small video, data and voice providers that are too small to be of interest to a large buyer, but sufficiently large to be a good target for AM3. To date, the Company has completed six highly strategic acquisitions including inVision Networks, SkyPix, the satellite assets of Tunnel Vision Technologies, Avvid, OnShore Networks and Grand Plaza. AM3 has grown from addressing the media needs of 3,000 customers to well over 26,700 customers and 32,700 Revenue Generating Units in less than 3 years. The infusion of capital will also allow the Company to accelerate its plans to continue delivering innovative products and services to its customers through its state-of-the-art back office infrastructure.

In addition to the fact that this investment is a perfect fit for Meritage’s Venture Growth strategy, AM3 is attractive because the Company is EBITDA positive today and has no debt. The management team is also a strong positive, as the CEO has had success in building and profitably exiting a large network-enabled service business through both organic growth and acquisitions.

Meritage is pleased to announce our recent investment in NewPath Networks. Based in Seattle, NewPath is engaged in the construction and operation of Distributed Antenna Systems (“DAS”) for wireless carriers.  DAS provides wireless carriers with an alternative to traditional communications towers as a mechanism for improving the capacity of their networks.  DAS networks are particularly valuable in high-density population areas where construction of communications towers is not feasible because of zoning and other regulatory restrictions.

Existing cellular networks were originally optimized for voice traffic only.  With the recent proliferation of wireless data services, these networks have become overloaded in many areas with a resulting degradation of signal quality.  (Meritage has pursued mobile data content and services as an investment theme for some time, with representative investments including MCN and Crisp Wireless.)  To accommodate the increasing demand for capacity, wireless carriers are making massive investments in infrastructure to convert their networks from 2G to 3G and 4G.  In fact, nearly all carriers confirm that their 2009 infrastructure spend with be in line with 2007 and 2008 despite the current economic crisis:  they simply can’t slow down because their customers are consuming more and more content and demanding better performance.  To address this need, fiber-fed DAS networks provide wireless carriers with a quickly-deployable and cost-effective solution for wireless networks that are capacity-constrained.

NewPath is an excellent fit with Meritage’s network-enabled services investment focus.  One of the key elements of our investment focus is the recurring nature of our companies’ revenues. In today’s environment, recurring revenue is more valuable than ever. NewPath has excellent revenue visibility and stability because its network services are provided under 10-year contracts with its carrier customers and the company has a significant backlog of business under contract. As with the tower industry, contract renewals are virtually assured as it doesn’t make economic sense for a competitor to overbuild an existing DAS network.  Meritage’s operating expertise and sector knowledge is also an excellent fit with NewPath, as our partners have both run and invested in fiber network companies, tower companies and cellular carriers.

We believe the DAS industry is on the cusp of explosive growth, as DAS has recently become a strategic part of the carriers’ network architecture.  More and more neighborhoods are resisting the addition of unsightly communications towers, yet these same residents need and want better cell phone coverage and capacity.  We believe DAS is the answer, and NewPath is leading the charge as one of only three independent providers of DAS services in the US.  NewPath differentiates itself from the competition through its selection of high quality opportunities: NewPath works primarily with the leading wireless carriers such as AT&T and Verizon and is very selective about the markets it pursues.  Last year, in a highly competitive process, AT&T selected NewPath to build the largest outdoor DAS network in the United States in Scottsdale, Arizona, a testament to the company’s capabilities.  As with the tower business, multi-tenant lease-up is critical for maximizing profitability in DAS networks.  NewPath has demonstrated strong historical lease-up performance and believes that demand for its networks will continue to grow.

Needless to say, we are excited about the growth prospects for NewPath and are encouraged by the quality of business opportunities the company has recently been awarded.  Given the limited competition in the DAS market and the fact that mobile telephony and data services are one of the few areas of the economy showing growth, we believe NewPath will be a dominant player in this segment.