peHUB Wire: Wednesday, July 7, 2010

Citigroup has agreed to sell a portfolio of private equity interests for more than $900 million, according to multiple sources. Lexington Partners is the buyer, while StepStone Group will provide management services.

This is a big deal – one of the largest secondary transactions ever and a further move by Citi away from private equity. So let’s break it down:

What’s being sold? The deal includes Citi’s stakes in bank-branded funds-of-funds, mezzanine and co-investment vehicles. Basically what used to be known as Citigroup Private Equity, and managed by John Barber (he left earlier this year).

There had been earlier reports that the package also could include certain third-party stakes in big buyout funds, but I’ve been unable to confirm whether that came to pass.

Who managed the process? Citi, which held one-off discussions with select suitors rather than run a traditional auction.

Why Lexington? Why not? There are just a handful of secondary firms with enough capital to pull off such a transaction, and Lexington came the closest to par (small premium to holding value, slight discount to NAV).

Why StepStone? This is where it gets a bit more interesting. The Citi portfolio requires more active, day-to-day management than would a collection of third-party fund commitments. Moreover, Citi has a lot of private client money invested in these vehicles. As such, it needed to seriously consider future portfolio management in addition to sale price.

StepStone came into the process fairly early, in part thanks to an existing contract to manage certain Citi pension assets. The firm also added Johnny Randel as its CFO and COO back in February, after he had served in a similar capacity with Citi Private Equity. Secondary market sources h! ave snickered at the timing of that hire, but Randel was not dire ctly involved in the sale process before leaving Citi. As best I can tell, his hiring gave Citi extra comfort, but was not a quid pro quo.

My understanding is that the StepStone management agreement was at least tacitly in place when Lexington bid. One source also says that there had been an earlier bid that involved the current Citi Private Equity managers (financed by Coller Capital), but that it was rebuffed on price. No idea if those folks will get moved elsewhere within Citi, or soon will be forced to look for new employment.

What do the deal participants say? Nothing. Citi and StepStone declined comment, while Lexington did not return a wide assortment of voicemails and emails.

*** When HP announced its plans to buy Palm back in April, I did an interview wit! h Fred Anderson, the ex-Apple CFO who had represented Elevation Partners on Palm’s board of directors. We didn’t talk about the sale, but rather about Elevation’s original investment thesis and why it kept plugging in more money.

Unfortunately, Palm’s lawyers wouldn’t let me run excerpts from the interview until the $1.2 billion deal formally closed (no, I wasn’t happy about it). That happened last week, so here you go.

Top Three

Hexagon AB has agreed to acquire Intergraph, a provider of enterprise engineering software to the process, power and marine industries, for approximately $2.13 billion. Intergraph was taken private in 2006 by Hellman & Friedman, TPG Capital and JMI Equity.

Alcon Inc. (NYSE: ACL) has agreed to acquire LensX Lasers Inc., an Aliso Viejo, Calif.-based maker of cataract surgery lasers. The deal includes a $361.5 million up-front cash payment, plus up to $382.5 million in milestone payments. LensX has raised nearly $32 million in VC funding from Versant Ventures, InterWest Partn! ers and SV Life Sciences. The LenxX founding team is the same group that founded IntraLase, a VC-backed company acquired by AMO in 2007 for $808 million.

SonicWall Inc. (Nasdaq: SNWL) said the third-party bidder that offered to acquire SonicWall for $12 per share is no longer pursuing the deal. The IT security company will continue to recommend an $11.50 per share offer from private equity firm Thoma Bravo.

VC Deals, a New York-based developer of marketing solutions using group buying mechanisms and leveraging social media, has raised $16 million in new VC funding. Existing shareholder Matrix Partners is the only listed investor. The company previously raised over $5.5

AdSafe Media, a New York-based provider of rating standardsfor online media, has raised nearly $7.3 million in new VC funding, according to a regulatory filing. Atlas Venture led the round, with return backer Founder Collective also participating. Board members include Fred Destin of Atlas and Eric Paley of Founder Collective.

Maven Research, a San Francisco-based micro-consulting platform that lets individuals market their expertise, has raised $1 million in seed funding from Accel Partners and individual angels., a Seattle-based invite-only social commerce site for the 13-30 demographic, has raised an undisclosed amount of venture capital from Kleiner Perkins Caufield & Byers and Liberty Media.

Abound Solar, a Ft. Collins, Colo.-based thin-film photovoltaic module maker, said that the U.S. Department of Energy has offered a conditional commitment for a $400 million, seven-year loan guarantee to expand the company’s solar module manufacturing capabilities. Abound Solar has raised over $100 million in VC funding from DCM, Technology Partners, GLG Partners, Bohemian Cos. and Invus LP.

Buyouts Deals

Corinthian Capital Group has acquired STADCO, a Los Angeles-based maker of components and tooling for the commercial aerospace and defense markets, from Omninet Capital. No financial terms were disclosed.

HitecVision has agreed to acquire Tampnet AS from Statoil for an undisclosed amount. Tampnet operates an offshore communications network for oil and gas exploration companies.

Life Care Companies LLC, a Des Moins, Iowa-based provider of services to senior livin! g communities, has raised $50 million in new funding led by McCarthy Capital Corp.

MidCap Financial LLC, a commercial finance company focused on mid-market healthcare, has secured a $250 million credit facility. Wells Fargo Capital Finance led the bank group, and was joined by SunTrust Bank, Goldman Sachs Bank USA, and Key Equipment Finance. MidCap Financial is a portfolio company of THL Partners, Genstar Capital Moelis Capital Partners.

Oryxa Capital has agreed to acquire Cadbury’s chocolate, soft cake and sugar confectionery business in Romania from Kraft Foods. No financial terms were disclosed.

Post Capital has sponsored a recapitalization of BHS Marketing LLC, a Salt Lake City-based maker, blender and distributor of specialty and commodity chemicals. No financial terms were disclosed.

ShoreView Industries has sponsored a recapitalization of Abrasive Products & Equipment LLC, a Deer Park, Texas-based distributor of portable air blast and related equipment for the Gulf Coast Region. No financial terms were disclosed, except that Amalgamated Capital provided a senior secured credit facility.

PE-Backed IPOs

Camelot Information Systems Inc., a Beijing-based provider of enterprise application services and financial industry IT services in China, has set its IPO terms to 13.33 million American depository shares being offered at between $11 and $13 per share. The company plans to trade on the NYSE under ticker symbol CIS, with Barclays Capital and Goldman Sachs (Asia) serving as co-lead underwriters. It reports a 2009 profit of $36 million on around $118 million in revenue. Citigroup Venture Capital holds a 29% pre-IPO stake.

PE-Backed M&A

AudienceScience Inc., a New York-based provider of behaviorally-targeted audience analyticsfor Web advertising, has agreed to acquire Germany-based Wunderloop. No financial terms were disclosed. AudienceScience has raised over $100 million in VC funding from Mayfield Fund, Mohr Davidow Ventures, Meritech Capital Partners and Integral Capital Partners.

HealthPlan Holdings Inc., a portfolio company of Water Street Healthcare Partners, has acquired GemGroup, a Pittsburgh-based provider of accounting, pension and 401(k) administration software to employee benefit plans for unionized workers. No financial terms were disclosed. Read more…

Manatron Inc., a portfolio company of Thoma Bravo, has acquired Beyond Appraisal, a Grapevine, Texas-based provider of mass appraisal software. No financial terms were disclosed.

SafetyWeb, a Denver-based company that helps parents monitor their childrens’ social networking activity in real-time, has acquired Odojo, provider of a parent monitoring service focused on social networks. No financial terms were disclosed. SafetyWeb has raised over $8 million in VC funding from Battery Ventures and First Round Capital.

Webroot Software Inc., a Boulder, Colo.-based provider of SpySweeper security software, has acquired BrightCloud, a San Diego-based provider of Web content classification and security services. No financial terms were disclosed. WebRoot raised $109 million in VC funding in 2005 from Accel Partners, Mayfield Fu! nd and Technology Crossover Ventures.

PE Exits

EMC Corp. (NYSE: EMC) has agreed to acquire Greenplum, a San Mateo, Calif.-based provider of data warehousing software. No pricing terms of the all-cash deal were disclosed. Greenplum has raised over $125 millionin VC funding, fromMeritech Capital Partners, Sun Microsystems, SAP Ventures, EDF Ventures, Hudson Venture Partners, Sierra Ventures, Dawntreader Fund and Mission Ventures.

Firms & Funds

Edison Venture Fund israising upwards of$300 million for its seventh fund, according to a regulatory filing. The Lawrenceville, N.J.-based firm makes multi-stage investments in the IT sector, and raised nearly $260 million for its sixth fund in 2006. At the end of 2008, the fund was around66% called with an IRR of -6.77%, according to a report from the Colorado Public Employees’ Retirement

KKR announced that it will begin trading on the New York Stock Exchange on July 15. This represents a transfer of shares from the Euronext Amsterdam.

Human Resources

AXA Private Equity announced that Benoit Verbrugghe is being promoted from managing director to senior managing director, and that he will relocate from Paris to run the firm’s New York office.

Jamie Bellanca, former VP of advanced technology for Cleversafe, has joined Baird Private Equity as an entrepreneur-in-residence. The firm also announced that Lily Wang has joined Baird Capital Partners Asia as an associate and promoted Michael Liang to partner of Baird Venture Partners.

John Crocker has joined placement! agent Atlantic-Pacific Capital as a partner in the firm’s private funds business. He previously was with Citi’s private funds group and, before that, Capital Z Investment Partners.

John Finley has agreed to join The Blackstone Group as a senior managing director and chief legal officer, effective September 1. He will succeed Robert Friedman, who will continue with Blackstone for a short time before retiring. FInley is a partner with Simpson Thacher & Bartlett, where he runs the global M&A group.

Symphony Technology Group has promoted J.T. Treadwell to managing director and Marc Bala to principal.