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Advent International: We would consider use of single-asset continuation vehicles

The private equity firm has traditionally retained exposure to assets the 'old fashioned way', according to managing partner James Brocklebank.

The development of continuation funds has become a meaningful part of the private equity market over the last year as uncertainty caused by the pandemic led investors to hold on to prized assets.

Advent International isn’t quite ready to embrace GP-led secondaries – a market worth around $26 billion last year – on its vehicles yet, though it would consider them, James Brocklebank, a managing partner at Advent, told Private Equity International.

“If it made sense on a particular deal, to think about a longer-term hold, then we might think about a special purpose vehicle as a sort of single-stock continuation vehicle. That is something we would certainly consider,” Brocklebank said.

“At Advent, we’ve done it the old-fashioned way, in which in some of our exits, we retained a minority stake and rolled over equity into a deal,” Brocklebank said. “An example is Nets – we re-invested in the company alongside Hellman & Friedman. That’s how we have done it in the past and that remains an option when we want to retain exposure to a company.”

In a rollover co-investment, a GP re-invests as a minority co-investor alongside a new lead investor in a company that it has just partially exited.

Brocklebank noted the firm wants to focus its people and energy on its $17.5 billion, 2018-vintage Advent International GPE IX flagship fund, and its $2 billion 2019-vintage Advent Global Technology fund.

James Brocklebank, Advent International
Brocklebank: GPs need to run a competitive auction process to maximise value for investors

Brocklebank added the private equity industry will see more continuation funds in the near-term.

“I think it just reflects the fact that you tend to know which are your best deals and often it’s just the model that PE firms have to seek liquidity for our investors over a certain period of time.”

He added that the rationale for GPs holding on to assets for longer is a good one, as long as they are the right owners through the asset’s next phase of growth and the GP runs a competitive auction process to maximise value for investors.

Transactions involving continuation vehicles represented 73 percent of total GP-led volume last year – an option which has increased in popularity as GPs consider it a valid exit alternative to a trade sale, a sale to another sponsor or an initial public offering – according to advisor Greenhill’s Global Secondary Market Review.

Multi-asset continuation vehicles remained the predominant transaction type in 2020 (42 percent of GP-led volume), as GPs seek additional time and or capital to maximise value creation for assets while generating liquidity for existing LPs. Single-asset continuation vehicles made up 31 percent of GP-led volume.