Once a tiny segment of the secondaries industry, the market for single-asset and concentrated GP-led deals has defied odds in a relatively short space of time.
Single-asset secondaries processes have grown from a roughly $2 billion market in 2018 to $14 billion last year, according to data from Evercore. In the first half of this year, single-asset deals accounted for 45 percent of all GP-led transactions, research from Jefferies shows.
For Neal Costello, managing director at AlpInvest Partners who leads its European secondaries sourcing effort, the rise of such transactions has kept buyers on their toes.
“We are seeing them every week,” Costello told Secondaries Investor. “The flavour of the month has turned into the flavour of the quarter, which is now the flavour of the year and I think we’re going to continue to see more of them.”
He added: “I think that’s a good thing because it’s creating healthy conversations. If it’s not that one company that works, maybe there’s a creative solution that we can put around a couple of companies.”
Headline single-asset deals that have been considered, launched or closed in recent months include Astorg Partners‘ process involving IQ-EQ, Intermediate Capital Group‘s transaction involving DomusVi Group, Clayton Dubilier & Rice‘s deal for Belron, and BC Partners‘ process on Springer Nature.
AlpInvest’s recent single-asset or concentrated GP-led deals include IQ-EQ, as Secondaries Investor reported in June.
It is unclear how much capital the firm has deployed into such deals this year, as well as the maximum level to which its flagship programme is allowed to allocate to such transactions. A spokesman for the firm declined to provide these figures.
While the rise in single-asset opportunities has helped buoy an overall market that suffered from a pandemic-induced pause in the second quarter of last year, this has also led to buyers having to navigate potential concentration issues within their funds. Advisory and legal sources have told Secondaries Investor in recent months that buyers are looking for ways to maintain diversification in their funds to balance out concentration risk.
LPs in AlpInvest’s secondaries funds are aware of this issue, according to Costello.
“At the end of the day, for our investors, what we want to deliver is a well-diversified portfolio and not be over-weighted specifically to any one company,” he said. “As we look at these transactions in the sphere of our total fund, we like to make sure that we size them appropriately and then also not do too many.”
The Carlyle unit can manage diversification in a portfolio context, and that means sticking to the ones that they perceive are the best, he said. “We don’t want to have a deal set come to us that says, here it is. We prefer to be out in front of these conversations so that we really construct something that actually gets off the ground and flies in a way that it gets appreciated by the market and gets done.”
In December, AlpInvest raised $10.2 billion for its AlpInvest Secondaries Program VII, including $1.2 billion of co-investment capital. The programme had deployed $1.41 billion as of 30 June, according to Carlyle’s second-quarter earnings report.
One area of the market that AlpInvest has been a longstanding participant in – stapled deals – has been relatively quiet this year. According to data from Campbell Lutyens for the first half of this year, GPs are requiring higher levels of primary capital for the stapled transactions that do close, compared with averages for the last three years.
The buoyant private equity fundraising market – funds raised $578.85 billion last year, the second-highest total since the global financial crisis, according to PEI data – has resulted in fewer stapled processes for GPs, Costello noted.
“Because fundraising has been so hot, there has been less need for GPs to utilise staples to raise the desired amount of capital,” he said. AlpInvest has instead been focusing on backing spin-out deals and other GP-centred processes, he explained, adding that “if the tide does turn, you’ll probably see more [stapled deals] again”.