Ardian and Mubadala Capital reach $2.1bn secondaries deal

Even as secondaries activity slows in the dislocated markets, certain large deals are getting over the line.

Ardian is investing in a portfolio of fund stakes and direct investments held on the balance sheet of Mubadala Capital, the asset management unit of sovereign fund Mubadala Investment Co.

Simultaneously, Ardian will kick in a primary commitment to Mubadala Capital’s fourth private equity fund. The deal resembles the type of tender offer plus staple that have become more popular in the market as fundraising slowed, though in this case there’s only one seller.

Affiliate title Buyouts first reported on the transaction.

Ardian is investing in LP interests in 10 funds and six direct investments, the firm said in a statement Thursday.

The Paris-headquartered firm has worked with Mubadala on several past transactions, starting in 2017, and the firm is well aware of the assets and managers included in the deal.

“Our coverage in this portfolio is 96 percent… we know it well,” said Mark Benedetti, co-head of Ardian US, told Buyouts. “It’s a nice young portfolio in line with the strategy” we focus on.

For Mubadala Capital, the deal is part of an ongoing process to monetize the roughly $7 billion worth of assets on its balance sheet, freeing up capital to develop new products, according to Kevin Kokko, head of business development and investor relations, co-head of private equity at Mubadala Capital.

The group was established in 2011. Last year, Mubadala Capital commenced operations as a wholly owned asset management subsidiary of the sovereign fund, according to a statement. The group manages private equity funds, early-stage venture funds, a long-biased public equities fund and Brazil special opportunities funds.

Mubadala Capital’s focuses on the mid-market, mostly in Europe and the US, making control and minority investments.

Ardian looks for mostly large LP portfolios and multi-asset GP-led deals. Being one of the largest LPs in the industry, it has definitive views on the GP teams and the underlying assets it likes. Competition for the largest deals has been thin, with only a few funds that can pursue opportunities at such size. And that competition has thinned out even more as the market has declined, Benedetti said.

“Price is important to buyers and sellers always, but what also is important is having a shared philosophy on the types of assets you’re buying, backing a team you fully support,” Benedetti said.

The firm is raising its ninth mega-secondaries fund targeting $15 billion, which it expects to close in the second quarter of next year, according to investment documents from the Pennsylvania State Employees’ Retirement System.

Secondaries deal activity such as traditional LP portfolio sales has slowed amid a widening gap between buyers and sellers. LP portfolio sales represented about 44 percent of total activity in the third quarter, according to an update from PJT Park Hill, with several $500 million-plus transactions expected in the fourth quarter.

Average pricing for LP buyout portfolios came in between 82 to 87 percent of reference date net asset value, the report said. While many sellers are choosing to delay deals until pricing improves, some deals have been getting done with incentives like payment deferrals.

As well, most buyers today are looking to only buy into a certain selection of managers, cherry-picking only what they want out of large portfolios.

“In terms of pent-up desire to sell, it’s enormous,” Benedetti said. Ardian splits up the seller universe into thirds: one-third will accept the market price, even with a discount, and go through with a transaction; another third will wait for a moderate improvement in pricing before striking a deal; and the final third will look at the price they could have gotten two years ago, and will wait until prices come substantially back up.

“There’s already a big wave of deals happening. There’s another wave of deals teed up if the gap between buyers and sellers narrows,” Benedetti said.