BlackRock, Pomona set as co-leads on Providence Fund VII tender

Limited partners in Providence Equity’s seventh fund are being offered a fairly strong price to cash out of their stakes as the firm looks for a shot of fresh capital into its new flagship, sources told affiliate title Buyouts.

Providence has been running a large tender offer process this year on its seventh and eighth funds at a time when many LPs are reluctant to sell because of low prices. The market is busy with GP-led deals like single-asset continuation funds and a surge of LP portfolio sales, and tender offers tend to see less buyer interest.

Tender offers make sense as a way to deliver capital back to LPs looking for distributions and potentially boost fundraisings through staples, but pricing has kept them relatively muted. Tender offers represented about 5 percent of GP-led market volume in 2022, with total volume at an estimated $102 billion, according to Lazard’s full-year secondaries volume survey.

BlackRock and Pomona Capital are set as co-lead investors on the process for Fund VII, offering to pay LPs 89 percent of net asset value as of 31 December, two sources said. The Fund VII tender is out to LPs to decide if they want to sell or not – known as the election period. The firm is understood to be working with PJT Park Hill as secondaries adviser on the process.

Two of the major assets in the seventh fund are Doubleverify and Topgolf Callaway – both publicly traded companies. Doubleverify represents around $1.4 billion of NAV in the fund, while Topgolf represents about $400 million, one of the sources said.

The buyers have the option to back out of the deal if the stock on the two public assets drop by 15 percent as of the trading price in June, two of the sources said. Doubleverify, however, is up by around 74 percent this year, while Topgolf is up around 1.5 percent year-to-date.

The deal includes a staple of fresh capital from the buyers at a ratio of around 3 to 1; meaning, for approximately every $3 of secondaries sales, the buyers will invest $1 of primary capital into Fund IX, which has been in the market since last year targeting $6 billion.

While Fund VII is moving toward a close, it’s not clear what’s happening with the Fund VIII tender.

Fund VII is a strong performer, generating a 2x total value multiple and a 22.19 percent net internal rate of return as of 30 September, according to information from the Washington State Investment Board.

Tender offers so far have proved challenging as LPs are mostly choosing not to sell at discounts. The standard discount is around 15-20 percent, according to sources and market surveys. Last year, average pricing for LP sales was 81 percent of net asset value, an 1,100 basis point decline from 2021, according to Jefferies full-year secondaries volume report.

While buyers have generally looked for around 15-20 percent of the LP base to sell in such transactions, more recent deals have seen less than 10 percent of LP selling uptake. In some cases, even under 5 percent. Carlyle Group’s tender offer process on its seventh fund saw only around 2 percent of LP selling uptake, sources told Buyouts.

Other tender deals in the market include those run by AE Industrial Partners, Sun Capital and Oak Hill Capital.