Blackstone, JPMorgan step up on Aterian’s Vander-Bend single-asset deal

The deal is said to be set to deliver a monster return to selling LPs.

Blackstone’s Strategic Partners, JPMorgan’s secondaries group and Hollyport Capital have taken lead investor roles in Aterian Investment Management’s process to move its asset Vander-Bend Manufacturing into a continuation fund, sources told affiliate title Buyouts.

The deal, which has received a lot of attention from buyers, is among a group of GP-led deals moving through the market. GP-led deal activity is slower than in past years, with LP portfolio sales driving the bulk of volume this year.

Still, many GPs are interested and have been exploring ways to extend their holds over certain treasured assets while delivering much needed distributions back to LPs in older funds. The challenge is around pricing, with buyers primarily focused on the highest quality assets, and LPs in older funds only selling at the right price.

GP-led deals represented about 35 percent of the estimated $50 billion of total secondaries volume in the first half, according to PJT Park Hill’s first-half volume survey.

Aterian has been running the process with Jefferies as secondaries adviser. The deal could raise up to $670 million, one of the sources said. The syndicate behind the lead investors includes 50 South Capital, Churchill Asset Management, Banner Ridge Partners and Felicitas Global Partners.

Aterian has sent the proposed deal to its Fund II limited partner advisory committee, two sources said. LPACs generally must review and consent to continuation fund deals, needing to be involved to waive the inherent conflict of a GP being on both sides of the deal.

LPs in the deal have the ability to cash out of their interests in Vander-Bend, or roll into the continuation fund. The new fund is said to have fairly “LP friendly” terms, including a low management fee (under 100 basis points) and carried interest potential after a relatively large hurdle rate, one of the sources said.

LPs who choose to cash out will be looking at a fantastic return, one of the sources said, making around 25x their money since investment inception.

Aterian initially invested around $16 million in Vander-Bend in 2018, through its second fund, which closed on $256.8 million in 2013. The company makes components for end markets like medical technology, data centre infrastructure and semiconductor capital equipment. Aterian completed several add-ons to Vander-Bend, including, in April, the acquisition of Omni Components.

The firm has distributed around $46 million to LPs from the investment, with remaining net asset value of around $370 million, one of the sources said.

“LPs are getting a great return over only like a five-year period, and there’s still room for significant growth,” the source said.

The rationale for the deal was to deliver a return back to LPs based on the hold period of five years, the source said. One source questioned whether it would have been a better option to simply sell the company for a big return, rather than reengage and continue to ride the asset.

“If you’ve made 25x your money in five years, why are you risking your carry?” the source said.

Aterian was co-founded in 2009 by Michael Fieldstone, former executive with Sun Capital, ex-Sun Capital executive Christopher Thomas and ex-Insight Equity executive Brandon Bethea. It closed its most recent fund, Aterian Investment Partners IV, on more than $830 million in 2021.

Aterian focuses on mid-market investments in businesses generating $50 million to $750 million in annual revenues with strong franchises in need of up to $100 million, according to its Form ADV. Fieldstone, Thomas and Bethea are principal owners of the management company, the ADV said.

The firm looks primarily for control investments, turnarounds, companies or industries in transition, companies in need of operational support, restructurings, carveouts, underperformers and other complex situations.

Aterian’s deal is among a handful making their way toward final close. Other such deals include Speyside Equity’s single-asset process for Opta Group in a process led by Elliott Management, Buyouts previously reported.

For GP-leds, the deals getting done are the highest quality assets. “Buyers remained focused on deals with a compelling and clear transaction rationale given ongoing challenged capital markets,” PJT Park Hill said in the survey report.

However, the firm sees a “sizable forward pipeline of GP-led opportunities expected to be launched over the next quarter”.

– Update: This report was updated to add in Hollyport Capital as one of the lead investors on the deal.