News & Analysis

Buy-and-build represents GP-led opportunity – Morgan Stanley

Many companies need extra time and capital to continue making add-on acquisitions, according to the bank's head of secondaries Nash Waterman.

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The secondaries market is benefitting from the growing popularity of buy-and-build strategies, according to a senior buy-side figure.

Companies that grow through making add-on acquisitions often become too large for their fund and run out of capital to continue the strategy, opening the door to a single-asset secondaries deal, head of private equity secondaries at Morgan Stanley Alternative Investment Partners Nash Waterman told Secondaries Investor.

“[Investing on a secondary basis] you can see a clear playbook in terms of how the GP and management team has been able to target and integrate acquisitions, and how the management team and GP work together to build a better, more scalable business,” Waterman said. “That’s a total difference from when you are looking at a buy-and-build at the very initiation of the investment.”

In early February, Morgan Stanley closed a single-asset process centred around Axispoint Technology Solutions Group, a portfolio company owned by New York-headquartered growth investor RunTide Capital. The company helps mid-market businesses with their technology needs and has made six acquisitions in recent years. It has $200 million in capital to continue with its buy-and-build strategy as a result of the deal, according to a statement.

Single-asset deals represent a rapidly growing opportunity in the secondaries market today for GPs looking to hold onto their best assets, Waterman said.

“Most GPs can point to at least one situation where they sold a company to another fund and the second fund achieved higher returns than their fund… [Single-asset deals] are a way for the existing GP and LPs to take advantage of this white space in the secondary and tertiary buyout markets.”

Waterman took over in December as sole head of secondaries as former co-head John Wolak moved into a senior advisory role.

There were $6 billion of single-asset deals last year, equivalent to 31 percent of all GP-led deals by volume, according to data from Greenhill.