Secondaries buyers are increasingly backing away from single-asset secondaries deals that are priced off of a preceding minority stake sale, Lazard found in its recent first-half volume survey.
While buyers may prefer valuations set through auction, GPs who run secondaries sales generally like pricing set through earlier financing rounds. This tension is increasingly coming into play in single-asset deals, where several buyers, confirming Lazard’s findings), have said they generally avoid deals with externally set valuations.
The problem is, single-asset deals often involve a GP’s treasured portfolio company – an asset that many investors would like a piece of, to ride future growth as the secondaries capital allows investors to continue building the business.
And so at times, buyers have to put aside their concerns and move forward, even if the pricing on the deal has nothing to do with their own price discovery work. Single-asset deals continue to be one of the most popular forms of liquidity options in the market today. That momentum is not likely to go away any time soon as GPs and LPs both seek liquidity in an environment where exit activity, and distributions, are slowing.
Externally priced single-asset deals will remain a feature in the market, though a minority of such GP-led transactions. Sources estimated they represent around 20 percent of all single-asset deals. That representation seems like it won’t be changing any time soon, as buyers demand a say in pricing.
Chris Witkowsky is editor at affiliate title Buyouts. Write to him: email@example.com