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Campbell Lutyens’ Sealey: stapled bids can increase pricing

Speaking on a Secondaries Investor podcast, the advisory firm and placement agent's chief executive noted that the quality of the manager can negate a drop in pricing caused by staple offers.

Stapled bids do not necessarily damage secondaries deal pricing, according to Campbell Lutyens managing partner and chief executive Andrew Sealey.

Speaking on a podcast alongside editors from Secondaries Investor and sister publications Private Equity International and PERE, Sealey noted that the quality of the manager can negate this effect.

“The staple should not necessarily be dilutive to the price they achieve and in some cases can actually be accretive,” he said.

“If it’s a manager which you couldn’t otherwise get into as a primary [investor], that may be an entry point for you. But the real reason why somebody could potentially pay more for it is it may create more diversification across vintages, [or] it may split between funds by the number of assets.”

Certain general partners have been able to generate staple ratios of 2:1 or better where the primary capital is seen as accretive to the overall transaction, according to Campbell Lutyens’ Secondary Market Overview Report 2018. Survey respondents who closed a GP-led transaction with a primary staple in 2017 noted an average ratio of approximately 3.4:1 secondaries to primary capital.

ABN AMRO, the Netherlands’ third-largest bank, agreed a stapled spin-out of its private equity unit with around a 1.5:1 secondaries to primary ratio, as Secondaries Investor reported on Tuesday. The deal was backed by a consortium led by AlpInvest Partners and LGT Capital Partners.

Sealey also pointed out preparation for potential secondaries processes during private equity fund formation had increased. Mechanisms to allow for the likes of GP-led transactions had been the domain of infrastructure vehicles prior to the emergence of longer term private equity strategies.

“The next generation of funds, the funds we’re raising on the primary side now, there is more thought being put into them,” Sealey said.

“In private equity clearly there’s been a recent development towards longer term funds, longer term strategies. In those cases I think we would expect to see those managers putting in some form of liquidity windows or at least giving some option to investors which I think will make it easier for them to raise those longer dated funds.”