Big GP-led continuation fund deals continue to hit the market, despite market turmoil that was expected to slow down everything from traditional M&A to LP portfolio sales.
The market is watching one potential deal closely for what would be its size and unique structure. Clearlake Capital and Insight Partners are considering a process that would move two assets – Diligent and Appriss – out of older funds and into a continuation pool for more time and capital to grow the businesses. The firms are working with Evercore on structuring a potential transaction.
The deal would be an example of the kind of processes of scale that more in-demand GPs are using to extend their holds over certain assets for which they see more future growth. Many managers have concluded they don’t want to lose out on future growth of assets they’ve developed over a number of years, and continuation funds provide a structure to make that happen.
At the same time, LPs in older funds want liquidity, so such deals, while extending a GP’s hold over an asset, also give existing investors in the older fund the choice to cash out of their interests in the business, or reinvest in the company through the continuation fund.
The potential Clearlake/Insight deal is interesting for a few reasons. First, the size: sources tell affiliate title Buyouts it could total more than $4 billion, which is needed to move the assets out of the older funds as well as provide fresh capital for future add-on activity. Nothing has been finalised, so any transaction could come in higher or lower, according to a person with knowledge of the talks.
Even more unusual is the idea of two GPs jointly running a continuation fund. Several secondaries market sources said they had not seen that structure before. The mechanics of such a deal are currently under discussion and much could change, including which assets are included in the mix, sources said. Diligent, which provides software services for executives and board directors, would represent the majority of the continuation fund as it’s being currently envisioned, sources said.
Insight Partners acquired Diligent through a take-private in 2016. Clearlake took a minority stake in 2018, and then increased its exposure in a 2020 funding that brought on new investor Blackstone Tactical Opportunities, and boosted Clearlake’s stake to nearly equal with Insight.
Insight first backed data and analytics provider Appriss in 2014, and was joined by Clearlake in 2019, affiliate title PE Hub previously reported. Clearlake became an equal partner alongside management and Insight in the company, the report said.
Generally, firms identify assets for continuation funds where they see more growth ahead and in many cases have already identified further acquisition targets. That has been the case for several Clearlake single-asset deals in the past, for which the firm has created a series of continuation funds it calls its Icon funds.
For example, in 2020 the firm moved its portfolio company Ivanti out of several older funds and into a continuation pool, with a slug of fresh capital for future add-ons. Shortly after the secondary closed, Ivanti added-on MobileIron and Pulse Secure.
“This was less about an old fund trying to clean up and more about a Tier 1 asset that needed capital to consolidate a market. You don’t have to raise a new, long-dated fund to keep assets that are choice assets,” a source with knowledge of the deal told Buyouts last year. “You find an asset you want to keep for the next five years, give older LPs the chance to go home, new LPs the chance to invest, give secondaries funds the chance to come in … it’s a win-win-win.”
A few other large deals have moved the market this year, including KKR‘s single-asset process for Internet Brands, and Warburg Pincus‘s GP-led deal for Duravant. GP-led deals represented roughly 51 percent of the $134 billion of total deal volume in 2021, according to Evercore’s 2021 volume report.
This report was originally published on affiliate title Buyouts.