It has been a busy week in the world of secondaries. On Monday, we broke the news that Apax Partners, the UK’s second-biggest private equity manager according to the PEI 300, was working with Campbell Lutyens on a restructuring deal involving its €11.2 billion 2007-vintage flagship fund.
On Wednesday, we exclusively revealed that Nordic Capital, Scandinavia’s second-biggest buyout firm according to the PEI 300, is set to pursue a similar plan. The Stockholm-headquartered firm is also working with Campbell Lutyens to explore options on its 2008-vintage fund in a deal that could involve as much as €2 billion in net asset value.
As one market source joked this week, “Which firm isn’t running a GP-led process on its pre-crisis fund?”
Jokes aside, while big-name managers using the secondaries market is encouraging, there’s a lot at stake. Deals – no matter how big or how exciting – can go wrong, and if they do, the parties involved can be left with egg on their faces.
Take First Reserve’s attempt to restructure its 2006-vintage fund last year. Buyers Intermediate Capital Group and Pantheon needed LPs to sell a minimum of $175 million worth of stakes in the $7.8 billion fund to make it worth their while; the deal lapsed when LPs were only willing to part with about $90 million worth of interests.
To be fair, several “perfect storm” elements came together to thwart the transaction including views on pricing, high exposure to public assets and an influential and upset Californian LP. But ultimately, it was buyer capacity that sunk that deal, and it is buyer capacity that could potentially scupper Apax and Nordic. If too many LPs decide they don’t want to part with their stakes – either believing there’s more upside left in the fund or because they wouldn’t know where to reinvest the proceeds if they sold – the deals could stall.
If that were to happen, it is the GP that would suffer, but there might be knock-on effects for the market.
“Most GPs are more concerned about their reputation than making a GP-led restructuring work,” says one market source. “Particularly for the brand-name groups, it’s all about their reputation and how they’re seen to operate in the market.”
Fortunately, the winds are blowing in Apax’s and Nordic’s favour. Large managers like these have funds with broad, diversified and disparate LP bases, which increases the chance of having investors which want to part with their stakes compared with smaller managers’ funds.
That, in turn, should be good for the market. First Reserve deal’s very public failure put a dampener on large GP-led deals last year, multiple sources tell Secondaries Investor. With expectations of a record year for restructurings and overall deal volume, the stakes are even higher, for Nordic, Apax – and the entire market.
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