1. Tender offers in steep decline
In Evercore’s 2018 report, tender offers accounted for 54 percent of all GP-lead deals. In 2019, this figure is just 15 percent, equivalent to $4 billion of deals. This is partially explained by the fact fewer LPs are choosing to sell; many deals do not gain the critical mass needed to even get off the ground. In 2018, 39 percent of investors took liquidity in tender offers, compared with 29 percent in 2019. “There’s no point doing a tender offer on any fund under $1 billion,” said a London-based secondaries advisory partner in the fourth quarter.
2. And with it stapled capital…
In line with this trend, the proportion of GP-led deals that included stapled capital declined in 2019 to 33 percent, from 52 percent in 2018. According to Evercore’s senior managing director Nigel Dawn, this could be indicative of the higher quality of GP tapping the market and their preferences.
“[They] are much more focused on securing accretive follow-on capital for existing assets, rather than using staple capital to invest in new platforms,” he said.
3. Those that did single-asset deals did lots
According to preliminary data from Campbell Lutyens, 54 percent of secondaries buyers did a single-asset deal in 2019. Those who participated in the market did an average of eight deals, up from four in 2018. Secondaries buyers have also been active co-investors, the data show. Forty-eight percent of secondaries buyers executed a co-investment in 2019, with the average firm doing 4.5 deals.
4. Quiet year for spinouts
While single-asset deals shot up, the proportion of secondaries deals that resulted in the formation of a new company tanked. Such deals accounted for less than 1 percent of GP-leds in 2019, compared with 28 percent in 2018. Macroeconomic uncertainty could be causing some potential splitters to sit tight. Or it could be that 2018 set an unusually high precedent, with private equity spinouts from Standard Chartered and Chinese investment firm ZZ Capital Group – both backed by Intermediate Capital Group – accounting for more than $1.3 billion of volume.
5. Leverage use grew
According to the 2019 volume report by intermediary Setter Capital, 25.5 percent of survey respondents felt that buyers used “significantly more” leverage in 2019, compared with the year before. Not a single respondent felt buyers used less. This view is backed up Evercore, which noted that around 30 percent of deals used SPV-level leverage in 2019, up from 23 percent in 2018. The average tranche of leverage had a loan-to-value ratio of 30 percent, it noted.
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