Fundless sponsors sail into the GP-led market

November 2022 saw the completion of a relatively rare type of GP-led transaction. Deal-by-deal manager Georgia Oak Partners moved asset Sailfish Boats into a single-asset continuation fund in a Triago-advised transaction, according to a statement.

Investors, including Georgia Oak itself, opted to roll their stakes in the recreational power and sport-fishing boat designer into the new vehicle. An unnamed Connecticut-based institutional asset manager, investing in Sailfish for the first time, purchased stakes not rolled over by investors, the statement noted. Georgia Oak had originally invested in Sailfish in 2017.

Affiliate title Secondaries Investor has reported on a handful of fundless sponsor transactions that have got over the line in recent years. In early 2021, for example, Eaton Partners advised on a fundless sponsor restructuring centred on a recycling business. Ecore International was rolled into CommonWealth Equity Partners Fund I, managed by newly formed general partner CommonWealth Equity Partners.

Prior to that, in 2018, Glendower Capital led a consortium of buyers to restructure six assets managed by deal-by-deal investor Argonne Capital into a continuation fund. At that time, fundless sponsor transactions were a unique situation in the GP-led market.

Speaking on Private Equity International’s secondaries roundtable in 2019, Debevoise & Plimpton partner John Rife called fundless sponsor restructurings “pretty novel transactions”. Argonne was the first one he had seen, and he and his firm had seen a few more since then, he added.

According to Matt Swain, global chief executive of Triago, we should expect to see more fundless sponsors looking to tap the secondaries market in the coming months. The deal-by-deal market has “really only [taken] off in the last five years”, Swain said, noting that GP-leds are a “natural step, after initial ownership, when it comes to providing investors with liquidity”.

Andrew Rearick, a former international counsel at Debevoise, who joined Fried Frank’s M&A and PE practice as a partner in January, told Secondaries Investor in November that interest in fundless sponsor restructurings had increased in recent years alongside the growth of the GP-led market more broadly. Crucially, it is the rise and market’s embrace of single-asset and concentrated transactions that have created favourable conditions for fundless sponsor deals, which often have similar characteristics, he said.

Uncut gems

Fundless sponsor deals face fierce competition for secondaries capital, however, and advisers are being particularly scrupulous in the transactions they select to bring across buyers’ desks, sources told Secondaries Investor. Still, if they can gain traction, deal-by-deal GP-leds can provide buyers with companies that may not have been passed around from one sponsor to another, and which may still have inefficiencies to exploit, compared with assets held in a fund structure. They are also more likely to be found in the mid- and lower mid-market, meaning a sole buyer process is more likely than a syndicated one.

For GPs with more traditional strategies looking to shop their prized assets in the secondaries market, this only adds to competition for buyers’ capital.