Goldman Sachs, Morgan Stanley buy into Palamon staple – exclusive

Five buyers – Goldman Sachs, Morgan Stanley, Rothschild, Adams Street and PGGM – have committed to two tail-end funds and one new vehicle in a Palamon staple deal.

Goldman Sachs AIMS Private Equity Group and Morgan Stanley Alternative Investment Partners were part of a group of investors who bought stakes in two tail-end Palamon Capital Partners funds and committed capital to a new fund managed by the firm, Secondaries Investor has learned.

The group of five investors agreed to purchase stakes in 1999-vintage Palamon European Equity and 2006-vintage Palamon European Equity II, as well as invest in a new Palamon vehicle, Palamon European Equity IV. Goldman along with Rothschild Merchant Banking Group and Dutch pension fund manager PGGM are new investors to Palamon’s funds, while Morgan Stanley and Adams Street Partners are existing investors in the firm’s two older funds.

“The five buyers decided there was great value in the existing two funds, and they would like to have a stake as we as the manager continue to develop those funds,” Louis Elson, managing partner at Palamon, told Secondaries Investor. The buyers wanted more exposure to Palamon’s funds and committing to the new fund meant also gaining exposure to Palamon Auxiliary Partnership 2013, an existing vehicle that invests alongside the new fund, Elson said.

Private Equity News reported on Monday that Adams Street had invested in the stapled deal.

The five firms who invested in Palamon’s latest vehicle through this deal did not receive special terms for the new fund, Elson said, adding that all five investors would pay a 2 percent fee and 20 percent carried interest in Fund IV. He declined to comment on whether there were additional investors in the new fund.

Existing investors in Funds I and II were given the option of remaining in the fund with unchanged terms, or selling their stakes at a price which was higher than 95 percent of net asset value (NAV), Elson said. Over a quarter of the NAV of each of the funds was transacted.

“This was an opportunity to acquire funds that investors knew well, from a very high quality manager that they wanted to move forward with,” said Mark McDonald, head of secondaries for EMEA and Asia at Credit Suisse‘s private fund group who arranged the deal. “The secondaries transaction was a natural extension of their close existing relationship with Palamon.” The deal process began in February with 22 potential buyers, he said.

According to UK regulatory filings, at least 15 limited partners in Palamon European Equity I and Palamon European Equity II sold their entire stakes. These include Pennsylvania State Employees’ Retirement System, BlackRock, Oregon Public Employees’ Retirement Fund and Strategic Partners. Elson declined to comment on the proportion of investors who chose to remain in the fund and those who sold their interests.

Palamon’s latest fund, along with Palamon Auxiliary Partnership 2013, has already committed to buy payment solutions firm Currencies Direct in a deal worth £200 million ($313.9 million; €275.1 million), Secondaries Investor‘s sister publication Private Equity International reported earlier this month.

Palamon European Equity I is a €440 million buyout fund that holds two investments, Towry, a UK investment management firm, and Italian consumer finance company Sigla Credit. Palamon European Equity II is a €670 million buyout fund that hit the market in 2005 and closed in July the following year, according to PEI’s Research and Analytics division. The fund holds eight portfolio companies including Nordic energy broker Eneas, UK dental chain IDH, and feelunique, a European beauty product online retailer.

Buyers are finding it increasingly difficult to locate good quality deals, and stapled transactions can offer LPs attractive opportunities, said Sunaina Sinha, a partner at placement firm Cebile Capital.

“Each of these five buyers are institutional investors with secondaries and primaries capabilities. This is a great deal to knock off two birds with one stone,” she said.

London-based Palamon manages €1.4 billion and invests growth capital in lower mid-market companies in Europe. The firm’s investments have achieved about 20 percent revenue growth per year, according to a statement.