GP-leds: Setting realistic timelines

Even with the best laid plans, GP-led processes can become delayed, but there are steps sponsors can take to mitigate common holdups.

GP-led secondaries can be lengthy deals. “It is important to be realistic about timelines because there are so many parties that need to get aligned,” says HarbourVest managing director Rajesh Senapati. “You need to work backwards from the desired closing date, identify when the election deadline needs to be, when documents need to be drafted, how long the due diligence process needs to run, and then ultimately when the process needs to be launched.”

Gavin Anderson, a partner at Debevoise & Plimpton, advocates pragmatism in the planning stage: “Having a clear timetable can be helpful, but if the timeline is too aggressive, there is a danger that people start missing deadlines and the timetable then loses credibility. I do think it is important to set expectations, but also to be realistic.”

Despite the best of intentions, obstacles may emerge that throw a deal off course. According to Senapati, two of the most common involve delays in regulatory approvals for transferring assets into the continuation vehicle, and then unpredictable disclosable events, such as a portfolio company sale. “That can result in the extension of the election period, a renegotiation of terms and therefore a meaningful movement in the timeline to delivering cash to selling LPs – or indeed even the derailing of the deal entirely.”

For Debevoise & Plimpton partner John Rife, however, the biggest variable is how LPs receive the transaction. “While it may seem counterintuitive, taking a little more time engaging with existing LPs early on can save you months of delay on the backend. It can also extend your life by several years if you don’t have to deal with the stress of trying to get investors on board late in the day.”

Meanwhile, there are some delays that are becoming more prevalent given the current economic environment. “There can be an extended diligence period, especially in a scenario where you have a competitive auction setting the price where the reference date NAV represents a premium to, or at least is consistent with the top end of, current transaction comps,” says David Perdue, a partner and global head of the secondaries advisory business within PJT Park Hill. “Highlighting this potential discrepancy at the beginning of the transaction by providing additional diligence to support valuation will increase the probability of acceptance.”

Perdue adds that there is also a higher degree of syndication risk given current supply/demand dynamics, particularly in relation to larger deals. “Having a targeted syndication outreach plan initiated earlier on in the transaction process, leveraging the strength of an adviser’s distribution platform, will mitigate those concerns. In addition, you can also look to right-size the transaction given existing demand by opting to keep a portion of the transaction in the original fund vehicle.”

Pantheon partner and global head of private equity secondaries Amyn Hassanally’s top tip for keeping deals on track is for buyers to be represented by one legal counsel in order to streamline negotiations. “If you have four different law firms involved, that can become unwieldy and time-consuming. GPs should also consider their negotiation approach. There will be terms that they prioritise more highly than others. Trying to win every point in a negotiation is a surefire way to elongate the process.”

“My experience is these types of deals always take longer than you think – and longer than any banker promises,” says David Lippin, a partner and head of investor relations at One Equity Partners. “My advice would be to leverage expertise across different legal groups, from deal to fund and tax counsel, and ensure all teams supporting the transaction, both internally and externally, work in harmony to keep the process smooth from start to finish.”