How secondaries processes can show GPs the best exit

LPs worried about conflicts in fund restructuring situations may be reassured by Charterhouse’s sale of Comexposium.

Earlier this week one of the UK’s oldest buyout firms announced it had done just what private equity firms are supposed to do: exit an asset.

In case you missed it, Charterhouse Capital Partners is selling Comexposium, an exhibitions organiser, to Crédit Agricole Assurances. The exit is a coup for Charterhouse, which acquired a 50.1 percent stake in the asset in 2015 through its 2009-vintage ninth flagship fund. In just three years under the PE firm’s ownership Comexposium’s earnings have risen by 65 percent, it has made 16 strategic add-ons and now has operations in over 30 countries.

Normally the story would end there, but not in this case. Charterhouse had been exploring a potential GP-led secondaries process on CCP IX in order to give extra time and capital to the five remaining assets in the fund – including Comexposium. With its marquee asset now out of the picture, the secondaries process will have to be changed and may be pulled, according to a source familiar with the matter.

Charterhouse declined to comment on the returns from the exit or the potential secondaries process.

We often get a sense from some LPs that they would rather see assets in an old fund sold off individually – per the original plan – rather than bundled up and moved to a new vehicle. Why? Because LPs need to trust that Fund A is getting the best price for each asset that the market has to offer.

The secondaries market can help expose the true value of a fund and its assets, as Hamilton Lane head of EMEA Jim Strang said at an event in London in October. In this case, Charterhouse realised it could command a “strategic premium” through an M&A sale rather than via the secondaries market, according to a separate source familiar with the sales process. In other words, bids from secondaries buyers through a secondaries process helped put Crédit Agricole’s offer in context.

LPs in CCP IX should cheer the result. Fully exiting Comexposium at a better price than could have been achieved via a secondaries process was “the right thing” to do, one LP in the fund told us.

But for secondaries buyers which participated in the bidding process, and the advisors (we understand Flow Advisors, the firm set up by former Evercore head of European secondaries Nicolas Lanel, has been working with lead adviser Evercore on the deal), it is back to the drawing board. The secondaries process may well be reimagined and put back into motion, but at this stage it is too early to tell.

In a delicate operation like a GP-led secondaries process, in which conflicts of interest need to be mitigated, a manager’s motivations for undertaking the process are crucial. A GP that has its LPs front of mind will be rewarded in the long run. A GP that wants to hold onto assets via a fund restructuring just so it can crystallise carry or retain management fees does little to engender LPs’ trust in GP-led secondaries processes. For the growth of this important part of the private equity market, we hope we continue to see more of the former.

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