Kline Hill steps up as lead on Sun Capital tender

Kline Hill Partners has emerged as the lead buyer on a tender offer process run by Sun Capital on its sixth fund that included a shot of fresh capital into the firm’s next fund, sources told affiliate title Buyouts.

The tender is among several in the market struggling to attract LP sales. As prices generally come with discounts to net asset value, existing LPs have been slow to sell in tender processes.

Sun’s tender process focused on Funds VI and VII, with a staple provision for fresh capital into the eighth flagship fund, which has been in the market targeting $2.5 billion. The firm closed Fund VI on $2.1 billion in 2014 and the seventh fund on $2.3 billion in 2019.

Fund VI garnered sales from about 4 percent of the LP base, one of the sources said. Other buyers were said to be interested in participating but the level of LP sales uptake did not leave room for a large buyer group, the source said.

Kline Hill, based in Greenwich, Connecticut, mostly focuses on lower to mid-market LP- and GP-led secondaries deals. The firm last year was closing in on raising $1 billion across three funds, Secondaries Investor reported.

Sun’s Fund VII attracted a lead and smaller buyers, but the process has been delayed amid valuation declines in the portfolio that could lead to potential pricing renegotiations, the source said.

Pricing on Fund VI came in at around 72.5 percent of net asset value, while Fund VII pricing was around 85 percent of NAV in straight cash, the source said. With a deferred payment option, the price on Fund VII increased into the 90s, according to the source.

A spokesperson for Sun Capital declined to comment. Jefferies is understood to be working as the adviser on the process.

In a tender offer process, a GP holds an auction to choose a buyer and a price at which to buy existing LP fund stakes. Generally, tenders come with a commitment by the buyer or buyers to provide a shot of fresh capital into a new fund.

Tenders recently have been run by Carlyle Group, Oak Hill Capital, Harvest Partners, Providence Equity and AE Industrial Partners. Several tender deals have received low levels of existing LP sales, including Carlyle, which attracted about 2 percent of the LP base unloading their stakes.

Providence is one of the newer processes in the market. The firm is allowing LPs in Funds VII and VIII to sell their stakes in the pools. The deal also includes a staple of fresh capital into the firm’s ninth flagship fund, which is in market targeting $6 billion, Buyouts previously reported.

Tender offers represented about 5 percent of GP-led market volume in 2022, according to Lazard’s full-year secondaries volume survey. Total secondaries volume came in around $102 billion in 2022, according to Lazard’s report.