Liquidity for rolling LPs: Hellman & Friedman seeks to pay out on older continuation funds

Three lead investors have stepped up on Hellman & Friedman’s large secondaries process, which offers to deliver liquidity to limited partners who rolled into earlier continuation fund deals, three sources told affiliate title Buyouts.

Hellman & Friedman’s process is one of the largest GP-led deals in the market this year, at a time when such transactions have taken a back seat to the more traditional LP portfolio sales. Still, certain deals, those involving high-quality assets from well-regarded GPs, are finding buyers and hitting closings.

GP-led deals like continuation funds accounted for about $17 billion in the first half, down from $20 billion during the same period last year, according to Greenhill‘s secondary volume report. Total volume was estimated at $44 billion, the survey said.

Lead investors on Hellman & Friedman’s deal are Ardian, HarbourVest Partners and Hamilton Lane, sources said. The lead buyers will account for $1.5 billion to buy out LP stakes in the businesses, sources said. The firm, working with Evercore, is trying to syndicate an additional amount to other investors that would ramp the deal total to more than $2 billion, sources said.

Hellman & Friedman’s deal has been in the works for months, and has evolved over time to settle on four assets: alarm and security services company Verisure; UKG, which provides workforce management services; insurance software provider Applied Systems; and insurance brokerage Hub International.

Pricing is different for each asset but averages around 94 cents on the dollar across the four companies, sources said. As a tender, LPs have the option to sell or not, sources said.

The deal is unusual in that it is seeking, on three of the assets, to provide liquidity to LPs that rolled into earlier continuation fund deals. The firm moved UKG (then known as Kronos) into a continuation fund in 2018 in a deal that included Blackstone Group and capital from a newer Hellman & Friedman fund, Buyouts reported at the time. Verisure and Applied Systems were the subject of a continuation fund deal in 2020, Buyouts reported.

With about $10 billion in NAV across the four assets, and more than $2 billion of capital set to buy, LPs who want to cash out will only be able to sell part of their full interests, sources said. “We’d love liquidity but expect relative to our exposure not to really realise that in the way we’d like,” an LP said.

Rationale for the transaction is to allow LPs who have built up large positions with Hellman & Friedman to sell down some of that net asset value, the sources said.

Some LPs considering commitments to Hellman’s new fund have informed the firm they are likely to cut back pledge sizes because of their hefty exposure to the firm’s prior pools, sources said. The firm has been on a fundraising tear in recent years, having closed its 10th flagship fund on $24.4 billion in 2021 and targeting $24 billion for its 11th fund this year.

“The big beef among LPs is, ‘Okay, look, I’ve got a lot of NAV, and not a lot of distributions, and most of these portfolios are relatively young,’” said an LP with exposure to the firm.

The process is moving toward final close as the firm works through syndication, which can be challenging in today’s market. It’s not clear if the deal will close by year-end, as several GPs are pushing to get deals done by the new year.

Hellman & Friedman’s deal is one of the largest GP-led processes in the market this year, along with a transaction led by Leonard Green & Partners. Other GP-led deals working through the market include those run by JMI Equity, K1 Investment Management, Wellspring Capital and GenNx360 Capital.

Spokespeople for Hellman & Friedman, Ardian, Hamilton Lane and HarbourVest declined to  comment, while a spokeperson for Evercore did not respond to a comment request.