Return to search

Mid-year reflections: Massive volumes and single-asset deals

Three years ago the thought of a $100bn secondaries market was met with a chuckle; today it looks more likely than not.

It’s officially H2 2019 and the first half of the year has gone by in a flash. What started out as a slow  year has proved doubters wrong, with notable deals including Norinchukin’s $5 billion sale to Ardian and blue-chip managers including Blackstone, Carlyle Group and Warburg Pincus launching GP-led processes.

Here are three themes that characterise the first half of the year:

Deal volume is up

If first-half transaction volume is anything to go by, 2019 looks set to break last year’s record. H1 deal value rose 32 percent to a whopping $55.4 billion, according to data from intermediary NYPPEX Private Markets (the figure includes transfers of direct shares in private companies). Other market sources tell Secondaries Investor they’ve seen as much as $70 billion in dealflow so far this year. With the second half of the year traditionally busier than the first, the $100 billion secondaries market is looking like a real possibility.

Single-asset deals are the future

Over lunch, coffee or beers, the topic on everyone’s lips in the last few months has been the rise of single-asset fund restructurings. Headline deals such as Blackstone Tactical Opportunities group’s $600 million process to move Phoenix Tower International into a continuation vehicle are evidence of the market’s potential. And there’s more to come – we hear there’s a huge single-asset deal involving a Canadian seller right now that could be as large as $1.4 billion (stay tuned for more on this).

Secondaries firms with co-investment capabilities are better placed to underwrite such deals than pure secondaries players, and we hear some firms are only hiring buyside professionals who have direct investing backgrounds. Advisors are also jumping on the bandwagon and have been hiring bankers with M&A experience to stay ahead of the game.

Pricing remains frothy

There has been no respite from high pricing. One market source tells Secondaries Investor he’s working on three deals where pricing is north of 115 percent of net asset value, with one higher than 125 percent. Data from NYPPEX supports this: average prices rose 1-2 percentage points compared with the end of December, the intermediary estimates.

The high pricing environment means buyers are walking a tightrope to get deals over the line.

“If you’re talking about a 125 percent premium, you’re really stretching the buyer to their limit in terms of what they can actually underwrite to,” says one top secondaries lawyer. “If there’s any kind of movement that’s slightly unfavourable, then those investors are going to go a little soft.”

How has your experience of the first half of the year been? Let us know: adam.l@peimedia.com or @adamtuyenle