Multi-asset continuation fund by design: One Equity’s $1bn CV

After heading to the secondaries market with one of its portfolio companies over a year ago, One Equity Partners disclosed a $1 billion continuation fund this month for two of its portfolio companies.

AlpInvest Partners and Harbourvest Partners co-led on One Equity’s concentrated multi-asset continuation fund, which comprises two Europe-headquartered assets – aftermarket construction parts manufacturer and distributor USCO, and laboratory glassware manufacturer DWK Life Sciences.

The transaction involved One Equity’s $1.65 billion flagship One Equity Partners VI – which the New York-headquartered mid-market firm closed in 2017 – cashing out of the companies, David Lippin, One Equity managing director and head of investor relations told Secondaries Investor.

After receiving some inbound interest on one of the assets and speaking with the company’s executives, One Equity felt it wasn’t the right time to sell, Lippin said.

“We thought there was still a lot of upside in the business, but we’d already owned the asset for seven years and it was a home run for the fund. We said, ‘Continuation fund technology has come to the market, let’s explore that.’”

At that time, some of One Equity’s advisers said a two-asset continuation fund would be easier to complete than a one-asset fund. “This was back in late 2021, early 2022 – there was plenty of capital in the market,” Lippin added.

Additionally, the firm held a minority interest in USCO so it “couldn’t just sell it to anyone” and both One Equity and its partners at the business felt the firm was “best positioned to continue that partnership”, Lippin said.

Both businesses were around half of the remaining net asset value in Fund VI, Lippin said, adding the GP rolled “virtually all” of its economics into the new vehicle. The continuation fund includes follow-on capital for both organic growth opportunities and add-ons.

Alongside AlpInvest and HarbourVest, there were roughly one dozen other investors comprising the rest of the syndicate, more of which were institutional investors, according to Lippin.

The vehicle was oversubscribed; the firm had to turn a number of investors away and cut back its existing investors who did back the transaction.

“Confirmed” LPs were provided with the option to roll, sell, or partially roll or sell.

“In this environment, LPs are just happy for any amount of liquidity, especially if you’re getting good return on assets – they’re delighted. People were pleased with the outcome… Consistent with the broader market, [we had] over 90 percent [of LPs] selling,” Lippin added.

The transaction stretched on longer than expected following Russia’s invasion of Ukraine with general uncertainty in the macro environment, according to Lippin. The firm will continue to focus on finding large corporates to buy assets within its portfolio, and may run a continuation fund again if the conditions are right, he said.