Nigel Dawn’s three tips for running a successful GP-led process

The global head of Evercore's private capital advisory group identifies ways to ensure sponsor-initiated transactions work for all parties involved.

Evercore advised on the largest amount of secondaries transactions last year, with $59.4 billion of closed deals, more than two-thirds of which were GP-led processes, according to the latest Secondaries Investor Advisory Survey 2022.

Its private capital advisory head, Nigel Dawn, recently spoke to Secondaries Investor about the importance of alignment between different stakeholders in GP-led processes. Here are his three top tips for ensuring alignment and success for all parties in a sponsor-initiated process.

No.3 Ensure that the portfolio company management team is aligned, to ensure alignment and buy-in. “How is the management incentive programme structured? How much of the liquidity, if any, is the management team generating from the sale [into the continuation fund]? How much of that are they rolling into the new deal?”

As a passive investor, the first line of defence for secondaries buyers is always with the GP managing the portfolio; the second is with the management team.

“The more they roll over and the more they show that commitment, then the better you’re going to feel about it,” he adds.

No.2 GP alignment, which translates into a high percentage reinvestment into the continuation fund. “The GP has got to be excited to reinvest most of the proceeds of the new vehicle,” he notes. “That’s one of the first things the buyers always ask in terms of their alignment with the GP.”

A GP that isn’t putting a substantial amount of capital into the continuation vehicle should raises red flags, he adds.

No.1 Run a truly competitive auction for price and terms discovery. A good competitive auction to generate the best price for the selling investors is crucial, according to Dawn. There’s no magic or ideal number of bidders in a transaction; the key is simply ensuring that the buyers who do bid are serious.

“Are they knowledgeable? Do they have the capital? Are they willing to lead? We want to fill the whole deal up, but we really want to find and have a very competitive process amongst lead investors,” Dawn says. That said, you probably want to start with at least five to 10 or more investors, he adds, and the number also depends on the size of the deal.