Nordic scores 19x home run on asset moved into continuation fund

Diagnostics business The Binding Site was part of a group of companies involved in the firm's landmark 2018 GP-led secondaries process.

Nordic Capital, the northern European buyout firm that ran what was the secondaries market’s biggest continuation fund deal as of 2018, has made a notable exit on one of the assets involved in that process.

Raj Shah, Nordic Capital
Shah: Attributes strong exit to sector resilience

The firm celebrated its best-ever exit on Monday, having sold UK-headquartered diagnostics business The Binding Site to Thermo Fisher Scientific for a 19x multiple of invested capital, a spokesperson told affiliate title Private Equity International.

The deal, which had a £2.25 billion ($2.6 billion; €2.6 billion) enterprise value, delivered an almost 35 percent gross internal rate of return and a €1.6 billion capital gain, the spokesperson said.

Secondaries Investor understands that the 19x relates to Nordic’s original investment in 2011 and is not based on the return made for continuation fund investors. The exit for investors in the GP-led process still delivered a “very strong outcome” for continuation fund investors, according to one of the investors in the continuation vehicle.

Raj Shah, Nordic’s head of healthcare, attributed the strong exit in part to the resilience of pharmaceuticals and diagnostic businesses against a challenging macroeconomic backdrop.

“Healthcare comparables haven’t softened as much as some other sectors, such as tech,” said Shah.

Nordic acquired The Binding Site alongside minority shareholder Five Arrows in 2011. In 2018, the business was one of nine assets moved from the 2008-vintage Nordic Fund VII into a continuation fund that Coller Capital and Goldman Sachs Asset Management backed in what was then the world’s largest GP-led process. The firm began discussions with LPs in late 2017 to restructure the fund due to a difference in motivations in the vehicle’s LP base, some of which were keen to exit at the end of its fund life, with others seeking more time to realise the portfolio’s remaining value.

In a research paper last year, Hamilton Lane managing director Dennis Scharf noted that the GP-led secondaries market was moving towards one focusing on high-quality assets.

“It is clear that the opportunity set in the continuation vehicle market is weighted towards the best historically-performing assets within strong performing funds. To put another way, the market has embraced a ‘support the winners’ thesis,” Scharf wrote.

Research by consultant Upwelling Capital Group last month suggested that investors in private equity funds that do not properly evaluate GP-led processes could be missing out on significant upside. LPs that systematically avoid rolling over their exposure to continuation funds are incurring a tangible opportunity cost of around 8 percent per vintage year. Compounded, the cumulative opportunity cost over a 10-year period could be greater than 15 percent of total cash-on-cash returns, Upwelling noted.