Paceline Equity, a newish manager, dropped a process that would have extended its hold over a portfolio company it launched two years ago, sources told affiliate title Buyouts.
The deal flew under the radar in the lower mid-market but was an example of the kind of moves GPs are making to deliver liquidity to LPs in older funds. Single-asset deals have become a popular way for GPs to distribute back to existing LPs while extending holds over assets where they see future growth.
Still, while inventory is fairly robust, closing deals in this environment is challenging, with wide bid/ask spreads and syndication issues.
In this case, Paceline was running a process on its portfolio company RELAM, a lessor of railroad maintenance equipment. The firm acquired the company through its debut fund in July 2020, building a platform with additional acquisitions of Acme Construction and Timiny RR Construction, according to a statement at the time.
Pricing on the secondaries deal was robust, especially in this market, coming in at 101 percent of net asset value as of the reference date, one of the sources said. Existing LPs would have had the option to cash out of the asset or reinvest into the continuation pool.
It’s not clear if the deal had a lead investor on it. Finding a lead, and then syndicating larger deals to smaller investors is one of the main challenges in getting GP-led deals to completion in today’s market, sources have told Buyouts.
The total deal could have been valued at around $396 million including debt, one of the sources said. RELAM has grown under Paceline’s ownership, a separate source with knowledge of the company said.
The company’s revenue and EBITDA grew more than 10 percent year-over-year in 2022. Through February, revenue and EBITDA is up more than 20 percent year-over-year ahead of budget, the source said.
The rationale for the deal included a major add-on acquisition to the RELAM platform, but the company was able to finance the add-on with the support of co-investors, the person said. The company said in January it added-on Wiskerchen Truck & Equipment and Wiskerchen Rental & Leasing, which specialise in the sale, service, rental and leasing of Hi-Rail trucks and truck equipment.
“Once they were able to get access to that capital, coupled with the company’s outperformance and broader macro economic issues, [the firm] realised they didn’t need to go ahead with the process,” the source said.
Paceline closed its debut fund on $350 million in 2021, as well as $64 million in third-party capital to deploy alongside investments in the fund, and committed co-investment capital for a total war chest of $449 million, the firm said at the time.
GP-led deals tallied around $52 billion out of total volume of $108 billion last year, according to Jefferies’ full-year 2022 secondaries report. Single-asset deals represented around 50 percent of completed GP-led volume, the report said.
Inventory flowing into the market, including those processes that have gone live and those that remain in exploratory phase, are expected to drive volumes beyond last year’s total, PJT Park Hill said. The group said in its fourth-quarter secondaries market update that volume could hit $150 billion this year.